Sant Uk.10te% Regulatory News (SAN)

8 Feb 2006 07:30

Abbey National PLC08 February 2006 Abbey exceeds 2005 targets London, 8 February 2006 This statement provides a summary of the business and unaudited financialresults for the year ended 31 December 2005. The statement details the 2005 year-end results prepared on an InternationalFinancial Reporting Standards (IFRS) accounting basis, and compares to a 2004result on a like-for-like basis . The full year results of Santander were also released today, and Abbey'sconsolidated 2005 performance is included within its financial statements. Key highlights • statutory profit before tax of £596 million (2004: £(21) million), with a net attributable profit of £420 million (2004: £(151) million); • trading profit before tax of £775 million increased 34% compared to £579 million in 2004, with the second half performance benefiting from an increase in revenues combined with lower costs resulting from the cost reduction programme; • trading income was slightly ahead of 2004, and better than originally targeted at the start of 2005. During the year trading income has benefited from increased fee income, partially offset by a modest decline in spreads; • trading expenses were £224 million lower than 2004, a reduction of 13%, well ahead of the original targeted savings for 2005 of £100 million; • a reduction in the trading cost: income ratio of 9.3% to 60.6% (2004: 69.9%); • lending provision charges (after adjusting for 2004 write-backs) were higher by £54 million; • reorganisation and other charges of £266 million (2004: £546 million), including the cost of compensation following remediation of £70 million relating to endowment misselling; • total customer loans of £99.3 billion, up 4%, and retail deposits of £62.0 billion, also up 4% compared to 2004; • a return on equity of 14.2%; and • capital ratios increased due to the impact of increased net attributable profit, partly offset by IFRS adjustments applicable from 1 January 2005. The tier 1 ratio increased to 10.0% and equity tier 1 ratio to 6.6%, compared with 9.6% and 6.3% in 2004 respectively. Overview "Today's results clearly show that we are on track in our efforts to turn Abbeyaround. We have exceeded the targets we set for 2005. We've made excellent progress inreducing costs across the business, and there are early but clear signs ofsustainable revenue growth. Our market share of new business in mortgages and savings has improved and ourefforts to attack in areas where we have significant opportunities - such ascurrent accounts, unsecured personal loans and investments - are buildingmomentum. In addition, we have recently announced the intention to set up ourown credit card business, drawing upon the expertise of Santander's global cardoperations. Across all product lines we are focusing on profitable business,whilst maintaining good credit quality. Underpinning our progress are improvements in sales capacity and productivity.The number of people holding sales authorisations in our branches has increasedby 28% from the start of the year, with improvements in cross-sales performancein the second half of the year. In addition, the service issues that werehindering performance in the intermediary channel have been successfullyaddressed. In the first full year since the acquisition by Santander, Abbey has madeexcellent progress. We are meeting our challenges and have competitive productsand the enthusiasm to succeed. We have set ourselves clear targets, and we willbuild on the momentum we have established in 2005 and expect furtherimprovements in customer service and business efficiency in 2006. We've made a good start towards achieving our three-year turnaround andlong-term goal of becoming the best retail bank in the UK." Francisco Gomez-Roldan Chief Executive Results Abbey statutory profit before tax of £596 million (2004: loss of £(21) million)marks a significant improvement on 2004. Profit and loss: Half 1 Half 2 Full year Proforma 2005 2005 2005 Full year 2004 £ m £ m £ m £ mNet interest income 591 652 1,243 1,304Non-interest income 630 647 1,277 1,198Trading income 1,221 1,299 2,520 2,502 Trading expenses (775) (751) (1,526) (1,750)Provisions (97) (122) (219) (173)Trading profit before tax 349 426 775 579 Adjust for:- EV charges and rebasing (16) 4 (12) 21- Other intangibles (2) (1) (3) (20)- Hedging