earnings millennium bcp 2q07ind.millenniumbcp.pt/.../act_report_24072007.pdf · 2018. 7. 14. ·...

Banco Comercial Português, S.A., a public company (sociedade aberta) having its registered office at Praça D. João I, 28, Oporto, registered at the Commercial Registry of Oporto, with the single commercial and tax identification number 501 525 882 and the share capital of EUR 3.611.329.567,00.

Investor Relations Miguel Magalhães Duarte Rua Augusta 62 Piso 2 1149-023 LISBOA Telf +351 213 211 080 [email protected] Corporate Relations Paulo Fidalgo Rua Augusta 62 Piso 2 1149-023 LISBOA Telf +351 213 211 740 [email protected]

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Press-ReleasePress-Release

2007-07-24 Millennium bcp earnings release for the first half of 2007

§ Consolidated net income reached Euro 373 million in the first half of 2007, excluding costs in connection to BPI Offer (*);

§ Operating income before provisions increased by 15%;

§ Return on equity (ROE) stood at 18%;

§ Net income in Portugal reached Euro 313 million, with operating profit before provisions increasing by 6%;

§ Net income from international operations improved by 40%, on a comparable basis;

§ Net interest income and net commissions registered increases of 12%;

§ Operating costs in Portugal reduced 5% (y-o-y on a comparable basis) and cost to income ratio improved to 52.8% (55.3% in the first half of 2006);

§ Loans to customers, including securitised loans, increased 13% and mortgage loans grew 16%;

§ Loans overdue by more than 90 days remained stable at 0.8% of total loans; the coverage ratio stood at 247.2%;

§ Customer funds increased by 6% in Retail banking in Portugal and by 30% in international operations

§ Solvency ratio stood at 11.3% (Core Tier I at 5.4%).

(*) For a total net amount of Euro 65.5 million, as disclosed on 10 May 2007.



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Financial Highlights

(values in million euros) 30 Jun. 07 30 Jun. 06 (6) Change 07 / 06

Total Assets 85,672 76,404 12.1% Loans to customers (net) 60,341 53,857 12.0% Total Customers' funds (1) 59,777 56,549 5.7% Net interest income 768.8 684.4 12.3% Net operating revenues (2) (5) 1,380.5 1,303.1 5.9% Operating costs (3) 771.4 762.2 1.2% Loan impairment provision (net of recoveries) 97.8 70.9 37.9% Income taxes 69.4 48.5 43.3% Minority interests 26.5 24.9 6.1% Net income 307.9 395.8 -22.2% Net income on a comparable basis 373.4 362.0 3.1% Net operating revenues / Average net assets (4) (5) 3.6% 3.5% Return on average assets (ROA) 0.7% 1.0% Income before taxes and minority interests / Average net assets (4) 1.0% 1.3% Return on average equity (ROE) recurrent 17.8% 20.1% Income before taxes and minority interests / Average equity (4) 19.6% 25.4% Non performing loans / Total loans (4) 1.1% 1.1% Non performing loans, net / Total loans, net (4) -0.9% -1.3%

Impairment for loans losses / Loans overdue by more than 90 days 247.2% 303.6%

Impairment for loan losses / Non performing loans 176.3% 216.7% Operating costs / Net operating revenues (4) (5) 55.9% 58.5% Operating costs / Net operating revenues (Portugal) (4) (5) 52.8% 55.3% Staff costs / Net operating revenues (4) (5) 31.5% 32.7% Total regulatory capital (BoP) 6,543 6,653 Risk-weighted assets 57,732 53,990 Tier I Solvency ratio (BoP) 6.8% 7.3% Total Solvency ratio (BoP) 11.3% 12.3% Branches in Portugal 867 868 -0.1% Employees (domestic banking activity) 10,844 11,181 -3.0%

(1) Amounts due to customers (including securities), Assets under management and Capitalisation insurance. (2) Net interest income, Income from securities, Net commissions, Net gains from trading activity, Income arising from the equity method of

consolidation, Other net operating income (according to rule 16/2004 from the Bank of Portugal). (3) Staff costs, Other administrative costs and Depreciation on a comparable basis. (4) According to rule 16/2004 from the Bank of Portugal. (5) Net operating revenues on a comparable basis. (6) On a comparable basis, adjusted from the sold companies - bcpbank Canada- and the reduction of the shareholdings in Banque BCP France,

Banque BCP Luxembourg.



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Presenting Millennium bcp’s earnings for the first half of 2007, Mr. Paulo Teixeira Pinto, Chairman of the Executive Board, said: “Operating profits before provision continue to show a positive evolution, increasing by 15% year-on-year. This is a result of the very strong increase in profitability of the international operations, that were up 68% and already contribute 22% of the group’s operating profits, as well as strict cost control in Portugal. Profits before taxes, on a comparable basis, posted an increase of 9%, as a result of the increase in credit impairment charges in the second quarter, although within the levels already announced to the market. Credit quality remains at very solid levels, as seen by the stable ratio of loans overdue over 90 days, which remained unchanged at 0.8% of the loan portfolio, and the high provision coverage levels of 247%. Tax charges also increased, in line with the anticipated trend, naturally impacting the evolution of net income, although not the business profitability. In the second quarter, and upon the conclusion of the Tender Offer for BPI, we booked the related costs, in the net amount of 65.5 million euros. These were essentially related to the underwriting agreement and legal and financial fees of the process, in line with the notice given at the time.”

