kbc bank & insurance group company presentation winter 2004
TRANSCRIPT
KBC Bank & Insurance Group
Company presentation Winter 2004
www.kbc.com
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Contact information
Investor Relations Office :
Luc CoolNele KindtMarina Kanamori
Tel.: +32 2 429 49 16 E-mail: [email protected]
Visit www.kbc.com for the latest update.
Ticker codes: KBC BB (Bloomberg) KBKBT BR (Reuters)
B:KB (Datastream)
ISIN code: BE0003565737
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Disclaimer
• THIS PRESENTATION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY.
• ALTHOUGH THE STATEMENTS OF FACT IN THIS PRESENTATION HAVE BEEN OBTAINED FROM AND ARE BASED UPON SOURCES THAT KBC BELIEVES TO BE RELIABLE, KBC DO NOT GUARANTEE THEIR ACCURACY, AND ANY SUCH INFORMATION MAY BE CONDENSED OR INCOMPLETE.
• THIS PRESENTATION CONTAINS FORWARD-LOOKING STATEMENTS WITH RESPECT TO OUR STRATEGIES AND EARNINGS DEVELOPMENT BY THEIR NATURE, THESE FORWARD-LOOKING STATEMNTS INVOLVE NUMEROUS ASSUMPTIONS, UNCERTAINTIES AND OPPORTUNITIES. THE RISK EXISTS THAT THESE STATEMENTS MAY NOT BE FULFILLED AND THAT FUTURE RESULTS DIFFER MATERIALLY.
• BY RECEIVING THIS PRESENTATION EACH INVESTOR IS DEEMED TO REPRESENT THAT IT IS A SOPHISTICATED INVESTOR AND POSSESSES SUFFICIENT INVESTMENT EXPERTISE TO UNDERSTAND THE RISKS INVOLVED.
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Table of contents
1. Company profile
2. Strategy and earnings drivers
3. Financial highlights, year-to-date
4. Additional information
5. Closing remarks on dividend policy and valuation
Company profile
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Top-20 player in Euroland banking (*)
1 BNP Paribas (35 bn) 1 BNP Paribas (45 bn) 1 BSCH (57 bn)2 BSCH (31 bn) 2 BSCH (45 bn) 2 BNP Paribas (48 bn)3 BBVA (29 bn) 3 Deutsche Bank (38 bn) 3 BBVA (42 bn)4 Deutsche Bank (26 bn) 4 BBVA (35 bn) 4 Deutsche Bank (35 bn)5 ABN AMRO (25 bn) 5 Société Gén. (31 bn) 5 Crédit Agricole (35 bn)6 Société Gén. (24 bn) 6 ABN AMRO (30 bn) 6 Société Gén. (34 bn)7 Unicredit (24 bn) 7 Crédit Agricole (28 bn) 7 ABN AMRO (32 bn)8 Fortis (22 bn) 8 Unicredit (27 bn) 8 Unicredit (27 bn)9 Crédit Agricole (14 bn) 9 Fortis (21 bn) 9 Fortis (26 bn)
10 Dexia (14 bn) 10 Intesa BCI (18 bn) 10 Intesa BCI (21 bn)11 Intesa BCI (12 bn) 11 Dexia (16 bn) 11 Dexia (18 bn)
12 Allied Irish Banks (12 bn) 12 San Paolo IMI (15 bn) 12 KBC (18 bn)13 Bank of Ireland (10 bn) 13 KBC (11 bn) 13 San Paolo IMI (15 bn)
14 KBC (9 bn) 14 Bco Popular (11 bn) 14 Allied Irish Banks (12 bn) 15 San Paolo IMI (9 bn) 15 Allied Irish Banks (11 bn) 15 HVB (12 bn)16 Banco Popular (8 bn) 16 Bank of Ireland (11 bn) 16 Bank of Ireland (11 bn)17 HVB (7 bn) 17 HVB (10 bn) 17 Bco Popular (10 bn)18 Mediobanca (6 bn) 18 Commerzbank (9 bn) 18 Commerzbank (9 bn)19 Bca MPS (6 bn) 19 Mediobanca (7 bn) 19 BA-CA (9 bn)20 Bco Popular (5 bn) 20 Bca MPS (6 bn) 20 Mediobanca (9 bn)
Dec 2002 Dec 2003 Nov 2004
(*) DJ Euro Stoxx Banks Constituents - Ranking by Market Capitalization – Situation as at 16 Nov 2004
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Prominent player in 2 core markets
KBC is a top financial player in Belgium and has succesfully expanded its operations in the 5 most advanced countries in CEE (new EU members)
Besides these core markets, KBC is active in selected ‘other’ areas: international mid-corporate banking (mostly in W. Eur.) and financial markets
As investments in CEE have continued to increase, the ‘other’ activities have been progressively scaled down
Breakdown of revenue :
Treasury & other 9%
CEE25%
Belgium
48%
Financial markets 11%
Internaternational corporate 7%
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0% 10% 20% 30%
Other
Argenta
