26th Jul 2007 07:30
Abbey National PLC26 July 2007 Abbey's revenue growth stronger - supported by a strengthened product range London, 26 July 2007 This statement provides a summary of the business and financial trends for thesix months to 30 June 2007. Unless otherwise stated, the trading (1) results ofAbbey are compared to equivalent results for the same period in 2006 excludingthe results of the sold life companies which have been accounted for asdiscontinued operations. Abbey's interim results will be published in August2007. The first half results of Santander are also released today and can be found onwww.santander.com. Abbey's first half performance, on a Group basis, is includedwithin Santander's financial statements. Highlights First half highlights include: • statutory profit before tax from continuing operations significantly ahead ofthe first half 2006; • trading profit before tax (1) up substantially, with the cost saving target of£300m,(2) announced at the time of Santander's acquisition, delivered ahead offull Partenon implementation; • on track for double digit operating jaws (3) for the third consecutive year; • trading income growth ahead of the 5% growth reported at the 2006 year-end.This performance was driven by a strong uplift in net interest income, resultingfrom solid balance sheet growth and robust Retail spreads. Non interest incomewas flat compared to the first half of 2006; • continued success in balancing volume growth and profitability in the firsthalf of 2007. Abbey's product range continues to strengthen and new businessvolumes in H1 2007 were supported by a strong tax year campaign boosting savingsand investment flows. Mortgage balances were up over 7% compared to the samepoint last year, whilst Abbey branded deposits grew by 4% boosted by 8% growthin current account balances and direct investment new business up by 37%; • trading expenses over 3% lower due to on-going cost reduction activity; • provisions have stabilised through 2007 and were lower than at the same pointlast year; and • trading cost: income ratio of 50.2% (2006 H1: 54.9%, 2005 FY: 61.3%) in-linewith our retail peer group, and on track to move significantly lower thanindustry averages as we progress to our target of 45% by the end of 2008. (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. (2) Based on the annualised H1 2007 trading cost base compared to 2004 (3) "Operating jaws" represent the difference between revenue and cost growthrelative to the same period last year. Comment "Abbey has made significant and sustained progress during the first half of2007, building on the success of 2006. As well as surpassing the £300m costsaving target ahead of schedule, I am pleased to report that our revenue growthcontinued to strengthen. It is particularly pleasing to note that this has beenachieved ahead of the full benefit of Partenon implementation. Abbey continuesto be on track to achieve its target cost to income ratio of 45% by the end of2008. The first half has also seen Abbey launch new and innovative products as thebank returns to its roots as a challenger within the UK retail sector. We willcontinue to strengthen our product range and to share the benefits of ourefficiency gains with customers, which our recently announced current accountdemonstrates. I am confident that Abbey will make further progress in 2007towards becoming a full service retail bank." Antonio Horta-Osorio, Chief Executive Financial results Abbey statutory profit before tax for continuing operations and profit after taxwas ahead of the same period in 2006. Trading income: Net interest income was well ahead of the first half of 2006. Retail Banking netinterest income was up, driven by asset growth of over 7% and improved liabilitygrowth (including current account balances up 8%) combined with balanced marginmanagement. In total, spreads are stronger than last year benefiting fromimprovement in liability spreads. Asset spreads continue to be impacted bypricing pressure on fixed rate mortgage products, albeit partially offset byimproved margins in unsecured personal loans reflecting Abbey's more cautiousapproach to this market. Wealth Management also delivered strong growthreflecting an increase in balances. Retail Banking non-interest income was slightly ahead of the same period lastyear with strong growth in investment related income. This was driven by oursuccess in the tax year campaign and a stronger range of investments and bundledsaving products. The first half of 2007 has also benefited from an improvementin protection income, albeit growth across these areas were offset by lowercurrent account charges. Global Banking & Markets non-interest income was upslightly compared to the prior year reflected in an increase in sales of retailstructured products. Expenses: Santander's cost saving target of £300m, announced at the time of itsacquisition of Abbey in 2004, was achieved during the first half of 2007, aheadof the full implementation of Partenon. Trading expenses were over 3% lower thanthe first half of 2006, with the majority of the savings relating to employmentcosts driven by headcount reductions