TIDMEOS
ESPÍRITO SANTO FINANCIAL GROUP S.A. ANNOUNCES ITS UNAUDITED
CONSOLIDATED RESULTS FOR THE FIRST QUARTER OF 2014
Luxembourg/Portugal - 27 May 2014 - Espírito Santo Financial
Group S.A. ("ESFG" or the "Company") (NYSE Euronext Lisbon: ESF;
Bloomberg: ESF PL; Reuters: ESF LS) today announces its unaudited
consolidated results for the first quarter of 2014. The report is
compiled under IFRS as implemented by the EU.
HIGHLIGHTS FOR THE REPORTING PERIOD
ESFG's banking and insurance operations were constrained by
economic weakness in the Eurozone. Despite these challenges, and
noting signs of improvement in the economic landscape, ESFG's
principal banking subsidiary, BES, was able to greatly increase its
banking income and net operating income during the quarter. Banking
results were underpinned by strong results in capital markets
operations as well as a positive recovery in net interest income.
Provisioning however weighed on consolidated results. ESFG's
insurance operations continue to make a positive contribution to
consolidated results but decline during the period.
-- Consolidated Q114 Net Income fell to -EUR 37.0 million (-EUR
13.1 million in Q113);
-- Consolidated Banking Income rose by 9.6% to EUR 607.7 million
(EUR 554.3 million in Q113);
-- Consolidated Net Interest Income rose 19.3% to EUR 281.6
million (EUR 236.0 million in Q113);
-- Consolidated Net Fees and Commissions fell by 9.6% to EUR 160.0
million (EUR 177.0 million in Q113);
-- Consolidated Market Results1 and Other
Operating Income rose by 34.0% to EUR 189.4 million (EUR
141.3
million in Q113);
-- Consolidated Insurance Earned Premiums Net of Reinsurance rose
by 41.9% to EUR 137.6 million (EUR 97.0 million in Q113) and
includes
the full consolidation of the BES life insurance business BES
Vida;
-- Consolidated Claims Incurred (Net of Reinsurance) fell by 9.1%
to EUR 118.6 million (EUR 130.4 million in Q113);
-- Consolidated Operating Expenses rose by 25.7% to EUR 906.1
million (EUR 721.1 million in Q113). Consolidated expenses
include a
53.7% increase in depreciation, provisions and loan impairments,
net
of reversals;
-- Staff Costs and General Administrative Expenses rose by 0.8% to
EUR 299.4 million (EUR 296.9 million in Q113) with staff costs
up by
only 2.2% year-on-year;
-- On 15 May 2014 ESFG announced the dissolution of BESPAR. As of the
date of this report ESFG's direct and indirect economic stake in
BES
remains at 27.36%.
1 In its Q114 results BES reported that it maintained a positive
fair value reserve of EUR 290.0 million on its balance sheet which
relates to gains in public debt securities. (Aggregate of Net
Gains/Losses from Financial Assets at Fair Value through Profit and
Loss; Net Gains on Available for Sale Financial Assets, Net Gains
from Foreign Exchange Differences and Net Gains/Losses from the
Sale of Other Assets).
INDEX
1. Income Statement Summary [3]
2. Economic Environment [4]
3. Overview of Operations [5]
4. Operating Structure [10]
5. Operating Income
5.1 Banking [11]
5.2 Insurance [12]
5.3 Other Income [13]
6. Operating Expenses
6.1 Staff Costs & General Admin. Expenses [14]
6.2 Depreciation, Provisioning & Impairments [14]
6.3 Extraordinary Provisioning [14]
7. Solvency and Financial Strength [15]
8. Developments in Q114 and Subsequent Events [18]
9. Consolidated Financial Statements [20]
CONFERENCE CALL
A conference call for investors and analysts will be held on 27
May 2014 at 3:00 PM (UK & Portugal) / 4:00PM (CET) / 10:00AM
(Eastern). An instant replay of the call will be available for two
weeks. For details, please contact Miles Chapman at Taylor Rafferty
on telephone number +44 (0) 207 614 2916.
1.INCOME STATEMENT SUMMARY
(EUR Thousands) Q113 Q114 % ?
+ Net Interest Income 236 013 281 631 19.3%
+ Net Fees and Commissions 176 999 159 999 (9.6%)
= Commercial Banking Income 413 012 441 630 6.9%
+ Capital Markets Results 141 311 189 416 17.5%
& Other Operating Income
+ Insurance Earned Premiums* 96 993 137 602 41.9%
+ Dividend Income 1 872 4 206 -
= Operating Income 653 188 772 854 18.3%
- Staff costs and General Expenses 296 883 299 354 0.8%
- Depreciation, Provisioning 264 933 407 271 53.7%
and Impairments
- Claims* , Technical Reserves* 87 177 142 195 63.1%
& Commissions
- Other Expenses 72 111 57 302 (20.5%)
-Operating Expenses 721 104 906 122 25.7%
= Profit before Tax (inc. (65 145) (130 783) -
Gains from Financial
Investments & Share of
profit of Associates)
- Direct Taxes 47 126 36 689 (22.1%)
- Deferred Taxes (49 525) (35 881) (27.5%)
- Minority Interests (49 616) (94 607) 90.7%
= Net Income (13 130) (36 984) -
* Net of Reinsurance
2. ECONOMIC ENVIRONMENT
After starting on a positive note, the first quarter of 2014 saw
an increase in volatility in the financial markets. This was driven
by lacklustre economic indicators in the US, new signs of
deceleration in China and an escalation of geopolitical risk mainly
due to mounting tensions between the Ukraine and Russia. The
consequent increase in risk aversion led to increased demand for
safe haven assets, pushing Treasuries and Bund yields down by 31
bps and 36bps, to 2.72% and 1.57%, respectively, and so breaking
the upward yield trend seen in the previous quarters.
