FOR IMMEDIATE RELEASE
GRUPO BANCO ESPIRITO SANTO 2002 RESULTS (Unaudited)
LISBON -- February 5, 2003 -- Banco Espírito Santo (BES) today announced its 2002 results.
HIGHLIGHTS
* Net profits rose 12.30%, to 222.1 m?, corresponding to ROE of 13.1%
(2001: 15.6%) against a background of very difficult economic
conditions. Earnings per share of euro 0.74 (2001: euro 0.99).
* Costs growth (+1.2%) was below the initial objective (+3%), making
for a positive performance of cost to income, down from 58.2% to
53.4%.
* Net interest income up by 12.5%, reflecting the success of the push
for margin increase developed since the last quarter of 2001.
* Fees and commissions rose at a good rate (+6.5%), sustained by
improved service quality.
* Subdued credit growth, against a macroeconomic context of greater
risk: customer credit (on-balance sheet) rises 5% while total
customer funds are up by 8.1%, with a positive impact on the
transformation ratio, which dropped from 110% to 106%.
* Comfortable solvency levels; reinforcement of provisions above the
increase in overdue loans leads to good coverage levels.
* Proposed distribution to all shares of a dividend of euro 0.287 per
share to all shares (euro 0.376 in 2002), to be submitted to the
general shareholders' meeting. Share capital was increased in the
first quarter of 2002 from euro 1,000 million to euro 1,500
million, through the issue of 100 million new shares.
CONTACTS:
Paulo Padrao
Elsa Jardim
Banco Espírito Santo, Lisbon
+351 21 350 1713
www.bes.pt
An interview with Chief Executive Ricardo Espírito Santo Salgado in video/audio and text will be available from 8:00
am on: http://www.bes.pt.
1. ECONOMIC ENVIRONMENT
Economic conditions in 2002 were characterized by a climate of extreme uncertainty. In the United States, the stimulus
given to private consumption by historically low interest rates and an expansionist budgetary policy decisively
contributed to the 2.4% growth of GDP.
In the Euro Zone, GDP is expected to have grown by 0.8% in 2002, in what represents a marked slowing down compared to
2001. Besides the negative factors affecting the economic activity, the Euro area suffered from high unemployment,
which, at 8.4%, conditioned families' confidence and spending levels. On the other hand, an average inflation rate of
2.2% may have prevented the European Central Bank from taking a more aggressive stance in lowering interest rates. The
slowing down of the economy in the Euro area did not stop the single currency from rising strongly: 18% against the US
dollar.
On the equity markets side, 2002 pursued the negative trend of the two previous years, with the main indices falling
sharply. While the Nasdaq plunged 32%, the drop of the general indices, the Dow Jones and S&P 500, was more moderate,
respectively 17% and 23%. In the Euro Zone, two of the main stock market indices, the Frankfurt DAX and the Paris
Bourse CAC 40 registered falls of respectively 44% and 34%.
In Portugal, the economic activity slowed down sharply, with GDP rising by merely 0.5% in real terms. Besides having to
cope with an adverse external situation, the Portuguese economy pursued in 2002 a process of correcting various
macroeconomic imbalances. This took its toll on a very poor evolution of internal demand, and a considerable increase
in unemployment, whose rate is thought to have increased from 4.1% to close to 5%. In terms of the equity market, the
PSI-20 index mirrored international trends, falling by 25%.
2. ACTIVITY HIGHLIGHTS
Notwithstanding the economic situation, Group BES was able to achieve balanced growth during the reporting year:
customer loans were up by 5% (10.2% if including securitized credit, versus 12.8% in 2001) and total customer funding
rose by 8.1% (14.5% in 2001). As determining factors in this performance it should be highlighted the Group's proactive
stance in the innovation of savings products, the advance made in the segmentation process and enhanced service quality
were determining factors in this performance. Once again, these factors validated the success of Group BES' organic
growth strategy during difficult times for financial markets worldwide.
The transformation ratio of customer funds into credit registered a remarkable drop in spite of the scarce liquidity
context that characterized the market.