Commenting on the performance of the various subsidiary companies of the Group, Mr. Paulo Teixeira Pinto also highlighted “the strong growth of international operations, with net income of Bank Millennium in Poland up 52%, reaching a record level of 55 million euros for the half-year. Credit volumes at the bank increased 57% with costumer funds up 37%, confirming the powerful impetus in both individual (mortgage, +96%) and corporate clients (credit, +17%, and funds, +23%), along with the continuing branch expansion plan. In Greece the period was also very positive, with net income increasing 10%, due to good volume growth in credits (+34%) and customer funds (+26%). This generated a 17% increase in operating revenues, which more than compensated for the 15% increase in costs mainly associated with the branch expansion plan”. Regarding Portugal, he added: “mortgage and corporate loans volumes continue to increase in a sustained manner, growing by almost 10% y-o-y, while with our continued efforts to reduce costs, these decreased by 5% y-o-y, leading to further improvement of the cost-to-income ratio to 52.8%”.

The Chairman of the Executive Board concluded by adding that “the Bank is proceeding successfully with its strategy of developing its international operations, increasing efficiency in Portugal and expanding the commercial networks. Our aim is to accelerate sustainable growth and profitability in the medium term, in line with the Millennium 2010 Programme presented in the Investor Day of June 1, 2007, which was very favourably received by the Market”.

SIGNIFICANT EVENTS

(i) Announcement of “Millennium 2010 Programme”, containing the main strategic priorities for the next 3 years, (ii) the reinforcement of the Bank’s financing structure, with a positive impact on the asset and liability management, (iii) the promotion of new commercial initiatives and (iv) the restatement of the Bank’s commitment to social responsibility, represented the most significant events of Millennium bcp’s activity in the second quarter. Of particular note:

§ 2007 Investor Day and presentation of the “Millennium 2010 Programme” with the key business initiatives and respective financial targets, aiming at accelerating organic growth, improving operating efficiency and increasing profitability and earnings per share;

§ On May 7, 2007, following the computation of the results of the general tender offer for the acquisition of Banco BPI SA, announced by Euronext Lisbon, and notwithstanding the clear strategic rationale and attractive offer price, neither of the two success conditions mentioned in the offering prospectus and the announcement of the launch of the offer were fulfilled;

§ Signing of a Protocol with the Social Solidarity and Labour Ministry with the aim of promoting the employability of disabled people;



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§ Launch of a credit line named “Early Stages” in support of entrepreneurship, with the aim of financing SME and Entrepreneurs;

§ Signature of a credit line of Euro 150 million with the EIB (European Investment Bank) aimed at financing small to medium size investment projects in Portugal, and covering investment in the following areas: energy renewal, energy saving, environmental protection, education, infra-structure, industry, commerce, tourism and related services;

§ Launch of a credit line up to Euro 100 million, to support the international development of Portuguese companies;

§ Execution of Millennium bcp’s first covered bond issue in the European market, in the amount of Euro 1.5 billion with a 10 year term;

§ Execution of Millennium bcp’s first Extendible Rate Notes issue in the North-American market, in the amount of USD 1.5 billion, representing the first issue of this type by a Portuguese bank in the North-American market;

§ Launch of a campaign aimed at acquiring new clients, the “Vantagem Ordenado” (“Wage Advantage”), allowing customers that domicile their salary to benefit from a 3% increase in the salaries transferred until 7 December 2007, among other advantages;

§ Launch of “Mobile Bolsa”, a service that enables Millennium bcp’s clients access to share prices, portfolio enquiries, as well as placement of buy and sell orders through SMS, PDA or Mobile Web;

§ Continuation of the GTI Programme implementation, aimed at increasing the time dedicated to commercial activities and direct contact with customers;

§ Signature of a Protocol between Millennium bcp and “Trienal Arquitectura 2007” with the aim of inaugurating the delivering the “Millennium bcp Trienal Award”;

§ “Investor Relations & Governance Awards 2007 (IRG Awards 2007)” award granted by Deloitte, in the category of “Best Annual Report” for the financial sector in Portugal;

§ In the 2007 edition of the “Best Companies”, an initiative promoted by Exame magazine in partnership with the Heidrick & Struggles consultant, Millennium bcp awarded the 1st place – The Best Portuguese company to work for; 1st place – The Best PSI 20 company to work for; 4th place – The Best company in Portugal to work for;

§ “Best Portuguese Brand 2006”, with a total brand value of Euro 1,171 million, according to the annual research carried out by Interbrand;

§ Election of Millennium bcp as the “Best Financial website” by the 6th consecutive year by PC Guia magazine;

§ Election of Millennium bcp as having the “Best Investment Bank in Portugal” by Global Finance magazine;

§ The 2006 Corporate Communication Award was granted to Millennium bcp by the Portuguese Corporate Communication Association (Associação Portuguesa de Comunicação Empresarial – APCE).



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FINANCIAL REVIEW

BCP’s financial statements were prepared in compliance with Regulation (EC) 1606/2002, of July 19th and in accordance with the reporting statements defined by the Bank of Portugal (Notice nº1/2005) following the adoption by the Portuguese legal system of the European Commission Directive 2003/51/EC from June 18th of the European Parliament and Council.

With the aim of simplifying the analysis of the Group’s results and balance sheet developments, the financial review is presented on a comparable basis, excluding associated companies sold and non-recurring results.

For the subsequent analysis, the associated companies sold during 2006, previously fully consolidated, were treated under the equity method.

