Guidance

News

• 2014/11/19. Collection of declarations about guidance in Spain (ES)
  Last ones were lower than Emilio Botin in Q4 2013

Santander does not provide guidance.

Analysts reports should cover this situation. However the range of the projection values they provide is quite wide. Which report should be picked?

Santander leaked forward EPS projections in an indirect way in 2 occasions.

- in December 2012, in the presentation about Banesto and Banif merge to Santander branches in Spain: they gave the expected benefits of the merge as absolute amounts and as percentage of the group EPS for 3 coming years

- in September 2013, Marin’s BAML presentation gave ranges the 2016 ROE targets per business lines. Combined with the equity available in the financial reports, this gives a target EPS for each of the existing business line
Sometimes there are some forward indications

Various indications

• In Q4 2013 earnings presentation, Botin said earnings Spain 2014 at €1bi and 2016 at €3bi. Not clear if this is net or gross. Big DTA impact thus (what is going out of core capital at a yearly rate of +/-€2bi, is utilized at a rate of +/-€1bi).
  The impact of BIS III on core capital from 2014 to 2019 should have been more detailed in Q4 2013 earnings. The rules are known both at EU level, and at Spain level. There are public earnings projections for Spain. A core capital evolution impact from 2014-2019 is a computation from this data.

Banesto merge presentation

In slide 19 of the Banesto merge presentation we have

	Year 1	Year 2	Year 3
A. Net Attributable profit impact (€mi)	201	336	434
B. Change % (net profit)	2.6%	3.6%	3.4%
C. EPS accretion	2.2%	3.4%	3.0%
Computed data
D. Group net profit (€bi)	7.73	9.33	12.7

(D) is computed as (A) divided by (B)

This presentation is nearly one year old.

What is year 1 to 3 is not clear (yearly effect after one year?, cumulative effect for that period?).

The evolution of (B) against the evolution of (C) is strange and could indicate share repurchase program starting Year 2. But the effect is probably simply a rounding effect.

BAML presentation

The presentation is interesting for several reasons.

- Santander does not make many original presentations. One every 6 months or so.

- It is the first presentation Santander made with Marin as CEO (he replaced Arenz end of April 2013). There are 5 months between April and September, which is enough time for an insider like Marin to tune the direction of the company. That presentation had 2 new elements related to previous company communications. The first one is a focus to ROE with redeployment of capital between and within business areas. The second one was a €1bi cost cutting effort mainly in Spain and Brazil.

- What is most interesting is the focus on ROE improvement together with the message that Santander has a capital surplus. There is a total blackout related to the utilization of the capital surplus. More on that in next section about capital

- Marin gave per business unit a medium (2016) term ROE target range per business areas in pages 29-31. This can be combined with the current ROE and net earnings found in the Q3 2013 financial report allows to compute the targets (low and high) net earnings per business area in 2016 as in following table

	Net earnings Q3 2013 €mi	Stated ROE Q3 2013 %	Computed equity Q3 2013 €mi	Low ROE 2016 %	Low net earnings 2016 mi€	High ROE 2016 %	High net earnings 2016 mi€
UK	306	9.44	12966	13	1686	15	1945
Brazil	358	11.22	12763	15	1914	15	1914
Consumer	208	7.5	11093	15	1664	15	1664
Spain	73	2.65	11019	20	2204	20	2204
US	164	11.12	5899	15	885	17	1003
Mexico	123	12.94	3802	20	760	20	760
RestLatam	136	20	2720	15	408	20	544
Portugal	32	4.97	2575	20	515	20	515
Chile	116	20.59	2254	20	451	20	451
Poland	100	21.97	1821	15	273	20	364
Total	1616		66912		10760		11364

On these totals, we need to subtract corporate results from the net earnings, around €2bi per year

That gives a net earnings forecast between €8.8bi and 9.4bi for FY 2016.

Growth

The Baml presentation does not include growth.

There is organic growth and through M&A.

Both are (will) be covered in Acquisition.

My personal opinion is that 2014 will be an acquisition year
And the most important element for growth is available capital.

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