The main stock market indices oscillated between moderate
declines and moderate gains: in the US, the Dow Jones retreated
0.72% in the first three months of the year, while the Nasdaq and
S&P 500 rose by 0.54% and 1.3% respectively. In Europe, the DAX
and CAC 40 edged up by 0.04% and 2.2%, while the FTSE 100 fell by
2.2%. Mirroring the existing concerns with the emerging markets, in
Brazil, the Bovespa retreated by 2.1% while in China the Shanghai
Composite lost 3.9%.
Despite these factors, the principal advanced economies
continued to show signs of an economic upturn. In the US, the first
quarter's uninspired performance was mainly due to poor weather
conditions, as the available indicators for the start of the second
quarter again suggest a strengthening of activity. The Fed
therefore continued to taper quantitative easing. In the Eurozone,
quarterly growth is estimated to have risen from 0.3% to close to
0.4%, as activity picked up and financial conditions in the
periphery stabilised. The improvement in sentiment towards the
periphery economics led to a 206 bps drop, to 4.073%, in the yield
on the 10-year Portuguese Treasury bonds, with yields continuing to
fall during the second quarter of 2014, reaching close to 3.7%.
This movement, which was shared with the other peripheral
economies, was also supported by expectations of new monetary
stimuli from the ECB, taking into account the drop in the Eurozone
year-on-year inflation to 0.5%.
Bolstered by the reduction of the government deficit (4.9% of
GDP in 2013) and the improvement in the external accounts (a
surplus of 2.0% of GDP in 2013), the Portuguese Treasury
successfully placed two long-term debt issues (with maturities of 5
and 10 years), for an overall amount of EUR 6.25 billion. After
rising by 1.7% in the fourth quarter of 2013 (the first positive
change in 12 quarters) Portugal's GDP is believed to have grown by
2.0% year-on-year in the first quarter of 2014, underpinned by the
still favourable performance of exports and a moderate recovery of
domestic demand. The PSI-20 advanced by close to 16.0% in the
period.
3. OVERVIEW OF OPERATIONS
ESFG's unaudited consolidated net results for the first quarter
of 2014, attributable to equity holders of the Company fell to -EUR
37.0million:
Results of ESFG's core operations continued to be constrained by
the challenges of economic weakness in the Eurozone and the impact
of the Financial Adjustments' Programme adopted by Portugal. ESFG
notes however that on 17 May 2014 the Republic of Portugal made a
Clean Exit from the assistance programme. The performance of ESFG's
principal banking investment, BES, was affected by insolvencies in
Portugal, impacting on impairment levels and the need to provide
adequate provisioning. Quarterly banking income results both in
late 2013 and into 2014, however, show clear improvements.
Consolidated contributions from ESFG's other banking operations
remain positive, though reduced when compared to the first quarter
of 2013. ESFG's consolidated life and non-life insurance results,
through BES and Tranquilidade, continue to contribute positively in
the reporting period.
Total consolidated assets at ESFG declined by 2.6% year-on-year
to EUR 86.42 billion by the end of March 2014 from EUR 88.75
billion at the March 2013 (EUR 84.85 billion at the end of December
2013).
ESFG continues the simplification of its investment structure
through the sale of no core assets, as well as the dissolution of
BESPAR (see note 7.2). In the first quarter of 2014 ESFG underwent
divestments, namely the sale of its stake in BES Vénétie to BES and
the IPO of a material stake in its healthcare investment; Espírito
Santo Saúde. In early April 2014 ESFG sold its remaining stake in
Banco BEST to BES which now hold 75.0% of the company.
On 15 May 2014 ESFG announced that it had ended its partnership
with the Crédit Agricole Group ('CASA') by the dissolution of
BESPAR, and the division of the holding company's assets;
specifically the 35.3% stake in the shares in Banco Espírito Santo
('BES'). Following the dissolution ESFG holds, directly and
indirectly, a BES shareholding of 27.36% and therefore no longer
consolidates the voting rights of Crédit Agricole shareholding in
BES through BESPAR.
On the same date ESFG's fully owned insurance subsidiary
Tranquilidade acquired a 10.0% in ESAF and a further 50.0% stake in
BES Seguros from CASA, Tranquilidade now hold 75.0% of the non-life
insurance operator. The acquisition of the stake on BES Seguros
remains subject to regulatory approval (see note 3.3).
Also on 15 May 2014 BES announced its intention to raise new
capital through a EUR 1.045 billion rights issue. ESFG intends to
subscribe, in whole or part, to the Rights Issue. On 22 May 2014
the BES went ex-Rights and the capital raise process is expected to
be complete by the middle of June.
3.1 Banco Espírito Santo
BES remains the single most important asset held by ESFG, the
Bank's contribution to consolidated results is a key driver to the
Company's financial results. On 15 May 2014 BES reported a strong
improvement in its quarterly banking income and net operating
profit, at EUR 576.5 million (a year-on-year increase of 27.1%) and
EUR 290.1 million (a year-on-year increase of 67.5%) respectively.
