10th Apr 2008 07:01
JSC VTB Bank10 April 2008 VTB announces record profits in its first year as a public company Unaudited full-year results for the year ended 31 December 2007 Strategic highlights • IPO in May 2007 raised almost US$ 8 billion • Gained market share in all core business lines • Opened 165 new VTB24 retail branches • Began integration of VTB North West • Continued expansion into CIS countries • Extended capability to support clients outside CIS in Angola, India, and China • Strengthened corporate governance • Optimised organisational structure and processes to reflect the new public company status and to deliver on strategic objectives Financial Highlights • Total assets increased 76.7% to US$92,609 million • Net income increased 28.4% to US$1,514 million, driven by strong growth of the loan portfolio • Doubling of total net loans and advances to US$ 58,549 million • Tripling of retail gross loans to US$7,682 million reflecting success of retail roll-out • Core income (including net interest and fee and commission income before exceptional item) increased by 48% to US$3,056 million • Earnings per share increased 10.6% to the equivalent of 48.2 cents per 1 GDR or 2000 ordinary shares • Further improved high quality loan portfolio • Reduced proportion of overdue and rescheduled loans to total loans to 1.4% from 2.1% • Reduced total provision charge as a proportion of average gross loan portfolio to 1.3% from 1.8% • Cost to income ratio increased to 53.6% from 50.8% driven by investments in VTB24 retail network • Strengthened capital base with BIS Tier 1+2 ratio at 16%, confirming solid foundation for further asset growth, a particular advantage in current market conditions Andrey Kostin, President and Chairman of the Management Board of VTB Groupcommented: "This is our first annual results announcement as a public company and we aredelighted to be able to demonstrate VTB's strong financial health. We havedelivered on our objective of growing faster than the market. We have seen ourinvestment in retail and corporate banking in Russia bear fruit. We have alsobegun building an investment banking capability to leverage our unique strengthsas the bank of reference for Russia and the CIS. VTB is well positioned inthese fast-growing markets, and we are continuing to build strong foundationsfor longer term growth. Our Agenda by 2010 remains unchanged." Contacts Investor Relations: Tel.: +7 495 775 71 39 Email: [email protected] Media Relations: Tel.: +7 495 783 1717 Email: [email protected] About VTB Bank: JSC VTB Bank and its subsidiaries (the VTB Group or the Group) is a leadingRussian banking group, offering a wide range of banking services and productsacross Russia, certain CIS countries and in selected countries of WesternEurope, Asia and Africa. As of December 31, 2007 the Group had a network of 586 branches located acrossRussia, comprised of 152 branches of VTB, 328 branches of VTB24 and 106 branchesof VTB North-West. Outside of Russia, the Group operates through four subsidiarybanks located in the CIS (Armenia, Georgia, Ukraine and Belarus), six subsidiarybanks located in Europe (UK, France, Germany, Austria, Switzerland and Cyprus),one subsidiary bank and one financial company in Africa (Angola, Namibia), andan associated bank in Vietnam. VTB also has a presence in Singapore through abranch of its UK subsidiary. VTB has operated under a full banking license, (1)1000, from the Central Bank of the Russian Federation since 1990. The Group's business franchise is in the areas of corporate, retail andinvestment banking. In corporate banking, the Group provides a broad range ofcommercial banking services and products including corporate lending, foreigntrade transactions, syndicated loans, deposit and settlement services, as wellas custody services, leasing and treasury services to large- and medium-sizedcorporations and financial institutions. In retail banking, VTB offers financialservices, including deposit accounts, lending and certain ancillary services, toindividuals and small-sized corporations. In investment banking it providesdebt capital markets underwriting, project financing, merger and acquisitionfinancing, advisory services, asset management and venture funds. The Group had 35,945 employees as of December 31, 2007. The Government of theRussian Federation is VTB's main shareholder and owns, through the FederalProperty Management Agency, 77.5 % of its registered share capital. For moreinformation please visit www.vtb.com Disclaimer Some of the information in this release may contain projections or otherforward-looking statements regarding future events or the future financialperformance of JSC VTB ("VTB") and its subsidiaries (together with VTB, the "Group"). Such forward-looking statements are based on numerous assumptionsregarding the Group's present and future business strategies and the environmentin which the Group will operate in the future. We caution you that thesestatements are not guarantees of future performance and involve risks,uncertainties and other important factors that we cannot predict with certainty.Accordingly, our actual outcomes and results may differ materially from what wehave expressed or forecasted in the forward-looking statements. Theseforward-looking statements speak only as at the date of this release and aresubject to change without notice. We do not intend to update these statements tomake them conform with actual results. Statement of the President - Chairman of the Management Board 2007 has been a year of substantial progress for VTB. One of the most significant developments for the Group was our IPO. Almost US$8billion was raised