3rd Quarter Trading Statement
October 27 2004 - 3:00AM
UK Regulatory
RNS Number:5082E
Abbey National PLC
27 October 2004
Abbey
2004 Quarter Three Trading Statement
This statement provides a summary of business and financial trends up to 30
September 2004, and is released ahead of a conference call with analysts at 8:30
this morning (UK time).
Unless otherwise stated, earnings trends referred to in the statement relate to
the 3 months to 30 September 2004, compared with a pro-rata equivalent of first
half 2004 (e.g. Personal Financial Services (PFS) trading profit before tax of
#468 million divided by two, referred to in this statement as the "first half
run-rate"). New business flows in the third quarter will be compared to the
second quarter.
Summary
"Following shareholder votes in favour of the recommended acquisition by
Santander, we remain on course to complete the transaction on 12 November.
We are continuing with our plans to revitalise Abbey's PFS business and, with
the resources and expertise of the Santander Group once the acquisition is
completed, we aim to accelerate the next phase of the transformation. We are
pleased that Grupo Santander were able to announce last week their intention to
appoint Francisco Gomez-Roldan as Chief Executive of Abbey on 15 November 2004
subject to completion of the acquisition of Abbey by Santander. He brings with
him a wealth of experience in retail bank management, strong international
experience, and a deep knowledge of Grupo Santander that will help make the
transition smoother and quicker.
We believe that the combination with Santander will be good for shareholders,
customers and our people - and will facilitate our plans to reinstate Abbey as a
leading force and a real alternative in the UK PFS market."
Luqman Arnold, CEO
At the interim results, we highlighted short-term disruption from our
transformation programme. This has been compounded by the well-publicised
distraction and uncertainty resulting from the takeover process, which has
restricted progress in recent months. Nonetheless, a speedy conclusion to the
transaction has avoided a marked deterioration at this time, and this is
evidenced by third quarter results broadly consistent with second quarter
trends. In addition, we continue to see improvements in service standards and
certain lead indicators tracking customer perceptions and satisfaction.
Financial highlights from today's statement include:
* statutory profit before tax for the third quarter at a Group level running
ahead of the first half run-rate, reflecting improved PFS results combined
with an increased profit before tax from the Portfolio Business Unit (PBU);
and
* a further 14% reduction in PBU assets since June 2004 to #7.1 billion.
Transformation
The third quarter has seen further progress including embedding new customer
relationship management software into sales channels, upgrading IT equipment in
branches and call centres, and we are now nearing completion of branch fascia
rebranding work.
In addition, there continues to be early positive signs that our customers are
enjoying an improved all round experience. Highlights include;
* an improvement in our overall customer satisfaction rating, further
extending our favourable position relative to the average of our main
competitors;
* sustaining a top two position for mortgage consideration, in contrast to
4th in the first quarter;
* Abbey being ranked first for each month in the last quarter in Presswatch
Financial Products, which analyses press coverage given to named company
products in the personal finance sector, compared with an average of 45th in
the first quarter;
* launching our new Fixed Rate Monthly Saver account offering a market
leading interest rate; and
* service levels in the majority of our telephone centres above, or
improving towards, targeted levels.
In relation to the FSA's new mortgage regulations (N3), our plans are well
underway and we will be ready to offer mortgages that comply with the new
regulations by the deadline of 31 October 2004. The necessary changes to IT
systems went live successfully at the weekend (23/24 October 2004). We are
temporarily offering a slightly reduced range of mortgages, but are continuing
to sell those that account for the vast majority of new business. The remainder
of the product range will be reintroduced in the near future, and we are well on
track for the FSA's new general insurance regulations, which come into force on
14 January 2005.
Personal Financial Services - Financial Update
PFS trading profit before tax for the 3 months to the end of September 2004 was
ahead of the first half run-rate.
By profit & loss line, the main highlights include:
* an improvement in trading income, with lower net interest income offset by
higher non- interest income;
* the reduction in the PFS Banking spread in the second half, excluding the
impact of the sale of certain asset finance businesses, has slowed, but less
sharply than previously expected. This is largely due to a further reduction
in redemption fee income, combined with weaker than expected liability
spreads;
* higher Banking and Savings non-interest income, resulting from increased
bank account and mortgage fee income, with the latter driven by a move to
more fee-based new lending. Banking and Savings is also benefiting from a
release of unused mortgage reassurance reserves reflecting the high quality
of the lending exposures;
* Investment and Protection trading income broadly in line with the first
half run-rate, including offsetting variances in the life businesses from
positive changes to long-term with-profit lapse assumptions and the impact
of the with profit funds recapitalisation announced in July;
* significantly higher trading income in Abbey Financial Markets, continuing
to benefit from a favourable trading environment and certain "one-off" risk
management trades;
* General Insurance trading income slightly ahead of the first half
run-rate;
* Group Infrastructure trading income below the first half run-rate,
reflecting increased net interest expense as interest rate hedges run-off;
* trading costs running at levels slightly ahead of the first half run-rate,
but consistent with the target of keeping trading costs broadly flat for the
year as a whole;
* total trading provisions running slightly ahead of the first half
run-rate, reflecting strong mortgage credit quality partly offset by
increased provisions in relation to cahoot unsecured lending; and
* overall strong credit quality, with mortgage arrears and properties in
possession relatively unchanged.
Mortgage credit quality September 2004 June 2004
3 month+ mortgage arrears (cases) 7,000 6,900
3 month+ mortgage arrears as a % of total cases 0.52% 0.51%
Properties in Possession (cases) 270 262
New Business:
- % First Time Buyers 18% 19%
- Loan-to-value > 90% 8% 8%
- Average LTV (on new business) 55% 58%
PFS non-trading items in aggregate were below the first half run-rate, and
largely relate to re-organisation costs, including implementation expenses in
relation to the cost programme and expenses in relation to various mandatory
regulatory and accounting change programmes. We expect that costs associated
with the Santander acquisition will feature more strongly in the fourth quarter.