Net results however fell to -EUR 89.2 million as BES continues to
strengthen its provisions for impairments on the Bank's activities
with a special focus on the coverage of risks relating to the
loans' book. Impairments in the first quarter 2014 totalled EUR
136.6 million, versus a quarterly average in 2013 of EUR 129.4
million.
Capital markets and other results reached EUR 154.7 million, a
significant increase over previous quarters. Results were driven by
interest rate business, with substantial gains achieved from the
fall in the Republic of Portugal's yield curve. The Bank also
reported that it maintained a positive fair value reserve of EUR
290.0 million on its balance sheet which relates to gains in public
debt securities.
The Bank's credit impairment cost increased by 47.6% to EUR
276.3 million (with an annualised charge of 2.17% versus FY13:
2.02%); provisions for securities were reinforced by EUR 46.1
million from EUR 18.5 million in Q113 due to impairment losses in
credit restructuring funds, while provisions for real estate
totalled EUR 47.7 million from EUR 25.2 million in Q113. As a
result the total impairment cost in the period was EUR 380.6
million, up by 7.0% on the 2013 quarterly average.
Deleveraging continues as BES where assets decreased by EUR 2.1
billion, a decline of 2.5% year-on-year. Net customer loans fell by
EUR 1.1 billion or -2.3% year-on-year, securities fell by EUR 1.7
billion or -8.8% year-on-year. Deposits and insurance products
increased by EUR 0.5 billion whilst debt securities decreased by
EUR 1.8 billion. The loan to deposits' ratio rose to 129%, having
touched 121% at yearend 2013, following the full consolidation of
BES Vénétie and the recognition of its EUR 1.3 billion loans book
and EUR 400.0 million deposit base.
The Provisions for Credit / Gross Loans ratio increased to 7.16%
from 6.81% at yearend 2013. The Coverage of Credit at Risk ratio
remained stable at 64.2% from 64.5% at yearend 2013. The ratio of
overdue loans over 90 days/gross loans rose to 6.0% from 5.7% as of
31 December 2013 and on-balance sheet provisions for credit
impairments increased to EUR 3.6 billion versus EUR 3.4 billion at
year end 2013 and EUR 2.8 billion in the same quarter of 2013.
Contributions from the Bank's international operations in the
quarter however rose sharply, year-on-year to EUR 13.9 million from
EUR 4.4 million in Q113. International banking income grew by
60.7%, underpinned by a 32.3% increase in net interest income and
positive capital markets and other results of EUR 31.4 million
against -EUR 15.6 million in Q113. The 4.6% year-on-year increase
in operating costs and the EUR 89.7 million provisioning cost
prevented the international units from making a more significant
contribution to the consolidated results at the Bank.
Investment banking activities at ESFG, through the investment
banking subsidiaries Espírito Santo Investment Bank ('BESI'),
include advisory services in project finance, mergers and
acquisitions, placements of shares and bonds, stock-broking and
other investment banking services. Banking Income at BESI rose by
43.3 % year-on-year to EUR 91.1 million with the non-Portuguese
business accounting for 44.0% of total business. Pre-tax profits
for the period rose to EUR 19.5 million as the investment bank
reported a two fold increase in capital markets and other results.
Provisioning however rose to EUR 30.6 million, operating costs
declined by 4.6% to EUR 41.0 million from EUR 43.0 million in the
same period in 2013.
3.2 Other Banking, Wealth and Asset Management Operations
ESFG's Swiss private banking operations, Banque Privée Espírito
Santo ('BPES'), reported a net profit in the first quarter of 2014
of CHF 0.5 million under Swiss GAAP, down from CHF 0.8 million in
the same period of the previous year. Gross income, however grew
year-on-year by 10.6 % to CHF 2.5 million. Increased provisioning
weighed on net results.
The strength of the Bank's commercial activity is reflected in
Assets under Management ('AuM') which now exceed CHF 5.60 billion,
an increase of 13.8% year-on-year. Net new money amounted to CHF
68.7 million since the beginning of the year. AuM at BPES' Branch
in Portugal reached EUR 275.0 million increasing by 24.0% on a
year-on-year basis. BPES Portuguese branch increased its
contribution to BPES consolidated Net profit to EUR 320 thousand up
by 7.0% when compared to the same period last year.
At Espírito Santo Wealth Management (Europe) S.A. ('ES Wealth'),
a wholly owned subsidiary of BPES, AuM has reached EUR 287.4
million. Operations in Spain, with the first branch opened in
Madrid, began in the first quarter 2014. In February 2014, ESW
asked the Luxembourg Financial Regulator ('CSSF') for an
authorization to begin operations in Italy.
BPES also received the final approval from the Brazilian Central
Bank ('BACEN') to acquire up to a 20.0% share capital of E.S.
Serviços Financeiros S.A. a licensed Asset Manager with offices
located in São Paulo and Rio de Janeiro.
Net Income at ES Bankers (Dubai) Limited ('ESBD'), wealth
management operations, rose to USD 2.0 million from USD 1.3 million
a year earlier, a rise of 66.0% year-on-year. Banking income grew
to USD 5.5 million. The quarterly results reflect the Bank's new
strategy and repositioning for the future, whilst the personnel
levels at the Bank have almost doubled from one year ago (Cost to
Income of 62.0%).Fees and Commissions rose by over 35.0% when
compared to Q1 of 2013, from USD 2.7 million in Q113 to USD 3.6
million by Q114. The Bank's lending to customers reflects the
conservative approach, with LtD ratio stable around 28.0%. Q114
ended with USD 2.2 billion of Assets under Management with USD
323.0 million of Net New Money with 230 new accounts opened.
