26th Oct 2006 07:30
Abbey National PLC26 October 2006 Abbey reports continued growth London, 26 October 2006 This statement provides a summary of the business and financial trends for thethree months to 30 September 2006. Unless otherwise stated, the trading results(1) of Abbey are compared to the average of the first two quarters of 2006 (i.e.the first half 2006 run-rate) - both periods exclude the results, and results onsale, of the disposed life businesses. The 2006 third quarter results of Santander on a Spanish IFRS basis are alsoreleased today and can be found on http://www.santander.com/. Abbey's thirdquarter results, also on a Spanish IFRS basis, are included within Santander'sfinancial statements. (1) Trading profit before tax is management's preferred profit measure whenassessing the performance of the business. It is calculated by adding backreorganisation expenses and other charges from profit before tax. In priorperiods the results from the Portfolio Business Unit (PBU) were also excluded. Highlights Third quarter highlights include: • statutory profit before tax from continuing operations, excluding the results of the disposed life businesses, was both ahead of the first half run-rate and significantly ahead of the same nine month period last year; • trading profit before tax up versus the first half run-rate and over 20% higher than the same nine month period last year; • trading income marginally ahead of the first half run-rate, but over 5% higher than the same nine month period last year. The underlying trend is consistent with revenue growth at the lower end of the targeted 5 - 10% range for the 3 year plan. The retail business continued to benefit from relatively stable margins and strong asset growth. Abbey Financial Markets continued to perform well, with year to date performance well ahead of the same period last year; • solid new business performance, with increased focus on profitability in both mortgages and savings. Strong performances in terms of bank account openings and UPL gross lending through the Abbey brand, up 22% and 40% respectively; • a further reduction in trading expenses. Current headcount levels are over 1,800 full time equivalents (FTE) lower than 31 December 2005 (before the impact of the sale of the life businesses); • a reduction in the trading cost: income ratio from 61.7% for the nine months to 30 September 2005 to 55.3% currently; and • retail lending provision charges similar to the first half run-rate. Comment "Abbey has made good progress in the third quarter building on the strongperformance of the first half of the year. Revenue growth is being sustained through increased sales capacity and salesproductivity and we are on track to meet our £300m cost reduction target by theend of 2007. This is before the full efficiency benefits of Partenon arerealised. We have completed the sale of our life businesses and created a new division,Wealth Management, to push forward our ambitious plans in the UK investmentmarket. In addition, within the Retail Banking division, responsibility fordriving forward the next phase of our 3-year plan has been split into RetailDirect and Intermediaries, in order to increase focus and specialisation. We are continuing to benefit from Santander's expertise and best practicesthroughout the Group, and this will accelerate in 2007 as we approach the thirdyear of our 3-year Partenon implementation plan." Antonio Horta-Osorio, Chief Executive Business Update Abbey's revenue growth is being driven by significant and sustainableimprovements in our sales productivity and by increased cross-sales. Betteranalysis of the profitability of our business by product and channel has alsoenabled us to focus on improving performance across the bank and to implement amore rigorous approach to employee incentives and reward. Most business flows have improved over the same period last year - albeit acrossall of our product range we are balancing growth and market share aspirationswith profitability. During the third quarter we successfully rolled out another key element ofPartenon, Santander's core banking platform, with the introduction of a singlecustomer database for the business. This will be followed in the next few weeksby new sales and service tools. The full impact of Partenon on Abbey's service quality will come in 2007 and2008 as the bank's product range is moved onto the platform. This will enablefront-line employees to meet customers' needs and maximise sales opportunitiesmuch better. In the meantime, Abbey will continue to make steady improvementsand focus on getting the basics right every time. Our new credit card operation is well progressed and on track to launch nextyear. We are also investing in our premium banking and business bankingpropositions, as well as buy-to-let mortgages following a successfulimplementation phase. Financial results Net attributable profit in the nine months to 30 September 2006 was impacted bythe sale of the life businesses, which were sold for £3.6 billion (approximately97% of their embedded value at the end of 2005). Before the result on sale ofthe life businesses, attributable profit was ahead of the same period last year. Trading income: Net interest income was ahead of the first half run-rate in part due to a solidperformance in Retail Banking. Retail lending balances were up 9% compared tothe same period last year, in line with the overall market run-rate. Growth hasbeen driven by a combination of mortgages and unsecured personal lending. Assetand liability spreads have remained relatively stable, benefiting from marginmanagement. Non-interest income has continued to benefit from increased business volumes inthe Retail Bank and in subsequent periods is expected to report the benefitsfrom the new distribution agreement with Resolution. Abbey Financial Marketscontinues to make a strong contribution for the nine months to 30 September2006. Expenses: Trading expenses were slightly lower than the first half run-rate and over 4%lower than the nine months to 30 September 2005. Of the cost reductions, the majority relate to employment costs driven by aheadcount reduction of over 500 FTE in the third quarter and over 1,800 FTE sofar in 2006. Provisions: Retail provisions were similar to the first half run-rate. For the nine monthsto 30 September 2006, approximately 40% of the Retail increase, compared to thesame period in 2005, relates to mortgages increasing modestly from a very lowbase and relative to the overall book. The remainder of the growth is largelydriven by the seasoning of the