Proud to deliver strong financials Herman Agneessens Chief Financial and Risk Executive
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Transcript of Proud to deliver strong financials Herman Agneessens Chief Financial and Risk Executive
Proud to deliver strong financials
Herman AgneessensChief Financial and Risk Executive
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1Q 01 2Q 01 3Q 01 4Q 01 1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03 Q4 03 1Q04
Banking Insurance
Q avg‘01-’03(265 m)
Net profit+ 29% yoy
Delivering strong earnings
Net profit m EUR
Group ROE 17 %
355
304 300256 259
392
152
280
316
278
159
230
287
Insurance: 32
Especially strong momentum in banking
Banking: 370
Holding: -10
Highlights — Banking — Insurance — Areas of activity — Outlook
3 Highlights — Banking — Insurance — Areas of activity — Outlook
Net profit at a high level, up 29% year-on-year :1. Very strong underlying revenue growth, especially in banking :
Top-line growth in banking: +8 % year-on-year Organic premium growth in insurance: +19 % year-on-year, but
pressure on investment yields
2. Expenses well under control and low risk charges : Cost/income ratio, banking at 59 % Loan loss ratio, banking at 11 bp Combined ratio, non-life well below 100 % (at 97.5 %)
3. No net support impact of ‘exceptional items’ : capital gain on ‘Belgacom’ (57 m) significant provision amounts (-81 m) set aside for various future
liabilities and charges In insurance: impairments on equity portfolio (-128 m) to a large
degree offset by use of provision for financial risks
Key points
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Target 2005
Dec 2002
Dec 2003
Mar2004
Cost / income, banking <=58% 65% 65% 59%
Combined ratio, insurance * <=95% 101% 95% 99%
Solvency (Tier 1), banking > 8% 8.8% 9.5% 9.5%
Solvency, insurance ** > 200% 320% 316% 333%
Return on equity 16% 13% 13% 17%
EPS growth 10% +1% +8% +25%
* Combined ratio excluding reinsurance. ** Solvency insurance including unrealized gains.
Improving performance levels
Highlights — Banking — Insurance — Areas of activity — Outlook
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Q3 Q4
2003
Full consolidation, previously equity method
at 40 %
2004
Warta Insurance (Poland)
Q1 Q2 Q1 Q2
Impact of consolidation changes
Impact on top line
+2 %
Impact on bottom line
-1 %
Main changes in scope of consolidation :
Premium income 99 m EUR, 3/4 non-life (21% of non-life total, Group)
Highlights — Banking — Insurance — Areas of activity — Outlook
6
400 m
Solid quality of banking earnings
Underlyingrevenuegrowth+ 14 %
Expenses- 0.1%
Capitalgains-53%
+ 186 m - 65 m
Pre-taxprofit
1Q 2003
Year-on-year comparison
Positive impact of operational items: +120 m EUR
+ 1 m
Highlights — Banking — Insurance — Areas of activity — Outlook
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Strong growth of operational income
Gross income up 8 % yoy : Interest income in line with
strong previous quarter and +12 % yoy (interest margin up yoy from 1.6 % to 1.8 %)
Sustained high commission income, up 16 % qoq (‘seasonal’) and +2 % yoy
Robust trading revenu (up 51 % yoy) after somewhat depressed 2003 numbers
No ‘exceptionals’, capital gains on investment portfolio in line with previous quarter (4% of total)
719 773 826 800 806
610 587 520 570 708
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58
54
0
200
400
600
800
1 000
1 200
1 400
1 600
1Q03 2Q03 3Q03 4Q03 1Q04
Interest income Non-interest income Capital gains
1452 1416 13641424
1572
Quarterly income (m EUR)
Highlights — Banking — Insurance — Areas of activity — Outlook
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Expenses at stable level
Cost basis stable yoy (-1% qoq) : In Belgium: - 5 % yoy (- 26 m)
Headcount continued to reduce at 250 FTE (-2 %)
In CEE: - 1 % yoy (-2 m) Headcount reduction programs running: 67 % of target achieved in CR and 50 % in Poland
