2004/2005 interim profit announcement
Bendigo Bank today announced a 2004/05 interim operating profit after tax of $42.8 million, a 24 per cent increase on the previous corresponding period.
Operating profit after income tax and before specific items – principally the sale of shares in IOOF Holdings – was $38.9 million, an increase of 17 per cent.
Directors declared a two-cents-per-share increase in the interim dividend, to 19.0 cents fully franked. The dividend is payable on 31 March to shareholders registered at the close of trading on 16 March.
The bank also announced it was seeking APRA approval for capital management initiatives including the issue of Bendigo Preference Shares to raise around $100 million in Tier 1 capital and an on-market buyback of up to five million shares (3.5 per cent of issued capital).
Chairman Richard Guy said the capital initiatives were aimed at improving shareholder returns in line with the substantial growth in the bank’s bottom line.
“The interim result we announce today confirms that Bendigo Bank’s retail banking expansion continues to produce excellent growth and profit improvement,” Mr Guy said.
“We view the result as a solid achievement, reflecting the growing maturity of our branch and alliance network.
“The Bendigo brand has been welcomed across Australia, as reflected in our ability to raise deposits in every market in which we operate.
“Two-thirds of our branches are less than five-years-old and the biggest proportion of those are in States which were unfamiliar with Bendigo, so our growth is testament to the strength of our brand and our community engagement activities.
“We also continue to see growing contributions from our alliances such as Elders Rural Bank (ERB), Tasmanian Banking Services and Community Sector Bank. Again, their strength is their close connection with the discrete communities they serve.
“Whilst ERB provided only moderate improvement over the half, due to competitive pressure on interest margins, its business growth remains satisfactory and there are excellent prospects for increased contribution from ERB in years to come.
“Our funds management business is benefiting from our growing distribution network and is rapidly increasing its scale and contribution to profit.
“So what you are seeing is continued strong growth in revenues from right across our business.
“Our focus is on improving shareholder returns and we are today announcing capital initiatives that will further improve earnings per share and therefore shareholder returns.”
Mr Guy announced a range of measures to be implemented immediately, subject to APRA approval:
The issue of a hybrid Tier 1 Preference Share to raise around $100 million in capital to support business growth. Shareholders will receive a priority offer and will soon receive a registration card inviting them to request a prospectus. Details of the Preference Share will be contained in the prospectus which is expected to be lodged with ASIC in March. Customers may also be entitled to a preferential allocation depending on shareholder take-up. Inquiries should be directed to 1300 656 793.
An on-market buyback of up to five million shares.
A reduction from 8.0 per cent to 7.5 per cent in the bank’s Tier 1 capital ratio target.
The immediate suspension of the 2.5 per cent discount on the issue of shares under the bank’s Dividend Reinvestment and Bonus Share plans in order that those plans can continue to be offered.
Managing director Rob Hunt said the interim profit result affirmed that the bank’s strategy was on track to deliver sustainable growth in shareholder returns.
“Lending and deposits continue to grow strongly as our relatively new branch and alliance networks gain traction. Those networks will continue to be expanded and we will maintain a considered investment program to capitalise on the strong demand for our style of banking.”
Mr Hunt said the past six months produced some challenges relating to the cost of deposits given the bank’s high concentration of retail deposits and rapid growth in assets.
“Our loan balances grew by 23 per cent over the calendar year and that growth had to be funded in a more competitive market for retail deposits. We always expected it would not be possible to retain a 90 per cent retail funded position in that environment.
“The rebalancing of our funding mix saw our margins come under pressure and this meant that our strong growth was not reflected in equivalent improvement in shareholder returns. However, we are pleased with the overall performance given the environment in which we found ourselves.
“While margins have been under some pressure, our gross margin remains healthy. This is evidence that our strategy remains on track – to build relationships with our customers and their communities to secure more sustainable revenues, and to seek pricing that reflects the quality of our service and products. We have not achieved our growth rates by discounting and while we need to compete, we attract and retain customers with a particular service offer and retail focus.
“We are focused on continuing the progress of the business itself. We acknowledge that interest margins and our capital structure have impacted on shareholder returns and they are receiving additional management attention going forward."
On 17 December 2004 the Bank foreshadowed it would diversify its investment in the wealth management sector. Select Management Fund Limited (SMF) has stated its intention to issue a prospectus and apply for listing on ASX. The Bank today announced it has agreed to take a five per cent stake in the expanded capital of SMF at the offer price under the prospectus. The commitment to invest is subject to conditions including the listing of SMF, and the shares acquired are to be held in escrow for six months.
Highlights (July-Dec. 2004 compared with July-Dec. 2003)
Profit
Operating profit after income tax was $42.8 million, up 24% from $34.6 million
Earnings per share 30.5 cents, compared with 26.9 cents (13% increase)
Lending
Total bank lending approvals were $3.0 billion, a 4% decrease
Gross loan balances grew by $871 million (9%) during the half, with a further $195 million in loans sold to off-balance sheet structures ($362 million for the calendar year)
Deposits
Total Group deposits grew by 22% during the half, to $11.3 billion, with retail deposits representing 85% of total deposits
Managed funds
Superannuation and managed funds offered by Sandhurst Trustees increased by 19%, to $2.6 billion, during the half.
Wealth Solutions’ profit contribution increased by 40%, to $7.7 million, on the corresponding six months in 2003
Assets/capital
Group managed assets total $14.8 billion, a 9 per cent increase for the half
Total risk-weighted capital adequacy ratio at 31 December 2004 was 10.48%
Shareholder equity increased by 16% to $703 million during calendar year 2004
Dividends
Interim dividend is 19.0 cents per share, fully franked at 30 per cent (up by 12% from 17.0 cents interim 2004)
Bad debts
Net impaired assets were $8.8 million, representing just 0.09% of gross loans (June 2004 = 0.05%; December 2003 = 0.03%)
General provisions were increased by $4.3 million and now total $57.7 million, maintaining a level of 0.79% of risk-weighted assets
