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Arkle 2060 A | LSE:51JJ | London | Medium Term Loan |
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FOR IMMEDIATE RELEASE GRUPO BANCO ESPIRITO SANTO 2002 RESULTS (Unaudited) LISBON -- February 5, 2003 -- Banco Espírito Santo (BES) today announced its 2002 results. HIGHLIGHTS * Net profits rose 12.30%, to 222.1 m?, corresponding to ROE of 13.1% (2001: 15.6%) against a background of very difficult economic conditions. Earnings per share of euro 0.74 (2001: euro 0.99). * Costs growth (+1.2%) was below the initial objective (+3%), making for a positive performance of cost to income, down from 58.2% to 53.4%. * Net interest income up by 12.5%, reflecting the success of the push for margin increase developed since the last quarter of 2001. * Fees and commissions rose at a good rate (+6.5%), sustained by improved service quality. * Subdued credit growth, against a macroeconomic context of greater risk: customer credit (on-balance sheet) rises 5% while total customer funds are up by 8.1%, with a positive impact on the transformation ratio, which dropped from 110% to 106%. * Comfortable solvency levels; reinforcement of provisions above the increase in overdue loans leads to good coverage levels. * Proposed distribution to all shares of a dividend of euro 0.287 per share to all shares (euro 0.376 in 2002), to be submitted to the general shareholders' meeting. Share capital was increased in the first quarter of 2002 from euro 1,000 million to euro 1,500 million, through the issue of 100 million new shares. CONTACTS: Paulo Padrao Elsa Jardim Banco Espírito Santo, Lisbon +351 21 350 1713 www.bes.pt An interview with Chief Executive Ricardo Espírito Santo Salgado in video/audio and text will be available from 8:00 am on: http://www.bes.pt. 1. ECONOMIC ENVIRONMENT Economic conditions in 2002 were characterized by a climate of extreme uncertainty. In the United States, the stimulus given to private consumption by historically low interest rates and an expansionist budgetary policy decisively contributed to the 2.4% growth of GDP. In the Euro Zone, GDP is expected to have grown by 0.8% in 2002, in what represents a marked slowing down compared to 2001. Besides the negative factors affecting the economic activity, the Euro area suffered from high unemployment, which, at 8.4%, conditioned families' confidence and spending levels. On the other hand, an average inflation rate of 2.2% may have prevented the European Central Bank from taking a more aggressive stance in lowering interest rates. The slowing down of the economy in the Euro area did not stop the single currency from rising strongly: 18% against the US dollar. On the equity markets side, 2002 pursued the negative trend of the two previous years, with the main indices falling sharply. While the Nasdaq plunged 32%, the drop of the general indices, the Dow Jones and S&P 500, was more moderate, respectively 17% and 23%. In the Euro Zone, two of the main stock market indices, the Frankfurt DAX and the Paris Bourse CAC 40 registered falls of respectively 44% and 34%. In Portugal, the economic activity slowed down sharply, with GDP rising by merely 0.5% in real terms. Besides having to cope with an adverse external situation, the Portuguese economy pursued in 2002 a process of correcting various macroeconomic imbalances. This took its toll on a very poor evolution of internal demand, and a considerable increase in unemployment, whose rate is thought to have increased from 4.1% to close to 5%. In terms of the equity market, the PSI-20 index mirrored international trends, falling by 25%. 2. ACTIVITY HIGHLIGHTS Notwithstanding the economic situation, Group BES was able to achieve balanced growth during the reporting year: customer loans were up by 5% (10.2% if including securitized credit, versus 12.8% in 2001) and total customer funding rose by 8.1% (14.5% in 2001). As determining factors in this performance it should be highlighted the Group's proactive stance in the innovation of savings products, the advance made in the segmentation process and enhanced service quality were determining factors in this performance. Once again, these factors validated the success of Group BES' organic growth strategy during difficult times for financial markets worldwide. The transformation ratio of customer funds into credit registered a remarkable drop in spite of the scarce liquidity context that characterized the market. MAIN BUSINESS VARIABLES (euro million) December % Chg 2001 2002 Net Assets 38,523 41,239 7.1 Customer Loans (Gross) 24,569 25,797 5.0 - Mortgage 8,446 8,645 2.4 - Other Loans to Individuals 2,022 1,907 -5.7 - Corporate 14,101 15,245 8.1 Loans to Individuals / Customer 42.6 40.9 -1.7 p.p. Loans (%) Funds + Deposits 17,395 18,668 7.3 + Debt Securities 