Retail bank drives strong profit growth
Bendigo Bank today announced a 15.6 per cent increase in cash profit after tax, to $118.5 million for 2006/07. This reflects Bendigo’s continued progress after years of investment in its alternative style of banking.
The profit represents a 13.3 per cent increase in cash earnings per share, which slightly exceeds market guidance provided in April.
Directors declared a fully franked final dividend of 34.0 cents per share. Dividends for 2006/07 totalled 58.0 cents, up from 52.0 cents last year.
The growth was driven by a robust retail banking performance, a growing diversity of revenues and a strong net interest margin which reflects the broad mix of business attracted by Bendigo’s branded retail strategy.
“This is a high quality result reflective of the Bendigo brand value and our long-term customer and community focus,” said Managing Director Rob Hunt.
“It shows our customers are choosing to buy from us because of the value Bendigo adds to them and their communities.
“We have not been drawn into unsustainable price discounting to win business – we win it on fair pricing that reflects our high service proposition and our commitment to improve the prospects of the communities we serve.
“This has been our strategic focus for more than a decade now and we believe we have the balance about right.
“Customer satisfaction continues to lead the banking industry and tells us our service standards have kept pace with business growth; the vast bulk of our Community Bank partners are doing well and are increasing the financial contributions they make to their communities; and our own shareholders are clearly seeing how these factors are driving improved performance outcomes for Bendigo.
“Today’s result marks the sixth year in a row we have grown cash earnings per share and shareholder dividends by more than ten per cent.
“And we believe we will achieve that again in the current financial year, when we are targeting an increase in cash earnings in excess of 12 per cent. Mr Hunt said Bendigo’s prospects were buoyant as it heads into a merger with Adelaide Bank.
“We continue to grow our customer base by 6,000 per month, we expect to open a further 25 branches – which shows community demand for our model remains strong in the face of growing branch banking competition, and our strategies to deepen customer relationships are beginning to take effect, as evidenced by the continued growth of our wealth management offering. This is a particular focus going forward and we are happy with our progress.”
Mr Hunt said lending volumes had shown a strongly increasing trend since last November and there was no sign of that slowing. “And while deposits were slowed by the rush to superannuation pre-June 30, they have rebounded in July and we expect our brand will attract a good share of retail deposit money moving back into the banking system.”
Mr Hunt said Bendigo believed its core retail business would continue to grow strongly while the merger with Adelaide Bank proceeded.
“We do not believe the merger process will disrupt our progress. Our retail bank is in excellent shape and is not impacted by the merger. Nor is the Elders Rural Bank joint venture, and these operations together contributed the majority of our profit.
“The merger will enable us to provide a more complete banking alternative for customers across Australia. They will be able to access more products and services through a wider variety of channels. The two banks are complementary businesses and the merger provides scale, as well as a broader range of skills and services that enhance the overall customer proposition.
“And our Community Banks will be buoyed by the news that we have secured a merger partner that is totally committed to continuing the growth of that network across Australia.
“Bendigo Bank’s strong prospects are based on our close relationships with customers and other stakeholders, a unique business model, the quality of the Bendigo brand, the support and engagement of our staff and an extensive customer base.
“None of that changes except that during this financial year – assuming Adelaide shareholders support the merger – we will begin to provide all Bendigo and Adelaide customers with more alternatives in access and product.
“In recent years, we have made substantial investments in the business infrastructure required to support future growth and as we come together with Adelaide, the business is well placed to continue the track record of both banks delivering substantial shareholder returns.”
The result at a glance
Cash earnings $118.5 million (2006: $102.5 million), an increase of 15.6%.
Cash basis earnings per ordinary share increased to 82.9 cents (2006: 73.2 cents), an increase of 13.3%.
Cash basis earnings return on average ordinary equity was 15.4% (2006: 14.5%).
Profit after income tax before significant items was $128.6 million (2006: $108.3 million), an increase of 18.7%.
Net interest income increased by 13.3% to $357.1 million with an interest margin before payments to Community Banks and alliances increasing from 2.76% for 2006 to 2.90% in 2007. Net of these payments, interest margin increased from 2.28% in 2006 to 2.34% in 2007.
Non-interest income before significant items was $205.1 million (2006: $184.5 million), an increase of 11.2%.
Expenses before significant items increased by 9.1% to $368.8 million compared to $338.1 million in 2006. The cost to income ratio was 64.6% compared to 66.6% for 2006.
Loans under management were $15.8 billion (2006: $14.1 billion), an increase of 12.6%.
Retail deposits were $12.2 billion (2006: $11.4 billion), an increase of 7.4%.
Managed funds increased by $0.4 billion to $3.4 billion (2006: $3.0 billion).
Net impaired loans stood at $10.0 million, up from $5.9 million at June 2006, but represent only 0.07% of loan receivables.
2006/07 final dividend of 34.0 cents per fully paid ordinary share (an increase of 4 cents over the 2005/06 final dividend), fully franked at 30%.
Dividend is payable on 28 September 2007 to shareholders registered on the Record Date of 31 August 2007.
The final dividend proposed totals $46.6 million.
Dividends for 2006/07 total 58.0 cents (up from 52.0 cents in 2005/06), which represents a payout ratio of 70.8% of total earnings per ordinary share or 70.0% of cash basis earnings per ordinary share (2005/06: 63.8% and 71.0% respectively.