Grupo Banco Espirito Santo 1H2003 Results -Unaudited-.
Business Editors
LISBON, Portugal--(BUSINESS WIRE)--July 25, 2003--Banco Espirito
Santo
Banco Espirito Santo (BES) today announced its first half 2003
results.
HIGHLIGHTS
-- Net profit was up 12.8%, to euro 115.3 million, corresponding
to an annualized ROE of 12.4%.
-- Fees and commissions grew 11.8%, driven by the continuous
improvement of service quality and the cross-selling policy,
more than offsetting the decrease in net interest income
(0.9%). Commercial banking revenue (excluding trading) grew
3.4%. The strong growth of capital markets results, up by 65%,
was based on good performance in fixed-rate instruments.
-- Costs grew on track with the estimate for the year, rising by
1.2%, (+4.4% in June 2002), with a positive impact on cost to
income, which dropped from 55.4% in June 2002 to 51.1% this
semester.
-- Provisions increased significantly (euro 215.3 million),
particularly through an exceptional charge of the fund for
general banking risks (of euro 86.0 million), mostly (euro
65.3 million) originated by the sale of a 45% stake in
Credibom to Sofinco. This reinforces BES Group prudent stance
vis-a-vis the economic situation domestically and abroad.
-- Moderate business growth, mirrored a tough macroeconomic
environment. Credit was up by 2.8%, while on-balance sheet
customer funds rose by 6.4%, with a positive impact on the
transformation ratio, which dropped to 108%, from 112% in June
02.
-- The solvency ratio remains comfortable and way above
recommended levels while the coverage of overdue loans,
consistently reinforced, remains high.
An interview with President of the Executive Committee Ricardo
Espirito Santo Salgado in audio and text will be available from 8:00
am on: http://www.bes.pt.
1. ECONOMIC ENVIRONMENT
The first half of 2003 was characterized by the continuing rise of
unemployment and low confidence levels. In addition to the
uncertainties surrounding the situation in Iraq and SARS outbreak,
other problems persisted, namely excessive capacity, the
delocalization of companies to Eastern Europe and rising competition
from Asian economies: China and India.
In the United States, and after having risen at an annualized real
rate of 1.4% in the first three months of the year, GDP is thought to
have grown at a very modest pace of around 2% in the second half of
the year. However, private consumption was sustained by income tax
cuts and an expansionary monetary policy (the benchmark rate fell to
1%). The outlook for economic growth had improved by the end of the
semester.
In the Euro area, economic activity remained stagnant. Weak
domestic demand, the rise of the euro and growing unemployment,
presented important constraints to growth, giving rise, in some
countries, to difficulties in complying with the budgetary stability
criteria. A clear downward trend in inflation (2% in June) allowed the
European Central Bank to cut once again its benchmark rates, the key
refinancing rate having dropped by 75 basis points, to stand at 2% at
the end of June.
By the end of the semester, equity markets had consolidated the
recovery initiated by mid-March, reflecting rising confidence indices
and investors' accrued propensity for risk. Between January and June
the Dow Jones and Nasdaq indices were up by respectively 7.7% and
21.5%. In Portugal, the PSI 20 index rose by 11.8% between March and
June, annulling the losses registered early in the year.
The Portuguese economy is thought to have reached the bottom of
the current economic cycle during the first six months of the year.
Domestic demand remained depressed, reflecting the adjustment of
families and companies to high indebtedness levels, rising
unemployment and stagnant disposable income. An unfavorable economic
situation worldwide limited the contribution of exports to growth.
Inflation continued to decline, the year-on-year inflation rate
dropping to 3.3% at the end of the semester.
2. PRIOR NOTE TO THE ANALYSIS OF THE ACTIVITY AND RESULTS
As announced in due time, Banco Espirito Santo sold to Banque
Sofinco shares representing 45% of the share capital of Credibom -
Sociedade Financeira para Aquisicao a Credito S.A.. This transaction
was reflected in the financial statements for the period ended on June
30, 2003, through an extraordinary profit of euro 74.3 million in BES'
individual accounts and euro 65.3 million in the consolidated
accounts. This extraordinary result was fully allocated to
reinforcing, by euro 86.0 million, the fund for general banking risks,
thus canceling the effects of the operation on the half-year net
profit.
