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%.
7
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.
| BES 2002 Results | Lisbon, February 5, 2003 |
8
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.
| BES 2002 Results | Lisbon, February 5, 2003 |
9
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.
| BES 2002 Results | Lisbon, February 5, 2003 |
10
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 (Gross) | (euro mn) | 24,569 | | 26,571 | | 25,797 | | 1,228 | | 5.0 | |
| Overdue Loans | (euro mn) | 450.1 | | 528.7 | | 548.7 | | 99 | | 21.9 | |
| Overdue Loans > 90 days | (euro mn) | 368.1 | | 464.8 | | 481.6 | | 114 | | 30.8 | |
| Provisions for Credit | (euro mn) | 593.1 | | 677.6 | | 718.0 | | 125 | | 21.1 | |
| |
| Overdue Loans / Customer Loans (Gross) | (%) | 1.83 | | 1.99 | | 2.13 | | | | 0.30 | p.p. |
| Overdue Loans > 90 days / Customer Loans (Gross) | (%) | 1.50 | | 1.75 | | 1.87 | | | | 0.37 | p.p. |
| Coverage of Overdue Loans | (%) | 131.8 | | 128.2 | | 130.9 | | | | -0.9 | p.p. |
| Coverage of Overdue Loans > 90 days | (%) | 161.1 | | 145.8 | | 149.1 | | | | -12.0 | p.p. |
| |
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.
| BES 2002 Results | Lisbon, February 5, 2003 |
11
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 | | | |
| |
| | % Chg | |
| | 2001 | | 2002 | | | |
| |
| 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.
| BES 2002 Results | Lisbon, February 5, 2003 |
12
PRODUCTIVITY
| |
| | | | December | | | |
| | | |
| | Chg | |
| | | | 2001 | | 2002 | | | |
| |
| Cost to Income (including markets) | % | | 58.2 | | 53.4 | | -4.8 | p.p. |
| Cost to Income (excluding markets) | % | | 64.9 | | 59.5 | | -5.4 | p.p. |
| Operating Costs / Average Net Assets | % | | 1.98 | | 1.85 | | -0.13 | p.p. |
| Total Assets per Employee | Eur 10 | 3 | 5,967 | | 6,820 | | 14.3 | % |
| |
Group BES’s rationalization effort was pursued, namely by extending the integration process to other units and by creating shared service units.
| BES 2002 Results | Lisbon, February 5, 2003 |
13
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
| BES 2002 Results | Lisbon, February 5, 2003 |
14
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.
| BES 2002 Results | Lisbon, February 5, 2003 |
15
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.
| BES 2002 Results | Lisbon, February 5, 2003 |
16
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
| BES 2002 Results | Lisbon, February 5, 2003 |
17
BANCO ESPIRITO SANTO
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2002
(Unaudited Figures)
|
| | 2001 (103EUR) | | 2002 (103EUR) | |
|
| NET ASSETS | | | | |
| Cash and deposits at the Central Banks | 724,209 | | 996,685 | |
| Loans and advances to credit institutions repayable on demand | 1,241,259 | | 844,117 | |
| Other loans and advances to credit institutions | 3,901,525 | | 5,674,990 | |
| (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 | |
|
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | |
| 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 | |
|
| BES 2002 Results | Lisbon, February 5, 2003 |
18
BANCO ESPIRITO SANTO
CONSOLIDATED INCOME STATEMENT AT DECEMBER 31, 2002
(Unaudited Figures)
|
| | 2001
(103EUR) | | 2002
(103EUR) | |
|
| 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 | |
|
| BES 2002 Results | Lisbon, February 5, 2003 |
19
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.
| BES 2002 Results | Lisbon, February 5, 2003 |