Banking activity at ES Bank (Panama) S.A. ('ESBP') remains
positive. Individual net income in Q114 rose to USD 5.0 million
from USD 4.2 million in Q113, an increase of 20.3%. NII rose by
9.5% to USD 5.8 million during the period from USD 4.7 million a
year earlier. Fees and Commissions increased to USD 0.4 million in
Q114 from USD 0.2 million in Q113. Banking Income rose to USD 6.2
million. Staff costs and general administrative expenses rose to
USD 1.1 million as ESBP develops new business channels focusing on
wealth management.
At Banque Espírito Santo et de la Vénétie ('BESV') (France)
pre-tax profits rose to EUR 5.3 million from EUR 2.8 in Q113 a
year-on-year improvement of 86.0%. Banking income rose by 29.0% to
EUR 13.2 million in Q114. Operating costs at the bank fell by 7.0%
to EUR 6.2 million. On 14 February 2014 ESFG announced that it has
sold its full 44.81% stake in BESV to BES. BES now fully
consolidates the French banking operations.
Banco BEST, principally owned through BES but in which ESFG
owned a 9.0% direct stake during the reporting period, reported a
net individual quarterly net income of EUR 4.8 million, a rise of
19.0% year-on-year. The internet banking operation focuses on the
provision of online trading and investment services. The Bank
reported EUR 2.5 billion of Assets under Custody. On 2 April 2014
announced that ESFG's remaining 9.0% stake in BEST was sold to BES.
As of that date BES holds a direct stake of 75.0%.
At ESAF- Espírito Santo Activos Financeiros, SGPS, S.A.
('ESAF'), which operates within Portugal, Spain, Brazil, Angola,
Luxembourg and the United Kingdom, announced that at the end of
Q114 the global volume of assets under management reached EUR 16.9
billion, a year-on-year increase of 9.1%. ESAF holds a market share
in Portugal of 15.5%, a rise of 0.8% from yearend 2013. Net results
reached EUR 5.0 million, 6.3% above budget. The 15.4% year-on-year
decline was due to non-recurrent results in Q113 which included
results from ESAF's operations in Spain.
In Portugal, the year-on-year increase in pension funds, asset
management and real estate investment funds contributed
significantly to the increase, while in the international business,
there was an increase in volume under management in Luxembourg.
3.3 Insurance
ESFG's insurance operations contributed positively to the
overall net profit of the Group in the first quarter of 2014
despite a difficult operating environment in Portugal. Income
generated from the Group's insurance operations are consolidated
from both ESFG's fully owned Companhia de Seguros Tranquilidade,
S.A. ('Tranquilidade') operations and through BES' consolidation of
its life business; BES Vida, Companhia de Seguros ('BES Vida'). By
the end of the reporting period, ESFG's consolidated life and
non-life operations remained the largest fully privately owned
insurance group in Portugal with a combined market share of
22.5%.
In the first quarter of 2014 Tranquilidade's net individual
income reached EUR 8.1 million, a year-on-year decline of 14.7%.
Tranquilidade's insurance earned premiums (net of reinsurance)
increased by 1.5% year-on-year to EUR 68.4 million from EUR 67.4
million a year earlier. Claims at Tranquilidade and changes on
technical reserves and commissions reached EUR 76.5 million,
compared to EUR 69.7 million in the first quarter of 2013, an
increase of 9.7%. The expense ratio stood at 24.0%. Tranquilidade,
which acts as a holding company for ESFG's interests in T-Vida,
LOGO, BES Seguros and others, reported continued geographical
growth as operations expand in Mozambique and Angola in 2014.
T-Vida reported an individual net income of EUR 1.3 million, a
year-on-year increase of 9.9%. Premiums increased by 4.9%. Risk
products continue to be the main focus for ESFG's insurance
operations in its Life business though the largest growth was in
PPR's products (retirement savings plans). The technical margin
increased by 4.5% from EUR 1.5 million in Q113 to EUR 1.6 million
in Q114, mainly due to an increase in premiums. Operating costs
decreased by 2.9% year-on-year to EUR 1.5 million.
On 15 May 2014 Crédit Agricole sold to Tranquilidade 10.0% of
the share capital of ESAF-Espírito Santo Activos Financeiros, SGPS,
S.A. ('ESAF'), and 50.0% of BES Companhia de Seguros, S.A. ('BES
Seguros'). As of that date Tranquilidade holds a 75.0% stake in BES
Seguros. The completion of the sale of the shareholdings at ESAF
and BES Seguros is subject to market conditions and in respect to
BES Seguros, the approval of the competent supervisory or
regulatory authorities. Once regulatory approval has been received
Tranquilidade will have management control of the non-life insurer
and will fully consolidate its operations.
The assurfinance programme of cross-selling banking products
through its agents accounted for 19.7% of new clients at BES and
represents 9.5% of the total increase in retail assets under
management. Tranquilidade's distribution network is made up of
approximately 1,700 points of sale, of which 34 are own branches
and 169 tied agent stores. BES's partnership with ESFG's insurance
agents Tranquilidade under the assurfinance programme helps support
the Groups cross-selling activities.