BES consolidated balance sheet as of June 30, 2003 excludes
Credibom's assets and liabilities, while the income statement still
reflects Credibom's consolidation, as, from the economic standpoint,
this company contributed to BES Group half-year results.
For purposes of comparability with previous periods and whenever
justified by circumstances, the published financial and business data
will also be presented proforma (exclusion of Credibom).
3. ACTIVITY HIGHLIGHTS
BES Group continued to conduct its commercial activity based on a
strategy of product innovation, deeper segmentation and sustained
improvement of quality standards. These factors proved decisive in the
growth of on-balance sheet customer funds, which rose by 6.4%, and
particularly in that of total customer funds, which were up by 10.5%.
-0-
MAIN BUSINESS VARIABLES
euro million
June
--------------------------- %(2003/2002*)
2002 2002* 2003
Net Assets 39,268 38,912 40,752 4.7
Loans to Customers (gross) 25,760 25,309 26,018 2.8
- Mortgage 8,956 8,956 8,961 0.1
- Other Loans to Individuals 1,801 1,349 1,294 -4.1
- Corporate 15,003 15,004 15,763 5.1
Loans to Individuals /
Customer Loans(%) 41.8 40.7 39.5 -2.3 p.p.
Funds
+ Deposits 17,630 17,638 18,101 2.6
+ Debt Securities 9,436 9,436 10,282 9.0
= On-Balance Sheet Funds 27,066 27,074 28,383 4.8
- EMTN and Commercial Paper 5,039 5,039 4,940 -2.0
= On-Balance Sheet
Customer Funds 22,027 22,035 23,443 6.4
+ Off-Balance Sheet Funds 9,996 9,996 11,936 19.4
= Total Customer Funds 32,023 32,031 35,379 10.5
Transformation Ratio (%) 114 112 108 -6 p.p.
(*) Proforma: excludes Credibom
Customer loans, reflecting the adverse conditions that the
Portuguese and the international economies are going through, posted
moderate growth: 2.8% if excluding securitized credit, and 6.1%
including securitized credit.
euro million
June 02(*) June 03 Change(%)
Excluding Including Excluding Including Excluding Including
securiti- securiti- securiti- securiti- securiti- securiti-
zation* zation* zation zation zation zation
Loan
Portfolio 25,309 25,864 26,018 27,450 2.8 6.1
Mortgage 8,956 8,956 8,961 9,924 0.1 10.8
Other Loans
to Ind. 1,349 1,637 1,294 1,503 -4.1 -8.2
Corporate 15,004 15,271 15,763 16,023 5.1 4.9
(*) Proforma excluding Credibom
Mortgage loans remained the most dynamic item overall, rising by
10.8%; other loans to individuals, reflecting selectivity criteria,
were down by 8.2%; corporate lending maintained the slowdown trend of
the previous quarters, growing by 4.9%.
The increase in customer funds coupled with the moderate growth of
customer loans led to an improvement in the transformation ratio, from
112% in June 2002 to 108% at the end of the first half of 2003.
Bancassurance activity, mutual funds and structured products
continued to post a significant growth (+19.4%). This trend reflects
an increase in demand for alternative saving products, explained by
the current low level of interest rates.
4. RESULTS AND PROFITABILITY
Consolidated net income reached euro 115.3 million, a year-on-year
increase of 12.8%. Moreover, income before taxes and minority
interests was up by 15.2%. Return on equity (ROE), based on annualized
net income, stood at 12.4%.
-0-
INCOME STATEMENT
euro million
----------------------------------------------------------------------
June
------------------- Change
2002 2003 (%)
======================================================================
Net Interest Income 379.7 376.4 -0.9
+ Fees and Commissions 193.0 215.7 11.8
= Commericial Banking Income 572.7 592.1 3.4
+ Capital Markets Results 63.3 104.5 65.1
= Banking Income 636.0 696.6 9.5
- Operating Costs 352.0 356.2 1.2
- Net Provisions 121.6 215.3 77.1
Credit 91.1 126.7 39.1
Securities 22.7 -10.7 ---
Other 7.8 99.3 ---
+ Extraordinary Results
and Other -18.9 40.2 ---
= Results Before Taxes
and Minorities 143.5 165.3 15.2
- Income Taxes 23.3 33.3 42.8
- Minorities 18.0 16.7 -7.3
= Net Income for the Period 102.2 115.3 12.8
----------------------------------------------------------------------
4.1 Net Interest Income
Net interest income reached euro 376.4 million, which represents a
year-on-year decrease of 0.9%, mainly explained by declining interest
rates (the ECB cut the refi rate by 75 basis points during this
half-year), scarce liquidity and reduced exposure to consumer credit.