Increase in expenditures in rest of the world, mainly related to trading bonuses
Cost/income ratio significantly improved to 59 % (65% for FY03)
546 527
241 255 258 239
128 162
552 553 568
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135 110 96
1Q 03 2Q 03 3Q 03 4Q03 1Q04
Belgium CEE Other
929 931 897 938 928
Quarterly expenses (m EUR)
Highlights — Banking — Insurance — Areas of activity — Outlook
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Loan provisioning very limited
Loan loss provisions at very low level (charge of 11 bp* versus 71 for FY 2003)
No problem areas/regions recognised, but cautiousness prevails about quarters ahead !(same level in all probability not sustainable)
Loan losses in Poland only 4 m (charge of 42 bp)
Loan loss ratio: 10 bp in Belgium, 16 bp in C/SR, 46 bp in Hungary and 5 bp for the international portfolio
79
141
204
43
Quarterly loan provisions (m EUR)
Highlights — Banking — Insurance — Areas of activity — Outlook
252
* Net specific provisions to average gross customer loans
25
28
139
175
41
35 36
12 25 31
6126
49
40
1Q 03 2Q 03 3Q 03 4Q03 1Q04
Belgium CEE Other
10
400 m
Development of earnings, banking
Underlyingincomegrowth+ 14 %
Expenses- 0.1%
Loanlosses- 85%
Lesssecurities
impairments
OtherCapitalgains -53%
Gain on FFA
disposal
Provisionfor futureexpenses
+ 186 m - 65 m
+ 1 m
+ 36 m
+ 79 m
+ 33 m - 92 m
575 m
Pre-taxprofit
1Q 2003
Pre-taxprofit
1Q 2004
+ 175 m- 3 m
Year-on-year comparison
Highlights — Banking — Insurance — Areas of activity — Outlook
*
* Gains of financial fixed assets: Belgacom in Q1 04 versus Krefima in Q1 03
+38 % organic growth
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40 m57 m
Development of earnings, insurance
Premiumgrowth+ 20%
Other **
+288 m
-281 m
-40 m
-4 m
Technicalcharges+ 23%
Investmentincome+ 13%
Expenses+ 9%
Less non-recurring
- 9% *
+14 m
Pre-taxprofit
1Q 2003
Pre-taxprofit
1Q 2004
+6 m -17 m
Year-on-year comparison
* Of which impairments on equity ** Of which consolidation changes
Highlights — Banking — Insurance — Areas of activity — Outlook
-23 % organic change
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Continued fast growth of premiums
Sustained robust growth in Life (mainly Belgium) : In organic terms, up again, +24 %
and almost double as 2 previous quarters,
Renewed interest for linked products (54% of Life total)
Non-life: in organic terms up 6 % yoy Stronger in direct underwriting
(+11%) Drop in re-insurance (- 6 %)
1Q 2004
Non-life366 mUnit-linked
477 m
Interest-guaranteed life401 m
24 % 35 %
33 %*
**
* Growth rate, including extension of scope of consolidation Highlights — Banking — Insurance — Areas of activity — Outlook
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Satisfactory efficiency and underwriting performance in non-life
Combined ratio at fair level (97.5 %)
Less strong year-on-year (-4.3 pp): Non-life claims are volatile by
nature Exceptional circumstances in 2003
in Belgium (no large loss cases) Changes in consolidation scope
(adverse impact 1 pp)
1Q 2004
65.9% 65.6% 65.1% 64.6% 68.5%
27.3% 29.7% 31.2% 29.0%30.3%
1Q 03 6M 03 9M 03 FY 03 1Q 04
Claims Expenses
Highlights — Banking — Insurance — Areas of activity — Outlook
97.5 %95.9 %95.4 %95.4 %93.2 %
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Insurance business suffering from low investment yields
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
4Q 02 1Q 03 2Q 03 3Q 03 4Q 03 1Q 04
Effective interest yield, bonds 10 y EUR market rate, T-bonds
1Q 03 1Q 04
Interest yield 5.5 % 5.0 %
Return on shares 7.0 % 7.1 %*
Total 5.9 % 5.6 %
Investment return downto 5.6 % from 5.9 %
* Corresponds with 7.3 % of the market value of the portfolio (= 10 years’ adjusted average)
Highlights — Banking — Insurance — Areas of activity — Outlook