8,805 9,271 5.3 = On-Balance Sheet Funds 26,200 27,939 6.6 - EMTN and Commercial Paper 4,339 4,263 -1.8 = On-Balance Sheet Customer Funds 21,861 23,676 8.3 + Off-Balance Sheet Funds 9,637 10,383 7.7 = Total Customer Funds 31,498 34,059 8.1 Transformation Ratio (%) 110 106 -4 p.p. On the credit business, the following aspects should be stressed: - During 2002 the Group carried out the following securitization operations, totaling euro 1,450 million: Euro 150 million consumer loan receivables in April Euro 300 million corporate credit (leasing) in April Euro 1,000 million residential mortgages in December The table below shows the dynamism displayed by lending operations, including the securitization operations already carried out: (euro million) Dec 2001 Dec 2002 % Chg Excluding Including Excluding Including Excluding Including securitized securitized securitized securitized securitized securitized Customer 24,569 24,774 25,797 27,300 5.0 10.2 Loans Mortgage 8,446 8,446 8,645 9,641 2.4 14.1 Other 2,022 2,227 1,907 2,154 -5.7 -3.3 Loans to Indiv. Corporate 14,101 14,101 15,245 15,505 8.1 10.0 - Mortgage loans remained the most dynamic item overall (rising by 14.1%), in spite of the extinction of the subsidized credit regime imposed by the government from October 1, 2002. - Other loans to individuals showed a decrease of 3.3% reflecting the effects of a policy of higher selectivity - Corporate loans were up by 10%. Total customer funds reached euro 34.1 billion, an annual increase of euro 2.6 billion. In this respect should be highlighted the growth of total on-balance sheet customer funds (+8.3%) and off-balance sheet funds (+7.7%), the latter being quite noteworthy in view of the poor performance of the capital markets. A sales force effort geared to attracting funds, on the one hand, combined with a carefully planned financing policy and moderate credit growth, on the other, led to a fresh improvement in the transformation ratio of customer funds into credit, from 110% to 106%. In the Azores, BES merged its operations with those of Caixa Económica da Misericórdia de Ponta Delgada, resulting in the establishment of BES Açores. This new unit closed the year with net assets of euro 205.3 million and a net profit of euro 1.15 million corresponding to six months in operation. Banco BEST's results were in line with its business plan, registering 8,100 customers and euro 213 million in funds under management at the end of December. 3. RESULTS AND PROFITABILITY Consolidated net profit reached euro 222.1 million, which corresponds to an increase of 12.3% versus the previous year. Due to the capital increase carried out in the first quarter of 2002 and the reinforcement of provisions, ROE decreased to 13.1% in the period. A good performance was achieved by Group BES's institutions in the area of retail and corporate banking, and in particular that of BES and BIC's operating units, set against a particular tough year. Good results were also achieved in the area of specialized credit, with Crediflash (credit cards) rising by 42%, Euroges (factoring) by 42% and Besleasing (leasing) by 26%. INCOME STATEMENT (euro million) December 2001 2002 % Chg Net Interest Income 718.6 808.2 12.5 + Commissions and Fees 382.6 407.4 6.5 = Commercial Banking Revenue 1,101.2 1,215.6 10.4 + Capital Markets Results 125.8 138.5 10.1 = Banking Revenue 1,227.0 1,354.1 10.4 - Operating Costs 714.1 722.7 1.2 - Net Provisions 204.8 280.6 37.0 Credit 144.5 224.2 55.2 Securities 27.5 55.1 100.4 Other 32.8 1.3 ... - Extraordinary Results and Other 23.4 57.6 ... = Earnings Before Tax and 284.7 293.2 3.0 Minorities - Income Tax 38.6 39.1 1.3 - Minority Interests 48.4 32.0 -33.9 = Net profit 197.7 222.1 12.3 Net interest income increased by 12.5%, confirming the recent upward trend. The sustained policy aimed at improving the margin launched in the last quarter of 2001 together with the volume effect yielded by the commercial activity contributed to the growth achieved. The net interest margin for the year was 2.27% (2001: 2.18%), translating into a euro 31.8 million gains; the increase in volume also reflected on the growth of net interest income, its effect totaling euro 57.8 million. The sustained decline of interest rates and the deceleration of lending activities are expected to slow down the increase of net interest income in the future. Fees and commissions on customer services reached euro 407.4 million, a year-on-year rise of 6.5% related mainly to traditional products. Total Fees and Commissions, excluding securities and brokerage, increased by 13% in the period. Important factors towards this growth were the improvement in the quality of services and the increase in the number of products sold to each client to an average of 4.1. Capital markets results made very good