Net interest margin and net interest income are expected to keep
reflecting the adverse economic situation and moderate business
growth.
Net interest margin for the semester stood at 2.09%, which
compares to 2.12% in March 2003 and 2.18% in the first half of 2002.
4.2 Fees and Commissions
Fees and commissions reached euro 215.7 million, a year-on-year
increase of 11.8%, mainly explained by traditional products, the
positive contribution of investment funds and bancassurance, and also
non-recurrent fees and commissions from project finance. Improved
service quality and initiatives aimed at boosting loyalty in the
customer base were crucial contributors to the growth achieved.
In the first half of 2003, Infrastructure Journal released the
Project Finance League Tables for 2002, where, based on the number of
operations carried out, BES was ranked as follows:
-- 1st, as Arranger in the Transport Sector, and 7th as Advisor;
-- 2nd as Arranger in Western Europe, and 3rd as Advisor;
-- 9th as Global Arranger and Advisor.
BES Investimento is thus the leading Iberian bank in project
finance, also showing the strong development of this business in
recent years.
4.3 Capital Markets Results
In line with the first quarter, BES continued to steer financial
management in order to benefit from opportunities arising out of a
rebounding equity market and in particular from the evolution of
interest rates, the latter benefiting from interest rate cuts during
this semester.
Investment Banking activity also performed positively this
semester. BES Investimento consolidated its leadership in Portugal
(Euromoney's award for Best M&A House) and reinforced its presence in
Spain and Brazil, particularly as originator of cross-border
operations. This strong commercial dynamism was mirrored in the
expressive growth of banking income, up 31.2% year-on-year to euro
51.6 million, and of net profit, that increased 135.4% to euro 12.0
million.
4.4 Operating Costs
Operating costs were kept within planned limits, rising by 1.2%
year-on-year, benefiting from several projects and initiatives aiming
at cost control. Depreciation and amortization showed the strongest
increase, reflecting the depreciation of investments made in
modernizing processes.
-0-
OPERATING COSTS
euro million
June Change
2002 2003 (%)
Staff Costs 161.0 157.2 -2.4
Other Administrative Costs 128.3 129.8 1.2
Depreciation 62.7 69.2 10.3
Operating Costs 352.0 356.2 1.2
The rationalization plan for 2003 is proceeding according to plan.
There was a net reduction of 106 employees in the first half of the
year. The objective for the full year remains at net reduction of 250
employees.
4.5 Provisioning
Net provision charge for the period amounted to euro 215.3
million, an annual increase of 77.1%.
Credit provisions were reinforced by 39.1% to euro 126.7 million,
while other provisions reached euro 99.3 million, including the charge
for general banking risks, which shows BES prudent stance vis-a-vis
the economic situation. The balance of fund for general banking risks
reached euro 100.6 million, from euro 14.6 million in December 2002.
4.6 Extraordinary Results and Other
Extraordinary and other results include the amortization of
extraordinary pension charges, as well as an extraordinary capital
gain of euro 65.3 million from the disposal of 45% of Credibom.
4.7 Profitability
Return on assets (ROA) improved on first half 2002, positively
influenced by the securitization operations. Return on equity (ROE),
based on annualized results, stood broadly stable versus first half of
2002.
-0-
PROFITABILITY
(%)
----------------------------------------------------------
June 2002 June 2003
----------------------------------------------------------
Return on Equity (ROE) 12.9 12.4
Return on Assets (ROA) 0.53 0.57
----------------------------------------------------------
5. ASSET QUALITY AND SOLVENCY
Bearing in mind the adverse economic environment, credit
provisions were increased by euro 141 million, above the increase of
overdue loans (+euro 93 million).