Consolidated net income of Millennium bcp amounted to Euro 307.9 million in the first half of 2007. This includes the impact of costs relating to the general tender offer for the acquisition of Banco BPI in the amount of Euro 65.5 million, net of taxes. Excluding these costs, consolidated net income reached to Euro 373.4 million, an improvement of 3.1% on a comparable basis, from the first half of 2006, and the Return on equity (ROE) stood at 17.8% and the return on assets (ROA) at 0.7%.

The increase in revenues, in particular from net interest income and net commissions, together with the reduction in costs (staff costs, other administrative costs and depreciation), led to a favourable evolution of consolidated net income, offsetting the higher charges for impairment loans (net of recoveries) and higher income tax provisions. Nevertheless, the impairment for credit risks remained comfortably within the expected levels.

Net income from international operations rose by 39.7%, on a comparable basis, from the first half of 2006, driven by the favourable performance achieved by Millennium bank in Poland. In Portugal, it is worth noting, the volume and profitability of Retail Banking, which showed an improvement of 17.1% in net contribution compared to first half of 2006.

In Portugal, the commercial activity and net income were affected by changes in the regulatory framework, in particular: (i) the new rules for interest rate rounding applied to credit contracts; (ii) scheduling the “data value” for movements in deposits accounts and transfers; and (iii) limits on commissions paid for early amortization of mortgage loans. These measures determined unfavourable impacts in net income in the first half of 2007.

Net interest income grew by 12.3% from the first half of 2006, amounting to Euro 768.8 million. The evolution of net interest income was determined by the positive volume effect, in particular by the growth of loans granted in Portugal, Poland and Greece, which more than offset the unfavourable rate effect, evidencing the lower spreads applied. During the first half of 2007, the interest and premium and discount relating to the trading portfolio started to be booked under net interest income (previously they were accounted for in net trading income). The net interest margin stood at 2.15% in the first half of 2007 (2.17% in the same period of 2006).



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AVERAGE BALANCES

30 Jun. 07 30 Jun. 06

(Values in euro million, except yields) Balance Yield % Balance Yield %

Deposits in banks 7,961 4.89 6,801 3.99Financial assets 5,573 5.23 3,581 5.02Loans and advances to customers 57,966 5.83 53,129 4.97

71,500 5.68 63,511 4.87Assets held for sale 0 - 1,694 4.18

Interest earning assets 71,500 5.68 65,205 4.85

Non interest earning assets held for sale 0 82Other non interest earning assets 9,750 10,699

81,250 75,986

Amounts owed to credit institutions 11,791 4.90 11,554 3.78Amounts owed to customers 33,596 2.32 33,699 1.76Debt securities 24,933 4.02 18,682 2.91Subordinated debt 2,926 5.48 2,939 5.11

73,246 3.44 66,874 2.58Liabilities associated with assets held for sale 0 - 1,644 1.63

Interest bearing liabilities 73,246 3.44 68,518 2.55

Non int.bearing liab. assoc. w/assets held for sale 0 133Other non interest bearing liabilities 2,777 2,515Shareholders’ equity and minority interests 5,227 4,820

81,250 75,986

Net interest margin (1) 2.15 2.17____________________________________ (1) Net interest income as a percentage of average interest earning assets.

Net commissions reached Euro 383.1 million in the first half of 2007, excluding the costs related with the general tender offer for the acquisition of BPI in the amount of Euro 88.7 million, evidencing a 12.4% increase from the same period of 2006. This item benefited from the positive evolution of income relating to asset management and securities (+38.1%), as a result of the growth of business volumes in the period. This was supported by the increased capital markets activity as well as the offer of diversified financial products and services tailored to the customers needs. The increase in net commissions was also enhanced by the performance of the cards business. In Portugal, Investment Banking commissions showed a significant increase and in terms of international activity, the improvement in Poland should be emphasised.

Net trading income booked in the first half of 2007 stood at Euro 124.2 million, a reduction from the Euro 167.3 million registered in the same period of 2006. This development includes the lower gains from trading securities in Portugal and also the impact of the change in the booking of interest and premiums and discounts of the trading portfolio, which was offset by the positive effect in the net interest income (as mentioned earlier).

Other net operating income, on a comparable basis, amounted to Euro 52.1 million in the first half of 2007, up by 12.8% from the Euro 46.3 million booked in the first half of 2006. Lower expenses booked in this line item, together with the increase of fees received in Portugal relating to the bancassurance intermediation activity developed in partnership with Millenniumbcp Fortis, had a positive influence on the other net



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operating income evolution. The international activity benefited from performance in Poland, Greece and Angola.

Dividends received in the first half of 2007, primarily relating to the shareholdings in Eureko, EDP and Banco Sabadell, totalled to Euro 22.6 million.

Equity accounted earnings totalled Euro 29.7 million in the first half of 2007, mainly as a result of the earnings appropriation from the 49% shareholding in the insurance company Millenniumbcp Fortis. As stated previously, and for comparative purposes, the net income of previously fully-owned companies (Banque BCP France, Banque BCP Luxembourg and bcpbank Canada), in the amount of Euro 6.1 million, was considered in this item of the profit and loss account in 2006.