in London and Moscow making it the largest IPO of 2007worldwide. The two-year period of preparation for our life as a public companymarked a start of a new era for VTB both internally and in terms of businessstrategy. We embarked on the IPO for very sound reasons. In order to participate fully inthe huge opportunity for the bank, we needed access to the capital markets andthe commercial disciplines that come with a stock market listing. The Russian economy is enjoying strong growth and financial services are nowemerging as a major beneficiary of the economic expansion. Structural reform isnow happening deep within the economy, fuelling demand for sophisticatedfinancial services from retail customers, small and medium sized businesses, andlarger corporations. As a Russian bank to the core, with a strong tradition in Russia and the CIS, weare well placed to benefit from the transformation that is taking place.Although we are not entirely immune from what is happening in the internationalcredit and financial markets, our optimism about our long-term prospects remainsunchanged. The placing of 22.5% of our stock with domestic and international investors wasthe start of a journey. Last year we outlined to investors some ambitiousgoals: • to grow our business faster than the market; • to develop an investment banking capability to service VTB's existing corporate franchise; • to develop a major retail banking presence to complement and balance our corporate banking franchise; • to improve our corporate governance and disclosure; and • to improve our technology and infrastructure. On each of those goals we can demonstrate real progress over the past year. Our total net loans to customers have doubled to US$58,549 million while loansto retail customers before provisions have tripled to US$7,682 million. Ourshare of the corporate loan market has increased to 10.7% from 9.0%. We havemanaged that growth while improving asset quality. We recently announced plans to invest US$500 million over the next two years tobuild a leading capability in investment banking. While this is a substantialinvestment, we are confident that we can achieve our goal of a positive returnon that investment within three years. This will enhance our ability to serviceour clients, as well as open up the opportunity to tap into substantial newfee-based business. By opting for the "build not buy" route, we believe we cantarget the skills we genuinely need and manage the risk and volatility inherentin these types of businesses. In retail banking, we pushed ahead with our branch-opening program andstrengthened the management team. In 2007, 165 branches were opened or migratedfrom VTB and VTB North-West. With more than two million customers, our marketshare in retail loans has increased to 5.9% from 2.6%, making us the numberthree banking Group in Russia by share of retail loans. We are the number twobank in Russia in terms of retail deposits with a market share of 4.8%. Equally importantly, this has enabled VTB to become a more balanced businesswith retail now accounting for 12.8% of the total loan book as compared to 8.4%at the end of 2006 and with total loans now representing 63.2% of total assets,up from 55.8% in 2006. On the corporate governance front, we strengthened our supervisory board withthe addition of two independent directors, Matthias Warnig and Yves-Thibault deSilguy, both having extensive international business background. We now have anindependent audit committee and a clear policy on insider trading, and are inthe process of approving a policy on information disclosure. We have adoptedthe code of ethics setting out clear rules of conduct at all levels of ourbusiness. Standard & Poor's ranked VTB the number two bank in Russia for goodinformation disclosure and transparency. We have continued improving our IT systems to provide the Group with ITinfrastructure that meets best standards in terms of responsiveness, securityand functionality, with a special focus on improving the money transfer process.We expect to see benefits in terms of efficiency, customer management capabilityand risk control. Specific achievements in IT in the past year were: • Investment in IT infrastructure including further development of telecommunications networks, data processing and storage facilities; • Introduction of Customer Relationship Management (CRM) software that will result in a consolidated customer registry and improved customer service and cross-selling; • Development of a data warehouse that will assist with mandatory regulatory and ad hoc reporting, financial analysis and accounting, risk management, etc. Another major event in 2007 was the integration of VTB North-West and themigration of the business onto the VTB platform. This has allowed us to deliverstrong growth of VTB North-West's business. Although the merger of VTB and VTBNorth-West was postponed, we have fulfilled our promise to minority investorsthrough an offer to acquire VTB North-West shares or exchange them for VTBshares. As a result, VTB's stake in VTB North-West increased to 86% by year end2007. VTB has also expanded its presence in the CIS region and further abroad. Weacquired a banking business in Belarus and plan to invest to grow this bank'sbranch network and assets in 2008. In Ukraine we have merged two banks andintegrated their businesses and opened 75 new branches extending the network to204 branches at the year end. To serve our Russian clients better in otherregions we obtained a banking licence in Angola last year and opened branches inIndia and China following the year end. In short, this has been a year of restructuring, and of laying the