variances 10 (28) (18) n/a Profit before tax before reorganisation 341 401 742 580expenses Adjust for:- Reorganisation expenses (83) (150) (233) (547)- One-off statutory IFRS adjustment - - - (239)- Remove proforma IFRS adjustment - - - 174 Statutory profit before tax 258 251 509 (32)Statutory PBU profit before tax 36 51 87 11Abbey statutory profit before tax 294 302 596 (21) Taxation expense (87) (89) (176) (33)Preference dividends and MI n/a n/a n/a (97)Net attributable profit 207 213 420 (151) £ m Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 2004 2004 2004 2004 2005 2005 2005 2005Net interest income 342 376 304 282 290 301 326 326Non-interest income 301 264 408 225 294 336 317 330 Net interest income of £1,243 million was lower than in 2004 (£1,304 million),in part due to £50 million of non-recurring benefit in 2004 relating to theclose out of free-reserves hedges. The underlying movement reflects strongbanking performance offset by a lower mortgage contribution and continuingpressure from the decline in back-book saving balances. Whilst the overallspread declined year on year by 6 bps to 1.45% (2004: 1.51%), over the last 18months the spread has remained stable. The second half 2005 asset spread was 2bps better than the same point last year reflecting increased standard variablerate balances. % Half 1 Half 2 Full year Half 1 Half 2 Full year 2004 2004 2004 2005 2005 2005Asset spread 0.78 0.70 0.74 0.70 0.72 0.71Liability spread 0.78 0.76 0.77 0.75 0.73 0.74Total spread 1.56 1.46 1.51 1.45 1.45 1.45 Non-interest income for 2005 of £1,277 million was up 7% on 2004. The underlyingimprovement, excluding non-recurring items of £49 million in 2004 (2005: £22million), has been driven largely by strong growth in retail banking fee incomeand an increased contribution from Abbey Financial Markets. In the lifebusiness, the impact of experience variances and assumption changes was £22million (2004: £(58) million), largely reflecting adverse lapse impacts, morethan offset by the favourable impact of changes in mortality, morbidity andexpenses. In total, trading income of £2,520 million was slightly ahead of 2004, and wellahead of the target of being broadly level excluding non-recurring benefitsincluded in 2004. £ m Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 2004 2004 2004 2004 2005 2005 2005 2005Trading expenses 430 435 430 455 400 375 367 384 £ m December March June September December 2004 2005 2005 2005 2005FTE (excl. PBU) 24,559 23,664 22,005 20,740 20,484 In 2005, trading expenses, excluding reorganisation costs, were £1,526 million,13% lower than in 2004. This reflects the benefit of the cost reductionprogramme that has reduced costs by £224 million, with savings across allbusiness areas and well ahead of the original target of £100 million for 2005.Fourth quarter trading expenses included c. £20 million of costs relating toyear-end accruals including profit share. In total, over 4,000 roles have been removed from the business during the year.£ m Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 2004 2004 2004 2004 2005 2005 2005 2005Lending provisions 44 26 41 44 41 56 55 57 Note: Lending provisions in the table above exclude significant non-lendingrelated provisions, including reductions of general provisions in 2004 andprovisions for other liabilities raised in 2004 and 2005. NPL's as a % of asset December March June September December(3 month +) 2004 2005 2005 2005 2005Mortgages 0.55% 0.59% 0.63% 0.67% 0.65%UPLs 1.93% 1.74% 1.66% 1.56% 1.70% Total provisions of £219 million were up from £173 million in 2004. To understand the underlying trends in 2005, two large items need to be takeninto account, a significant reduction in general provisions (2004: £(136)million) and provisions for other liabilities (2005: £10 million, 2004: £154million). The underlying trend in lending provisions is an increased charge of £54million. Of this increase, £12 million related to mortgages, equivalent to c.1basis point. Most of the remaining increase related to the unsecured book, with some modestcredit quality deterioration in line with industry experience, but alsoattributable to growth and seasoning of the asset over the last two years. In overall terms, the balance sheet remains strong. Secured lending constitutes96% of customer loans, with an average loan to value (LTV) in the retailmortgage book of 45%. The improved new business levels have been achievedwithout relaxing credit criteria - the average LTV of new business in 2005 wasbelow 60%, and lower than 2004. Current mortgage arrears relate to £604 millionof lending, or 0.65% of the overall book, which is well below the long-runaverage. 