MAIN BUSINESS VARIABLES
(euro
million)
December % Chg
2001 2002
Net Assets 38,523 41,239 7.1
Customer Loans (Gross) 24,569 25,797 5.0
- Mortgage 8,446 8,645 2.4
- Other Loans to Individuals 2,022 1,907 -5.7
- Corporate 14,101 15,245 8.1
Loans to Individuals / Customer 42.6 40.9 -1.7 p.p.
Loans (%)
Funds
+ Deposits 17,395 18,668 7.3
+ Debt Securities 8,805 9,271 5.3
= On-Balance Sheet Funds 26,200 27,939 6.6
- EMTN and Commercial Paper 4,339 4,263 -1.8
= On-Balance Sheet Customer Funds 21,861 23,676 8.3
+ Off-Balance Sheet Funds 9,637 10,383 7.7
= Total Customer Funds 31,498 34,059 8.1
Transformation Ratio (%) 110 106 -4 p.p.
On the credit business, the following aspects should be stressed:
- During 2002 the Group carried out the following securitization operations, totaling euro 1,450 million:
Euro 150 million consumer loan receivables in April
Euro 300 million corporate credit (leasing) in April
Euro 1,000 million residential mortgages in December
The table below shows the dynamism displayed by lending operations, including the securitization operations already
carried out:
(euro million)
Dec 2001 Dec 2002 % Chg
Excluding Including Excluding Including Excluding Including
securitized securitized securitized securitized securitized securitized
Customer 24,569 24,774 25,797 27,300 5.0 10.2
Loans
Mortgage 8,446 8,446 8,645 9,641 2.4 14.1
Other 2,022 2,227 1,907 2,154 -5.7 -3.3
Loans to
Indiv.
Corporate 14,101 14,101 15,245 15,505 8.1 10.0
- Mortgage loans remained the most dynamic item overall (rising by 14.1%), in spite of the extinction of the subsidized
credit regime imposed by the government from October 1, 2002.
- Other loans to individuals showed a decrease of 3.3% reflecting the effects of a policy of higher selectivity
- Corporate loans were up by 10%.
Total customer funds reached euro 34.1 billion, an annual increase of euro 2.6 billion. In this respect should be
highlighted the growth of total on-balance sheet customer funds (+8.3%) and off-balance sheet funds (+7.7%), the latter
being quite noteworthy in view of the poor performance of the capital markets.
A sales force effort geared to attracting funds, on the one hand, combined with a carefully planned financing policy
and moderate credit growth, on the other, led to a fresh improvement in the transformation ratio of customer funds into
credit, from 110% to 106%.
In the Azores, BES merged its operations with those of Caixa Económica da Misericórdia de Ponta Delgada, resulting in
the establishment of BES Açores. This new unit closed the year with net assets of euro 205.3 million and a net profit
of euro 1.15 million corresponding to six months in operation.
Banco BEST's results were in line with its business plan, registering 8,100 customers and euro 213 million in funds
under management at the end of December.
3. RESULTS AND PROFITABILITY
Consolidated net profit reached euro 222.1 million, which corresponds to an increase of 12.3% versus the previous year.
Due to the capital increase carried out in the first quarter of 2002 and the reinforcement of provisions, ROE decreased
to 13.1% in the period.
A good performance was achieved by Group BES's institutions in the area of retail and corporate banking, and in
particular that of BES and BIC's operating units, set against a particular tough year. Good results were also achieved
in the area of specialized credit, with Crediflash (credit cards) rising by 42%, Euroges (factoring) by 42% and
Besleasing (leasing) by 26%.
INCOME STATEMENT
(euro
million)
December
2001 2002 % Chg
Net Interest Income 718.6 808.2 12.5
+ Commissions and Fees 382.6 407.4 6.5
= Commercial Banking Revenue 1,101.2 1,215.6 10.4
+ Capital Markets Results 125.8 138.5 10.1
= Banking Revenue 1,227.0 1,354.1 10.4
- Operating Costs 714.1 722.7 1.2
- Net Provisions 204.8 280.6 37.0
Credit 144.5 224.2 55.2
Securities 27.5 55.1 100.4
Other 32.8 1.3 ...
