Espirito Santo Financial Group S.A. Announces 1998 Results
LONDON--(BUSINESS WIRE)--April 19, 1999--Espirito Santo Financial Group S.A. (''ESFG'') (NYSE:ESF - news), announced today that 1998 consolidated net profits after tax increased by 41 per cent to US$ 71.2 million. This result was achieved in spite of reductions in trading profits and of the absence of foreign exchange gains which arose in 1997 as a consequence of the ECU denominated convertible bonds. The 1998 net profits emphasise the strength of ESFG's core financial business resulting from the strategy of organic growth based on a diversified integrated financial services group.
It should be noted that all items in the consolidated income statement expressed in US dollars show the effects of the valuation of the US currency against the Portuguese Escudo of 3.6 per cent from end 1997 to end 1998.
The small decline in net earnings per share from US$ 1.57 to US$ 1.53 on a fully diluted basis, was due to the issue of 7.4 million new shares as a consequence of the conversion of the outstanding ECU denominated convertible bonds, which took place in the first half of the year.
Net interest income, fees and commissions, the results of insurance activities and the absence of goodwill amortisation due to the write-off carried out in late 1997, contributed positively to ESFG's 1998 results.
The principal macroeconomic factors which influenced the results of ESFG's commercial banks in Portugal in 1998, Banco Espirito Santo (''BES'') and Banco Internacional de Credito (''BIC'') were the strong economic performance of the economy, over the average EU growth, and the favourable behaviour of investment, exports and private consumption, which reflected well on the labour market, and interest rates. The 10.9 per cent increase in net interest income was achieved in a background of declining financial margins in Portugal and resulted mostly from a 49.1 growth in loan volume and a shift in the loan mix to the more profitable mortgage and retail sectors. This shift has brought mortgage and retail loans to the forefront, as main components of the credit portfolios of ESFG's banking units in Portugal, where the non-performing loan ratios are simultaneously declining. BES's share in the profits of Banco Boavista InterAtlantico, the Brazilian bank where BES holds a 25 per cent participation, were provisioned in its entirety, given the devaluation of the Real in January 1999.
Fee and commission income, added to attributable amounts included in ''other income'' totalled US$ 256.2 million in 1998, corresponding to an increase of 19.3 per cent over the comparable amount in the previous year. Investment banking income was particularly important due primarily to the contribution of debt, risk management and financial services. The ESFG group investment bank, Banco Espirito Santo de Investimento, (''BESI''),(previously Banco ESSI), was active in the third phase of the privatisation of the cement producer Cimpor, the third phase of Electricidade de Portugal's privatisation and the second phase of the privatisation of Brisa, the motorway concessionaire. BESI also participated in high profile corporate finance work for the property and tourism company Mague, the television network SIC, and the sale, on behalf of Ibstock Johnsen, of a majority stake in the capital of Celulose do Caima. In Brazil, it advised Portugal Telecom and EDP in their investments in the local privatisation programme, and helped establish their respective financial packages.
The group's Portuguese and Swiss fund management companies, ESAF and CFESSA respectively, contributed significantly to fee and commission income. In Portugal, funds under management grew by 22 per cent to PTE 1,088 billion (approximately U$ 7.7 billion equivalent) during the course of 1998, whilst some of the funds it managed achieved top results in their leagues. The devaluation of the Brazilian currency in January 1999, caused losses in some funds managed by a subsidiary of ESAF in Brazil, which have caused ESAF to incurr in costs of PTE 1.7 billion, that will affect its 1999 results. In Switzerland funds under management increased by 40.6 per cent in US dollar terms, to US$ 4.5 billion at the end of the year.
At Espirito Santo Dealer (previously ESER), the largest stockbroker in Portugal, activities were boosted by the intense activity in the Portuguese capital markets and the 26 per cent increase in the Lisbon stock exchange index built up a strong background for the company's activities. The volume of transactions doubled in the year and the commissions generated by them increased by 88.9 per cent. The company maintained its leadership, in the Portuguese stockbroker market with a market share of 18.1 per cent.