foundationsfor profitable growth in the future. There is still more to do and 2008 will bea year of further investment. In corporate banking, our priorities are to gain further market share whilefocusing on increased client profitability and share of wallet, to diversify theportfolio and to maintain net interest margin. To this end we are putting inplace clear incentive schemes for sales people rewarding staff on value ofproducts sold. We are adopting a segmented approach to customer targeting,prioritising large corporates in the regions and mid-sized businesses in theMoscow region, backed up by improved credit procedures based on state-of-the-artinternal rating methodology. In retail banking, we have set out the following objectives for 2008: to expandthe VTB24 branch network to 500, to improve the retail banking products,services and tariff structure, as well as to utilise VTB24 experience to expandretail business in CIS countries, with primary focus on Ukraine and Belarus. This year we plan to increase VTB's stake in VTB North-West, migrate the retailbusiness to VTB24, and continue to integrate the processes, includingunification of products, client coverage model, and IT systems. As discussed above, this year we will significantly enhance our investmentbanking capacity with operations in Moscow, London and Singapore. This capacitywill allow us to leverage our existing relationships with 2,400 large corporateclients. Last month, we recruited a number of Moscow's leading investmentbankers to join the bank. On corporate governance, we plan to add independent remuneration and nominationcommittees to the Board of Directors to strengthen independent decision-makingand improve transparency for our investors. The last few months have been difficult for banks generally. The fact that wehave delivered strong asset growth despite these problems is evidence of thesolidity of our business. Although some funding avenues continue to be difficult to access for all banks,the actions of the US Federal Reserve and other Central Banks indicate awillingness to stand behind the system. Here in Russia, we and others have beenin discussion with the Central Bank of Russia about measures to improveshort-term liquidity, and we are confident that the authorities are ready to dowhat is needed to keep the system functioning. The Central Bank has shown itswillingness to support the banking system by releasing funds against a widerange of high-quality collateral. VTB has a solid capital ratio, helped by the inflow of capital from the IPO lastMay. Our 2007 results show that we are able to capitalise on the growthopportunities available to us. There is a debate among economists about whetherthe developing world can decouple from the US. As far as I can see, thestructural changes in the Russian economy are profound and long-term in nature.The growth trajectory is unlikely to be impacted significantly from elsewhere.Our management team will continue to ensure that VTB is positioned to win anincreasing share of that growth. Statement of the Chief Financial Officer 2007 was a successful year for VTB Group. We believe that the growth wedelivered across our businesses, alongside the expansion of our business inRussia and internationally, demonstrate our strengthening position in thebanking market. We have invested approximately US$130 million in the VTB24retail network and in infrastructure development, and still delivered profits inline with market forecasts. We are pleased by the strong rate of asset growth, which has outpaced the marketand demonstrates the power of our business to gather high-quality assets. Assetsincreased to US$92,609 million, up 76.7% from 2006, and net loans and advancesto customers increased to US$58,549 million, up 100.1% from 2006. Theproportion of the net loan portfolio to total assets has increased to 63.2% from55.8% in 2006. At the same time as we increase assets, we are maintaining a firm grip on creditquality. The share of overdue and rescheduled loans in the gross loan portfoliodecreased to 1.4% by the end of 2007 from 2.1% at the end of 2006, while theprovisioning rate decreased to 1.3% from 1.8%. Coverage of overdue andrescheduled loans by allowances for loan impairment stood at a comfortable levelof 176.5% as of December 31, 2007. VTB Group's consolidated net profit for 2007 amounted to US$1,514 million, up28.4% from 2006, as a result of strong loan portfolio growth. Core income,which includes net interest and fee and commission income before exceptionalitem, rose by 48.0% to US$ 3,056 million, reflecting strong growth throughoutthe Group's key strategic areas. Net interest income grew by US$842 million(49.2%), and net fee and commission income, adjusted for the IPO-relateddepositary appointment fee, grew by US$149 million (42.5%) compared to 2006. Netinterest margin remained broadly stable at 4.4% with increased contribution fromour retail business. Operating costs increased by 42.2% in 2007, reflecting the investment in growingthe business, particularly in retail, as we rolled out the branch openingprogramme for VTB24. As a result our cost to income ratio increased to 53.6%from 50.8%, but this investment will help us achieve our long-term objectives. With a consolidated BIS Tier 1 capital of US$15,594 million, compared toUS$6,357 million at December 31, 2006, and total BIS capital of US$16,978million, compared to US$7,646 million at December 31, 2006, the bank has beenable to continue to capitalise on its advantage in the fragmented domesticfinancial services market to win new customers and increase volumes. By the endof December 31, 2007, our total capital adequacy ratio was at 