- Extraordinary Results and Other 23.4 57.6 ...
= Earnings Before Tax and 284.7 293.2 3.0
Minorities
- Income Tax 38.6 39.1 1.3
- Minority Interests 48.4 32.0 -33.9
= Net profit 197.7 222.1 12.3
Net interest income increased by 12.5%, confirming the recent upward trend. The sustained policy aimed at improving the
margin launched in the last quarter of 2001 together with the volume effect yielded by the commercial activity
contributed to the growth achieved.
The net interest margin for the year was 2.27% (2001: 2.18%), translating into a euro 31.8 million gains; the increase
in volume also reflected on the growth of net interest income, its effect totaling euro 57.8 million. The sustained
decline of interest rates and the deceleration of lending activities are expected to slow down the increase of net
interest income in the future.
Fees and commissions on customer services reached euro 407.4 million, a year-on-year rise of 6.5% related mainly to
traditional products. Total Fees and Commissions, excluding securities and brokerage, increased by 13% in the period.
Important factors towards this growth were the improvement in the quality of services and the increase in the number of
products sold to each client to an average of 4.1.
Capital markets results made very good progress, particularly on the fixed income side. The strategy pursued
counteracted the negative effects of the equity markets performance. These results include the gains obtained in the
sale of the stake in Kredyt Bank, Poland (euro 18 million) and in the Public Offering to swap BVLP shares for EURONEXT
shares (euro 7.8 million).
Operating costs were contained within the limits proposed and below estimates, posting a nominal growth of 1.2% that in
fact corresponds to a real reduction of 2.4%. Major contributors to these results were the effects of the integration
of the main operating units, which resulted in a reduction of employees, the restructuring of processes, the policy of
renegotiating supply contracts and the drive for cost cutting. The early amortization of a total of euro 7.9 million,
made the Group's performance in this respect even more striking.
In addition to the results achieved in the areas outlined above, we should also draw attention to the Group's
provisioning - a net increase of euro 280.6 million, that exceeds by 37% the previous year's provision charge.
Credit provisions were increased by euro 224 million (+55%), reflecting a BES' customary prudent stance in the light of
current economic conditions. Provisions for securities reflect the prevailing capital markets environment.
Other provisions include an increase of euro 21.8 million for several purposes (country risk, equity holdings, other
risks and charges and general banking risks), and an amount of euro 20.5 million as a partial reversal of provisions
for Interatlântico, SA, following BES Group's disposal of 81% in this company's capital. However, this reversal did not
influence the result since such provisions had been allocated under provisions for general credit risks, whose level
exceeds the obligatory provisioning level.
Extraordinary Results and Other, which had a negative impact on the income statement, shows a considerable increase,
essentially explained by the amortization of extraordinary retirement charges in accordance with the rules laid down in
late 2001 - Notice 12/2001 - (+ euro 15.6 million when compared to full 2001), as well as by Banco Espírito Santo
(Spain)'s restructuring costs (euro 6.4 million) and consolidation adjustments (euro 7.0 million).
Concerning pension liabilities, the contributions for the Pension Funds totaled euro 304 million. Besides current
contributions, this includes euro 180 million related to actuarial deviations and euro 71 million to cover
extraordinary liabilities.
Profitability
Return on Assets (ROA) rose to 0.57%, while return on equity (ROE) decreased from 15.6% to 13.1% as a consequence of
the capital increase.
PROFITABILITY
2001 2002
Return on Equity (ROE) (%) 15.6 13.1
Return on Assets (ROA) (%) 0.55 0.57
Earnings per Share (EPS) (euro) 0.99 0.74
Number of Shares (million) 200 300
Earnings per Share (EPS) were euro 0.74, the Board of Directors intends to submit to the General Shareholders' Meeting
a dividend distribution proposal of euro 0.287 per share.
4. ASSET QUALITY AND FINANCIAL STRENGTH
Provisions for credit were reinforced by an amount that exceeds the growth of overdue credit, reflecting BES' prudence
in a difficult environment.