unsecured personal loan portfolio, with somedeterioration in quality in line with industry experience. Mortgage credit quality remains very strong, with stable stock of properties inpossession of 460 (December: 447) and lower 3 month plus arrears cases of 7,323(December: 8,240). The average loan to value (LTV) on new business and stockremained low at 60.9% and 44.7% respectively, and Abbey's exposure to specialistlending segments is negligible. On all measures, the quality of the book remainsbetter than industry averages and broadly in line with expectations. Reorganisation expenses and other charges: Excluding the impact of the sale of the life businesses, reorganisation expensesand other charges were broadly in line with the first half run-rate. Business flows Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 2005 2005 2005 2005 2006 2006 2006 Gross mortgage lending (£ bn) 4.9 6.6 8.1 8.0 7.0 8.9 8.2Capital repayments (£ bn) 5.5 5.9 6.5 6.7 5.6 6.1 6.4Net mortgage lending (£ bn) -0.6 0.7 1.5 1.4 1.4 2.8 1.8Stock (£ bn) 90.3 91.0 92.5 93.9 95.2 98.1 99.9 Market share - gross lending 8.7% 9.5% 10.1% 9.8% 9.5% 10.4% 8.8%Market share - capital repayments 14.1% 12.9% 12.0% 11.6% 10.9% 10.6% 10.2%Market share - net lending -3.6% 3.0% 6.0% 5.5% 6.1% 10.1% 6.0%Market share - stock 10.1% 9.9% 9.8% 9.7% 9.6% 9.7% 9.6% Total net deposit flows (£ bn) 0.3 1.0 0.8 0.6 1.3 0.0 -0.4 Bank account openings (000s) 96 96 101 93 106 106 127Total gross UPL lending (£ m) 504 467 614 531 685 567 622 Investment sales (incl. Inscape) - APE (£ m) 32 57 49 53 46 60 54 Protection sales - APE (£ m) 19 21 22 20 19 19 17 Main highlights for the third quarter (compared to Q3 2005 unless stated)include: • gross mortgage lending of £8.2 billion, around 2% higher, with an estimated market share of 8.8%; • capital repayments of £6.4 billion were broadly in-line, whilst the estimated market share fell to 10.2% compared to 12% a year earlier; • net mortgage lending of £1.8 billion, up 20%, and an estimated net lending market share of 6.0%. The third quarter result was in line with the best quarter in 2005, and is moving toward Abbey's targeted market share. Abbey will continue to balance growth and market share aspirations with a focus on profitability; • net customer deposit flows of -£0.4 billion in the third quarter with outflows again driven by re-pricing of low / negative margin accounts put in place in Q2; • bank account openings of 127,000, up c. 26%, an improvement on the uplift of 10% reported at half year. Adult account openings increased by over 21% and the more valuable switcher account openings were up c. 150%. As a result, bank account liability balances increased by 11%; • total gross UPL lending was 1% higher, with Abbey branded gross UPL lending over 31% higher and branch lending up by over 90% from a low base; • investment APE sales up 10%, as investments & pensions sales continue to grow on the back of a buoyant market and strong sales productivity improvements; and • protection sales slightly below the first half run-rate. Disclaimer Abbey National plc ("Abbey") is a wholly owned subsidiary of Banco SantanderCentral Hispano, S.A. ("Santander") (SAN.MC, STD.N). Santander is one of largestbanks in the world by market capitalisation. Founded in 1857, Santander has morethan 60 million customers, over 10,000 offices and a presence in over 40countries. It is the largest financial group in Spain and is a major player inLatin America and elsewhere in Europe, including in the United Kingdom (throughAbbey) and in Portugal. Through Santander Consumer it also operates a leadingconsumer finance franchise in Germany, Italy, Spain and ten other Europeancountries. Santander has a secondary listing of its ordinary shares on the London StockExchange and Abbey continues to have its preference shares listed on the LondonStock Exchange. Nothing in this press release constitutes or should be construedas constituting a profit forecast. Abbey and Santander both caution that this press release may containforward-looking statements. The US Private Securities Litigation Reform Act of1995 contains a safe harbour for forward-looking statements on which we rely inmaking such statements in documents filed with the US Securities and ExchangeCommission. Such forward looking statements are found in various placesthroughout this press release. Words such as "believes", "anticipates","expects", "intends", "aims" and "plans" and similar expressions are intended toidentify forward looking statements, but they are not the exclusive means ofidentifying such statements. Forward-looking statements include, withoutlimitation, statements concerning our future business development and economicperformance. These forward looking statements are based on management's currentexpectations, estimates and projections and both Abbey and Santander cautionthat these statements are not guarantees of future performance. We also cautionreaders that a number of important factors could cause actual results to differmaterially from the plans, objectives, expectations, estimates and intentionsexpressed in such forward-looking statements. These factors include, but are notlimited to, (1) inflation, interest rate, exchange rate, market and monetaryfluctuations; (2) the effect of, and changes to, regulation and governmentpolicy; (3) the effects of competition in the geographic and business areas inwhich we conduct operations; (4) technological changes; and (5) our success atmanaging the risks of the foregoing. The foregoing list of important factors isnot exhaustive. When relying on forward-looking statements to make decisionswith respect to Abbey or Santander, investors and others should carefullyconsider the foregoing factors and other uncertainties and events. Suchforward-looking statements speak only as of the date on which they are made, andwe do not undertake any obligation to update or revise any of them, whether as aresult of new information, future events or otherwise. Statements as tohistorical performance, historical share price or financial accretion are notintended to mean that future performance, future share price or future earnings(including earnings per share) for any period will necessarily match or exceedthose of any prior year. Contacts Matthew Young (Communications Director) 020 7756 4232 Bruce Rush (Investor Relations) 020 7756 4275 Simon Donovan (Investor Relations) 020 7756 4476 For more information contact: [email protected] This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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