predominantly in 2006. Provisions: Retail Banking provisions have stabilised through the first half of 2007. Thisperformance was due largely to the continued strong quality of secured assets,offset in part by a deterioration of quality in the unsecured portfolio asexpected. The level of provisions is expected to be broadly stable throughout2007. Underlying credit quality is strong across the portfolio. There has been amodest increase in stock of properties in possession to 516 (H1 2006: 467) fromexceptionally low levels by historical standards, and broadly in line with theCouncil of Mortgage Lenders (CML) averages. In terms of 3 month plus arrears,there has been a reduction to 7,053 (H1 2006: 7,788), and performance remainsbetter than the industry. However, the expectation is that the recent rate riseswill increase the levels of arrears in the coming months, albeit from the lowbase. Credit quality remains very strong, with the average loan to value (LTV)on new business and stock remaining low at 64% (H1 2006: 60%) and 43% (H1 2006:44%) respectively. Reorganisation expenses and other charges: Restructuring costs were consistent with the first half of 2006. Business flows Half 2 Half 1 Half 2 Half 1 2005 2006 2006 2007 Gross mortgage lending (£ bn) 16.1 15.9 16.6 16.9Capital repayments (£ bn) 13.2 11.7 13.1 13.3Net mortgage lending (£ bn) 2.9 4.2 3.6 3.6Stock (£ bn) 93.9 98.1 101.7 105.3 Market share - gross lending 9.9% 10.0% 9.0% 9.5%Market share - capital repayments 11.8% 10.7% 10.4% 10.7%Market share - net lending 5.8% 8.4% 6.0% 6.8%Market share - stock 9.7% 9.7% 9.4% 9.3% Retail net deposit flows (£ bn)(4) 0 0.9 0.2 1.9Investment sales - API (£ bn)(excl. intermediary sales) 0.5 0.7 0.6 0.9Savings and Investments net flows 0.6 1.0 0.5 2.2 Bank account openings (000s) 194 212 241 217Abbey branded average current account liability (£ bn) 4.5 4.6 4.9 5.0Total gross UPL lending (£ bn) 1.1 1.3 1.0 0.6% of Abbey gross lending through branches 15 18 28 33 (4) Retail deposit net flows exclude certain liability flows that relate tocorporate banking balances. If these items had been included, total net depositsflows would have been: H2 2005: -£0.1bn, H1 2006: £1.3bn, H2 2006: -£0.5bn, H12007: £1.8bn Main highlights for the six months to 30 June 2007 (compared to the same periodin 2006 unless otherwise stated) include: • gross mortgage lending of £16.9 billion, c. 6% higher, with an estimatedmarket share of 9.5%. Gross lending has been supported by a solid performance inthe intermediary channel, with Abbey recently being awarded 1st in "Best OverallMortgage Lender" at the Financial Adviser awards in April 2007. Gross lendingtrends have also been supported by a strong affordability proposition and growthin lending into the Buy to Let product; • capital repayments of £13.3 billion ahead of last year, in part due to a highlevel of incentive period maturities coinciding with base rate rises. Despitethis, the estimated market share remained in line with the same period last yearreflecting retention initiatives; • net mortgage lending of £3.6 billion lower than the prior year, equivalent toan estimated market share of 6.8% and consistent with a balanced approach tomargin management; • net customer deposit flows of £1.9 billion up over 120%, with the underlyingperformance driven by a broader product range and continued focus on branchbased saving. New savings products, including the 8.1% Super ISA, Direct ISA and50+ Saver, made a significant contribution to net flows and branch basedacquisition liabilities increased by 11%; • investment sales up 37% driven by a focus on retention and improved processestogether with continuing momentum from the tax free campaign and launch of theSuper Bond; • bank account openings of 217,170, up 2% with net openings up over 11%, boostedby a good performance in adult openings up over 8%. Abbey branded currentaccount balances were up 8%; and • total gross UPL lending decreased by over 53% reflecting the focus on moreprofitable lending to existing customers through the branch network. Abbey & Santander Abbey National plc ("Abbey") is a wholly owned subsidiary of Banco SantanderCentral Hispano, S.A. ("Santander") (SAN.MC, STD.N). Founded in 1857, Santanderhas more than 60 million customers, over 10,000 offices and a presence in over40 countries. It is the largest financial group in Spain and is a major playerin Latin America and elsewhere in Europe, including in the United Kingdom(through Abbey) and in Portugal. Through Santander Consumer it also operates aleading consumer finance franchise in Germany, Italy, Spain and ten otherEuropean countries. 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. Disclaimer 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. This announcement is not a form of statutory accounts. Contacts Matthew Young (Communications Director) 020 7756 4232 Anthony Frost (Head of Media Relations) 020 7756 5536 Bruce Rush (Investor Relations) 020 7756 4275 Simon Donovan (Investor Relations) 020 7756 4476 For more information contact: ir@abbey.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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