At BES Vida, a wholly owned subsidiary of BES, net income
decline year-on year from EUR 70.3 million in Q113 to EUR 37.7
million in Q114. Life product production reached EUR 648.1 million
in the period, a rise in premiums of 39.6% year-on-.year. Customer
funds at BES Vida rose by 35.4% to EUR 6.54 billion from EUR 4.83
billion a year earlier.
4. OPERATING STRUCTURE - 27 May 2014
[ Objects omitted ]
PRINCIPAL ITEM ANALYSIS
5.Operating Income:
ESFG is a financial holding company, with its shares quoted on
the Luxembourg, London and NYSE Euronext Lisbon exchanges. It
consolidates the financial results from its broad range of banking
and insurance investments.
5.1 Banking Income:
Consolidated Net Interest Income ('NII') rose by 19.3%
year-on-year to EUR 281.6 million from EUR 236.0 million in Q113.
NII, which is principally driven by the BES consolidation, derived
from the Bank's international performance namely through the rise
in Net Interest Margin (NIM) at BES Angola as well as a positive
improvement in the domestic market of Portugal.
The net interest margin ('NIM') improved to 1.59% in Q114 from
1.28% in Q113 due to the reduction in the average rate of
liabilities, to 3.03% down by 30 bps year-on-year. The average rate
on assets remained flat at 4.62%. The decline in the cost of
liabilities resulted from reductions in the average rate paid for
both deposits, down by 59 bps, and debt securities and other
interest bearing liabilities which fell 35 bps. The results reflect
the general improvement in the financial system liquidity as a
result of the deleveraging effort and the gradual opening of the
debt markets to the Eurozone peripheral countries which includes
Portugal.
Consolidated Fees and Commissions (Net of Expenses) decreased by
9.6% year-on-year to EUR 160.0 million (EUR 177.0 million in Q113).
The decline was due to a reduction in domestic commissions in
Portugal as a result of the on-going deleveraging process at BES.
Commission income contracted across all banking services provided
to the clients, except for commissions on securities, which were up
by 21.2%, notably commissions on the sale of treasury bonds and
public offers for sale in the equity market.
Furthermore at BES there was a reduction in commissions on
collections, down by 24.1% year-on-year. Commission income on loans
and other was down by 19.6%, reflecting not only the overall
contraction of the loans book but also reduced demand for corporate
and project finance solutions. Commissions on documentary credit
fell by 12.7% as origination of new trade finance transactions with
emerging countries slowed. Commissions on guarantees declined by
11.4% commercial paper operations slowed. Commissions on asset
management declined by 9.2% with funds under discretionary
management down year-on-year.
Consolidated Capital Markets totalled EUR 164.4 million in Q114
from EUR 111.3 million reported in Q113, a year-on-year rise of
47.6%. Capital market results reflect the consolidated trading
activity of BES. It reported that its capital market results were
greatly improved by its interest rate related business. BES'
exposure in March 2014 to Portuguese, Spanish and Italian sovereign
debt reached EUR 6.59 billion. 50.0% of sovereign exposure was in
T-bills and debt maturing in less than 5 years and a further 50.0%
in debt of over 5 years, reflecting the well-considered duration
profile of investments. Equity trading also showed positive
results, but to a lesser degree.
5.2 Insurance Income:
Consolidated Insurance Earned Premiums Net of Reinsurance
increased by 41.9% to EUR 137.6 million in the first quarter of
2014 from EUR 97.0 million a year earlier. ConsolidatedClaims
Incurred (Net of Reinsurance) fell by 9.1% year-on-year to EUR
118.6 million (EUR 130.4 million in Q113). Whilst insurance
commissions remained stable, the change in the technical reserves,
net of reinsurance, rose to EUR 17.9 million from -EUR 49.9
million. Results include the full consolidation of both ESFG's
direct investments in Tranquilidade and the BES life and non-life
insurance operations.
Tranquilidade's net individual income reached EUR 8.1 million, a
year-on-year decreased of 14.7%. Technical results net of
reinsurance decrease during the period by 39.5% to EUR 6.3 million.
The comparable period's results in 2013 were affected by the storms
that affected Portugal in the first quarter 2013. Financial results
reached EUR 18.3 million in Q114. Operating costs stood at EUR15.6
million. Tranquilidade's individual market share stood at 8.4%.
During the first quarter of 2014 Tranquilidade's market share in
workers' compensation, fire and other damages and motor stood at
11.5%, 8.7% and 8.4% respectively compared to 10.2%, 8.3% and 8.4%
in the first quarter of 2013.
T-Vida reported an individual net income of EUR 1.3 million, a
year-on-year increase of 9.9%. Premiums increased by 4.9%. Risk
products continue to be the main focus for ESFG's insurance
operations in its Life business though the largest growth was in
PPR's products (retirement savings plans). The technical margin
increased by 4.5%, (from EUR 1.5 million in Q113 to EUR 1.6 million
in Q114), mainly due to an increase in premiums. Operating costs
decreased by 2.9% year-on-year to EUR 1.5 million.
ESFG's Angolan and Mozambican life and non-life insurance
operations, through Tranquilidade, which began in 2012, report
individual results of EUR 0.1 million and EUR -0.1 million
respectively but are expected to continue to contribute positively
to full year results in 2014. Tranquilidade's direct insurance
business, LOGO, reported that its customer base had reached 116.210
clients and that gross written premiums of amounted to EUR 4.9
million in the first quarter. LOGO is currently the third largest
direct insurer in Portugal. The motor claims ratio at LOGO
decreased by 5.8 p.p. from 66.4% in Q113 to 60.6% in Q114.