ING
DEXIA
KBC
FORTIS
Client deposits
0% 10% 20% 30%
Other
ING
KBC
AXA
ETHIAS
FORTIS
Insurance premiums
0% 10% 20% 30%
Other
ING
DEXIA
FORTIS
KBC
Mutual funds
Top-3 player in Belgium
Market share:
Consolidated banking landscape (80% of market held by Top-4 banks)
Deposit base largely sufficient for funding lending activities
Market highly receptive to cross-selling of AM & insurance products (the bancassurance model dominates)
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KBC is one of the largest international players in the region
In contrast to the other players, KBC limits its presence to the new EU Member States (the Czech Republic, Slovakia, Hungary, Poland and Slovenia) and is active in both the banking and insurance fields
8.7
13.2
13.5
14.3
19.0
21.6
23.5
24.6
28.6
29.0
ING (NL)
OTP (HU)
Citibank (US)
Intesa BCI (IT)
Société Générale (FR)
RZB (AT)
HVB / BA-CA (GE/AT)
UniCredit (IT)
Erste Bank (AT)
KBC (BE)
Top-3 player in the CEE region
International banks in CEE (by total assets, in bn EUR):
Source: RZB – assets as at 31 Dec 03, ownership structure as at 30 Jun 04
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Banking Insurance
Slovakia:Market share: 6% (No. 4)Inhabitants: 5 mTotal assets: 2 bn EUR
Czech Republic:Market share: 18% (No. 1)Inhabitants: 10 mTotal assets:18 bn EUR
Poland:Market share: 5% (No. 8)Inhabitants: 38 mTotal assets: 5 bn EUR
Slovenia:Minority interest (34%)Inhabitants: 2 mMarket share: 42% (No. 1)
Czech Republic:Life M share: 7% (No. 4)Non-life M share: 4% (no 6)
Slovakia:Life M share: 4% (No. 8)Non-life M share: 1% (no 6)
Hungary:Life M share: 2% (No. 13)Non-life M share: 4% (no 6)
Poland:Life M share: 4% (No. 5)Non-life M share: 13% (No. 2)
Slovenia:Life M share: 4% (No. 5)
Top-3 position in the CEE region
Hungary:Market share: 11% (No. 2)Inhabitants: 10 mTotal assets: 6 bn EUR
KBC invested ± 3.6 bn to acquire a prominent position in a growth market of ± 65 m inhabitants
Especially in Poland, KBC is looking for external growth (lack of scale)
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Core targets:
Cost/income ratio, banking 58%
Combined ratio, non-life insurance 95%
EPS growth (4-y CAGR) 10%
Return on equity, group 16%
Return on allocated capital:
- Retail in Belgium 16%
- Central and Eastern Europe 17%
- Corporates 12%
- Financial markets 18%
Tier-1 ratio, banking 8%
Solvency margin, insurance 200%
Challenging financial objectives
Minimumtargets for 2005
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Solid group performance
Profitability
Efficiency
SolvencyTier-1, banking
Solvency, insurance
Cost/income, banking
Combined ratio, insurance
Return on equity
Growth in EPS
8.8%
320%
65%
101%
13%
Dec 02
+1%
9.5%
316%
65%
95%
13%
Dec 03
+8%
9.6%
341%
60%
94%
17%
+36%
Sep 04
+
+
+
+
+
+
Trend
Strategy and earnings drivers
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Do not underestimate the market: KBC is well positioned:
Earnings drivers in Belgium - overview
Consolidated banking market (80% of assets held by Top 4)
Savings ratio amongst the highest in the world (every year, c15% of GDP flows into financial assets)
Market highly receptive to cross-selling of AM & insurance products
AM and life insurance business growing at c10% per year
Mortgages growing at c10% p.a. (slightly above housing price inflation)
Fee rates still ‘cheap’, allowing for (be it gradual) repricing
Cost/income ratio still on the high side, allowing for further reduction
Credit quality has proven to be solid over the cycle
Top-3 market position, especially strong in the Northern region (one of the wealthiest regions in the EU)
Innovative product offering in retail AM (market share has been steadily increasing over the past 10 yrs.)
