Daniel,
While not wishing you bad luck I hope the following ESF earnings report propels this stock forward. A few of the things that I liked are: 1) As of February 10, 1999 only 678,900 shares had been bought back by ESF. This corresponds to only 14.2 per cent of the total amount of shares which are authorized to be purchased under the stock buy-back program. 2) ESF is still clicking away with over 20% return on equity (ROE) even though it is down from 22% the margin is up. 3) As I said, Margins increased. 4) They are still paying dividends.
Espirito Santo Financial Group S.A. Announcements
LONDON--(BUSINESS WIRE)--February 11, 1999--Espirito Santo Financial Group S.A.(NYSE:ESF - news) is pleased to make the following announcements:
BANCO ESPIRITO SANTO'S 1998 RESULTS
Introduction
Consolidated net profits of Banco Espirito Santo (''BES'') reached PTE 33.8 billion at the end of 1998, corresponding to an increase of 12.1 per cent over the previous year, and to a return on average equity (ROE) of 20.3 per cent.
In the pursuit of an organic growth strategy, BES' total net assets grew by 19.5 per cent to reach PTE 5,057 billion and gross credits
increased by 43 per cent to PTE 2,817 billion. Credit growth resulted mainly from the sustained expansion of retail loans, (mortgage loans and others), that increased by 55 per cent to reach 40 per cent of total credits at the end of 1998. This factor contributed to expand the product mix as well as to improve the financial margin and to diversify risk at BES.
The Board will be proposing a dividend of PTE 123 per share at the Annual General Shareholders' Meeting. The 30.1 million shares resulting from the capital increase from PTE 87.4 to PTE 117.5 billion, carried out in June 1998, will be entitled to the full dividend approved at the AGM. This capital increase provided BES with a solid base for growth but, as expected, had a slight negative effect on ROE, which nevertheless reached the 20.3 per cent level.
Performance of Main Subsidiaries and Return on Equity
The principal macroeconomic factors which influenced the results of BES and its subsidiaries were the strong economic performance of the Portuguese economy, over the average EU growth, and the favourable behaviour of investment, exports and private consumption, which reflected well on the labour market, stock market performance and interest rates. The continued decline in interest rates was
particularly important for banking activity. In addition, Portugal's inclusion in the Euro's founding group was a very significant event,
both in political as well as in economic terms.
The strategy adopted by BES, namely organic growth, the creation of a global financial services group, client segmentation and a selective approach to international expansion, together with the favourable performance of the economy, enabled the operational units to achieve good results in 1998. The operations which showed more significant growth were ESAF, the fund management company, whose assets under management increased by 22 per cent and where three of its funds achieved the best performance in the year for their particular category. ES Dealer, the stockbroker, which works closely with Banco Espirito Santo de Investimento (''BESI''), maintained its leadership in the market as well as significantly improving results, and Credibom and Crediflash, the consumer credit operations, which showed a remarkable increase in results.
BESI, the investment bank, and Banco Internacional de Credito (''BIC'') need to be mentioned as well; the first led the CIMPOR, EDP
and BRISA privatisations, and participated in high profile corporate finance work for the property and tourism company Mague, the television network TVI, and the sale, on behalf of Ibstock Johnsen, of a majority stake in the capital of Celulose do Caima to a group of
investors led by Cofina. In Brazil, BESI advised Portugal Telecom and EDP in their investments in the local privatisation programme, and helped establish, together with BES, their respective financial packages.
CONSOLIDATED PROFITS (PTE millions)
1998 1997 % Change BES 26,755 24, 284 +10.2 BIC 5,331 4,837 +10.2 ESAF 2,619 1,411 +85.6 BES INVESTIMENTO 2,308
2,099 +10.0 ES DEALER 1,832 1,024 +78.9 CREDIFLASH 723 576 +25.5 BESLEASING 685 746 -8.2 CREDIBOM 431 115
+274.8 BESSA 259 36 +619.4 ADJUSTMENTS AND OTHERS -7,192 -5,021 +43.2
BES CONSOLIDATED 33,751 30,107 +12.1
Return on equity declined from 22.8 per cent in 1997 to 20.3 per cent in 1998; it should be stressed that the level of return on equity
above 20 per cent was achieved in an environment of declining financial margins, and reflects a particular effort in containing costs, increasing services to clients and in managing the financial markets activities. In the period from 1994 to 1997, return on equity
increased from 16.2 per cent to 22.8 per cent, whilst the financial margin declined from 3.71 to 2.58 per cent, to reach 2.39 in 1998.