OTHER INCOME

(values in euro million) 1H 07 1H 06 Change 07/06

Net commissions

Cards 80.8 72.0 12.2%Asset management and securities 132.5 96.0 38.1%Credit operations 68.4 69.7 -1.9%Other (1) 101.4 103.1 -1.6%

383.1 340.8 12.4% Net trading income 124.2 167.3 -25.8%Other net operating income (1) 52.1 46.3 12.8%Dividends 22.6 26.9 -16.1%Equity accounted earnings (2) 29.7 37.3 -20.4%

Total other income 611.7 618.6 -1.1%

Other income / Net operating revenues (3) 44.3% 47.5% (1) Excludes cost relating to the general tender offer for the acquisition of BPI in the 1st half of 2007 and the gain on the sale

of Interbanco in the 1st half of 2006. (2) Includes net income of the sold or partly sold companies Banque BCP France, Banque BCP Luxembourg and bcpbank Canada

in 2006. (3) Calculated according to rule 16/2004 from the Bank of Portugal, excludes the impacts mentioned in (1).

Operating costs (staff costs, other administrative costs and depreciation) amounted to Euro 771.4 million in the first half of 2007 (Euro 762.2 million in the first half of 2006), reflecting the impact of the expansion plans of the distribution networks and the initiatives aimed at reinforcing the competitive positioning in the various international markets in which the Group operates, in particular in Poland and Greece. The increase in operating costs of the international activity (+20.3%) was compensated by the cost reductions in Portugal (-5.3%), in particular in the lower staff costs (-5.6%), as a result of initiatives developed under the efficiency improvement programme. This resulted in an improvement in the cost to income ratio in Portugal to 52.8% (from 55.3% in the first half of 2006).

Staff costs stood at Euro 435.5 million in the first half of 2007, a 2.2% growth from the amount registered in the same period of 2006 on a comparable basis. The evolution of staff costs was driven by the rise in the number of employees in the international business, due to the expansion of the distribution network in Poland and Greece, aimed at strengthening the presence in these markets. In Portugal, staff costs reduced by 5.6% on a comparable basis, driven by the staff-restructuring measures implemented over the last few years.

Other administrative costs remained in line with the figure for the first half of 2006 (Euro 281.5 million) and totalled Euro 282.9 million in the first half of 2007, showing an increase of 0.5%. Administrative costs in Portugal fell by 4.6%, when compared with the same period of 2006, revealing savings across most items,



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namely in current costs, rents and in repairs and maintenance. In the international activity the administrative cost increase reflects the impact of the expansion plans implemented in Poland and Greece.

Depreciation amounted to Euro 53.0 million in the first half of 2007, a decrease of 2.7% from the same period of 2006. The sustained reduction in depreciation reflects the impact of the selective investment criteria followed by the Group in recent years and implementation of the IT outsourcing policy.

OPERATING COSTS (1)

(values in euro million) 1H 07 1H 06 Change 07/06

Staff costs 435.5 426.2 2.2%Other administrative costs 282.9 281.5 0.5%Depreciation 53.0 54.5 -2.7%

771.4 762.2 1.2%Of which:

Activity in Portugal 537.8 568.0 -5.3%Foreign activity 233.6 194.2 20.3%

Operating costs / Total income (2) 52.8% 55.3%

(1) Excludes the impact in the 1st half of 2006 of the staff-restructuring measures.

(2) Activity in Portugal. Calculated according to rule 16/2004 from the Bank of Portugal (on a comparable basis).

Impairment for loan losses (net of recoveries) in the first half of 2007 amounted to Euro 97.8 million, following the rise in the volume of loans granted to customers. The provisioning charge, evaluated by the impairment charges for loan losses as a proportion of total loans, stood at 32 b.p. (26 b.p. in the same date of 2006).

Loans to customers (including securitisation) increased 12.6%, reaching Euro 65,228 million at 30 June 2007 (Euro 57,915 million at 30 June 2006). The positive evolution of loans to customers was boosted by the performance of the activity in Portugal (+8.3%) and by the significant increases in international activity (+46.6%), in particular, Poland and Greece, demonstrating the dynamic commercial activity in these markets. Mortgage loans were the main driver for the loan growth in Portugal and Poland, while the performance of corporate loans in Greece was also noteworthy.



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LOANS TO CUSTOMERS (1)

(values in euro million) 30 Jun. 07 30 Jun. 06 Change 07 / 06

Individuals

Mortgage loans 26,555 22,878 16.1%

Consumer loans 4,383 4,092 7.1%

30,938 26,970 14.7%

Companies

Services 10,876 9,275 17.3%

Commerce 4,816 4,528 6.4%

Other 18,598 17,142 8.5%

34,290 30,945 10.8%

Total 65,228 57,915 12.6%

Of which:

Activity in Portugal 55,622 51,362 8.3%

Foreign activity 9,606 6,553 46.6% (1) Includes securitised loans.

Credit quality continues to show the benefit of careful evaluation and approval of credit proposals, as well as the effectiveness of mechanisms implemented to manage and control the risk. This has helped lead to stability in the ratio of loans overdue by more than 90 days, which has remained at 0.8% since the third quarter of 2005. Coverage ratio stood at 247.2% at 30 June 2007.

LOANS OVERDUE BY MORE THAN 90 DAYS AND IMPAIRMENTS AT 30 JUNE 2007

(values in euro million)

Loans overdue by more than

90 days Impairment

for loan losses Loans overdue

> 90 days / Total Loans

Coverage ratio

Individuals

Mortgage loans 68 182 0.3% 267.8%

Consumer loans 97 150 2.2% 155.2%

165 332 0.6% 201.7%

Companies

Services 32 186 0.3% 585.8%

Commerce 52 158 1.1% 300.6%

Other 234 519 1.3% 221.5%

318 863 0.9% 270.8%

Total 483 1,195 0.8% 247.2%

Total customers’ funds grew 5.7%, totalling Euro 59,777 million in 30 June 2007 (Euro 56,549 million in 30 June 2006). The increase in total customers’ funds benefited from the performance achieved in off-balance sheet customers’ funds, specifically in assets under management (+10.6%) and capitalisation insurance products (+9.0%), and the positive evolution of customers’ deposits (+3.1%) from 30 June 2006. Customers’ funds growth was mainly determined by the increases in the European Banking segment (+32.1%), in



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particular in the activity in Poland and Greece, in the Overseas Banking segment (+14.7%) and in Retail Banking in Portugal (+5.9%).