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P/L-impact largely neutralized by write-back of provision for financial risks
Non-realized gains on shares untouched
Additional impairment of 56 m expected in Q2-Q4 (market level of Apr 2004) but adequately offset by unrealized gains
Impairments on equity portfolio largely offset
In m EUR 1Q 04
Value adjustments, shares -128
Transfer from financial provision +93
Non-recurring capital gains * +22
Other - 4
Total non-recurring result - 17
* Gain on the equity tranche of an unwoud private CDO structure Highlights — Banking — Insurance — Areas of activity — Outlook
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Market value of securities portfolio significantly above book value
In m EUR Book value Market value Unrealised
Bankingbook 42 033 43 819 1 786
Bonds 40 868 42 470 1 602
Shares 1 165 1 349 184
Insurancebook 11 912 12 538 626
Bonds 7 962 8 421 459
Shares 3 198 3 267 69
Other 747 845 98
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Updated strategy for investment book
* Excl. private equity and smaller porfolios held by subsidiaries
Previous Current
Equity portfolio banking *
Basic portfolio :35 % Belgian blue chips
(Bel 20)65 % European stoxx
sectors
Basic portfolio :100% MSCI Pan Euro
Financials (ca. 50 m EUR) Financials (ca. 25 m EUR)
Asset-mix new inflowLife insurance
75% Fixed income
20 % Equity
5% Real Estate
90 % Fixed income
10 % Equity
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58
73 50
45
23
80
101
49 38
59
1Q 03 2Q 03 3Q 03 4Q 03 1Q 04
Banking Insurance
Profit contribution 124 m, return 17 %*
Strong momentum in banking : Widening gross margin
(up yoy from 5.8 % tot 6.4 %*) Maintained cost reduction
(C/I down yoy from 81 % to 69 %) Sustained low level of problem
loans (loan loss ratio 11 bp*)
Although strong premium income, pression on insurance contribution : Higher claims ratio (69 % versus
58 % in Q1 03) Lower investment yields
Robust performance in Belgian retail
Highlights — Banking — Insurance — Areas of activity — Outlook
Profit contribution (m EUR)
122
97108
125 124
* Return on average allocated capital Margin and loan losses on average RWA
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Working along “4 dimensions” (4 C’s)
Robust performance in Belgian retail
1. Cost efficiency Programs of product simplification (less ‘cost drivers’) and
co-sourcing (economies of scale)
2. Cross selling of insurance products Cross selling to go beyond 40%
3. Customer satisfaction Refined segmentation and increase of customer-facing time
4. Canvassing affluent clients Broadening the affluent customer basis
Highlights — Banking — Insurance — Areas of activity — Outlook
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Expanded horizons in CEE gradually paying off
CR & SR : strong contribution to Group profit driven by strong revenue growth in a) retail and b) due to the improved ‘interest rate environment’ and a sustained low loan loss ratio (16 bp)
Hungary : strong return number on the back of a) favourable development of revenue and b) a one-off writeback of a general provision for credit risk
Poland : "back in black" thanks to a) progress in the cost reduction program, bringing expenses down 3%* yoy and b) the - in all probability exceptional - low loan loss amount of 4 m EUR
* Profit contribution excl. return on excess capital and minority interests** adjusted for currency effects
CEE2nd home
Net profit(statutory)
Contributionto Group *
Contribution % yoy **
Return on allocated
captial
Return on invested capital
CR / SR 55 m 42 m +84 % 19 % 13%
Hungary 30 m 13 m +39 % 31 % 22%
Poland 5 m 3 m - 5 % 3 %
Contribution of banking operations to KBC Group profit :
Highlights — Banking — Insurance — Areas of activity — Outlook
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15% 23% 21% 15% 17%
35% 25%37%
32%36%
31%23%
13%20%
24%
10%14% 16%
16%
17%
Risk-weighted assets Allocated capital Gross operatingincome