Outperforming bancassurance distribution model (life reserves grew >20% p.a. over the last 3 yrs.)
Cost efficiency improvement potential (on the back of product simplication and co-sourcing of back offices with other banks)
Compared to Belgian peers: exposure to above average growth potential in CEE
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Strong market growth momentum: KBC is well positioned:
Solid market positions in retail and corporate (temporarily excl. Poland)
Competitive advantage in enhancing cross-selling of insurance and asset management products (re Belgium)
Cost-to-income still on the high side, allowing for further improvement
Adequately provisioned balance sheet(risks under control)
Geographical exposure entirely within the EU, limiting the risk substantially
Availability of capital within the Group
Compared to other CEE peers:highly profitable Belgian franchise as a stable earnings factor
Earning drivers in CEE - overview
Nominal GDP growth in 2005 expected at c 7%, outgrowing EMU level by c 3.5%
Ongoing catch-up in product penetration level (currently, an avg 45% for banking accounts, 30% for savings accounts and 5% for mortgages)
Mortgages volumes growing at double-digit pace (up 72% on avg in 2003)
Size of financial sector could multiply five-fold if financial assets to GDP were to reach current level of S. Europe
Unexploited cross-border (cost) synergies
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3.7%5.4% 4.2%
3.4%3.1%
2003 2004e 2005e
2.9% 3.7% 3.4%
4.7%6.7%
4.2%
2003 2004e 2005e
4.2% 4.8% 4.7%
8.7% 7.5%4.0%
2003 2004e 2005e
3.1% 3.6% 3.7%
2.9% 2.8%
2003 2004e 2005e
Czech Republic Slovakia
Above average GDP growth
Hungary Poland
Real GDP growth + inflation - KBC estimates Real GDP growth + inflation - KBC estimates
Real GDP growth + inflation - KBC estimates Real GDP growth + inflation - KBC estimates
3.2%
6.5% 6.5%
12.9% 12.3%
8.7%
7.6%10.4%
7.6%4.5%
8.7%7.3%
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72.9% 79.6%
1997 2002
34.0%45.6%
1997 2002
43.5% 43.7%
1997 2002
< 1 pp
44.4%62.9%
1997 2002
Czech Republic Slovenia
Increasing product penetration
Hungary Poland
Deposits as % of GDP(EMU avg = 100)
Deposits as % of GDP(EMU avg = 100)
Deposits as % of GDP(EMU avg = 100)
Deposits as % of GDP(EMU avg = 100)
+12 pp
+7 pp +19 pp
Financial highlights,year-to-date
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Overview of earnings headlines
Earnings components
Performance by areas of activities
Outlook
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2001 2002 2003 2004e
Strong 2004 earnings momentum
Net profitin m EUR
1 0221 119
1 034
Consensusestimate
3-y CAGR: +14%
9M 04 profit : +40% year-on-yearWell on track to deliver on all our targets
1 500
1 201
Highlights — Earnings components — Areas of activity — Outlook
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3,5534,338 4,231 4,446
9M01 9M02 9M03 9M04
Top-line growth, banking
1,8442,500 2,774
3,487
9M01 9M02 9M03 9M04
Premium growth, insurance
In bn EURIn bn EUR
+15% org
64% 65%60% 58%
2002 2003 9M04 Target
Cost/income ratio, banking
105%95% 94% 95%
2002 2003 9M04 Target
Combined ratio, insurance
- 1 pp
Key points, year-to-date
- 5 pp
+5%
Highlights — Earnings components — Areas of activity — Outlook
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0.55%0.35%
0.71%
0.16%
2002 2003 9M04 Targetcorporates
