27th Jul 2006 07:43
Abbey National PLC27 July 2006 Abbey reports further evidence of return to growth London, 27 July 2006 This statement provides a summary of the business and financial trends for thesix months to 30 June 2006. The trading(1) results of Abbey for that period,including ongoing Portfolio Business Unit (PBU) operations, are compared toequivalent results for the same period in 2005 (excluding certain PBU operationsthat no longer exist). The 2006 first half results of Santander on a Spanish IFRS basis are alsoreleased today and can be found on http://www.gruposantander.com/. Abbey's firsthalf performance is included within Grupo Santander's financial 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. Highlights First half highlights include: • statutory profit before tax, excluding the impact of the sale of the life companies, was over 20% higher than the same period last year; • strong growth in trading profit before tax in comparison to the same period last year, with revenue growth combined with further cost reduction, only partially offset by increased retail lending provisions in line with expectations; • trading income was up on the same period last year, even after the further adverse impact of lapse experiences and changes in assumptions in the Life companies. The underlying trend is consistent with targeted revenue growth of between 5 - 10%. The retail business continued to benefit from stable margins, accelerating asset growth and increased fee income. Abbey Financial Markets also contributed strongly; • improved new business flows across most retail products, in particular mortgages, unsecured personal loans, bank account openings and direct investment sales. Across the product range, performance has been boosted by the uplift in sales performance in the direct channels; • a further reduction in trading expenses maintaining progress towards achieving the saving of £300m by the end of 2007. Current headcount levels are c.1,300 full time equivalents (FTE) lower than 31 December 2005; • a reduction in the trading cost: income ratio from 63.5% in the first half of 2005 to 56.5% currently; and • increasing retail lending provision charges driven by the unsecured personal lending book, as expected. Mortgage related provisions have also increased from a low 2005 base, albeit mortgage credit quality remains very strong and remains better than the industry average. The outlook for the second half remains positive, revenue growth rates areexpected to slow relative to a stronger second half in 2005. Comment "The excellent start we made to the year has continued through the secondquarter. The momentum we have established in turning Abbey around is nowestablished and we are meeting our stated targets. Across all of our activities, we can see Abbey improving its performance andbenefiting from Santander's expertise. Antonio Horta Osorio, who will join Abbeyas Chief Executive on 21 August(2), will be instrumental in taking the bankforward into the next stage of its successful turnaround. There is still a lot of work to do. In retail banking improvements and progresstend to be incremental. We are on track, and remain confident of becoming thebest retail bank in the UK- the most efficient with the best service." Francisco Gomez-Roldan, Chief Executive (2) Subject to Board approval Business Update Revenue growth has been sustained through the first half of 2006 and we continueto make further cost savings, building on the positive trends we established in2005. Provisions for bad debts have risen but Abbey remains well positionedrelative to its competitors. We are continuing to roll out the key elements of Partenon, the Santandergroup's core banking platform, in line with original plans. In the secondquarter we continued the implementation of the customer and commercial portal,providing tools to improve productivity in our direct channels. The introductionof a single customer database is imminent and this will be followed later in theyear with the rollout of new sales and service portals. During 2007, Abbey will start to benefit from Partenon on a day-to-day basis inits ability to meet customer needs more efficiently and improve salesopportunities and service levels. Improving service is an absolute priority forthe bank with the aim of a quality of service above that of our peer group. Assuch, Abbey's focus is to continually improve to ensure that we get the basicsright every time. Ahead of Partenon, we have made good progress in improving sales productivity inall customer-facing roles, and across all products, in part supported by moretargeted marketing campaigns. Sales performance and profitability in the firsthalf has improved, with an improvement in mortgage new business market share.Across all products, market share aspirations will continue to be balanced witha focus on profitable growth. The first half of 2006 has been a busy and productive period. The new image ofAbbey is well established, including our high street presence where we havefully refurbished over 250 branches, with the remainder due for completion bythe end of 2007. Elsewhere in the business, Abbey Financial Markets hascontinued to contribute strongly. Early in 2006 we announced that we were setting up an in-house credit cardoperation - leveraging the global Santander operations. This work is now wellunderway. We have launched important new initiatives including a targetedpremium banking operation and a pilot for buy-to-let in the intermediarychannel. These are important steps, but will take some time to flow through tofinancial results. Finally, the sale of our life businesses is a significant step forward in ourplans to transform Abbey into a full service retail bank. The deal announcedwith Resolution Plc, due to complete in the third quarter, has provided us witha clean break from a legacy business with inherent risks whilst retaining areasthat will be the key drivers of our future growth. In particular, we haveentered into distribution agreements with Resolution to provide insurance andprotection products to our customer base - we have ambitious plans to grow ourshare of investment sales through the intermediary and direct channels. Inaddition, as part of the distribution agreement we will be able to sell Abbeyproducts to Resolution customers. Financial results Net attributable profit in the half was impacted by the sale of the lifebusinesses, which were sold at approximately 97% of their value of £3.6 billion.Excluding this impact, net attributable profit was well ahead of the same periodlast year. Trading income: Net interest income was up around 5% compared to the first half of 2005. Retaillending