TOTAL CUSTOMERS’ FUNDS


Balance sheet customers’ funds

Deposits 34,624 33,590 3.1%Debt securities 5,420 5,000 8.4%

40,044 38,590 3.8%Off-balance sheet customers’ funds

Assets under management 10,697 9,668 10.6%Capitalisation insurance 9,036 8,291 9.0% 19,733 17,959 9.9%

Total 59,777 56,549 5.7%Of which:

Activity in Portugal 48,918 48,179 1.5%Foreign activity 10,859 8,370 29.7%

Solvency indicators reflect the Group’s capability to generate profits, in addition to the strict management of the risks incurred. The solvency ratio, as at 30 June 2007 and according to the rules of the Bank of Portugal, stood at 11.3%, with the Tier I ratio at 6.8%. These indicators include the impact of the costs relating to the general tender offer for the acquisition of Banco BPI, as well as the changes in regulatory framework concerning the shareholdings in insurance and financial companies, which came into effect from April 2007, which had a negative impact of 17 b.p. and 18 b.p., respectively, in “Core Tier I”.

SOLVENCY (BoP)

(values in euro million) 30 Jun. 07 30 Jun. 06

Tier One Capital Core 3,116 2,947 Preference shares 803 982 Total 3,919 3,929

Tier Two Capital Subordinated debt 2,703 2,950 Deductions (79) (226) Total 2,624 2,724

Total Regulatory Capital 6,543 6,653 Risk Weighted Assets 57,732 53,990 Bank of Portugal ratios

Core Tier I 5.4% 5.5% Tier I 6.8% 7.3% Tier II 4.5% 5.0% Total 11.3% 12.3%



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SEGMENTAL REPORTING

Millennium bcp offers a wide range of banking activities and financial services in Portugal and abroad, with special focus on Commercial Banking, Investment Banking and Private Banking and Asset Management.

SEGMENTS DESCRIPTION

The strategic approach of Retail Banking in Portugal is to target “mass market” customers, who appreciate a value proposition based on innovation and speed, and “prestige” and “business” customers, who for their specific interests, financial assets or income require a value proposition based on innovation and personalisation and a dedicated Account Manager. Within the scope of the Group’s cross-selling strategy, Retail Banking also acts as a distribution channel for the financial products and services of Millennium bcp as a whole.

The Companies and Corporate segment includes the Companies network in Portugal, which covers the financial needs of companies with an annual turnover between Euro 7.5 million and Euro 100 million focused on innovation and on an overall offer of traditional banking products complemented by specialised financing, and the Corporate network in Portugal, dedicated to corporate and institutional customers with an annual turnover in excess of Euro 100 million, providing a complete range of value added products and services. This business area also includes the International Corporate Banking business and the activity of the International Division.

The European Banking segment comprises the operations carried out in Poland, Greece and Turkey under the commercial brand Millennium bank. In Poland the Group is represented by a universal bank, and in Greece, by an operation based on the innovation of products and services. Despite its smaller size, the activity in Turkey is performed thought an operation focused on financial advising. The greenfield operation in Romania – Banca Millennium,S.A. – , which will nearly start, is also included under this segment.

The Overseas Banking segment represents the Group’s activity in markets outside Europe, and carried out through markets with a close connection to Portugal. This segment includes Millennium bcpbank in the United States, a local bank that serves the local population, namely, the Portuguese community, Millennium bim in Mozambique, a universal bank, targeting both companies and individual customers, and Millennium Angola.

The Investment Banking business is undertaken essentially by Millennium bcp investimento, a company specialised in capital markets, in providing strategic and financial advisory, specialised financial services – project finance, corporate finance, securities brokerage and equity research – and in structuring risk-hedging derivatives products.

The Private Banking and Asset Management activity comprises the Private Banking network in Portugal, the Millennium Banque Privée, a private banking platform incorporated under Swiss law, the ActivoBank7, a universal Bank, which maintains a focus on brokerage and on the selection and counselling of long-term investment products, and the subsidiaries companies specialised in the asset management business.

BUSINESS SEGMENTS ACTIVITY FOR THE FIRST HALF OF 2007

The figures reported for each segment result from combining subsidiaries and business units and include the impact of capital allocation and balancing process for each entity in the balance sheet and in the profit and loss account, based on average figures.

Balance sheet headings for each subsidiary / business unit were re-calculated, through capital allocation, according to regulatory solvency criteria. Each operation is balanced through internal transfers of funds, which does not impact consolidated figures.

Each segment’s net contribution included the impact of the transfers mentioned above and reflected the individual results of business units, independently from the percentage held by the Group, including the impacts of the transfers of funds.

The following information is based on financial statements prepared according to IFRS and to the organisational model for Millennium bcp’s business areas.

To ensure comparability, one-off items were excluded.