Jun 02 Dec 02 Mar 03 Jun 03 YoY Change (*)
(*) (*) (*) -----------------
Absolute Relative
Loans to (%)
Customers
(Gross) (EUR MN) 25,309 25,318 25,472 26,018 709 2.8
Overdue Loans (EUR MN) 480.0 521.6 539.4 572.5 93 19.3
Overdue Loans
greater than
90 Days (EUR MN) 404.1 457.4 472.4 500.8 97 23.9
Provisions for
Credit (EUR MN) 609.2 685.3 702.7 750.1 141 23.1
Overdue Loans /
Loans to
Customers
(gross) % 1.90 2.06 2.12 2.20 0.30 p.p.
Overdue Loans
greater than
90 days/ Loans
to Customers
(gross) % 1.60 1.81 1.85 1.92 0.32 p.p.
Coverage of
Overdue Loans % 126.9 131.4 130.3 131.0 4.10 p.p.
Coverage of
Overdue Loans
greater than
90 days % 150.8 149.8 148.8 149.8 -1.00 p.p.
(*) Proforma excluding Credibom
The ratio of overdue loans over 90 days stood at 1.92%, while the
coverage ratio remained strong (149.8% for overdue loans over 90 days
and 131.0% for total overdue loan coverage).
The solvency ratio remains at comfortable levels: 10.9% according
to the Bank of Portugal's rules (vs. 10.7% in December 2002) and 13.0%
under the BIS criteria (December 2002: 12.6%).
Early in July BES Group issued preference shares in the amount of
euro 450 million. This issue aims to stabilize the value of preference
shares in the capital base of the Bank, in so far as outstanding
issues are US Dollar denominated, thus suffering from FX effect.
Nevertheless, in order to maintain a stable weight of preference
shares in Tier I, next August 18 the Group will redeem the 10 million
preference shares (amounting to USD 250 million) issued in November
1999, currently listed on the London Stock Exchange.
-0-
Dec 02 Jun 03(*)
Solvency Ratio (Bank of Portugal)
- TIER I 6.06 6.21
- Total 10.74 10.89
Solvency Ratio (BIS)
- TIER I 6.99 7.29
- Total 12.61 13.00
(*) estimate
The medium and long-term debt rating is A1, as assigned by
Moody's, A- by Standard and Poor's and A+ by FitchRatings.
6. PRODUCTIVITY
Given that current macroeconomic context tends to limit revenue
growth, the results achieved through the cost restraint policy are
worth noting, as they led to further improvements in the cost to
income (at 51.1%). The Board of Directors is committed to reach a cost
to income of 50% at the end of 2003 and contain cost growth up to 1%.
The remaining productivity ratios also improved significantly,
particularly the Operating Costs / Average Net Assets and Total Assets
per Employee ratios.
----------------------------------------------------------------------
Change
Jun 02 Dec 02 Jun 03 YoY
----------------------------------------------------------------------
Cost to Income (including markets) % 55.4 53.4 51.1 -4.3p.p.
Cost to Income (excluding markets) % 61.5 59.5 60.2 -1.3p.p.
Operating Costs/Average Net Assets % 1.84 1.85 1.77 -0.07p.p.
Total Assets(a)
per Employee Eur 10(3) 6,389 7,017 7,207 12.8%
----------------------------------------------------------------------
(a) Includes Asset and Liability off balance-sheet items
7. ELECTRONIC BANKING
The first half of 2003 was marked by an increase in customers
using the direct channels, confirming the growing importance of these
channels in customer-bank relationships.
In June 30, 2003, 765 thousand customers were using BES telephone
banking service and 647 thousand were using internet banking service
for individual customers, accounting for an overall penetration rate
in retail customer base of 46%. Moreover, 30 thousand companies were
using internet banking service for corporate customers, which
represents a penetration rate of 55% in the customer base of medium
companies and 11% in small enterprises.
-0-
USERS OF DIRECT CHANNELS
Jun 02 Jun 03 Change (%)
----------------------------------------------------------------------
BES Directo 669,009 765,145 14%
BESnet 463,839 647,409 40%
BESnet Negocios 20,045 30,633 53%
----------------------------------------------------------------------
In the first half of 2003, 9 million visitors accessed BES website
(+83%) and 6 million logged-in to the internet banking services
(+33%). Telephone service totaled 1.3 million (-24%) calls.