YoY Change
Dec 01 Sep 02 Dec 02 Value %
Customer Loans (euro 24,569 26,571 25,797 1,228 5.0
(Gross) mn)
Overdue Loans (euro 450.1 528.7 548.7 99 21.9
mn)
Overdue Loans > 90 (euro 368.1 464.8 481.6 114 30.8
days mn)
Provisions for (euro 593.1 677.6 718.0 125 21.1
Credit mn)
Overdue Loans / (%) 1.83 1.99 2.13 0.30 p.p.
Customer Loans
(Gross)
Overdue Loans > 90 (%) 1.50 1.75 1.87 0.37 p.p.
days / Customer
Loans (Gross)
Coverage of Overdue (%) 131.8 128.2 130.9 -0.9 p.p.
Loans
Coverage of Overdue (%) 161.1 145.8 149.1 -12.0 p.p.
Loans > 90 days
The ratio of overdue loans over 90 days was 1.87% while the coverage ratio continued to attain significant levels (149%
for overdue loans over 90 days and 131% for total overdue loans).
The solvency ratio remains at comfortable levels: 10.4% according to the Bank of Portugal's rules (Dec 01: 9.3%) and
12.6% under the BIS criteria (Dec 01: 10.7%).
The medium and long-term debt rating is A1, as assigned by Moody's, A- by Standard and Poor's and A+ by Fitchratings.
5. PRODUCTIVITY
Operating costs have considerably slowed down: an increase of 1.2% that compares very well with the figures posted in
end 2001 (9.6% on a like-for-like basis) and was also better than expected. In fact, the initial target pointed to a 3%
increase in costs, which was subsequently adjusted to 1.5% at the end of the third quarter. Finally, this increase came
in at 1.2%, following the acceleration of amortization by euro 7.9 million.
The restructuring projects implemented resulted in a reduction of 578 employees in 2002 which, together with 2001
reductions, reached a total of 809. This figure exceeded the target of 790 set for 2001/2002.
OPERATING COSTS
(euro
million)
December
2001 2002 % Chg
Staff Costs 320.5 323.1 0.8
Other Administrative Costs 271.4 264.9 -2.4
Depreciation 122.2 134.7 10.3
Operating Costs 714.1 722.7 1.2
Group BES's Cost to Income registered a further improvement, dropping by 4.8 p.p. year-on-year. BES maintain the
objective of reaching a cost-to-income of 50% in 2003.
The remaining productivity indicators also improved, in particular the Operating Costs / Average Net Assets and Total
Assets per Employee ratios.
PRODUCTIVITY
December Chg
2001 2002
Cost to Income (including % 58.2 53.4 -4.8 p.p.
markets)
Cost to Income (excluding % 64.9 59.5 -5.4 p.p.
markets)
Operating Costs / Average Net % 1.98 1.85 -0.13 p.p.
Assets
Total Assets per Employee Eur 5,967 6,820 14.3 %
1,000
Group BES's rationalization effort was pursued, namely by extending the integration process to other units and by
creating shared service units.
6. INTERNET BANKING
2002 confirmed the value of Group Banco Espírito Santo's multichannel distribution strategy (particularly as regards
the contribution of internet banking) to enhance the efficiency of distribution and cement the Group's relationship
with its customers. These were the main activity highlights during the year:
Leadership of the Internet Banking domestic market, in terms of both the absolute number of customers and the
penetration rate in the customer base: 586,000 BESnet customers (237,000 frequent users), representing a penetration
rate in the individual customer base of 37%; 19,000 BESnet Negócios customers, accounting for a penetration rate in the
small trades and the medium and large-sized companies segments of, respectively, 9.8% and 51.5%.
Strong contribution to the Bank's income statement: on the cost side, thanks to the outsourcing of operations and
rationalization of processes; on the revenue side, by saving time in the branches better employed in commercial action,
and by virtue of fees and commissions generated by the direct channels. 24% of low-value operations were outsourced to
the direct channels (1.9 million operations) while 84% of all the Bank's stock exchange orders were also executed
through these channels. The number of calls automatically answered by BES Directo Automático reached 60% of all the
call center's incoming calls, making for a reduction of 23%, or euro 1.2 million, in its staff costs. Finally, the
rationale of transferring calls made to the higher traffic branches to BES Directo significantly contributed to improve
the quality of customer service and save time in the commercial structures involved.