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Retail Banking in Portugal

The Retail Banking in Portugal showed a net contribution of Euro 210.0 million in the first half of 2007, an increase of 17.1% from the first half of 2006 (Euro 179.4 million). This performance benefited from the reduction in operating costs and the rise in net interest income, which offset the higher impairment and provisions charged, and lead to an improvement of allocated capital to 37.0% at 30 June 2007.

The measures adopted within the framework to improve operating efficiency, such as centralisation of administrative procedures and the restructuring of processes, continue to improve the efficiency ratio, which stood at 51.5% at 30 June 2007 (57.5% at 30 June 2006).

Loans to customers rose by 10.6% between 30 June 2006 and 30 June 2007 supported by the increase in commercial activity, particular in mortgage loans, despite strong competitive environment in this area. Total customers’ funds amounted to Euro 33,580 million at 30 June 2007, 5.9% up from 30 June 2006 (Euro 31,707 million).


Profit and loss account

Net interest income 500.5 445.7 12.3%

Other net income 209.5 211.1 -0.8%

709.9 656.8 8.1%

Operating costs 365.9 377.7 -3.1%

Impairment and provisions 58.3 31.7 83.7%

Contribution before income taxes 285.8 247.4 15.5%

Income taxes 75.7 68.0 11.3%

Net contribution 210.0 179.4 17.1% Summary of indicators

Allocated capital 1,146 1,040 10.2%

Return on allocated capital 37.0% 34.8% --

Risk weighted assets 23,361 21,257 9.9%

Cost to income ratio 51.5% 57.5% --

Loans to customers 32,130 29,063 10.6%

Total customers’ funds 33,580 31,707 5.9%



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Companies and Corporate

The net contribution of Companies and Corporate segment reached Euro 131.6 million at the end of the first half of 2007. Strong growth of net interest income and commissions offset the higher operating costs for the period. Despite the highly competitive environment in this sector in Portugal, the return on allocated capital stood at 20.8% and the efficiency ratio at 22.7% in the first half of 2007.

Total customers’ funds totalled to Euro 7,770 million at 30 June 2007, which were limited by the lower level customers’ deposits. This was attributable mainly to a combination of two factors - the volatility of large companies and institutional clients’ deposits and to funds’ withdrawal from institutional customers with significant financial portfolios, with special impact in the Corporate network, during the first half of 2007.

The amount of loans to customers increased by 9.5% reaching Euro 18,535 million at 30 June 2007 (Euro 16,933 million in 30 June 2006) mainly due to the encouraging signs of the economic recovery in some sectors of activity in Portugal and the improvement of confidence by economic agents.




Other net income 73.6 67.9 8.4%

250.7 234.2 7.0%

Operating costs 56.9 51.9 9.6%

Impairment and provisions 14.7 17.6 -16.0%


Income taxes 47.5 45.3 4.7%


Allocated capital 1,277 1,163 9.8%





Total customers’ funds 7,770 9,804 -20.7%



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European Banking

The net contribution of the European Banking segment was up by 82.1%, to Euro 55.7 million in the first half of 2007, from Euro 30.6 million registered in the same period of 2006. Increased revenues from the net interest income and other net income, more than offset the operating costs, related to the expansion of the distribution network and staff increase in Poland and Greece. The return on allocated capital improved and stood at 17.9% and the efficiency ratio at 67.6%.

The growth of business volumes in this segment continues, reflecting the organic growth strategy being implemented in Poland and Greece. Strong performance of mortgage loans in Poland and the growth of corporate loans and loans to individuals in Greece resulted in the increase of loans to customers by 51.3% to Euro 8,618 million at 30 June 2007.

Total customers’ funds amounted to Euro 9,569 million at 30 June 2007, 32.1% from 30 June 2006 mainly due to the significant growth of assets under management in Poland and the increase in customers’ deposits in Poland and Greece.


Profit and loss account (1)



282.4 207.6 36.0%


Impairment and provisions 19.5 9.8 98.8%


Income taxes and minority interests 16.2 10.1 59.8%

Net contribution 55.7 30.6 82.1% Summary of indicators (1)

Allocated capital 629 568 10.8%






(1) Excludes Banque BCP France and Banque BCP Luxembourg. The shareholding was reduced in July 2006 to 20%.



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Overseas Banking

The net contribution of Overseas Banking segment increased by 11.1% and amounted to Euro 22.2 million in the first half of 2007 (Euro 20.2 million in the first half of 2006), boosted by the performance of Banco Millennium Angola and Millennium bim in Mozambique.

Net contribution evolution reflects the growth of net interest income and the reduction of impairment charges for loans losses and other provisions, offsetting the higher operating costs that related mainly to the network expansion in Angola. The return on allocated capital stood at 55.5% and the efficiency ratio improved to 62.8%.

A rise in loans to individuals in Mozambique and to companies in Angola resulted in loans to customers increasing 15.1% from 30 June 2006. Total customers’ funds grew 14.7% from 30 June 2006, driven by the higher volume of deposits across all operations in this segment.


Profit and loss account (1)



67.8 55.9 21.1%


Impairment and provisions (0.1) (1.0) --


Income taxes and minority interests 3.0 (0.2) --

Net contribution 22.2 20.0 11.1%

Summary of indicators (1)



Risk weighted assets 926 799 15.8%


Loans to customers 762 662 15.1%


(1) Excludes bcpbank Canada sold in 2006.



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Investment Banking

The net contribution of Investment Banking segment reached Euro 44.3 million in the first half of 2007, up 62.7% from the same period of 2006 (Euro 27.2 million), benefiting from costs control, mainly by the revenues increase and strengthened business volumes.