Return on assets in 1998 was 0.74 per cent down from 0.80 per cent in 1997.
Banking Revenues, Productivity and Operating Costs
BES' consolidated results reflect the good performance of financial activity, the excellent results achieved in services to clients and an
improvement in productivity. It also reveals that operating costs have grown less than gross banking income. Market activities also showed a good performance, in spite of the instability felt in international markets, which extended to the US in September/October, with the LTCM crises.
INCOME STATEMENT (PTE millions)
1998 1997 % Growth Net Interest Income 96,704 87,574 +10.4 Fees & Commissions 54,927 44,755 +22.7 Market Activities 30,036
28,714 +4.6 Gross Banking Income 181,657 161,043 +12.8 Operational Costs 100,070 90,451 +10.6 Net Provisions 30,753 25,442
+20.9 Net Profits 33,751 30,107 +12.1
The increase in gross banking income reveals that the decrease in financial margins, was more than compensated by the increase in
volume in loans, and the increase in revenues from services to clients. Cross Selling activities established itself as a very significant contributor, with almost 42 per cent of the total fees and commissions.
In percentage terms, net interest income's contribution to gross banking income decreased, from 54.4 per cent in 1997, to 53.2 per cent
in 1998; meanwhile, the contribution of fees and commissions increased from 27.8 to 30.2 per cent in the same period.
In turn, trading activities were diversified in terms of markets and instruments, which may, in time, mitigate the effect of the creation of the Euro.
Productivity was increased as the Projecto Eficiencia proceeded at the level of all BES subsidiaries, and as a result of substantial growth
in activities.
PRODUCTIVITY INDICATORS (%)
1998 1997 Change pp Operational Costs/ Net Assets 1.67 1.81 -0.14 Operational Costs/ Total Assets* 1.55 1.69 -0.14 Cost to Income
Ratio 55.1 56.2 -1.10
* Includes desintermediation
The increase in operating costs, resulted mostly from personnel costs in BES' subsidiaries, as BES' own personnel costs declined by 3 per cent. An increase in depreciation was also significant, particularly in connection with the investments in systems, where related
depreciation is expected to continue to grow over the next three years. These investments have been carried out over the last few years, and will soon begin to translate into gains in productivity and efficiency. The costs of the introduction of the Euro and those related to the Year 2000 problem, have also contributed to the increase in depreciation. These factors were partially compensated by the smaller growth in third party costs.
However, there has been a marked reduction in the growth of operating costs when compared with 1997, when they grew by 17 per cent.
OPERATING COSTS (PTE millions)
1998 1997 % Change Personnel Costs 49,751 43,329 +14.8 Third Party Costs 34,807 33,398 +4.2 Depreciation 15,512 13,724 +13.0
Operating Costs 100,070 90,451 +10.6
Ratings & Financial Adequacy
BES rating was boosted by the change in Standard & Poor's long term rating, from A- to A, in the second half of 1998.
Maintaining high solvency ratios, has been a permanent strategic objective at BES, and at end 1998, these were well above the minimum
levels required both the Bank of Portugal and the BIS, at 9.2 per cent and 10.9 per cent, respectively.
An increased quality of the loan portfolio reflected in the improvement of the non-performing loan and coverage indicators. As is
customary, provisions were reinforced, with PTE 51 billion ascribed to credit and other risk provisions. On the other hand, and still
reflecting the high level of provisioning traditionally pursued, some PTE 20 billion previously in provisions, were recovered in this
period.