AdvanceCare, ESFG's managed care platform for healthcare
insurers provides the link between the Company's insurance
operations and healthcare providers. The care manager continues to
provide strong results, in the period ending March 2014 its net
individual income stabilized at EUR 0.5 million from EUR 0.7
million a year earlier. AdvanceCare is a joint venture between
Tranquilidade and United Health Group. In 2013 the managed care
company is estimated to have handled one third of healthcare claims
made through all insurance companies in Portugal. Tranquilidade
maintains management control.
Tranquilidade's assistance service provider, Europ-Assistance
(Portugal), jointly held with Europ Assistance Holding (France)
reported a 11.0% decrease in individual results to EUR 1.0 million
by the end of March 2014 from EUR 1.1 million a year earlier.
Tranquilidade has a 47.0% economic stake in the operations.
5.3 Other Income:
Consolidated Net Other Operating Income declined to EUR 25.1
million from EUR 30.0 million.
Dividend Income rose to EUR 4.2 million (EUR 1.9 million in
Q113) payments remain constrained but have improved year-on-year.
Consolidated dividend income reflects income from certain equity
investments at BES.
6. Operating Expenses:
6.1 Consolidated Staff Costs and General Administrative Expenses
rose by 0.8% to EUR 299.4 million from EUR 296.9 million in Q113. A
0.8% rise in staff costs resulted from ESFG Group strict control
over variable salaries both in Portugal and throughout the 27
countries ESFG operates in. ESFG's strategy of further internal
expansion saw increased staff costs in developing markets such as
BES Angola.
6.2 Consolidated Costs due to Depreciation, Provisioning and
Impairments rose by 53.7% year-on-year to EUR 407.3 million from
EUR 264.9 million in Q113 which was the principle factor in the
25.7% year-on-year rise in Operating Expenses from EUR 721.1
million in Q113 to EUR 906.1 million in Q114.
As the economic picture in ESFG's principal market, Portugal,
continues to show weakness the balance of provisions for credit BES
has increased to EUR 380.6 million in the period, a year-on-year
rise of 58.5%. At BES, as at the end of Q114, provisions for credit
registered in the Balance Sheet totalled EUR 3.65 billion a rise of
29.3% year-on-year. The credit provisions/gross customer loans
ratio rose to 7.2% from 6.8% as of 31 December 2013.
6.3 Extraordinary Provisioning and Guarantee. As reported in
ESFG's full year 2013 results on 28 April 2014 ESFG's full year's
accounts included a EUR 700.0 million extraordinary provision which
relates to the potential risks that could arise from the fact that
some of ESFG Group's clients are exposed, through debt issuance, to
Espírito Santo International ('ESI').
Despite not being responsible for ESI's financial position ESFG
recognised that in 2013 ESI was subject to a special purpose
limited review, regarding its pro-forma consolidated financial
statements for 9M13 and FY13, carried out by an external auditor,
at the request of the Bank of Portugal, which revealed material
irregularities in ESI's financial statements.
Also, as part of ESFG's measures, a guarantee has been put into
place to ensure the timely reimbursement of the commercial paper
issued by ESI and placed with BES retail clients. The outstanding
amount of commercial paper held by BES retail clients has fallen to
less than EUR 300.0 million as of 27 May 2014. The reduction has
been achieved through the ongoing deleverage and re-organisation
plan at ESI. Final reimbursements to BES retail investors are
expected to be concluded in early December 2014. ESFG remains
committed in its support of its subsidiaries through the provision
of the guarantee.
Other than the provision, as disclosed in Note 41 to the
Consolidated Financial Statements of ESFG as at 31 December 2013,
and the contingency associated with the guarantee mechanism
approved by the Board of Directors of ESFG in favour of retail
clients from 1 April 2014, ESFG is not liable for the debts owed by
ESI.
6.4 Other Expenses fell year-on-year by 53.3% to EUR 33.7
million from EUR 72.1 million in Q113.
7. Solvency, Regulation and Financial Strength:
7.1 Solvency and Regulation
On June 26th, 2013 the European Parliament and the Council
approved Directive 2013/36/EU and Regulation (EU) no. 575/2013,
which, as from 1 January 2014, regulate in the European Union,
respectively the access to the activity of credit institutions and
the prudential supervision of credit institutions and investment
firms, and the prudential requirements for these institutions.
Bank of Portugal's Notice 6/2013, of 30 December 2013
established transitional arrangements for own funds, under said
Regulation, and laid down measures to preserve those funds,
determining a Common Equity Tier 1 Ratio of no less than 7%.
As the table shows, on 31 March 2014 ESFG Group's capital ratios
were above the minimum established levels (considering phasing in
application of the new regulation):
EUR million
31 March 2014(1)
Fully
Phasing in implemented
Risk Weighted Assets (A) 64 404 63 609
Banking Book 59 446 58 651
Trading Book 1 704 1 704
Operational Risk 3 254 3 254
Regulatory Capital
Common Equity Tier I (B) 5 342 3 938
Tier I (C) 5 342 4 003
Tier II and Deductions 1 108 1 473
Total (D) 6 450 5 476
Common Equity Tier I Ratio (B/A) 8.3% 6.2%
Tier I Ratio (C/A) 8.3% 6.3%
Solvency Ratio (D/A) 10.0% 8.6%
(1) - Preliminary data considering that the waiver of art. 84
(5) of CRR is obtained and that the minority interests in BESPAR do
meet the eligibility requirements set out on art. 81 of the CRR;
RWAs do not include the Sovereign Guarantee provided to BES
Angola
The Common Equity Tier 1 Ratio was 8.3%, according to phasing in
rules (Bank of Portugal minimum requirement: 7%) and 6.2%, if fully
implemented.
