First half 2019 results: financial report

FINANCIAL REPORT

First half 2019

Simple Personal Fair

Financial report

First half

2019

KEY CONSOLIDATED DATA	3
SANTANDER AIM AND CORPORATE CULTURE	4
GROUP FINANCIAL INFORMATION	6
Group performance	6
Income statement and balance sheet	8
Solvency ratios	17
Risk management	18
FINANCIAL INFORMATION BY SEGMENTS	22
Primary segments	26
Secondary segments	42
RESPONSIBLE BANKING	45
CORPORATE GOVERNANCE	47
THE SANTANDER SHARE	48
APPENDIX	50
Financial information	51
Alternative Performance Measures	72
Interim condensed consolidated financial statements	79
Glossary	82
Important information	83

All customers, shareholders and the general public can use Santander's communication channels in all the countries in which the Bank operates.

This report was approved by the Board of Directors on 21 July 2019, following a favourable report from the Audit Committee.

Important information regarding this report can be found on pages 83 and 84.

Santander vision and		Group financial	Financial information	Responsible banking
	Corporate governance		Appendix
corporate culture		information	by segments	Santander share

Key consolidated data

BALANCE SHEET (EUR million)	Jun-19	Mar-19	%	Jun-19	Jun-18	%	Dec-18
Total assets	1,512,096	1,506,151	0.4	1,512,096	1,433,833	5.5	1,459,271
Loans and advances to customers	908,235	910,195	(0.2)	908,235	862,092	5.4	882,921
Customer deposits	814,751	808,361	0.8	814,751	774,425	5.2	780,496
Total funds	1,032,769	1,019,878	1.3	1,032,769	981,363	5.2	980,562
Total equity	109,985	110,365	(0.3)	109,985	104,445	5.3	107,361

Note: Total funds includes customer deposits, mutual funds, pension funds and managed portfolios.

INCOME STATEMENT (EUR million)	Q2'19	Q1'19	%	H1'19	H1'18	%	2018
Net interest income	8,954	8,682	3.1	17,636	16,931	4.2	34,341
Total income	12,351	12,085	2.2	24,436	24,162	1.1	48,424
Net operating income	6,522	6,327	3.1	12,849	12,680	1.3	25,645
Profit before tax	2,929	3,602	(18.7)	6,531	6,899	(5.3)	14,201
Attributable profit to the parent	1,391	1,840	(24.4)	3,231	3,752	(13.9)	7,810
Changes in constant euros: Q2'19 / Q1'19: NII: +3.9%; Total income: +3.0%; Net operating income: +4.0%; Attributable profit: -23.2%
H1'19 / H1'18: NII: +5.5%; Total income: +2.8%; Net operating income: +3.2%; Attributable profit: -11.7%
UNDERLYING INCOME
STATEMENT (1) (EUR million)	Q2'19	Q1'19	%	H1'19	H1'18	%	2018
Net interest income	8,954	8,682	3.1	17,636	16,931	4.2	34,341
Total income	12,351	12,085	2.2	24,436	24,162	1.1	48,424
Net operating income	6,522	6,327	3.1	12,849	12,680	1.3	25,645
Profit before tax	3,895	3,684	5.7	7,579	7,480	1.3	14,776
Attributable profit to the parent	2,097	1,948	7.6	4,045	4,052	(0.2)	8,064
Variations in constant euros: Q2'19 / Q1'19: NII: +3.9%; Total income: +3.0%; Net operating income: +4.0%; Attributable profit: +8.7%
H1'19 / H1'18: NII: +5.5%; Total income: +2.8%; Net operating income: +3.2%; Attributable profit: +2.1%
EPS, PROFITABILITY AND EFFICIENCY (%)	Q2'19	Q1'19	%	H1'19	H1'18	%	2018
EPS (euro)	0.076	0.104	(26.7)	0.181	0.216	(16.4)	0.449
Underlying EPS (euros) (1)	0.120	0.111	8.1	0.231	0.235	(1.6)	0.465
RoE	7.79	7.85		7.41	8.24		8.21
RoTE	11.02	11.15		10.51	11.79		11.70
Underlying RoTE (1)	12.03	11.31		11.68	12.24		12.08
RoA	0.63	0.63		0.60	0.65		0.64
RoRWA	1.56	1.54		1.48	1.55		1.55
Underlying RoRWA (1)	1.67	1.56		1.62	1.60		1.59
Efficiency ratio	47.2	47.6		47.4	47.5		47.0
SOLVENCY AND NPL RATIOS (%)	Jun-19	Mar-19		Jun-19	Jun-18		Dec-18
CET1 (2)	11.30	11.23		11.30	10.80		11.30
Fully loaded Total ratio (2)	14.80	14.82		14.80	14.24		14.77
NPL ratio	3.51	3.62		3.51	3.92		3.73
Coverage ratio	68	68		68	69		67
MARKET CAPITALISATION AND SHARES	Jun-19	Mar-19	%	Jun-19	Jun-18	%	Dec-18
Shares (millions)	16,237	16,237	-	16,237	16,136	0.6	16,237
Share price (euros)	4.081	4.145	(1.5)	4.081	4.592	(11.1)	3.973
Market capitalisation (EUR million)	66,253	67,292	(1.5)	66,253	74,097	(10.6)	64,508
Tangible book value per share (euros)	4.30	4.30		4.30	4.10		4.19
Price / Tangible book value per share (X)	0.95	0.96		0.95	1.12		0.95
P/E ratio (X)	11.29	9.94		11.29	10.62		8.84
OTHER DATA	Jun-19	Mar-19	%	Jun-19	Jun-18	%	Dec-18
Number of shareholders	4,054,208	4,089,097	(0.9)	4,054,208	4,152,125	(2.4)	4,131,489
Number of employees	201,804	202,484	(0.3)	201,804	200,961	0.4	202,713
Number of branches	13,081	13,277	(1.5)	13,081	13,482	(3.0)	13,217