SELECTED INDICATORS (%)
1998 1997 Change pp NPLs/TOTAL CREDIT Consolidated 2.39 3.21 -0.82 Non-Consolidated 2.19 2.76 -0.57
NPLs MORE THAN 90 DAYS/TOTAL CREDIT Consolidated 2.12 2.83 -0.71 Non-Consolidated 1.93 2.47 -0.54
PROVISIONS/TOTAL NPLs Consolidated 119.5 101.2 +18.3 Non-Consolidated 132.9 116.9 +16.0
PROVISIONS/NPLs MORE THAN 90 DAYS Consolidated 134.8 114.8 +20.0 Non-Consolidated 151.4 130.3 +21.1
Principal Activity Indicators
The principal activities of BES continue to show a favourable evolution, as follows:
GROWTH IN PRINCIPAL CONSOLIDATED INDICATORS (PTE billions)
1998 1997 1996 1995 % Growth
95/98 97/98 NET ASSETS 5,057 4,233 3,747 2,926 72.8 19.5 CASH FLOW 95.5 83.1 57.5 45.6 109.4 14.9 FEES &
COMMISSIONS 52.9 44.8 29.8 22.8 132.0 18.1 GROSS LOANS 2,817 1,977 1,555 1,262 123.2 42.5 MORTGAGES 785 458 289
159 393.7 71.4 CARDS ISSUED (thousands) 1,239 1,128 904 716 73.0 9.8 TOTAL CLIENTS RESOURCES(a) 4.345 3,635 3,008
2,449 77.4 19.5 DESINTERMEDIATION 1,383 1,133 849 591 134.0 22.1 MARKET CAPITALIZATION(b) 623 479 238 198 214.6
30.1
(a) Includes desintermediation
(b) BES only
The above figures highlight the fact that BES consolidated earning power, measured in terms of cash flow growth, more than doubled in
the last three years, supported by selective credit growth (principally through a 5 times multiple growth in mortgages since end 1995), fees and commissions (2.3 times multiple growth in the same period) and by improvement in several significant operating variables. In terms of size, this remarkable progress, would be equivalent to the acquisition, at end 1995, of another institution of the size of BES
consolidated. As it is, organic growth has produced for shareholders a return on equity of 18,8 per cent in 1996, 22.8 per cent in 1997
and 20.3 per cent in 1998, and an increase in market capitalisation of 215 per cent, without incurring the social and financial costs
attached to acquisitions.
The Euro
Considering BES' leadership in terms of international payments in Portugal (23 per cent market share in SWIFT orders), it was
imperative that the transition into the Euro be perfectly smooth. On January 4th 1999, BES was in a position to offer its clients an
almost complete range of services denominated both in Euros and escudos, through programmes which redenominated current accounts
and securities, in Euros, including positions held in the various currencies of the Euro 11 countries.
Spain
Banco Espirito Santo S.A., with headquarters in Madrid, progressed satisfactorily in 1998; its net assets grew by 36 per cent, reaching
PTE 338 billion equivalent, whilst the net profit reached PTE 259 million. Ten new branches were opened in 1998 and beginning of
1999, in Ciudad Rodrigo, Lugo, Huelva, Pamplona, Valencia, Verin, Vigo(2), Villa Garcia de Arosa and Zamora, with the Spanish
network now reaching 32 branches. The integration between this small network and the vaster network in Portugal, is progressing well
and helping to provide better quality services to clients in both countries.
Brazil
In 1998, Banco Boavista InterAtlantico (''BBIA'') reached net profits of PTE 4.5 billion. BES could have consolidated some PTE 1.1
billion in its accounts, given its 25 per cent participation in BBIA's capital; this would have raised BES' net profits to nearly PTE 35
billion in 1998. As a matter of prudence, this share in BBIA's profits was provisioned in its entirety, given the devaluation of the Real in
early 1999. This devaluation affected, as well, the investment management activities carried out by Boavista Espirito Santo DTVM SA,
where ESAF has 50 per cent participation. In order to face losses in some of funds managed by Boavista Espirito Santo, ESAF has incurred costs in the amount of PTE 1.7 billion, in the 1999 fiscal year, which will affect its 1999 results. On the other hand, BBIA announced that it had decided to partially reimburse investor's losses in the amount of R$ 70 million; as was publicly announced in Brazil, BBIA was in a favourable foreign exchange situation, and thus that reimbursement would have been supported by extraordinary gains realised in January 1999.
ESPIRITO SANTO FINANCIAL GROUP'S SHARE BUY-BACK PROGRAMME
The programme announced on 4th December 1998, is being implemented in accordance with the directives approved at the Extraordinary Shareholders' Meeting of 3rd December. As at 10 February 1999, 678,900 shares had been purchased, corresponding to 14.2 per cent of the total amount of shares which are authorized to be purchased under the programme.
FOR FURTHER INFORMATION
Espirito Santo Financial Holding S.A. can be obtained on the following page in the internet esfg.com |