The reductions in net trading results and net investment securities trading are related to the steep declines experienced in the Portuguese capital markets in October 1998, which contrasted sharply with the very favourable atmosphere prevailing in preceding years that led to previous unusually high results in these areas.
ESFG's Portuguese insurer, Companhia de Seguros Tranquilidade, (''Tranquilidade'') retained its leadership in the insurance market in Portugal. As the market regained momentum in 1998, so it moved forward, to increase its overall market share and indeed, its market share in all main segments of the industry, with rates of growth not seen since 1995. Total consolidated production increased by 21.6 per cent to reach PTE 176.4 billion in 1998, against a 17.5 per cent overall market growth. Thus, Tranquilidade's total market share grew from 14.4 to 15.5 per cent in the period. Activity in the life sector was particularly strong, with production growing 36.8 per cent to reach PTE 117.3 billion, whilst overall market production increased by 30 per cent. Market share in the life sector grew to 19.8 per cent and the company remains the top ranking life assurer in the Portuguese market. In the non-life sector, the overall market increased by 6.3 per cent, whilst Tranquilidade's production increased by 9.2 per cent, to reach PTE 59.1 billion. In this sector, Tranquilidade's market share increased slightly to 10.8 per cent in 1998 and it ranked second in the industry in the period. Bancassurance continues to provide the most dynamic channel for the sale of Tranquilidade's life products, with 91.9 per cent of the sales in 1998 originating from the networks of BES and BIC.
Penetration of the BES/BIC clientele, whilst increasing, has not yet reached levels similar to those shown in other developed European markets. Further developments in information technology started in 1994 and expected to reach full status in 2001, will enable Tranqulidade to implement more effective exploitation of the bancassurance potential. Tranquilidade is also looking at ways to improve the productivity and efficiency of its network of agents. The overall number of agents is being drastically reduced from over 8,000 non-exclusive agents to less than 1,200 fully dedicated agents, many of whom are undertaking training to improve their knowledge and sales expertise.
Production at Espirito Santo Seguros increased by 286.4 per cent in 1998 to reach PTE 899 million, with home contents insurance accounting for 70 per cent and motor insurance accounting for the remaining 30 per cent. This company markets 100 per cent of its products through the bancassurance structure.
The increase in salaries and benefits and occupancy costs at ESFG, reflects primarily the expansion in the commercial banking branch network and the growing specialisation needed in the choice of personnel; on the other hand, the growth in depreciation reflects the increasing costs connected to the implementation of BES' new computer system, which are expected to remain significant for yet another two years.
Goodwill amortisation has ceased as a result of the write-off carried out in late 1997.
During the first half of 1998, ESFG exercised its right to call the ECU denominated convertible bonds issued in 1991, of which ECU 102.4 million were still outstanding. The vast majority of bondholders opted for conversion and as a result some 7.4 million new shares were issued.
In June 1998, ESFG obtained counterparty ratings from Moody's (A3) and Standard & Poors (A-); in the same month, ESFG Overseas, a special purpose wholly owned subsidiary of ESFG, successfully completed the issue of a total of DM 550 million non-voting prefered securities in the European capital markets, guaranteed by ESFG.
In December 1998, an extraordinary shareholders meeting approved a ''share buy-back'' programme to be carried out within a period of 18 months to a total of 10 per cent of the shares outstanding, at prices not exceeding US$ 20.5 per share. At the close of 15th April 1999, 2,258,300 shares had been purchased.