According to Notice 6/2013, under the transitional regime,
unrealised gains on assets measured at fair value (EUR 290.0
million in March 2014) are fully excluded from Common Equity Tier 1
in 2014.
ESFG's capital ratios are augmented by the full consolidation of
BES. ESFG notes that on the 15 May 2014 BES announced a rights
issue of EUR 1.045 billion. Following its successful completion BES
expects to further strengthen its capital ratios by 162 bps in
order to meet, and exceed, the new regulatory framework known as
CRD IV, applicable to EU financial institutions from 1 January 2014
and also to meet the upcoming stress tests and Asset Quality Review
('AQR') to be completed before the ECB assumes the supervisory role
for EU banks. ESFG's continued consolidation of BES would translate
into the consolidation of the improved solvency position.
7.2 Recent Changes to ESFG Shareholding in BES
Following the recent announcement by ESFG of the dissolution of
BESPAR on 15 May 2014 ESFG no longer consolidates the full number
of shares held at the jointly owned holding company with Crédit
Agricole. On that date BES also announced its rights issue, ESFG
informed that it intends to subscribe for new shares, in whole or
in part, by subscription or by the sale of part of its subscribed
rights in order to reinvest the proceeds of such a sale.
As of 27 May 2014 ESFG holds, directly and indirectly, 27.36% of
BES. Following the completion of the rights issue process, expected
by mid-June, ESFG expects that its economic stake in BES will be
reduced. The reduction in consolidated voting rights in BES
following the dissolution of BESPAR, and the reduction in its stake
following the rights issue is likely to cause the Bank of Portugal
('BoP') to review the need for ESFG to remain as the regulated
entity in favour of BES. ESFG is awaiting the BoP's decision.
7.3 External Debt
ESFG's external debt at the end of the period remained unchanged
from yearend 2013 at EUR 780.2 million (falling from a high of EUR
1.3 billion in late 2011). ESFG has reduced interest costs through
liability management in recognition of reduced dividend income from
its subsidiaries.
On 25 November 2013, ESFG announced the launch of EUR 200.0
million bonds, exchangeable into BES. The coupon was set at 3.125%
and matures in December 2018. The proceeds were used to repurchase
EUR 135.6 million of an outstanding convertible into ESFG
shares.
ESFG's EMTN and ECP programmes provides, and guarantees, the
establishment of liquidity to its fully owned subsidiary Espírito
Santo Financière (ESFIL). In 2013, ESFIL launched and priced its
sole senior EUR 200 million two-year note from the EUR 2.0 billion
EMTN programme. At the end of March 2014, ESFIL had utilised EUR
248.3 million of the EUR 1.0 billion ECP programme
7.4 Credit Rating
ESFG is rated by two international rating agencies: DBRS and
Moody's. The ratings as of 27 May 2014 are:
Short Term Long Term Comment Date of Rating
DBRS R-2 (Middle) BBB (Low) Neg. Outlook 07/05/13
Moody's NP B2 Neg. Outlook 25/12/13
8. DEVELOPMENTS DURING Q114 AND SUBSEQUENT EVENTS
-- On 15 May 2014 ESFG announced the dissolution and division of assets
held at BESPAR.
-- On 15 May 2014 ESFG announced that the fully owned subsidiary
Tranquilidade had purchased a 10.0% stake in ESAF and an
additional
50.0% stake in BES Seguros.
-- On 28 April 2014 ESFG published its audited annual report and accounts
and consolidated financial statements for the full year 2013.
The
report and accounts are to be approved at ESFG´s AGM on 30 May
2014.
-- On 2 April 2014, ESFG sold its remaining 9.0% stake in Banco BEST to
BES.
-- On 18 March 2014, ESFG announced that it had sold a 10.63% stake in
Espírito Santo Saúde, as part of the healthcare company's
IPO,
launched on 6 February. The sale, which included the
over-allotment
option, leaves ESFG with a 3.38% direct stake in the
company.
-- On 7 March 2014, ESFG informed that Mr. Mário Mosqueira de Amaral, a
member of the Board, had passed away.
-- On 14 February 2014, ESFG announced the sale of its 44.81% stake in
BES Vénétie to BES.
CONTACTS
Espírito Santo Financial Group Taylor Rafferty
Filipe Worsdell Miles Chapman
+44 (0) 203 4292 100 +44 (0) 207 614 2916
fworsdell@esfg.com miles.chapman@taylor-rafferty.com
The Espírito Santo Financial Group provides, through its
subsidiaries, a global and diversified range of financial services
to its clients including Commercial banking, Insurance, Investment
banking, Stock-brokerage, Private banking and Wealth Management in
Portugal and internationally. For additional information on
Espírito Santo Financial Group, its subsidiaries, operations and
results, please visit the Company's website on www.esfg.com.