The gradual implementation of a commercial model, supported by an integrated and coordinated cross-channel platform,
and benefiting from the ever-increasing customer-channel interaction, allowed us to produce customized and proactive
proposals, based on propensity models adjusted to each customer's needs and profile.
BES website was awarded the prize for "Best Investor Relations Site of the Iberian Peninsula" by MZ Consult, among 32
websites of Iberia's largest companies by market cap.
7. INTERNATIONAL ACTIVITY
A process aimed at streamlining and reorganizing BES' foreign branch network was launched at the end of 2002. The role
played by New York and London in the wholesale banking areas was emphasized, while Lausanne was given greater
prominence in the segment of Portuguese residents abroad. Still within the scope of this last segment, we now rely on
the active involvement of the newly formed BES Açores to address the Azorean communities.
The process aimed at merging the BESSA (Spain) and Espírito Santo Benito y Monjardín (ES-ByM) networks was started in
2002, while at the same time their central services were integrated and costs cuts were obtained. In 2003 BESSA will be
more focused on individuals, gearing corporate business to serve BES customers in Spain. In turn ES-B&M will continue
to operate in the financial markets and investment banking.
The restructuring process of InterAtlântico, SA (IASA) was completed in 2002, the entire stake held in Banco Bradesco,
SA (3.25%) being concentrated under BES. This process involved the disposal by Group BES of its controlling position in
IASA. The Bradesco partnership project was pursued, permitting to provide support to corporate customers with the
valuable assistance of BES Investimento do Brasil.
Group BES's acquisition of the entire share capital of Bank Espírito Santo International Limited (BESIL), headquartered
in the Cayman Islands, was another move in the Group's strategy to serve Portuguese communities abroad.
During its first year in operation BES Angola (BESA) made steady progress, particularly in the segments of private and
corporate customers.
The sale of the holding in Kredyt Bank (Poland), in the first quarter, yielded BES a capital gain of euro 18 million,
besides releasing the corresponding equity funds. This sale reflects BES Group's strategic move towards concentrating
resources allocated to international expansion in the Iberian Peninsula and other markets having affinities with
Portugal.
Still within the scope of the restructuring of the Group's international network, ES Bank (Florida) sold its 50%
holding in ES Bankest, a factoring company, thus placing greater focus on its private banking operations, namely those
related to Latin America.
Finally, BES's Securities Custody business at home and abroad was distinguished by the prize for "Best Settlement and
Clearing Bank in Portugal in Custody Services" awarded by the "Global Investor" international magazine.
THE BOARD OF DIRECTORS
This news release may include certain statements relating to the Banco Espírito Santo Group that are neither reported
financial results nor other historical information. These statements which include [targets, forecasts, projections,
descriptions of anticipated cost savings, statements regarding the possible development or possible assumed future
results of operations] and any statement preceded by, followed by or that includes the words "believes", "expects", "
aims", "intends", "may" or similar expressions or negatives thereof are or may constitute forward-looking statements
within the meaning of the United States Private Securities Litigation Reform Act of 1995, regulations, and case law.
By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty.
There are a number of factors that could cause actual results and developments to differ materially from those
expressed or implied by forward-looking statements. These factors include, but are not limited to, changes in economic
conditions in individual countries in which the BES Group conducts its business and internationally, fiscal or other
policies adopted by various governments and regulatory authorities of Portugal and other jurisdictions, levels of
competition from other banks and financial services companies as well as future exchange and interest rates. [Certain
of the factors that could affect actual results and developments are described in Banco Espírito Santo's Annual Report
and Form 20-F for the year ended December 31, 2001 under the heading "Risk Factors".]
Banco Espírito Santo does not undertake to release publicly any revision to the forward-looking information included in
this news release to reflect events, circumstances or unanticipated events occurring after the date hereof.
