2006 profit announcement
Bendigo Bank’s after-tax profit has topped $100 million for the first time.
Profit available for distribution to ordinary shareholders was $109.2 million, a 15.3 per cent increase on 2005.
This figure benefited from significant items totalling $8.4 million after tax. Excluding those items, net profit was $100.8 million, up from $91.7 million, a 10 per cent lift.
Managing Director Rob Hunt said reported return on equity increased to 15.1 per cent. “We are comfortable with our progress on this important performance measure.”
Cash earnings per share increased by 11.8 per cent, to 73.2 cents, exceeding the bank’s targeted ten per cent improvement.
Total earnings per share were 78.0 cents. Bendigo announced a final dividend of 30 cents per share, taking the total dividend to 52 cents (fully franked). This was a 15.6 per cent increase on 2005 and is double the total dividend of five years ago (excluding 2001’s special dividend).
“This result continues Bendigo’s steady progression in profitability and earnings in line with the growth in our business,” Mr Hunt said.
“This is in fact what has been happening over the past five or six years under this strategy.
“Our balance sheet is growing, we continue to open new branches, sign new customers and deepen our relationships with existing customers and communities across Australia.
“And our earnings are improving as we leverage that balance sheet growth against investments in expanding our network and product range over the past few years.”
Mr Hunt said earnings progression had been achieved while further enhancing Bendigo’s reputation and its commitment to quality customer service.
“We are near our all-time highs for customer satisfaction and continue to lead industry comparisons.
“That says to me we are getting the balance right. Customers are receiving good quality service, our communities are benefiting from our presence and as a result of those two things, our shareholders are seeing improved returns on their investment.
“This is the fifth year in a row that we have increased cash earnings per share, and dividends, by more than ten per cent and we have therefore been able to sustainably improve dividends to shareholders over that period – in fact, excluding 2001’s special dividend, the dividend has doubled in that time.”
Detailing the result, Mr Hunt said lending and retail deposits continued to grow strongly, with loans under management up 9.5 per cent to $14 billion and retail deposits increasing by 13 per cent to $11.3 billion. Retail deposits comprised 83 per cent of total deposits.
“We are raising both deposits and loans in every State and over 50 per cent of our branches are now interstate. This is confirmation that our brand, positioning and retail strategy is cutting through.”
Mr Hunt said Bendigo believed there had been some unsustainable pricing across the market as some competitors chased market share.
“We resisted chasing growth for growth’s sake and instead concentrated on writing quality business at profitable prices. The result was that we achieved reasonable volumes of new business on both sides of the balance sheet – and at a slightly increased margin.
“This is a testament to the strength of our branded retail strategy and the broad mix of banking and financial business being provided to customers.
“Return on equity on a cash basis rose to 14.2 per cent, which was another healthy rise and continues a long-term upward trend.
“Credit quality remains excellent and income growth continues to outstrip the investments we make in distribution, product and people. While this allows only modest improvement in cost ratios, we will continue to invest while demand for the Bendigo style of banking remains strong.”
Mr Hunt said there were pleasing signs of improved business performance flowing from decisions made during the year.
“We restructured our largest arm, retail banking, in recognition that our growing branch network was better supported at a State and regional level rather than through the old head office structure.
“And we reshaped Wealth Solutions and the remuneration framework to improve the prospects of success within the Bendigo network and its customer base.
“Thirteen regions became 27 and our Community Bank® branches were brought in under our regional managers, who now have total responsibility for staff, sales and service for the Bank’s complete suite of products.
“The result has been a sharpened focus on driving the business and on the growing number of community engagement activities we are undertaking.
“It means we are having more conversations about adding value for our million customers and we are becoming even closer aligned to the aspirations of the communities we serve.
“Both are critical, as we will secure our long-term sustainability as a company and as a style of banking only if we are relevant to our customers and communities.”
Mr Hunt said Bendigo’s branch expansion would continue.
“We continue to work with some 60 new communities around Australia and expect to open approximately 30 branches again this financial year. Last year we opened 28 Community Bank® branches and five company branches.”
Mr Hunt said Bendigo remained cautiously optimistic about trading conditions, with the economy having shown signs it could absorb reasonable increases in interest rates.
“We believe the economy will continue to grow and we are confident we will win a healthy share of this new business with our unique style of banking.
“Also our own experience tells us there is solid latent growth potential within our current branches – a third of which are four years old or less. We are also concentrating on deepening the relationships with our current customers right across the national network.
“Our joint ventures and subsidiaries are all increasing their contribution to our bottom line performance, with the largest of these joint ventures (being Elders Rural Bank) improving after tax profit performance by ten per cent over the year.
“The Group is again targeting cash earnings per share growth of ten per cent in the current financial year.”
RESULT AT A GLANCE
Financial performance
Profit after income tax before significant items was $108.3 million (2005: $91.7 million), an increase of 18%.
Profit available to ordinary shareholders before significant items was $100.8 million (2005: $91.7 million), an increase of 10%.
The Bank’s interest margin increased by 8 basis points, to 2.76%. Five points of this increase related to reclassification of application fees under AIFRS. After payments to Community Bank® and alliance partners, net interest margin was 2.28% (2005: 2.28%).
Net interest income increased by 10% to $315.1 million.
Non-interest income before significant items was $184.5 million (2005: $164.5 million), an increase of 12%.
Expenses before significant items increased by 11% to $338.1 million compared to 2005. The cost to income ratio was 66.6% compared to 66.9% for 2005.
Cash basis earnings per ordinary share increased to 73.2 cents (2005: 65.5 cents), an increase of 12%.
Return on average ordinary equity (cash basis) was 14.2% compared to 13.6% in 2005.
Financial position
Loans under management were $14.1 billion (2005: $12.8 billion), an increase of 10%.
Retail deposits were $11.3 billion (2005: $10.0 billion), an increase of 13%.
Managed funds increased by 10% to $3.0 billion (2005: $2.7 billion).
Net non-accrual loans as a percentage of loan receivables decreased from 0.07% at June 2005 to 0.05% at 30 June 2006.
Dividends
2005/06 final dividend of 30.0 cents per fully paid ordinary share (an increase of 4.0 cents over the 2004/2005 final dividend), fully franked at 30%.
Dividend is payable on 29 September 2006 to shareholders registered on the Record Date of 1 September 2006.
The final dividend proposed totals $40.1 million.
Dividends for 2005/2006 total 52.0 cents (up from 45.0 cents in 2004/2005), which represents a payout ratio of 66.7% of total earnings per ordinary share or 71.0% of cash basis per ordinary share (2005: 66.7% and 68.7% respectively).