1. In addition to financial information prepared in accordance with International Financial Reporting Standards (IFRS) and derived from our consolidated financial statements, this report contains certain financial measures that constitute alternative performance measures (APMs) as defined in the Guidelines on Alternative Performance Measures issued by the European Securities and Markets Authority (ESMA) on 5 October 2015 and other non-IFRS measures, including the figures related to "underlying" results, as they are recorded in the separate line of "net capital gains and provisions", above the line of attributable profit to the parent. Further details are provided on page 12 of this report.
   For further details of the APMs and non-IFRS measures used, including its definition or a reconciliation between any applicable management indicators and the financial data presented in the consolidated financial statements prepared under IFRS, please see 2018 Annual Financial Report, published in the CNMV on 28 February 2019, our 20-F report for the year ending 31 December 2018 registered with the SEC in the United States as well as the "Alternative performance measures" section of the annex to this report.
2. 2019 and 2018 data applying the IFRS 9 transitional arrangements. As indicated by the consolidating supervisor a pay-out of 50%, the maximum within the target range (40%- 50%), was applied for the calculation of the capital ratios in 2019. Previously, the average cash pay-out for the last three years was considered.

January - June 2019

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Santander vision and		Group financial	Financial information	Responsible banking
	Corporate governance		Appendix
corporate culture		information	by segments	Santander share

SANTANDER VISION AND CORPORATE CULTURE

Oursuccess is based on a clearpurpose, aim and approach to business.

We are building a more responsible bank

Our		Our aim		Our
purpose		as a bank		how
To help		To be the best open
people and		financial services		Everything
businesses		platform, by acting		we do should
prosper.		responsibly and earning		be Simple,
		the lasting loyalty of		Personal
		our people, customers,		and Fair.
		shareholders and
		communities.

A digital Santander.

To continue growing in a sustainable and profitable way and to accelerate execution, we will remain focused on our digital transformation.

Santander expects to accelerate its digital transformation and the launch of global platforms, which will enable the Group to offer new solutions, products and services to our customers, and compete in the open market for new ones.

International	Payment	Trading
transfers	platform	platform

Strong corporate culture.

The Santander Way is our global culture, fully aligned to our corporate strategy. It includes our purpose, our aim, and how we do business.

Our corporate culture includes eight corporate behaviours...

Show	Truly listen	Talk	Keep	Support	Embrace	Actively	Bring
respect		straight	promises	people	change	collaborate	passion

…and a strong risk culture where everyone is personally responsible for managing

their risks in their day to day work

...Everyone´s business

4	January - June 2019

Santander vision and		Group financial	Financial information	Responsible banking
	Corporate governance		Appendix
corporate culture		information	by segments	Santander share

Generating confidence and operating responsibly, we contribute value to all our stakeholders

People

At 30 June 2019 Grupo Santander had 201,804 professionals throughout the world, with an average age of 38, 55% of them women and 45% men.

The aim of our human resources strategy is to be a reference employer, working on these strategic drivers: a common culture (the Santander Way), dynamic management of talent (Workday, the new central global platform for employees and their skills) and talent for the future (Strategic Workforce Planning).

Significant progress is being made in various initiatives within the priorities of culture and commitment (such as Flexiworking, StarMeUp, commitment surveys); attraction and recruitment (such as remuneration plans that involve shares); retaining and developing talent (such as Young Leaders, learning platforms, succession plans, international mobility), as well as diversity and inclusion (gender salary equity, development of diversity and inclusion principles, etc.).

Customers

We continued to focus on improving customer loyalty and experience. Progress was reflected in the increase of 1.9 million loyal customers, greater penetration over active clients and 6.4 million digital customers in the last 12 months.

With the creation of Santander Global Platform, we are taking a further step forward in our digital transformation, which aligns our reporting structure with our organisation and strategy..

We also continued to strengthen our traditional branches and develop new models (SMART, Súper Ágil and Work Café), while investing in new generation ATMs and in contact centres.

Shareholders

Extel recognised Banco Santander as one of the three best banks in Europe for investor relations, based on a survey of more than 14,000 investment professionals. IR Magazine awarded the Santander Investor Relations team its Best Crisis Management Prize.

The Bank maintains a constant communication commitment with its investors and shareholders. In line with this strategy, analysts and investors in Spain and the UK took part in a survey to assess the rollout of the Group's corporate culture.

The Bank launched the XI edition of the Universia Foundation Scholarships, which help university students with disabilities who are Santander shareholders or relatives of shareholders.

Community The Group announced new responsible banking commitments for 2019-2025. These include, among other things: make available EUR 120,000 million of green financing, eliminate single use unnecessary plastic in all the Group's buildings, increase the consumption of renewable energy to 100% in those countries where it is possible to certify its origin and raise the number of women in senior management. Further details in page 46.

Grupo Santander is classified as first in the Spanish ranking of sustainable debt issues, after acting as bookrunner in the majority of the green bond issues in Spain, according to Dealogic.

Santander is also very actively involved in syndicated loans of sustainable bonds in Spain, and has a range of ESG mutual funds (Santander Sostenible) that make us the leader with a 66% market share.

January - June 2019

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