16% up from 14%one year ago. Given the current economic climate, VTB's strategy of diversifying its fundingsources has been particularly important. With its strong brand and financialstability, VTB was able to increase customer deposits by 85.6% to US$37,098million. Wholesale funding (which includes debt securities issued, otherborrowed funds and subordinated debt) increased by 32.7% to US$ 22,836 million.In 2007, VTB successfully completed a number of planned funding transactions.Landmark fund raising deals include a Series 11 issue for EUR 1 billion, thelargest Eurobond in EUR among Russian banks, and a Series 12 issue for GBP 300million, the first ever GBP issue from Russia. Despite the uncertainty in theinternational financial markets in the second half of 2007, in October VTBissued a double-tranche Eurobond offering for the aggregate amount of US$2billion within the new EMTN programme. This operation is the largestinternational Eurobond issuance by a Russian non-sovereign borrower. This issuereceived strong support from the international investment community in a numberof different financial markets, demonstrating confidence among internationalinvestors in the strength of VTB's credit, and the stability of the Russianbanking sector. In early 2008, equity markets worldwide fell dramatically and investors becameincreasingly risk averse. In light of the uncertain market conditions, VTBexpects 2008 to be a challenging year. However, we believe that our plans remainthoroughly appropriate for the markets in which we operate. In 2008, we expectto be able to maintain the net interest margin at last year's level, and todecrease our cost-to-income ratio. We are confident that we are on the righttrack and well equipped to deliver the targets we have set. The long-term outlook for the Russian economy remains strong. The readiness ofthe Russian authorities to stand behind the banking system is an importantfactor in maintaining confidence in the economy. As a result, our agenda by 2010 remains unchanged: • Grow faster than the Russian banking market in both corporate and retail; • Increase share of retail business in bank loan portfolio to 25-30%; • Maintain current level of net interest margin; • Accelerate commission income growth; • Target cost to income ratio of not higher than 50%; and • Improve return on equity to 15-20%. Consolidated Balance Sheet Unaudited full-year results for the year ended 31 December 2007 US$, million 2007 2006 Assets Cash and short-term funds 5 160 3 581Mandatory cash balances with central banks 825 648Financial assets at fair value through profit or loss 10 436 5 120Financial assets pledged under repurchase agreements and 2 212 2 938loaned financial assetsDue from other banks 9 733 6 813Loans and advances to customers 58 549 29 262Financial assets available-for-sale 858 888Investments in associates 167 200Investment securities held-to-maturity 5 11Premises and equipment 1 997 1 422Investment property 168 178Intangible assets 480 455Deferred tax asset 215 93Other assets 1 804 794 Total assets 92 609 52 403 Consolidated Balance Sheet Unaudited full-year results for the year ended 31 December 2007 US$, million 2007 2006 Liabilities Due to other banks 14 794 7 587Customer deposits 37 098 19 988Other borrowed funds 5 176 4 468Debt securities issued 16 489 11 565Deferred tax liability 149 125Other liabilities 1 231 509 Total liabilities before subordinated debt 74 937 44 242Subordinated debt 1 171 1 169 Total liabilities 76 108 45 411 EquityShare capital 3 084 2 500Share premium 8 792 1 513Treasury stock (21) -Unrealized gain on financial assets available-for-sale and 109 154cash flow hedgeCurrency translation difference 663 352Premises revaluation reserve 587 341Retained earnings 2 993 1 744Equity attributable to shareholders of the parent 16 207 6 604 Minority interest 294 388 Total equity 16 501 6 992 Total liabilities and equity 92 609 52 403 Consolidated Profit and Loss Statement Unaudited full-year results for the year ended 31 December 2007 US$, million Profit and Loss account as at December 31, 2007 2007 2006 Interest income 5 387 3 606Interest expense (2 831) (1 892) Net interest income 2 556 1 714Provision charge for impairment (526) (442) Net interest income after provision for impairment 2 030 1 272 Gains less losses arising from financial instruments at 138 218fair value through profit or lossGains less losses from available-for-sale financial 116 348assetsGains less losses arising from dealing in foreign 547 73currenciesForeign exchange translation gains less losses 108 265Fee and commission income 637 401Fee and commission expense (80) (50)Share in income of associates 18 15Income arising from non-banking activities 95 111Other operating income 123 157 Net non-interest income 1 702 1 538 Operating income 3 732 2 810 Staff costs and administrative expenses (1 948) (1 370)Expenses arising from non-banking activities (63) (90)Profit from disposal of subsidiaries and associates 98 54 Profit before taxation 1 819 1 404 Income tax expense (305) (232) Profit after taxation from continuing operations 1 514 1 172 Profit from discontinued operations - 7 Net profit 1 514 1 179 Net profit attributable to: Shareholders of the parent 1 480 1 137Minority interest 34 42 Basic and diluted earnings per share 0,000241 0,000218(expressed in USD per share) Basic and diluted earnings per share - continuing 0,000241 0,000217operations (expressed in USD per share) Basic and diluted earnings per share - discontinued 0,000000 0,000001operations (expressed in USD per share) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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