progress, particularly on the fixed income side. The strategy pursued counteracted the negative effects of the equity markets performance. These results include the gains obtained in the sale of the stake in Kredyt Bank, Poland (euro 18 million) and in the Public Offering to swap BVLP shares for EURONEXT shares (euro 7.8 million). Operating costs were contained within the limits proposed and below estimates, posting a nominal growth of 1.2% that in fact corresponds to a real reduction of 2.4%. Major contributors to these results were the effects of the integration of the main operating units, which resulted in a reduction of employees, the restructuring of processes, the policy of renegotiating supply contracts and the drive for cost cutting. The early amortization of a total of euro 7.9 million, made the Group's performance in this respect even more striking. In addition to the results achieved in the areas outlined above, we should also draw attention to the Group's provisioning - a net increase of euro 280.6 million, that exceeds by 37% the previous year's provision charge. Credit provisions were increased by euro 224 million (+55%), reflecting a BES' customary prudent stance in the light of current economic conditions. Provisions for securities reflect the prevailing capital markets environment. Other provisions include an increase of euro 21.8 million for several purposes (country risk, equity holdings, other risks and charges and general banking risks), and an amount of euro 20.5 million as a partial reversal of provisions for Interatlântico, SA, following BES Group's disposal of 81% in this company's capital. However, this reversal did not influence the result since such provisions had been allocated under provisions for general credit risks, whose level exceeds the obligatory provisioning level. Extraordinary Results and Other, which had a negative impact on the income statement, shows a considerable increase, essentially explained by the amortization of extraordinary retirement charges in accordance with the rules laid down in late 2001 - Notice 12/2001 - (+ euro 15.6 million when compared to full 2001), as well as by Banco Espírito Santo (Spain)'s restructuring costs (euro 6.4 million) and consolidation adjustments (euro 7.0 million). Concerning pension liabilities, the contributions for the Pension Funds totaled euro 304 million. Besides current contributions, this includes euro 180 million related to actuarial deviations and euro 71 million to cover extraordinary liabilities. Profitability Return on Assets (ROA) rose to 0.57%, while return on equity (ROE) decreased from 15.6% to 13.1% as a consequence of the capital increase. PROFITABILITY 2001 2002 Return on Equity (ROE) (%) 15.6 13.1 Return on Assets (ROA) (%) 0.55 0.57 Earnings per Share (EPS) (euro) 0.99 0.74 Number of Shares (million) 200 300 Earnings per Share (EPS) were euro 0.74, the Board of Directors intends to submit to the General Shareholders' Meeting a dividend distribution proposal of euro 0.287 per share. 4. ASSET QUALITY AND FINANCIAL STRENGTH Provisions for credit were reinforced by an amount that exceeds the growth of overdue credit, reflecting BES' prudence in a difficult environment. YoY Change Dec 01 Sep 02 Dec 02 Value % Customer Loans (euro 24,569 26,571 25,797 1,228 5.0 (Gross) mn) Overdue Loans (euro 450.1 528.7 548.7 99 21.9 mn) Overdue Loans > 90 (euro 368.1 464.8 481.6 114 30.8 days mn) Provisions for (euro 593.1 677.6 718.0 125 21.1 Credit mn) Overdue Loans / (%) 1.83 1.99 2.13 0.30 p.p. Customer Loans (Gross) Overdue Loans > 90 (%) 1.50 1.75 1.87 0.37 p.p. days / Customer Loans (Gross) Coverage of Overdue (%) 131.8 128.2 130.9 -0.9 p.p. Loans Coverage of Overdue (%) 161.1 145.8 149.1 -12.0 p.p. Loans > 90 days The ratio of overdue loans over 90 days was 1.87% while the coverage ratio continued to attain significant levels (149% for overdue loans over 90 days and 131% for total overdue loans). The solvency ratio remains at comfortable levels: 10.4% according to the Bank of Portugal's rules (Dec 01: 9.3%) and 12.6% under the BIS criteria (Dec 01: 10.7%). The medium and long-term debt rating is A1, as assigned by Moody's, A- by Standard and Poor's and A+ by Fitchratings. 