- Tables to follow -
ESPÍRITO SANTO FINANCIAL GROUP SA
CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH 2014,
30 MARCH 2013 AND
31 DECEMBER 2013
3/31/2014 3/31/2013 12/31/2013
unaudited unaudited audited
(in thousands of euro)
Assets
Cash and deposits at central banks 1 950 725 1 462 145 1 828 674
Deposits with banks 1 279 576 942 673 1 148 934
Financial assets held for trading 2 641 829 4 160 199 2 488 465
Other financial assets at fair 3 724 724 2 481 350 3 564 118
value through profit or loss
Available-for-sale financial assets 11 701 687 13 731 883 8 929 778
Loans and advances to banks 2 794 757 2 574 391 4 827 790
Loans and advances to customers 48 944 897 51 234 206 49 270 667
Held-to-maturity investments 1 687 954 1 096 844 1 672 068
Derivatives for risk 322 383 450 190 363 391
management purposes
Non-current assets held for sale 3 510 415 3 493 285 3 567 011
Property and equipment 969 483 1 022 264 974 229
Investment properties 715 355 749 849 719 422
Intangible assets 604 894 696 924 608 269
Investments in associates 540 255 642 867 606 473
Technical reserves of 81 677 81 946 76 899
reinsurance ceded
Current income tax assets 36 142 26 408 40 967
Deferred income tax assets 1 067 191 800 409 1 064 883
Other assets 3 845 779 3 101 492 3 097 613
Total assets 86 419 723 88 749 325 84 849 651
Liabilities
Deposits from central banks 9 862 959 9 947 129 9 772 244
Financial liabilities 1 424 239 1 938 168 1 336 768
held for trading
Deposits from banks 5 299 043 5 648 377 5 033 494
Due to customers 36 934 480 38 404 878 38 093 807
Debt securities issued 13 441 442 15 244 348 12 615 208
Derivatives for risk 114 049 161 883 130 710
management purposes
Investment contracts 5 079 192 3 563 551 4 473 921
Non-current liabilities 155 098 175 651 153 580
held for sale
Provisions 923 405 250 062 917 020
Technical reserves of 2 681 086 2 455 927 2 643 156
direct insurance
Current income tax liabilities 169 853 239 708 122 313
Deferred income tax liabilities 129 284 140 889 96 972
Subordinated debt 1 319 126 1 174 553 1 403 188
Other liabilities 2 254 909 1 298 744 1 345 833
Total liabilities 79 788 165 80 643 868 78 138 214
Equity
Share capital 207 075 207 075 207 075
Treasury shares ( 2 786) ( 3 441) ( 3 459)
Share premium 884 856 884 856 884 456
Preference shares 51 367 55 978 51 367
Other equity components 26 418 58 100 26 418
Capital reserve not available 700 970 700 970 700 970
for distribution
Fair value reserve 56 794 22 063 ( 3 208)
Other reserves and ( 615 733) 312 208 284 548
retained earnings
Result for the period attributable ( 36 984) ( 13 130) ( 864 031)
to equity holders of the Company
Total equity attributable to equity 1 271 977 2 224 679 1 284 136
holders of the Company
Non-controlling interest 5 359 581 5 880 778 5 427 301
Total equity 6 631 558 8 105 457 6 711 437
Total equity and liabilities 86 419 723 88 749 325 84 849 651
ESPÍRITO SANTO FINANCIAL GROUP SA
CONSOLIDATED INCOME STATEMENT
FOR THREE MONTH PERIODS ENDED
31 MARCH 2014 AND 2013
3/31/2014 3/31/2013
Unaudited Unaudited
(in thousands of euro)
Interest and similar income 865 618 900 640
Interest expense and similar charges 583 987 664 627
Net interest income 281 631 236 013
Dividend income 4 206 1 872
Fee and commission income 210 983 224 890
Fee and commission expenses ( 50 984) ( 47 891)
Net gains / (losses) from financial ( 58 235) ( 65 004)
assets and financial
liabilities at fair value
through profit or loss
Net gains / (losses) from available-for-sale 206 998 161 968
financial assets
Net gains from foreign exchange differences 13 300 19 162
Net gains / (losses) from 2 305 ( 4 790)
the sale of other assets
Insurance earned premiums net of reinsurance 137 602 96 993
Other operating income 25 048 29 975
Operating income 772 854 653 188
Staff costs 177 664 173 836
General and administrative expenses 121 690 123 047
Claims incurred net of reinsurance 118 603 130 406
Change on the technical reserves 17 911 ( 49 863)
net of reinsurance
Insurance commissions 5 681 6 634
Depreciation and amortisation 30 172 28 517
Provisions net of reversals 6 299 ( 4 527)
Loans impairment net of reversals 270 089 180 510
and recoveries
Impairment on other financial 46 086 18 299
assets net of reversals
Impairment on other assets net of reversals 54 625 42 134
Other operating expenses 57 302 72 111
Operating expenses 906 122 721 104
Result on disposal of investments ( 2 837) -
in subsidiaries and associates
Share of profit of associates 5 322 2 771
Profit before income tax ( 130 783) ( 65 145)
Income tax
Current tax 36 689 47 126
Deferred tax ( 35 881) ( 49 525)
808 ( 2 399)
Profit for the period ( 131 591) ( 62 746)
Attributable to equity holders of the company ( 36 984) ( 13 130)
Attributable to non-controlling interest ( 94 607) ( 49 616)
( 131 591) ( 62 746)
This information is provided by Business Wire
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