Loan-loss ratio, banking
13% 13%17% 16%
2002 2003 9M04 Target
ROE, Group
Key points, year-to-date
- 55 bp
+4 pp
In bn EUR
320% 316% 341%
>200%
2002 2003 9M04 Target
Solvency margin, insurance
8.8% 9.5% 9.6%> 8%
2002 2003 9M04 Target
Tier-1 ratio, banking
Highlights — Earnings components — Areas of activity — Outlook
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Key points, 3rd quarter
As anticipated, slowdown in rate of growth of revenue: Seasonal slowdown in trading, dividend and premium income Adverse climate for trading (flattening yield curve, low volatility, etc.) Somewhat hardening competitive environment in Belgium
On the other hand: Further reduction in cost basis Sustained low loan-loss charges Sustained good technical results in non-life
Net profit: 332 m (up 30% y-o-y, down 30% q-o-q)
Highlights — Earnings components — Areas of activity — Outlook
24
Overview of earnings headlines
Earnings components
Performance by areas of activities
Outlook
25
Growth in banking revenue
Total 9M04 income up 5% y-o-y : Interest income up 2%, mainly
driven by volume growth. NIMmore or less stable y-o-y at 1.7%
Sustained high commission income (+4%), mainly on the back of growth in investment management, bancassurance and corp. finance
Robust financial market activity (+18%), although major slowdown in Q3
Q3 lower than Q2 mainly due to much lower trading income (seasonal slowdown and adverse market conditions) and some margin pressure in Belgium.
9M 2004
1 8192 330 2 318 2 357
1 112
1 282 1 340 1 416623
726 573674
9M 01 9M 02 9M 03 9M 04
Interest income Commissions & otherFinancial transactions
Banking income (in m EUR)
4 4464 231
Highlights — Earnings components — Areas of activity — Outlook
4 338
3 553
* Extension of consolidation scope in 4Q01
26
299
1 0501 369 1 552 931
766
622
870
614
684784
1,065
9M 01 9M 02 9M 03 9M 04
Life, non-linked Life, unit-linked Non-Life
9M 2004
Growth in premium income
2 774
Sustained robust growth in Life: Organically, up 19% y-o-y,
outgrowing the market on the back of the succesful business model
Belgian market expected to continue to outgrow GDP driven by ‘underpenetration’ and the high savings rate
Non-life: up 5% in organic terms Primary business in Belgium
growing (+7%) slightly above claims inflation
Expansion in CEE: premiums up 18% y-o-y (in organic terms)
Drop in reinsurance exposure(premium income: -8% y-o-y)
Highlights — Earnings components — Areas of activity — Outlook
Premium income (in m EUR)
3 487
2 500
1 844
* Extension of consolidation scope in 1Q04
27
Non-life claims charge
Favourable levels in all markets
9M 2004
Highlights — Earnings components — Areas of activity — Outlook
Year-to-date claims ratio(% of net premium income)
71% 67% 65% 62%
9M01 9M02 9M03 9M04
Premiumincome
(m EUR)
Claimsratio
9M03
Claimsratio
9M04
Belgium 537 59% 61%
CR 52 80% 64%
SR 7 70% 63%
Hungary 42 70% 66%
Poland 240 - 61%
R/I 187 77% 66%
Total 1 065 65% 62%
28
42
98
55 98 81
228
109
116
37
9M 02 9M 03 9M 04
Belgium CEE Other
Net specific provisions to average gross customer loans
Loan-loss charge
Loan-loss provisions at historically low level (-68% y-o-y)
305
Loan-loss provisions (in m EUR)
9M 2004
425
Highlights — Earnings components — Areas of activity — Outlook
134
Customerloan book
Gross loans
(in bn EUR)
LossratioFY03
Lossratio
9M04
Belgium 52.7 0.24% 0.11%
CR / SR 6.8 0.34% 0.12%