Low value-added operations performed through the direct channels
continued to grow, reaching 1.1 million, which represents a
year-on-year increase of 36%.
Despite the competitive environment, Banco BEST is performing in
line with the objectives, with 14 thousand customers and assets under
management totaling euro 250 million. Espirito Santo Financial
Consultants were integrated during the first half of the year, aiming
to fuel the business future development.
Users of pmelink.pt already exceed 32 thousand companies, of which
9 thousand are frequent users. The performance was in line with the
business plan, and December should show positive cash flow.
8. INTERNATIONAL ACTIVITY
The restructuring of Banco Espirito Santo, SA (BESSA) branch
network, that now stands at 31 branches, was concluded in April. BESSA
concentrates the Group's entire business with individual customers in
Spain: affluent segment and private banking. Corporate banking remains
chiefly focused on serving BES customers with business in Spain.
The operation posted a positive progress, driven by the network
rationalization and by a persistent effort to reduce costs.
The activity of Espirito Santo B&M in Spain performed in line with
expectations (revenues increased 10.7% year-on-year), benefiting from
the increasing consolidation of the Iberian investment banking
project.
BES Investimento in Brazil posted considerable growth (+54.3%),
driven by the fees obtained in M&A operations, namely through advising
CSN in the acquisition of Lusosider share capital; Bradesco, in taking
control of BBV (Brazil); Telesp Celular, in taking control of Tele
Centro Oeste; and Lead or Joint Lead Manager in the bond issue for:
Banco do Brasil, Bradesco, Usiminas, Telesp Celular and Bandeirantes
Energia.
THE BOARD OF DIRECTORS
-0-
BANCO ESPIRITO SANTO
CONSOLIDATED INCOME STATEMENT AS AT JUNE 30, 2003
(Unaudited Figures)
--------------------------------------------- ------------ -----------
Jun 02 Jun 03
(10(3) (10(3)
EUR) EUR)
--------------------------------------------- ------------ -----------
--------------------------------------------- ------------ -----------
CREDIT
Interest income 1,069,912 1,096,426
Income from securities 8,669 15,123
Commissions 170,634 183,912
Profits arising from trading activity 1,602,056 1,307,962
Write-back of provisions 87,759 148,578
Income arising from the equity method
of consolidation 2,940 4,364
Other operating income 49,213 54,822
Extraordinary gains 13,894 80,198
Minority interests 2,327 1,657
--------------------------------------------- ------------ -----------
--------------------------------------------- ------------ -----------
TOTAL CREDIT 3,007,404 2,893,042
--------------------------------------------- ------------ -----------
--------------------------------------------- ------------ -----------
DEBIT
Interest expense 690,139 720,026
Commissions 26,878 23,039
Losses arising from trading activities 1,547,464 1,218,558
General administrative costs 289,295 286,993
a)Staff costs 160,983 157,164
b)Other
administrative
costs 128,312 129,829
Depreciation 62,737 69,191
Other operating expenses 4,457 2,844
Provisions for loan losses and other risks 209,113 362,091
Provisions for investments 237 1,814
Extraordinary losses 27,226 34,240
Income taxes 23,303 33,284
Other taxes 4,010 5,395
Losses arising from the equity method
of consolidation 1,892
Minority interests 20,355 18,365
Consolidated net income for the period 102,190 115,310
--------------------------------------------- ------------ -----------
--------------------------------------------- ------------ -----------
TOTAL DEBIT 3,007,404 2,893,042
--------------------------------------------- ------------ -----------
BANCO ESPIRITO SANTO
CONSOLIDATED BALANCE SHEET AS AT JUNE 30, 2003
(Unaudited Figures)
-------------------------------------------- ------------- -----------
Jun 2002 Jun 2003
(10(3) EUR) (10(3) EUR)
-------------------------------------------- ------------- -----------
-------------------------------------------- ------------- -----------
NET ASSETS
Cash and deposits at Central Banks 667,307 688,367
Loans and advances to credit institutions
repayable on demand 618,971 644,563
Other loans and advances to credit
institutions 4,114,891 5,792,238
(Provisions) (8,516) (12,934)
Loans and advances to customers 25,760,437 26,017,945
(Provisions) (332,532) (374,466)
Bonds and other fixed income securities 4,300,972 3,873,243
(Provisions) (87,614) (67,829)