3 month-plus arrears cases of 8,240 were only 3% higher than December2004 and significantly lower than the industry average. In terms of unsecured lending, non-performing loans (NPLs) as a % of assets were1.70%, compared to 1.93% at December 2004 reflecting quicker write-offs in 2005. Reorganisation and other charges: Reorganisation and other charges for the period totalled £266 million comparedwith £546 million in the equivalent period in 2004. The largest component in2005 relates to reorganisation expenses of £233 million largely resulting fromthe cost reduction programme, the ongoing restructuring of the business and someregulatory change investment in part offset by provision releases. During 2005, Abbey has undergone a detailed review of endowment policies inremediation. As a result of this, compensation of £70 million (included asreorganisation expenses) has been incurred. Embedded value charges and rebasing were £(12) million (2004: £21 million), witha positive impact in the second half of 2005 reflecting positive marketmovements. Additionally, the impact of hedge ineffectiveness (i.e. the impact of IAS 39)resulted in a cost of £(18) million for the year. Portfolio Business Unit: Profit before tax for the Portfolio Business Unit (PBU) of £87 million wassignificantly higher than the £11 million in 2004, reflecting the more advancedstage of the exit programme, and profits on sale of finance leasing assets inthe period. Total assets had been reduced to £2.5 billion by year-end, 47% lower thanDecember 2004. The remaining balance is largely made up of the Porterbrookbusiness, and these assets will be reported as part of Abbey Financial Marketsin 2006. Within the £87 million, the profit before tax of these assets was c.£30 million in 2005. Business flows: Half 1 Half 2 Half 1 Half 2 Full year Full year 2004 2004 2005 2005 2004 2005Gross mortgage lending (£ bn) 13.0 12.0 11.6 16.0 25.0 27.6Capital repayments (£ bn) 9.8 12.1 11.5 13.1 21.9 24.6Net mortgage lending (£ bn) 3.2 (0.1) 0.1 2.9 3.1 3.0Stock (£ bn) 91.0 90.9 91.0 93.9 90.9 93.9 Market share - gross lending 9.0% 8.2% 9.2% 9.9% 8.6% 9.6%Market share - net lending 6.1% (0.3)% 0.3% 5.8% 3.1% 3.3%Market share - stock 11.0% 10.4% 9.9% 9.7% 10.4% 9.7% Total net deposit flows (£ bn) (0.9) 2.2 1.3 1.3 1.3 2.6Bank account openings (000) 184 194 192 194 378 386Gross UPL lending (£ m) 1,108 1,031 971 1,145 2,139 2,116Credit card openings (000) 89 110 128 89 199 217 Investment sales - APE (£ m) 58 61 75 83 119 158 Protection sales - APE (£ m) 56 41 40 42 97 82 General Insurance sales (000) 196 182 157 158 378 315 Main highlights include: • gross mortgage lending of £27.6 billion (2004: £25.0 billion) was 10% ahead of 2004 with an uplift in all channels and an improved average new business margin. This compared to a 1% decline in the size of the market, resulting in a market share estimated at 9.6% (2004: 8.6%). Capital repayments of £24.6 billion were above natural share, as expected, reflecting high levels of incentive period maturities. Net lending of £3.0 billion, was slightly ahead of 2004 and corresponds to a 3.3% market share; • deposit inflows of £2.6 billion, double the 2004 performance. Profitable new branch-based acquisition account inflows more than offset back-book attrition and helped to stabilise liability spreads. Overall retail deposit balances of £62 billion were up 4% on 2004; • in total bank account openings were ahead of last year's performance, with a stronger uplift in terms of adult Abbey bank account openings, up 14%. This was boosted by the recent "Bank and Save" campaign, which also contributed to a doubling of switchers joining Abbey to 34,000, of which 17,000 were in the fourth quarter; • in total gross unsecured lending was broadly in line with 2004, although balances grew by 15% reflecting strong performance in both 2004 and 2005. In addition, Abbey branded gross lending was up 23%, largely driven by improved systems capability in the branch channel; • credit card openings were up 9% compared to 2004, albeit with a weaker second half