1st Feb 2007 07:30
Abbey National PLC01 February 2007 Turnaround success at Abbey boosts profits (1) London, 1st February 2007 This statement provides a summary of the business and financial trends for yearended 31 December 2006. Unless otherwise stated, the trading (1) results ofAbbey are compared to the 2005 full year results - both periods exclude theresults, and results on sale, of the disposed life businesses which have beenaccounted for as discontinued operations. The 2006 results of Santander are also released today and can be found onwww.santander.com. Abbey's 2006 results, on a Group basis, are included withinSantander'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. In priorperiods the results from the Portfolio Business Unit (PBU) were also excluded,although retained businesses such as Porterbrook have now been reclassified aspart of the ongoing trading business. Highlights • statutory profit before tax from continuing operations was c. 18% higher than2005; • trading profit before tax increased by 24%, with revenue growth and costreduction resulting in operating jaws (2) of 10%. Cumulative savings sinceacquisition are now c. £290m, broadly in line with the £300m target, with almost1 year remaining; (2) "operating jaws" represents the difference between revenue and cost growthrelative to the prior year. • trading income was 5% higher, driven by all divisions, and was within thetargeted range of 5 - 10% for the first year of the 3-year plan. This representsa significant improvement in performance after a number of years of revenuedecline and a flat performance in 2005. The Retail Bank benefited from solidasset growth of 9% and stable retail spreads. Abbey Financial Markets continuedto perform well, as did the businesses within the newly formed Wealth Managementdivision; • improved new business performance, with a continued focus on balancing volumegrowth and profitability. Mortgage net lending and estimated market share morethan doubled whilst bank account openings were up 17%, driving a 10% increase inliability balances. Branch-based sales performance was strong across the productrange and resulted in a 16% uplift in investment sales; • a further reduction in trading expenses of 5% with headcount c. 2,000 fulltime equivalents (FTE) lower than 31 December 2005 (excluding the impact of thesale of the life businesses); and • a reduction in the trading cost: income ratio from 61.3% in 2005 to 55.5%. In line with the sector, Abbey's overall results have been impacted by increasedcredit provisions driven largely by the maturing of the unsecured loanportfolio. During the year Abbey increased its coverage of non performing loans.The credit quality of the mortgage book remains strong. Statutory profit before tax continues to be impacted by on-going restructuringcharges including other provisions relating to misselling remediation at similarlevels to 2005. In addition, 2006 did not benefit from the one-off gainsrelating to the run-down of the PBU posted in 2005. Comment "Abbey made strong progress in 2006. We've accelerated revenue growth and havecontinued to successfully reduce costs across the business, with cumulativesavings of almost £300m - 1 year ahead of target. The bank is well on track tomeet its 3-year plan targets. Partenon, Santander's core banking platform, is expected to be in place by theend of 2007. The system will provide Abbey with a competitive advantage in termsof both efficiency and higher quality of service that we can offer ourcustomers. The year ahead will see Abbey's development and further transformation into afull service retail bank. We have a strong management team in place and we areengaging with our people across the bank. Combined with the expertise and globalscale of Santander behind us, I'm confident that we have the platform in placeto deliver sustainable success." Antonio Horta-Osorio, Chief Executive Business Update • Abbey is continuing its strong performance in line with the targetsestablished in the 3-year plan; • the improvements made in sales productivity continue to drive improvements inrevenues whilst the efforts we have made to improve efficiency means we expectto exceed our cost reduction target of £300m by 2007, which will allowre-investment in the business; • Abbey has benefited from a focus on value whilst delivering strong assetgrowth with good margin management during 2006. The bank has been successfullyfocusing on balancing its market share with profitability. As a result, Abbeyhas improved both its profitable contribution to the Group and its businessperformance compared to 2005; • Abbey's transformation to become a full-service retail bank made furtherprogress during the year. The bank has been successful in commencing the firstphases of its premium banking service and growing its business bankingoperation. In addition, in the second half of the year, we launched a newbuy-to-let mortgage range in line with our strategy to grow in higher marginsegments. In the first half of 2007, Abbey also plans to launch its new creditcard range in the UK; • in the Retail division we have increased the focus on channel management andperformance with clearer responsibilities and enhanced management information.Across its direct business the focus will be on integrating the branch,telephone and e-commerce channels to provide customers with a more seamlessservice. We will continue to strengthen Abbey's Intermediaries business toprovide Abbey with long-term profitable growth; • in the third quarter, Abbey completed the sale of its life businesses. Thiswas an important landmark, and is a significant step forward in Abbey'sstrategy. Abbey created a new division, Wealth Management, to focus on growingits share of savings, investment and pension sales through the intermediarychannel; and • the implementation of Partenon has proceeded well during the year with keyelements such as the introduction of the single customer database, and therollout of the sales and service tools is now underway. The full impact ofPartenon on efficiency and in raising Abbey's service quality is expected tocome through in 2008 as the bank's product range is moved onto the platformduring 2007. This will enable front-line employees to better meet customer needsand maximise sales opportunities. Financial results Statutory profit