FOR FURTHER INFORMATION:
Further information on Espirito Santo Financial Group S.A. can be obtained on the following page on the internet at esfg.com Contact: Manuel Villas-Boas Espirito Santo Financial Group S.A. London Tel: +44 171 332 4350 Fax: +44 171 332 4355 Email: 101716.2072@compuserve.com
ESPIRITO SANTO FINANCIAL GROUP SA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1998 1997
(in millions of US dollars)
ASSETS
Cash and due from banks 1,139.6 1,291.2
Interest-earning deposits with banks 3,742.3 3,078.5
Other interest-earning deposits 684.1 472.2
Trading account securities 1,355.3 1,750.5
Investment securities 7,378.0 5,869.9
Loans and advances to customers 17,369.5 11,651.4
Allowance for loan losses (512.8) (406.8)
Accrued interest income 227.9 244.5
Property and equipment 602.0 528.5
Other assets 1,183.5 1,166.3
TOTAL ASSETS 33,169.4 25,646.2
LIABILITIES
Deposits from banks 6,353.0 4,412.6
Demand deposits 5,485.6 4,607.6
Time deposits 10,449.4 8,811.7
Securities sold under repurchase agreements 258.0 444.2
Other short-term borrowings 2,310.3 1,699.2
Insurance policy reserves 2,705.2 1,847.8
Accrued interest and other liabilities 747.4 1,093.9
Corporate borrowings and long-term debt 2,783.4 1,293.5
Convertible bonds -- 113.0
TOTAL LIABILITIES 31,092.3 24,323.5
MINORITY INTERESTS 1,579.5 966.3
SHAREHOLDERS' EQUITY
Common stock, $10 per value:
100,000,000 shares authorized
(1997: 100,000,000)
47,908,551 issued
(1997: 40,844,666) 479.1 408.5
Treasury stock, at cost (6.0) --
Share premium 44.2 1.9
Retained earnings 29.3 24.2
Unrealized gains (losses) on
investment securities available
for sale held by insurance operation (0.9) 0.5
Revaluation reserve 12.3 2.5
Accumulated foreign currency translation
adjustments (60.4) (81.2)
TOTAL SHAREHOLDERS' EQUITY 497.6 356.4
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 33,169.4 25,646.2
ESPIRITO SANTO FINANCIAL GROUP SA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1998 1997 1996
(in millions of US dollars,
except for earnings per share)
Interest income
Interest on loans 994.7 929.2 993.3
Interest and dividends on
securities
Trading securities 37.9 68.0 92.5
Investment securities 245.9 263.1 302.8
Other interest income 205.9 244.9 248.1
Total interest income 1,484.4 1,505.2 1,636.7
Interest expense
Interest on deposits 715.3 798.5 886.8
Interest on securities sold
under repurchase agreements 18.0 40.3 52.3
Interest on other short-term
borrowings 78.8 71.5 96.3
Interest on corporate
borrowings and long-term debt 92.6 62.9 69.7
Interest on convertible bonds 1.9 10.8 12.0
Total interest expense 906.6 984.0 1,117.1
Net interest income 577.8 521.2 519.6
Provisions for loan losses (145.1) (123.1) (97.4)
Net interest income after
provision for loan losses 432.7 398.1 422.2
Other income
Fee and commission income 222.2 183.5 150.9
Net trading account profits 33.8 59.6 44.5
Net investment securities
gains 61.0 95.7 75.1
Insurance revenues 1,162.1 949.4 914.8
Net gains on foreign currency
transactions 84.5 27.8 35.8
Other operating income 111.9 107.1 96.9
Total other income 1,675.5 1,423.1 1,318.0
Other expenses
Salaries and benefits 345.6 319.4 315.6
Occupancy costs 35.5 32.4 29.1
Insurance benefits and claims 965.9 769.2 735.6
Insurance underwriting and
related expenses 53.2 49.1 52.4
Depreciation 68.0 57.6 57.4
Amortization 40.1 34.4 25.4
Goodwill amortization - 11.5 20.0
Other expenses 309.7 308.9 274.4
Total other expenses 1,818.0 1,582.5 1,509.9
Income before income taxes and
minority interests 290.2 238.7 230.3
Income taxes (64.1) (50.7) (57.0)
Minority interests in income of
consolidated subsidiaries (154.9) (137.5) (134.6)
Net income 71.2 50.5 38.7
Net income per share
Basic 1.57 1.60 1.25
Diluted 1.53 1.57 - (1)
Weighted Average number of
shares outstanding
For basic earnings
per share 45,460,883 31,633,811 30,887,292
For diluted earnings
per share 47,901,679 39,141,378 - (1)
(1) Not presented due to the anti-dilutive effect
Contact:
Manuel Villas-Boas
Espirito Santo Financial Group S.A.
London
Tel: +44 171 332 4350
Fax: +44 171 332 4355
Email: 101716.2072@compuserve.com
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