Hungary 4.4 0.32% 0.64%
Poland 3.3 8.68% 0.85%
International 34.8 0.48% 0.11%
Total 102.0 0.71% 0.16%
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Equity impairment charge
Profitability of insurance division adversely impacted by additional impairments on equity portfolio (191 m o/w 27 m in 3Q)
Partly offset by write-back of provision for financial risks (93 m in 1Q) and non-recurring capital gains (18 m). As a balance, net 9M impact of -79 m
No additional impairments expected in Q4 (‘stable market assumption’)
9M 2004
Highlights — Earnings components — Areas of activity — Outlook
Impairment charge on equity(insurance division)
(in m EUR)
48
255
108
191
33 44
79
17
9M 01 9M 02 9M 03 9M 04
Gross impairmentsNet negative P/L impact (non-recurring result)
30
9M 2004
1 647
425 749 726
362 384
1 5731 761 1 852
743
9M 01 9M 02 9M 03 9M 04
Belgium CEE Rest o/t World
2 461
2 782
Banking expenses (in m EUR)
2 6832 757
Total cost basis down 3% y-o-y : In Belgium: -4% y-o-y (-73 m ),
headcount reduced by 730 FTEs CEE: -3% y-o-y (-23 m ).
In Poland, headcount will be reduced by 1 500 FTEs by yearend (above the initial target)
Elsewhere: +6% (+22 m ), mainly related to trading bonuses
Cost/income ratio significantly improved from 65% to 60%
Q3 down 6% y-o-y (cost-savings programme) and 7% q-o-q (partly on the back of lower trading income)
Highlights — Earnings components — Areas of activity — Outlook* Extension of consolidation scope in 4Q01
Banking expenses
31
Non-life expense ratio (32%) has been steadily improving, though in 2004 negative impact of widening of consolidation scope (WARTA 34%)and of lower inbound R/I volumes
Life expense ratio (5.7%) progressively improving on the back of the scale effect on admin costs and the high degree of lump-sum contracts
9M 2004
Highlights — Earnings components — Areas of activity — Outlook
Expenses(% of net written premium)
6.8%
6.3% 6.2%
5.7%
33%
32%
30%
32%
9M01 9M02 9M03 9M04
Expenses to net premiums, non-lifeExpenses to net premiums, life
* Extension of consolidation scope in 1Q04
Insurance expenses
32
Overview of earnings headlines
Earnings components
Performance by areas of activities
Outlook
33
Areas of activity
Profit contribution % y-o-y
-11% 14%
223 m(19%)
- 15%
101 m (8%)
+5%
284 m (24%)
+99% 19%
146 m (12%)
+25% 17%
Contribution to Group result (excl. return on excess capital and minority interests)
9M 2004
322 m (27%)
Retail, Belgium
CEE
Corporates
Financial markets
Asset management
Operationally strong, depressed by equity
impairments
Strong operational performance and risks
under control
Low loan loss and non-life claims charges
Very strong in 1H, but adverse climate in Q3
Sustained money inflow (but shift to lower margin products)
Return
Highlights — Earnings components — Areas of activity — Outlook
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Revenues ExpensesProvisions
202
77
179
50
245
184
9M 02 9M 03 9M 04
Banking Insurance
Belgian retail
Highlights — Earnings components — Areas of activity — Outlook
Profit contribution (in m EUR)
322
252
9M 2004
9M 04 at a glance :RevenueExpensesCredit risk
9M profit: 322 m (ROAC 14%), down 11% due to a 58% drop in contribution from insurance
Banking result up 37% y-o-y, driven by 5% income growth, maintained cost control (expenses -1% and C/I down from 78 % to 73 %) and sustained low level of problem loans (8 bp loan losson RWA).