Personal Financial Services - New Business update
3 months to 3 months to
Sep 2004 Jun 2004
Banking and Savings
Gross mortgage lending #6.4bn #6.3bn
Capital repayments #6.0bn #5.2bn
Net mortgage lending #0.4bn #1.1bn
Total net deposit flows #1.2bn #0.2bn
Bank account openings 104,000 92,000
Gross unsecured personal loan lending #0.5bn #0.4bn
Credit card openings 60,000 49,000
Investment Sales
Investment - annualised equivalent #28m #32m
Insurance Sales
Protection - annualised equivalent #22m #25m
General Insurance new policy sales 94,000 95,000
New business highlights for the 3 months to September included:
* gross mortgage lending of #6.4 billion in line with the second quarter
result, with an estimated year to date gross mortgage lending share of 8.6%
compared to 9.0% as at June. Difficulties noted in the second quarter had an
adverse impact on the pipeline of business carried forward to completion
into the period, particularly remortgage business through the intermediary
channel. However, actions taken to reverse this impact are beginning to
improve the outlook, with Abbey's estimated share of approvals in the third
quarter up 1.5% on performance in the previous period, and our share of more
profitable segments such as first time buyer and home mover have remained
robust;
* improvements in mortgage new business margins reported in the first half
were sustained in the third quarter, reflecting a continued focus on
removing unprofitable elements of the range and placing greater emphasis on
higher margin products with better retention characteristics;
* lower net lending in absolute terms and as a share of the market
(estimated year to date net mortgage lending share of 4.4% compared with
6.1% as at June), also attributable to increased levels of capital
repayments (though still below stock share for the year to date), reflecting
maturities from 2 year incentive business written in 2002 which are expected
to continue into early 2005;
* the acceleration of the turnaround in deposit flows evident in the second
quarter of 2004, with a third quarter inflow of #1.2 billion. The focus on
profitable branch-based deposits has continued to deliver positive results,
with inflows into accounts such as Flexible Saver broadly offsetting
attrition from low-rate back book accounts. The newly launched Fixed Rate
Monthly Saver account is attracting positive comment and will have a
positive impact on flows going forward. cahoot made a strong contribution to
deposit inflows, following the launch of its competitively priced new
savings account;
* bank account openings 13% higher than the previous period, with an
increase in youth account openings leading to a growth in the stock of
accounts;
* tactical product repricing in certain channels which contributed to an
increase in gross unsecured loan new business in the quarter;
* a strong performance and pipeline for the Complete Retirement Plan
offering, offset by reduced sales of ISA and unit trusts; and
* insurance sales running below the second quarter. A decline in protection
new business has been offset by an improvement in margins. General insurance
sales were slightly lower during the period, in part reflecting exit from
travel insurance and reduced marketing of motor policy sales.
Portfolio Business Unit
September 2004 June 2004
Assets Assets
# bn # bn
Debt securities - 0.5
Loan portfolio 0.6 0.9
Leasing businesses 3.9 4.1
Private equity - -
Other - -
Wholesale Banking exit portfolios 4.5 5.5
First National 1.1 1.3
European Banking and other 1.5 1.5
Total PBU assets (1) 7.1 8.3
(1) Excludes the net assets of the international life assurance businesses.
PBU assets have been reduced by 14% since the interims, and 42% since the
year-end. In the third quarter the sale of the remaining high yield debt
securities portfolio was completed, and substantially all remaining exposures to
project finance also sold. The reduction in the aircraft leasing portfolio has
also continued, with 6 aircraft sold in the third quarter, and the sale of a
further 7 of the remaining 21 aircraft now well progressed.
Proceeds on asset sales in the third quarter were at levels better than
previously provided for in aggregate. As a result, the PBU reported a profit
comfortably in excess of the first half run-rate. A significant proportion of
the remaining loan and European Banking assets are now well progressed in terms
of sale process, which should result in a further notable asset reduction in the
fourth quarter.
Contacts
Thomas Coops (Communications Director) 020 7756 5536
Jon Burgess (Head of Investor Relations) 020 7756 4182
Christina Mills (Media Relations) 020 7756 4212
For more information contact: investor@abbey.com.
A playback facility of the conference call will be accessible from mid afternoon
on + 44 (0) 207 081 9440 (please then input Account Number 266092 and Recording
Number 419329). This facility will be available until close of business on 29
October 2004.
An audio replay of the call will also be available from the afternoon of the 27
October 2004 by logging on to the Abbey website (www.aboutabbey.com).
Important notice
This announcement should be read in conjunction with the Interim Results release
for the period ended June 30th 2004, released on July 26th 2004.
This document contains certain "forward-looking statements" with respect to
certain of Abbey National plc's ('Abbey') plans and its current goals and
expectations relating to its future financial condition, performance and
results. By their nature, all forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances which are
beyond Abbey control including among other things, UK domestic and global
economic and business conditions, market related risks such as fluctuations in
interest rates and exchange rates, the policies and actions of regulatory
authorities, the impact of competition, inflation, deflation, the timing, impact
and other uncertainties of future acquisitions or combinations within relevant
industries, as well as the impact of tax and other legislation and other
regulations in the jurisdictions in which Abbey and its affiliates operate. As a
result, Abbey's actual future financial condition, performance and results may
differ materially from the plans, goals, and expectations set forth in Abbey's
forward-looking statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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