In the first half of 2007, the interests and valuation gains and losses related to the trading portfolio, which were previously booked in net trading income, started to be booked in the net interest income. This change impacted negatively in other net income, nevertheless, was more than offset by the significant rise in net commissions.

Millennium investment banking acted as “lead arranger” in important project finance operations during the fourth quarter of 2006, which resulted in an increase in loans to customers for the reporting period.



Net interest income 8.7 (7.1) --


84.5 64.4 31.2%


Impairment and provisions 0.1 1.5 -96.4%


Income taxes 14.1 10.4 35.9%

Net contribution 44.3 27.2 62.7%

Summary of indicators





Loans to customers 849 358 137.0%



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Private Banking and Asset Management

The net contribution of the Private Banking and Asset Management business segment reached Euro 22.3 million in the first half of 2007, providing a return on allocated capital of 36.2%.

Cost to income ratio improved to 51.2% in the first half of 2007 (61.2% in the same period of 2006) as a result of tighter cost control and higher revenues driven by the increase in assets under management and in loans to customers.

The emphasis given to innovation and to the diversification of investment solutions, in particular by tailoring the Bank’s value proposition to the needs and risk profile of the customers, lead to the increase in assets under management (+8.9%) and in loans to customers (+12.7%), from 30 June 2006 to 30 June 2007.





64.7 54.5 18.6%

Operating costs 33.1 33.4 -0.8%

Impairment and provisions 4.1 1.0 --


Income taxes 5.1 3.3 54.1%







Assets under management 16,452 15,114 8.9%



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ECONOMIC ENVIRONMENT

During the first half of the year, the world economy continued to grow, providing an opportunity for an upward revision of the world’s GDP projections for 2007 at a growth rate of approximately 5%. Emerging markets continue to show a strong growth driven by the integration of product markets, higher confidence among investors and rising foreign direct investment lured by the economic reforms implemented over the past few years. The lower oil prices, during late 2006 and early 2007, were a further stimulus to activity growth by balancing price pressures at the consumer level arising from the tighter resource utilization rates. As such, despite the strong GDP growth, headline inflation remained stable and consistent with the definition of price stability (inflation rate of 1.9% in the Euro Area in June). However, the diminishing slack in the economy, which is clearly supported by the ever decreasing unemployment rate across the world, may result in sustained higher inflation pressures in the near future influenced by the recent and significant upswing in oil prices. Major central banks have been following a tighter monetary policy, thus supporting the view of some slowdown in economic activity in the near future.

The rate of the economic recovery across the Euro Area has been unexpected. The real GDP y-o-y growth rate was slightly above 3.0% in the first quarter. Coincident indicators and the European Commission’s quarterly forecasts point to the continuing improvement in the macro environment. The ECB continued to implement its policy of gradually “normalizing” interest rates. The main refinancing rate currently stands at 4.0% and there is an increasing likelihood of it being raised by a further 25 b.p. by late Summer. In the USA, interest rates have now remained unchanged for over a year at 5.25%. As a result of the positive economic developments and decreasing gap between interest rates, the euro currency has been appreciating vis-à-vis the US dollar and the Japanese yen, hitting a new all time high during the second quarter against both currencies. A continuing economic growth combined with a moderate inflation pressures and low level of financial markets volatility lead to a less risk averse investments, driving the stock market indices to a new high and improving the capital markets’ business volumes.

This positive backdrop had a positive influence on the ongoing recovery of the Portuguese economy and supported domestic GDP growth rates. In the first quarter, the real GDP growth rate topped 2.0%, mainly due to the strength of net external demand. Early indicators show similar levels during the second quarter, although corporate investment shows some signs of improvement. Therefore it is expected that the annual GDP growth is likely to be close to the 2.0% level. Relatively weak private consumption in Portugal indicates that the Portuguese economic recovery remains dependent on and exposed to external developments. This is in stark contrast to the situation in Poland and Greece where growth is driven by a strong individual spending and investment as a result of a confidence in the economic growth, a decline in unemployment and a rising corporate profitability. In the first quarter, the real GDP grew by 7.4% and 4.6%, in Poland and Greece respectively, paving the way for another year of strong growth.

Despite the macro economic growth, rising interest rates and increasing house prices have had a negative impact on family’s disposable income resulting in decline in demand for mortgages. The resilience of the economic climate and the tighter capacity utilization may increase the propensity to invest, thereby fostering the corporate’ s needs for funding, either by borrowing from banks or by tapping capital markets. In Portugal, credit to the private sector continues to run at an annual rate of 10%. The increase in corporate borrowing and the buoyancy of consumer loans have been compensating for the decline recorded in the mortgage business. Higher level of interest rates had a positive impact on net interest income earned from deposits and the recovery in customers resources, even if still insufficient to fully provide for credit growth needs. Margin compression remains a sensitive issue in the loans business. Following the adoption of a new law in relation to the covered bonds, and as financial conditions proved attractive throughout the first half of the year, domestic institutions took the opportunity to issue debt. At the same time they reduced financing proceeds from the interbank markets and increased average maturity of liabilities.



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SHARE PRICE INDICATORS

30 Jun. 07 30 Jun. 06

Shares outstanding – period end (thousands) 3,611,330 3,611,330Shares outstanding – average (thousands) 3,610,064 3,599,353Closing price – period end (euros) 4.14 2.22Book value per share (euros) 1.11 0.98Earnings per share basic (euros) (1) (2) 0.20 0.19Earnings per share diluted (euros) (2) 0.20 0.19Return on equity (ROE) (2) 17.8% 20.1% (1) Net income on a comparable basis excluding dividends of Euro 1 billion preference shares/average shares outstanding

(annualised); in the first half of 2007 the amount of those dividends stood at Euro 24.3 million (the same amount as the first half of 2006).