balances were up by 9%, slightly lower than the overall market, but witha stronger performance in the second quarter. Growth has been driven by acombination of mortgages and unsecured personal loans, with bank accountliability growth also strong. Asset and liability spreads have remained broadlystable, benefiting from careful margin management. Compared to the firstquarter, second quarter net interest income was slightly higher, with a furtheruplift expected in the second half of 2006 as a result of further balance sheetgrowth. Non-interest income was higher than the same period in 2005, though negativelyimpacted by significant charges relating to lapse experience variances andchanges in assumptions in the life businesses. Excluding these impacts, non-interest income in the Retail Bank benefited fromincreased business volumes combined with the full benefit of fee increasesintroduced during 2005. Abbey Financial Markets made a strong contribution, upover 20%, with strong underlying business performance benefiting from increasedmarket volatility in the first half. Expenses: Operating expenses were around 5% lower than the first half of 2005, despiteinflationary pressures and investment in new growth activities and operations.The decrease in employment related costs reflected the reduction in headcount ofaround 1,300 FTE so far in 2006. Of the year-on-year cost reductions, approximately 60% relate to employmentcosts. The balance largely relates to lower manufacturing costs and centralexpenses including procurement, legal and finance expenses. The continuing costreduction activity in the second quarter is expected to deliver a furtherreduction in the underlying cost run-rate entering into 2007. Provisions: Overall, provisions were around 10% higher than the same period in 2005, withRetail provisions around 30% higher, offset by Abbey Financial Markets releases. Approximately a third of the Retail increase relates to mortgages increasingmodestly from a very low base and relative to the overall book. Mortgage creditquality remains very strong, with properties in possession of 467 (December:447) and 3 month plus arrears cases of 7,788 (December: 8,240). The average loanto value (LTV) on new business and stock remained low at 61.6% and 44.2%respectively, and Abbey's exposure to specialist lending segments is negligible.On all measures the quality of the book remains better than industry averagesand broadly in line with expectations. The balance is largely driven by the growth and seasoning of the unsecuredpersonal loan portfolio and some deterioration in quality in line with industryexperience. Reorganisation expenses and other charges: Excluding the impact of the sale of the life businesses, reorganisation expensesand other charges were similar than the same period last year, with slightlylower investment expenditure being offset by adverse mark-to-market impacts. Business flows Half 2 Half 1 Half 2 Half 1 2004 2005 2005 2006Gross mortgage lending (£ bn) 12.0 11.5 16.1 15.9Capital repayments (£ bn) 12.1 11.5 13.1 11.7Net mortgage lending (£ bn) (0.1) 0.1 2.9 4.2Stock (£ bn) 90.9 91.0 93.9 98.1 Market share - gross lending 8.2% 9.2% 9.9% 10.0%Market share - capital repayments 12.3% 13.5% 11.8% 10.7%Market share - net lending (0.3)% 0.3% 5.8% 8.4%Market share - stock 10.4% 9.9% 9.7% 9.7% Total customer deposit flows (£ bn) 2.2 1.3 1.3 1.3 Bank account openings (000s) 194 192 194 212Gross UPL lending (£ m) 1,032 971 1,145 1,252Credit card openings (000s) 110 128 89 56 Investment sales (incl. Inscape) - APE (£ m) 70 88 102 106 Protection sales - APE (£ m) 41 40 42 38 Main highlights include: • gross mortgage lending of £15.9 billion, 38% higher than the half 1 of 2005, with an estimated market share of 10.0%. As reported last quarter, lending performance has been boosted by lending into more profitable flexible products. This currently represents around 19% of new business written, with overall new business up 115% on the same period last year, and balances up 56% to over £11 billion; • capital repayments of £11.7 billion were broadly in-line with first half of 2005, whilst the estimated market share fell to 10.7%, significantly lower than the prior year; • net mortgage lending of £4.2 billion significantly higher than both halves of 2005, resulting in an increased estimated market share of 8.4%. In the second quarter, Abbey exceeded its targeted market share of 10% net lending, and will continue to aim to operate at or around this level subject to market pricing trends; • customer deposit inflows of £1.3 billion for the first half, albeit with negligible flows in the second quarter. Performance in the second quarter was largely driven by a re-pricing of internet liability offers including cahoot - moving products back into positive margin. In both mortgages and savings, growth and market share aspirations will continue to be balanced with a focus on profitability; • bank account openings 212,000, 10% higher than the first half of 2005. Adult account openings increased by 29%, and the bank continued to perform well in more valuable switcher account openings, which were up over 250% and now represent over 16% of openings. As a result bank account liability balances were up around 10% on the same point last year; • gross unsecured lending up 29% at over £1.2 billion, with lending through branches up over 65%, combined with a significant increase in cahoot prior to recent re-pricing decisions; • credit card openings fell to 56,000, impacted by the recent decision and agreement with MBNA to bring credit card operations in-house; • investment APE sales of £106 million increased by over 20% compared to Half 1 2005, driven by an uplift of around 17% from direct channel sales and over 85% from Inscape sales; and • protection sales are lower by 5% in comparison to the prior year, although sales through direct channels increased by around 13%. 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 66million customers, over 10,000 offices and a presence in over 40 countries. Itis the largest financial group in Spain and Latin America, and is a major playerelsewhere in Europe, including in the United Kingdom (through Abbey) and inPortugal. Through Santander Consumer it also operates a leading consumer financefranchise in Germany, Italy, Spain and nine other European 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. 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 Israel Santos (Investor Relations) 020 7756 4181 Bruce Rush (Investor Relations) 020 7756 4275 For more information contact: [email protected] This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Sant Uk.10te%Banco Santander