a)Issued by
Government and
Public entities 1,249,829 854,481
(Provisions) (6,427) (4,662)
b)Issued by other
entities 3,043,979 3,001,418
(Provisions) (81,187) (63,167)
c)Own securities 7,164 17,344
Shares and other variable income securities 996,311 514,764
(Provisions) (80,728) (99,622)
Investments in associated companies 41,528 59,964
(Provisions) (2,384)
Other investments 930,550 973,067
(Provisions) (14,730) (47,477)
Intangible assets 475,935 549,414
(Amortization) (297,518) (376,393)
Tangible assets 1,028,695 881,386
(Depreciation) (606,181) (528,657)
Treasury stock
Other debtors 541,797 534,904
(Depreciations) (20,798) (20,102)
Prepayments and accrued income 1,238,818 1,751,824
-------------------------------------------- ------------- -----------
-------------------------------------------- ------------- -----------
TOTAL NET ASSETS 39,267,595 40,751,815
-------------------------------------------- ------------- -----------
-------------------------------------------- ------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Amounts owed to credit institutions 6,439,077 6,840,868
a)Repayable on
demand 339,637 383,092
b)With agreed
maturity date 6,009,440 6,457,776
Amounts owed to customers 17,630,455 18,100,886
a)Savings accounts 2,404,481 2,161,585
b)Repayable on
demand 6,310,609 6,907,000
c)With agreed
maturity date 8,915,365 9,032,301
Debt securities 9,435,698 10,281,974
a)Outstanding Bonds 7,648,448 8,946,750
b)Other securities 1,787,250 1,335,224
Other liabilities 286,429 295,225
Accruals and deferred income 868,075 567,268
Provisions for liabilities and charges 341,556 419,914
a)Pension plan and
equivalent
charges 291
b)Other provisions 341,265 419,914
Provisions for general banking risks 62,521 100,551
Subordinated debt 1,709,744 1,680,723
Share capital 1,500,000 1,500,000
Share premium 300,000 300,000
Reserves 40,111 61,407
Revaluation reserves
Retained earnings
Minority interests 551,739 487,689
Consolidated net income for the period 102,190 115,310
-------------------------------------------- ------------- -----------
-------------------------------------------- ------------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 39,267,595 40,751,815
-------------------------------------------- ------------- -----------
This news release may include certain statements relating to the
Banco Espirito Santo Group that are neither reported financial results
nor other historical information. These statements which include
(targets, forecasts, projections, descriptions of anticipated cost
savings, statements regarding the possible development or possible
assumed future results of operations) and any statement preceded by,
followed by or that includes the words "believes", "expects", "aims",
"intends", "may" or similar expressions or negatives thereof are or
may constitute forward-looking statements within the meaning of the
United States Private Securities Litigation Reform Act of 1995,
regulations, and case law.
By their nature, forward-looking statements are inherently
predictive, speculative and involve risk and uncertainty. There are a
number of factors that could cause actual results and developments to
differ materially from those expressed or implied by forward-looking
statements. These factors include, but are not limited to, changes in
economic conditions in individual countries in which the BES Group
conducts its business and internationally, fiscal or other policies
adopted by various governments and regulatory authorities of Portugal
and other jurisdictions, levels of competition from other banks and
financial services companies as well as future exchange and interest
rates. (Certain of the factors that could affect actual results and
developments are described in Banco Espirito Santo's Annual Report and
Form 20-F under the heading "Risk Factors").
Banco Espirito Santo does not undertake to release publicly any
revision to the forward-looking information included in this news
release to reflect events, circumstances or unanticipated events
occurring after the date hereof.
--30--SW/ny*
CONTACT: Banco Espirito Santo, Lisbon
Paulo Padrao / Elsa Jardim, +351 21 350 1713
www.bes.pt/ir
KEYWORD: PORTUGAL INTERNATIONAL EUROPE
INDUSTRY KEYWORD: BANKING EARNINGS
SOURCE: Banco Espirito Santo
COPYRIGHT 2003 Business Wire
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2003, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.
|
|
Printer friendly
Cite/link
Email
Feedback
Reader Opinion