5. PRODUCTIVITY Operating costs have considerably slowed down: an increase of 1.2% that compares very well with the figures posted in end 2001 (9.6% on a like-for-like basis) and was also better than expected. In fact, the initial target pointed to a 3% increase in costs, which was subsequently adjusted to 1.5% at the end of the third quarter. Finally, this increase came in at 1.2%, following the acceleration of amortization by euro 7.9 million. The restructuring projects implemented resulted in a reduction of 578 employees in 2002 which, together with 2001 reductions, reached a total of 809. This figure exceeded the target of 790 set for 2001/2002. OPERATING COSTS (euro million) December 2001 2002 % Chg Staff Costs 320.5 323.1 0.8 Other Administrative Costs 271.4 264.9 -2.4 Depreciation 122.2 134.7 10.3 Operating Costs 714.1 722.7 1.2 Group BES's Cost to Income registered a further improvement, dropping by 4.8 p.p. year-on-year. BES maintain the objective of reaching a cost-to-income of 50% in 2003. The remaining productivity indicators also improved, in particular the Operating Costs / Average Net Assets and Total Assets per Employee ratios. PRODUCTIVITY December Chg 2001 2002 Cost to Income (including % 58.2 53.4 -4.8 p.p. markets) Cost to Income (excluding % 64.9 59.5 -5.4 p.p. markets) Operating Costs / Average Net % 1.98 1.85 -0.13 p.p. Assets Total Assets per Employee Eur 5,967 6,820 14.3 % 1,000 Group BES's rationalization effort was pursued, namely by extending the integration process to other units and by creating shared service units. 6. INTERNET BANKING 2002 confirmed the value of Group Banco Espírito Santo's multichannel distribution strategy (particularly as regards the contribution of internet banking) to enhance the efficiency of distribution and cement the Group's relationship with its customers. These were the main activity highlights during the year: Leadership of the Internet Banking domestic market, in terms of both the absolute number of customers and the penetration rate in the customer base: 586,000 BESnet customers (237,000 frequent users), representing a penetration rate in the individual customer base of 37%; 19,000 BESnet Negócios customers, accounting for a penetration rate in the small trades and the medium and large-sized companies segments of, respectively, 9.8% and 51.5%. Strong contribution to the Bank's income statement: on the cost side, thanks to the outsourcing of operations and rationalization of processes; on the revenue side, by saving time in the branches better employed in commercial action, and by virtue of fees and commissions generated by the direct channels. 24% of low-value operations were outsourced to the direct channels (1.9 million operations) while 84% of all the Bank's stock exchange orders were also executed through these channels. The number of calls automatically answered by BES Directo Automático reached 60% of all the call center's incoming calls, making for a reduction of 23%, or euro 1.2 million, in its staff costs. Finally, the rationale of transferring calls made to the higher traffic branches to BES Directo significantly contributed to improve the quality of customer service and save time in the commercial structures involved. The gradual implementation of a commercial model, supported by an integrated and coordinated cross-channel platform, and benefiting from the ever-increasing customer-channel interaction, allowed us to produce customized and proactive proposals, based on propensity models adjusted to each customer's needs and profile. BES website was awarded the prize for "Best Investor Relations Site of the Iberian Peninsula" by MZ Consult, among 32 websites of Iberia's largest companies by market cap. 7. INTERNATIONAL ACTIVITY A process aimed at streamlining and reorganizing BES' foreign branch network was launched at the end of 2002. The role played by New York and London in the wholesale banking areas was emphasized, while Lausanne was given greater prominence in the segment of Portuguese residents abroad. Still within the scope of this last segment, we now rely on the active involvement of the newly formed BES Açores to address the Azorean communities. The process aimed at merging the BESSA (Spain) and Espírito Santo Benito y Monjardín (ES-ByM) networks was started in 2002, while at the same time their central services were integrated and costs cuts were obtained. In 2003 BESSA will be more focused on individuals, gearing corporate business to serve BES customers in Spain. In turn ES-B&M will continue to operate in the financial markets and investment banking. The restructuring process of InterAtlântico, SA (IASA) was completed in 2002, the entire stake held in Banco Bradesco, SA (3.25%) being concentrated under BES. This process involved the disposal by Group BES of its controlling position in IASA. The Bradesco partnership project was pursued, permitting to provide support to corporate customers with the valuable assistance of BES Investimento do Brasil. Group BES's acquisition of the entire share capital of Bank Espírito Santo International Limited (BESIL), headquartered in the Cayman Islands, was another move in the Group's strategy to serve Portuguese communities abroad. During its first year in operation BES Angola (BESA) made steady progress, particularly in the segments of private and corporate customers. The sale of the holding in Kredyt Bank (Poland), in the first quarter, yielded BES a capital gain of euro 18 million, besides releasing the corresponding equity funds. This sale reflects BES Group's strategic move towards concentrating resources allocated to international expansion in the Iberian Peninsula and other markets having affinities with Portugal. Still within the scope of the restructuring of the Group's international network, ES Bank (Florida) sold its 50% holding in ES Bankest, a factoring company, thus placing greater focus on its private banking operations, namely those related to Latin America. Finally, BES's Securities Custody business at home and abroad was distinguished by the prize for "Best Settlement and Clearing Bank in Portugal in Custody Services" awarded by the "Global Investor" international magazine. THE BOARD OF DIRECTORS This news release may include certain statements relating to the Banco Espírito 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 Espírito Santo's Annual Report and Form 20-F for the year ended December 31, 2001 under the heading "Risk Factors".] Banco Espírito 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. BANCO ESPIRITO SANTO CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2002 (Unaudited Figures) 2001 2002 (1,000 (1,000 EUR) EUR) NET ASSETS Cash and deposits at the Central Banks 724,209 996,685 Loans and advances to credit institutions 1,241,259 844,117 repayable on demand Other loans and advances to credit 3,901,525 5,674,990 institutions (Provisions) -13,338 -8,870 Loans and advances to customers 24,569,111 25,797,087 (Provisions) -305,032 -367,308 Bonds and other fixed income securities 5,006,126 4,088,821 (Provisions) -76,625 -76,778 a) Issued by Government and Public entities 1,970,736 1,201,171 (Provisions) -15,668 -6,128 b) Issued by other entities 3,030,890 2,874,746 (Provisions) -60,957 70,650 c) Treasury stock 4,500 12,904 Shares and other variable income securities 483,920 720,805 (Provisions) -57,540 -102,800 Investments in associated companies 41,165 51,413 (Provisions) - -2,384 Other investments 871,798 943,113 (Provisions) -21,972 -32,004 Intangible assets 446,330 526,503 (Amortizations) -263,982 -341,601 Tangible assets 1,021,721 1,052,213 (Depreciations) -583,617 -626,747 Unpaid Capital Own shares Other debtors 558,364 495,908 (Depreciations) -17,622 -21,938 Prepayments and accrued income 996,830 1,628,234 TOTAL NET ASSETS 38,522,630 41,239,459 Amounts owed to credit institutions 7,536,692 7,678,765 a) Repayable on demand 338,698 333,232 b) With agreed maturity date 7,197,994 7,345,533 Amounts owed to customers 17,394,740 18,667,656 a) Savings accounts 2,506,628 2,338,075 b) Repayable on demand 6,879,626 7,321,027 c) With agreed maturity date 8,008,486 9,008,554 Debt securities 8,804,543 9,270,851 a) Bonds 7,001,237 7,613,710 b) Other securities 1,803,306 1,657,141 Other liabilities 243,181 188,914 Accruals and deferred income 695,257 782,850 Provisions for liabilities and charges 325,866 404,927 a) Pension plan and equivalent charges 47 4,660 b) Other provisions 325,819 400,267 Provision for general banking risks 59,838 12,894 Subordinated debt 1,443,293 1,695,799 Share capital 1,000,000 1,500,000 Share premium 192,950 300,000 Reserves 13,025 -18,433 Revaluation reserves - Other retained earnings - Minority interests 615,536 533,144 Consolidated net profit 197,709 222,092 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 38,522,630 41,239,459 BANCO ESPIRITO SANTO CONSOLIDATED INCOME STATEMENT AT DECEMBER 31, 2002 (Unaudited Figures) 2001 2002 (1,000 (1,000 EUR) EUR) CREDIT Interest and similar income 2,622,939 2,339,249 Income from securities 9,893 10,740 Commissions 342,739 343,387 Gains on financial operations 3,804,228 3,335,070 Replacements and cancellations of provisions 199,382 213,215 Results of associated companies and subsidiaries excluded from the consolidation 6,899 2,309 Other operating income 108,898 117,116 Extraordinary income 26,854 26,675 Minority interests 4,744 TOTAL CREDIT 7,126,576 6,387,761 DEBIT Interest and similar costs 1,904,303 1,531,036 Commissions 69,090 53,087 Losses on financial operations 3,688,274 3,207,344 General administrative costs 591,934 588,002 a) Staff costs 320,521 323,109 b) Other administrative costs 271,413 264,893 Amortisation and depreciation 122,186 134,716 Other operating costs 5,142 6,380 Provisions for overdue loans and other risks 383,582 489,273 Provisions for financial investments 20,636 4,548 Extraordinary losses 38,275 67,557 Income taxes 38,554 39,079 Other taxes 12,382 10,365 Results of associated companies and subsidiaries excluded from the consolidation 1,379 2,245 Minority interests 53,130 32,037 Consolidated profit for the period 197,709 222,092 TOTAL DEBIT 7,126,576 6,387,761
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