after tax in 2006 was impacted by the sale of the lifebusinesses. Excluding the results, and loss on sale, of the disposed lifebusinesses, Abbey's results were more than 20% ahead compared to last year. Trading income: Net interest income was c. 2% ahead of 2005 due largely to solid performances inboth Retail Banking and Wealth Management. Retail lending balances were up 9%compared to last year, driven by an increase in mortgage and unsecured lendingbalances, both up 9%. Growth in unsecured lending balances was driven entirelythrough the Abbey brand. Throughout the second half of 2006 the businesscontinued to balance growth and profitability, resulting in slower growth inretail deposits. Retail spreads were stable relative to 2005 with a widening ofretail liability spreads being partially offset by competitive pressureimpacting asset spreads in the latter part of the year. Growth in the RetailBanking division was in part offset by the ongoing run-down of PortfolioBusiness Unit assets, and lower net interest income in Abbey Financial Marketsdue to the funding mix of the balance sheet. Non-interest income was c. 10% ahead of 2005. Retail Banking increased volumesin mortgage, investments and bank accounts, and in the fourth quarter benefitedfrom an uplift in commissions from the new distribution agreement withResolution. Net operating income in Abbey Financial Markets was up c. 15% on last year,driven by a good performance in its structured products business. Expenses: Trading expenses were 5% lower than 2005 and, as in previous periods, themajority of the savings relate to employment costs driven by a headcountreduction of c. 2,000 in 2006 (excluding FTE reduction as part of the sale ofthe life businesses). Provisions: Retail division provisions were ahead of the previous year. The increase was inpart due to mortgage related charges increasing modestly from a very low baserelative to the overall book. The majority of the growth was driven by thematuring of the unsecured loan portfolio, with some deterioration in quality. Mortgage credit quality remains strong, with a reduction in stock of propertiesin possession of 415 (December 2005: 447) and lower 3 month plus arrears casesof 7,196 (December 2005: 8,240). The average loan to value (LTV) on new businessand stock remained low at 61% (2005: 60%) and 44% (2005: 45%) respectively, andAbbey's exposure to specialist lending segments is negligible. Reorganisation expenses and other charges: Restructuring costs of £150m were consistent with 2005, in addition to whichfurther provisions including costs in relation to remediation provisions havebeen raised. Business flows Half 1 Half 2 Half 1 Half 2 Full year Full year 2005 2005 2006 2006 2005 2006 Gross mortgage lending (£ bn) 11.5 16.1 15.9 16.7 27.6 32.6Capital repayments (£ bn) 11.4 13.2 11.7 13.1 24.6 24.8Net mortgage lending (£ bn) 0.1 2.9 4.2 3.6 3.0 7.8Stock (£ bn) 91.0 93.9 98.1 101.7 93.9 101.7 Market share - gross lending 9.2% 9.9% 10.0% 8.9% 9.6% 9.4%Market share - capital repayments 13.5% 11.8% 10.7% 10.3% 12.5% 10.5%Market share - net lending 0.3% 5.8% 8.4% 6.1% 3.3% 7.1%Market share - stock 9.9% 9.7% 9.7% 9.4% 9.7% 9.4% Total net deposit flows (£ bn) 1.3 1.3 1.3 -0.4 2.6 0.9Investment and pension sales - API (£ m) - 475 583 654 570 1,058 1,224(excl. intermediary sales) Bank account openings (000s) 192 194 212 241 386 453Total gross UPL lending (£ m) 971 1,145 1,252 1,007 2,116 2,259 Protection sales - API (£ m) 40 42 38 33 82 71 Main highlights for 2006 (compared to 2005 unless otherwise stated) include: • gross mortgage lending of £32.6 billion, around 18% higher, with an estimatedmarket share of 9.4%. During the year Abbey improved its service levels inmortgages and developed its product range in order to capture growth in theexpanding and higher margin non-standard segments. We increased sales ofFlexible mortgages (up over 60%), and in the latter part of the year we improvedthe first time buyer proposition, and launched a new buy-to-let offering; • capital repayments of £24.8 billion were modestly ahead of 2005, while ourestimated share of capital repayments fell to 10.5%, in part reflectingretention initiatives, compared to 12.5% in 2005; • net mortgage lending of £7.8 billion, up over 100% from the prior year. Wehave more than doubled our estimated share of net lending from a low base andhave continued to balance growth and market share with a focus on profitability; • net customer deposit flows of £0.9 billion were lower than 2005 impacted bythe re-pricing of low / negative margin accounts that was put in place in Q2.This again confirms our focus on managing volume and profitability, and was inpart offset by increased investment sales up 16%. We have maintained ourcompetitive position with attractive instant access branch and internetaccounts, with inflows of over £1.8bn in key acquisition accounts. In terms ofinvestment sales, we had an improved tax season and sales of Inscape were up24%. More recently we have been increasing our sales capacity through therecruitment of investment advisors; • bank account openings of over 453,000, up 17%. This was an improvement on theuplift of 10% reported at half year, with switcher openings up by 114%.Performance has benefited from the "6%" current account offer, the "grass isgreener" campaign in the second half, and changes to the branch incentiveschemes. In total the volume of accounts increased by 6%, with bank accountliability balances up by 10% on 2005; • total gross UPL lending was c. 7% higher, with branch lending up by over 66%from a low base. Performance was boosted by improved branch technology, and thelatter part of the year saw a marked improvement in the new business margins toensure a better profitability profile. As a result, Abbey branded balances grewby 18% and as we move into 2007, our focus will be increasingly on growing thisbusiness through our existing customers; and • protection API sales were down in comparison to 2005, in part reflecting thecompetitive market trends. Abbey is positively rebuilding its distributioncapacity for protection products after the sale of the life businesses. 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: [email protected] This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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