Operating result Net profit
CEE Belgian retail (incl AM) Corporates Markets Non allocated
CEE banking, share of banking wallet
Impact of paid
goodwill
Benefiting from higher margins
Note : banking business lines only
Risk issue under control
Highlights — Banking — Insurance — Areas of activity — Outlook
Improved cost structure
under way
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Expanded horizons in CEE graduallypaying off
Enhanced performance going forward
1. High economic growth and increasing penetration rate of financial products
2. Better cross selling of insurance products
3. Increase of organisational efficiency and intensified quest for Group synergies
4. In Poland, business re-engineering cost level / organizational strength
Highlights — Banking — Insurance — Areas of activity — Outlook
23 Highlights — Banking — Insurance — Areas of activity — Outlook
1Q 03 2Q 03 3Q 03 4Q 03 1Q 04
Profit contribution : 34 m (after allocation of distribution fee to retail), in line with previous quarter and 1Q 03
Assets up 6 % qoq (3% net inflow)
Assets up 18 % yoy : Mutual funds (47 bn) : +20 % yoy Private assets (16 bn) : +17 % yoy Institutional (20 bn) : +16 % yoy
Performing asset management activities
Profit contribution (m EUR, excl. minorities)
Belgium :86 %
CEE : 4 %
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25 24
3234
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Profit contribution 100 m (return 21 %)
Turnaround in banking since 3Q 03 : mainly driven by lower cost of risk
(9 bp* versus 57 bp in FY 03) gross income margin and cost/income
stable at 2.6 %* and 36 % respectively
move towards lower risk lending, in a quest for more stable results (target loss ratio: 35 bp over the cycle)
Turnaround in in re-insurance since 3Q 03 : mainly driven by improved underwriting
performance (combined ratio : 90 % versus 100 % in FY 03)
Profit contribution (m EUR, excl. minorities)
Corporate activities stepping up
58
83 88
7
43 36
11
1Q 03 2Q 03 3Q 03 4Q03 1Q04
Banking Insurance
35
62
89100
* On average RWA
43
Highlights — Banking — Insurance — Areas of activity — Outlook
25
Profit contribution 64 m (return 23 %)
Strong performance in M/CM activity (x2 qoq and up 24 % yoy), mainly on the back of strong income growth
(Modest) profit contribution for cash equity business (4 m), in line with previous quarter (loss in 1Q 03)
Good results in equity derivatives business (up 14 % yoy) on the back of : Significant income growth and the non-
recurrence of negative MtM for long derivatives in previous quarters
Additional income sources (without higher risk exposure) out of (structured) investment management
Profit contribution (m EUR, excl. minorities)
32
19
38 34 31
25
10 9
1Q 03 2Q 03 3Q 03 4Q03 1Q04
Equity-related activities
Money and capital markets
Tail wind in ‘financial markets’
4135
41
7
64
Highlights — Banking — Insurance — Areas of activity — Outlook
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3.1
3.73.4
1.3
4.8
2.6
0.4
2.1
3.2
2.0
3.3
2.7
3.4
3.9
3.2
3.7
1.1
4.8
1.1
2.2
0.6 0.7
0.9
1.61.6
0
2
4
6
2001 2002 2003 2004 (F) 2005 (F)
Czech Hungary Poland Belgium EMU
Source : KBC CEE Outlook, May 2004
Favourable trend in core markets
GDP, real growth
Belgium: 0.5 % above EMU avg
CEE: 1.5 % - 3 % above EMU avg
2004-05
Highlights — Banking — Insurance — Areas of activity — Outlook
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Outlook 2004
Positive momentum in economic environment : Fuelling top-line growth Mitigating costs of risk
Commitment to sustained cost and underwriting discipline
Should the current economic and financial context prove to be sustainable, and taking into account stable stock exchange levels, then net earnings for 2004 are expected to be at least 15 % higher than in 2003
Highlights — Banking — Insurance — Areas of activity — Outlook