BANCO ESPIRITO SANTO
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2002
(Unaudited Figures)
2001 2002
(1,000 (1,000 EUR)
EUR)
NET ASSETS
Cash and deposits at the Central Banks 724,209 996,685
Loans and advances to credit institutions 1,241,259 844,117
repayable on demand
Other loans and advances to credit 3,901,525 5,674,990
institutions
(Provisions) -13,338 -8,870
Loans and advances to customers 24,569,111 25,797,087
(Provisions) -305,032 -367,308
Bonds and other fixed income securities 5,006,126 4,088,821
(Provisions) -76,625 -76,778
a) Issued by Government and Public entities 1,970,736 1,201,171
(Provisions) -15,668 -6,128
b) Issued by other entities 3,030,890 2,874,746
(Provisions) -60,957 70,650
c) Treasury stock 4,500 12,904
Shares and other variable income securities 483,920 720,805
(Provisions) -57,540 -102,800
Investments in associated companies 41,165 51,413
(Provisions) - -2,384
Other investments 871,798 943,113
(Provisions) -21,972 -32,004
Intangible assets 446,330 526,503
(Amortizations) -263,982 -341,601
Tangible assets 1,021,721 1,052,213
(Depreciations) -583,617 -626,747
Unpaid Capital
Own shares
Other debtors 558,364 495,908
(Depreciations) -17,622 -21,938
Prepayments and accrued income 996,830 1,628,234
TOTAL NET ASSETS 38,522,630 41,239,459
Amounts owed to credit institutions 7,536,692 7,678,765
a) Repayable on demand 338,698 333,232
b) With agreed maturity date 7,197,994 7,345,533
Amounts owed to customers 17,394,740 18,667,656
a) Savings accounts 2,506,628 2,338,075
b) Repayable on demand 6,879,626 7,321,027
c) With agreed maturity date 8,008,486 9,008,554
Debt securities 8,804,543 9,270,851
a) Bonds 7,001,237 7,613,710
b) Other securities 1,803,306 1,657,141
Other liabilities 243,181 188,914
Accruals and deferred income 695,257 782,850
Provisions for liabilities and charges 325,866 404,927
a) Pension plan and equivalent charges 47 4,660
b) Other provisions 325,819 400,267
Provision for general banking risks 59,838 12,894
Subordinated debt 1,443,293 1,695,799
Share capital 1,000,000 1,500,000
Share premium 192,950 300,000
Reserves 13,025 -18,433
Revaluation reserves -
Other retained earnings -
Minority interests 615,536 533,144
Consolidated net profit 197,709 222,092
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 38,522,630 41,239,459
BANCO ESPIRITO SANTO
CONSOLIDATED INCOME STATEMENT AT DECEMBER 31, 2002
(Unaudited Figures)
2001 2002
(1,000 (1,000 EUR)
EUR)
CREDIT
Interest and similar income 2,622,939 2,339,249
Income from securities 9,893 10,740
Commissions 342,739 343,387
Gains on financial operations 3,804,228 3,335,070
Replacements and cancellations of provisions 199,382 213,215
Results of associated companies and
subsidiaries
excluded from the consolidation 6,899 2,309
Other operating income 108,898 117,116
Extraordinary income 26,854 26,675
Minority interests 4,744
TOTAL CREDIT 7,126,576 6,387,761
DEBIT
Interest and similar costs 1,904,303 1,531,036
Commissions 69,090 53,087
Losses on financial operations 3,688,274 3,207,344
General administrative costs 591,934 588,002
a) Staff costs 320,521 323,109
b) Other administrative costs 271,413 264,893
Amortisation and depreciation 122,186 134,716
Other operating costs 5,142 6,380
Provisions for overdue loans and other risks 383,582 489,273
Provisions for financial investments 20,636 4,548
Extraordinary losses 38,275 67,557
Income taxes 38,554 39,079
Other taxes 12,382 10,365
Results of associated companies and
subsidiaries
excluded from the consolidation 1,379 2,245
Minority interests 53,130 32,037
Consolidated profit for the period 197,709 222,092
TOTAL DEBIT 7,126,576 6,387,761
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