performance; • investment sales were 33% ahead of 2004, benefiting from significant growth in sales of the Select Offshore Bond, a strong tax year-end and the successful launch of Guaranteed Income Bond through direct channels in the first half of the year. In total, investment sales (including Inscape) through direct channels were up 50%; and • sales of protection and general insurance sales fell relative to 2004, albeit set against a declining market. However, second half protection sales were up 5% compared with the first half. Appendix 1: Basis of presentation 1.1 IFRS A number of International Financial Reporting Standards (IFRS) were not requiredto be implemented until 1 January 2005. To aid comparison between 2004 and 2005,the 2004 results presented in this release have been prepared on a proformabasis, incorporating the impact of IFRS where it is possible to determine whatthe impact would have been if the accounting changes had been effective in 2004. The 2004 restated result includes final proforma (prospective) adjustments(except for the IAS 39 impact on non-trading derivatives and hedging) as well asfinal statutory (retrospective) impacts. Furthermore, to assist in understanding the underlying trends in the business, aview of trading results (defined below) is again used, which also excludes theone-off components of statutory IFRS restatements. 1.2 IFRS adjustments since Interim 2005 results Since the 2005 interim results announcement, some IFRS adjustments impacting2004 have been further clarified and finalised. As a result, there have beensome changes compared to the previous guidance as follows: • £14 million reduction in the 2004 tax charge as a result of the clarification of the treatment of taxation in the Life business; • removal of a £46 million charge in relation to stock options following the clarification of the treatment of cash settled employee stock option schemes; and • other smaller adjustments that are net attributable neutral. 1.3 Trading definition Trading profit before tax is management's preferred profit measure whenassessing the performance of the business. It is calculated by adding backreorganisation and other charges from profit before tax. Reorganisation andother charges comprise embedded value charges and rebasing (including investmentvariances compared to assumptions, and specific life-related non-recurringadjustments), re-organisation expenses (including cost programme implementation,hedging variances, costs associated with meeting regulatory change, andendowment misselling remediation costs), and goodwill charges. In addition, the Portfolio Business Unit (PBU) result is excluded from thetrading results. Disclaimer Abbey National plc ("Abbey") is a wholly owned subsidiary of Banco SantanderCentral Hispano, S.A. ("Santander") (SAN.MC, STD.N). Santander is the 9thlargest bank in the world by market capitalisation and the largest in the EuroZone. Founded in 1857, Santander has over 60 million customers, approximately10,000 offices and a presence in over 40 countries. It is the largest financialgroup in Spain and Latin America, and is a major player elsewhere in Europe,including in the United Kingdom (through Abbey) and in Portugal, where it is the3rd largest banking group. Through Santander Consumer it also operates a leadingconsumer finance franchise in Germany, Italy, Spain and nine other Europeancountries. Santander obtained a secondary listing of its ordinary shares on the LondonStock Exchange in 2005 and Abbey continues to have its preference shares listedon the London Stock Exchange. Nothing in this press release constitutes orshould be construed as 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. Please refer to the Abbey Annual Report on Form 20-F filed with the USSecurities and Exchange Commission for a discussion of such factors. This statement is unaudited and does not comprise a preliminary resultsannouncement, which is due in March 2006 upon completion of Abbey's AnnualReport and Accounts. Future dates Annual report and accounts on Form 20-F Late March 2006 Contacts Thomas Coops (Communications Director) 020 7756 5536 Israel Santos (Investor Relations) 020 7756 4181 Matt Young (Media Relations) 020 7756 4232 For more information contact: investor@abbey.com. This information is provided by RNS The company news service from the London Stock Exchange