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Interim profit 2006 – strong earnings growth continues

13 February 2006 |Media centre

Bendigo Bank today announced a continuation of the strong business and earnings growth trend established over the past five years.

Bendigo Bank reported a profit of $53.2 million for the six months to 31 December 2005 an increase of 18.5 per cent on the corresponding period in 2004. Due to the changes in financial statement presentation required by International Financial Reporting Standards (IFRS), this does not reflect a like-for-like comparison.

Profit before significant items available for distribution to ordinary shareholders provides a clearer comparison. On this basis, profit in the six months to 31 December 2005 increased by 15.9 per cent on the corresponding period in 2004, from $41 million to $47.5 million.

Underlying earnings were up by 16.9 per cent, to $76.8 million, and cash earnings per share increased by 18.1 per cent to 34.6 cents.

Ordinary shareholders will receive a 15.8 per cent increase in their interim dividend, up by three cents to 22 cents per share (fully franked). The interim dividend will be paid on 31 March to shareholders registered at the close of trading on 3 March.

“Today’s result continues a five-year trend of consistent, reliable growth in business, profitability and earnings,” said Bank Chairman Richard Guy.

“Our success is being achieved through consistent application of a branded retail banking strategy.

“Through focusing on improving outcomes for customers and communities, we are building a strong brand that continues to attract customers who are inclined to buy and stay with us.

“We believe this will continue to build long-term, sustainable earnings and shareholder value in a range of market conditions.”

Commenting on the result, Managing Director Rob Hunt said the period in review had witnessed extremely aggressive pricing from competitors chasing market share through a combination of low-margin pricing, active retention programs and low-doc lending.

“We refused to be drawn into that ‘volume at any cost’ strategy and instead continued to write solid business at good margins,” Mr Hunt said.

“The outcome is profitable growth at reasonable levels, with shareholder returns further aided by the combined effects of excellent deposit flows, steady margins and high-quality assets.

“Our gross margin has hardly budged over 12 months, indicating that we continue to achieve pricing that reflects the premium service we provide to our customers.”

Mr Hunt said Bendigo continued to progress all of its strategic aims.

“Our distribution expansion continues on track. We are on target to open 35 new branches and install 80 new ATMs this financial year. Eftpos merchant facilities now exceed 8000.

“Our product range is now quite comprehensive and we are able to better support all facets of the communities in which we operate.

“And we have built a strongly differentiated brand based on the depth of our engagement with our customers and their communities. We enjoy high customer satisfaction levels, new customer growth is still strong and there is a pipeline of new communities campaigning for a Community Bank® branch.

“We continue to diversify our revenues, with non-interest income as a proportion of total income rising from 35 per cent in December 2004 to 38 per cent in today’s result. This is aided by contributions from our joint ventures (Elders Rural Bank, Tasmanian Banking Services and Community Sector Bank) and alliances as they establish their credentials in their markets.

“Demand for our brand remains healthy. Over the past five years we have achieved consistently strong growth in our business and we will continue to invest in new opportunities while the demand is there and we can see increased value for shareholders.

“We are building a solid branded retail banking strategy likely to produce value for many years to come.

“Because we are taking our customers and communities with us, our strategy gives us the best chance to attract new customers who stay with us and buy more from us, thereby producing sustainable growth in revenues.”

Mr Hunt said the bank had made good progress in its stated aim to better align profit growth with shareholder returns this financial year.

“We said we would refine our capital management to achieve this outcome and evidence of its effectiveness is emerging. The on-market buyback of 2.85 million shares and Preference Share issue had some impact and we continue to manage our capital requirements through selling bank asset into our Sandhurst mortgage funds to support their strong growth.”

Mr Hunt said deposit inflows continued to be strong and lending growth had picked up towards the end of the half.

He said the bank saw no reason to alter its guidance of an increase in cash earnings per ordinary share of at least ten per cent this financial year.

Result highlights

Profit Profit after tax was $53.2 million, up 18.5% from $44.9 million 
Earnings per share 35.0 cents, compared with 32.0 cents (9.4% increase)
Lending Total bank lending approvals were $3.1 billion, a 4% increase on previous corresponding period 
Gross loans under management grew by $573 million (4.5%) during the half
Deposits Total Group deposits grew by 4% during the half, to $13.1 billion. Retail deposits increased by 9.5% to $11 billion, representing 84% of total deposits
Managed funds Managed and Common Funds offered by Sandhurst Trustees increased by 9%, to $3 billion, during the half
Assets/capital Group managed loans total $13.4 billion, a 4.5 per cent increase for the half 
Total risk-weighted capital adequacy ratio at 31 December 2005 was 10.76%
Shareholder equity increased by 21% to $813 million during calendar year 2005
Dividends Interim dividend is 22.0 cents per share, fully franked at 30 per cent (up by 16% from 19.0 cents interim 2005)
Bad debts Net impaired assets were $1.7 million, representing just 0.01% of gross loans (June 2005 = 0.07%; December 2004 = 0.08%)

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