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Espirito Santo Financial Group S.A.
28 July 2003
FOR IMMEDIATE RELEASE
Contact:
Manuel Villas-Boas
Espirito Santo Financial Group
+44-20-7332-4350
- or -
Bernard Compagno
Taylor Rafferty, London
+44-20-7936-0400
- or -
James P Prout
Taylor Rafferty, New York
+1-212-889-4350
ESPIRITO SANTO FINANCIAL GROUP S.A. ANNOUNCES THE 2003 HALF YEAR RESULTS OF ITS
SUBSIDIARY BANCO ESPIRITO SANTO (Unaudited)
Luxembourg/Portugal - July 25, 2003 -- Espirito Santo Financial Group ("ESFG")
(NYSE and Lisbon Stock Exchange: ESF) subsidiary, 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%.
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 / Gross
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 22,027 22,035 23,443 6.4
Funds
+ Off- Balance Sheet Funds 9,996 9,996 11,936 19.4
= Total Customer Funds 32,023 32,031 35,379 10.5
Tansformation 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
Securitization* Securitization* Securitization Securitization Securitization Securitization
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 1,349 1,637 1,294 1,503 -4.1 -8.2
to Ind.
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%.
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
= Commercial 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.
OPERATING COSTS
Euro million
Change (%)
June
2002 2003
Staff Costs 161.0 157.2 -2.4
Other Admin 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.
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) (Euro mn) 25,309 25,318 25,472 26,018 709 2.8
Overdue Loans (Euro mn) 480.0 521.6 539.4 572.5 93 19.3
Overdue Loans > 90
days (Euro mn) 404.1 457.4 472.4 500.8 97 23.9
Provisions for Credit (Euro 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 (> 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 > 90 days % 150.8 49.8 148.8 149.8 -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.
(%)
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.
Jun 02 Dec 02 Jun 03 YoY Change
Cost to Income (incl. Markets) % 55.4 53.4 51.1 -4.3 p.p.
Cost to Income (excl. Markets) % 61.5 59.5 60.2 -1.3 p.p.
Operating Costs / Average Net
Assets % 1.84 1.85 1.77 -0.07 p.p.
Total Assets* per Employee Eur 1,000 6,389 7,017 7,207 12.8 %
* 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.
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.
BANCO ESPIRITO SANTO
CONSOLIDATED INCOME STATEMENT AS AT JUNE 30, 2003
(Unaudited Figures)
Jun 02 Jun 03
(1,000 EUR) (1,000 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
(1,000 EUR) (1,000 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 6,099,440 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 information is provided by RNS
The company news service from the London Stock Exchange
END
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