(2) Excludes costs relating to the general tender offer for the acquisition of BPI in the 1st half of 2007; the gain on the sale of Interbanco and the impact of the staff-restructuring measures in the 1st half of 2006.

“Disclaimer”

This document may include certain sections or statements, in particular relating to the Banco Comercial Português (“BCP”) Group, that are neither reported financial results nor other historical information. These statements, which may include, without limitation, targets, forecasts, projections, 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”, “expect”, “estimate”, “project”, “anticipate”, “should”, “intend”, “plan”, “probability”, “risk”, “Value-at-Risk” (“VaR”), “target”, “goal”, “objective”, “will”, “endeavour”, “outlook”, “optimistic”, “prospects” or similar expressions or negatives or combinations 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, or other applicable laws and regulations. By their nature, forward-looking statements are inherently predictive, speculative and are subject to 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 condition in individual countries in which the BCP 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 movements in securities markets, currency exchange rates and interest rates, monetary policies, inability to hedge certain risks economically; the adequacy of loss reserves; acquisitions or restructurings; technological changes; changes in consumer spending and saving habits, changes in financial position or credit worthiness of our customers, obligors and counterparties, and the success of the Group in managing the risk involved in the foregoing.

BCP does not undertake to update or to release publicly any revision to any forward-looking statements included in this document, whether to reflect events, circumstances or unanticipated events occurring after the date hereof, or otherwise.



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BANCO COMERCIAL PORTUGUÊS

Consolidated Income Statement for the six months period ended 30 June, 2007 and 2006

30 June 2007 30 June 2006

(Thousands of Euros) Interest income 2,029,687 1,581,270 Interest expense (1,260,885) (874,824) Net interest income 768,802 706,446 Dividends from equity instruments 22,596 26,931 Net fees and commission income 294,371 350,701 Net gains arising from trading and hedging activities 129,785 94,312 Net gains arising from available for sale financial assets (5,612) 73,094 Other operating income 43,295 54,481 1,253,237 1,305,965 Other net income from non banking activity 9,790 3,612 Total operating income 1,263,027 1,309,577 Staff costs 435,491 513,238 Other administrative costs 282,898 289,607 Depreciation 52,989 58,416 Operating costs 771,378 861,261 491,649 448,316 Loans impairment (97,751) (71,349) Other assets impairment (12,096) (8,253) Other provisions (6,836) (7,973) Operating profit 374,966 360,741 Share of profit of associates under the equity method 29,729 31,235 Gains from the sale of subsidiaries and other assets (916) 79,354 Profit before income tax 403,779 471,330 Income tax Current (16,926) (15,087) Deferred (52,505) (35,475) Profit for the period 334,348 420,768 Attributable to: Shareholders of the Bank 307,868 395,821 Minority interests 26,480 24,947 Profit for the period 334,348 420,768



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BANCO COMERCIAL PORTUGUÊS

Consolidated Balance Sheet as at 30 June, 2007 and 2006 30 June 2007 30 June 2006 (Thousands of Euros) Assets

Cash and deposits at central banks 1,535,710 1,429,481 Loans and advances to credit institutions Repayable on demand 617,604 696,865 Other loans and advances 8,381,224 5,005,435 Loans and advances to customers 60,340,964 53,856,817 Financial assets held for trading 3,369,210 2,125,407 Financial assets available for sale 4,866,371 4,969,017 Assets with repurchasing agreement 38,403 40,644 Hedging derivatives 731,015 90,782 Investments in associated companies 286,632 281,798 Non current assets held for sale - 1,797,472 Property and equipment 740,517 735,691 Goodwill and intangible assets 529,883 369,334 Current tax assets 22,308 22,113 Deferred tax assets 497,964 587,667 Other assets 3,714,125 4,395,058 85,671,930 76,403,581

Liabilities

Amounts owed to central banks 526,843 542,388 Amounts owed to others credit institutions 10,420,745 11,447,870 Amounts owed to customers 34,624,245 33,590,043 Debt securities 27,873,940 18,557,605 Financial liabilities held for trading 938,976 810,083 Other financial liabilities held for trading at fair value through results 904,072 -Hedging derivatives 780,244 83,591 Non current liabilities held for sale - 1,692,825 Provisions for liabilities and charges 211,160 242,377 Subordinated debt 2,822,935 2,839,706 Current income tax liabilities 375 2,042 Deferred income tax liabilities 34 -Other liabilities 1,330,713 1,742,811 Total Liabilities 80,434,282 71,551,341 Equity Share capital 3,611,330 3,611,330 Treasury stock (24,722) (43,196)Share premium 881,707 881,707 Preference shares 1,000,000 1,000,000 Fair value reserves 471,902 365,300 Reserves and retained earnings (1,252,706) (1,687,821)Profit for the period attributable to Shareholders 307,868 395,821 Total Equity attributable to Shareholders of the Bank 4,995,379 4,523,141 Minority interests 242,269 329,099 Total Equity 5,237,648 4,852,240 85,671,930 76,403,581

earnings millennium bcp 2q07ind.millenniumbcp.pt/.../act_report_24072007.pdf · 2018. 7. 14. ·...

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