Although strong premium income (+17%) and improving expense ratios, pressure on insurance contribution due to impairments on equity portfolio and higher taxes
Q3 less favourable in insurance (low level of capital gains), but much better in banking (lower costs)
363
35
Revenues ExpensesProvisions
78
195
28
9M 02 9M 03 9M 04
Banking Insurance
CEE
Highlights — Earnings components — Areas of activity — Outlook
Profit contribution (in m EUR)
73
-4
193
9M 2004
9M 04 at a glance (organic):RevenueExpensesCredit risk
9M profit contribution: 223 m (ROAC 15%), up from –4 m in 9M03
Banking profit at 195m (vs –4m in 9M04), on the back of strong income growth (+12%), maintained cost reduction (C/I down from 76% to 67%) and sustained low level of problem loans (loan loss ratio 46 bp).
Strong premium growth and improved technical results (CR 95%) are at the basis of the net profit of 28 m in insurance
Q3 up 5% q-o-q in banking (income growth and better C/I), but down 18% in insurance due to the non-recurrence of technical gains in the life business
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68% 76%92%
60%76% 78%
CR/SR Hungary Poland
9M 03 9M 04
16%
11%
-3%
CR/SR Hungary Poland
Top-line growth
KBC, 9M 04
0.12%
0.64%
0.85%
CR/SR Hungary Poland
Loan-loss ratio
KBC, 9M 0417%
19%
11%
CR/SR Hungary Poland
Cost/income ratio
Return on allocated capital
KBC, 9M 04
KBC
CEE banking
Highlights — Earnings components — Areas of activity — Outlook
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CR & SLK: return level of 17% driven by a) robust asset (RWA +10%) and revenue growth (+16%), b) a signicant improvement in efficiency (C/I down to 60%) and c) a sustained low loan-loss ratio (12 bp)
Hungary : return level of 19% on the back of asset growth (RWA +8%) and favourable revenue development (+11%). Cost-income ratio stable and loan losses higher (no structural deterioration expected)
Poland : strong turnaround on the back of a) the thorough cost-reduction program, expenses down 10%* y-o-y and b) a much lower loan loss ratio (85 bp)
Contribution to Group: profit excl. minority interests and return on excess capital; incl. allocated Group overhead.
In m EURStand-alone
net profit
Contribution to Group
Contribution% y-o-y
Return onallocated capital
Return on invested capital
CR/SLK (o/w SLK)
16313 124 7% 17% 12%
Hungary 65 25 5% 19% 16%
Poland 32 25 - 11% 6%
Slovenia 65 22 - - 7%
* Adjusted for exchange-rate effects
CEE bankingBanking results – 9M04
Highlights — Earnings components — Areas of activity — Outlook
38
Revenues Expenses
9M 02 9M 03 9M 04
9M profit contribution : 101 m (after allocation of distribution fee to retail business), up 5% thanks to higher AUM
Assets (101 bn) up 13% ytd (of which 60% net inflow), but gradual shift to lower margin business
Growth especially strong in capital-guaranteed funds and advisory mandats for HNW individuals
Asset management
Profit contribution (in m EUR) Belgium :
87%CEE : 5 %
87
97
9M 2004
9M 04 at a glance :RevenueExpenses
101
Highlights — Earnings components — Areas of activity — Outlook
39
Revenues
ExpensesProvisions
166 139
264
9M 02 9M 03 9M 04
Banking Insurance
Profit contribution: 284 m, up 99% (ROAC 19%) mainly driven by lower loan loss and non-life claims charges and sustained cost control
Turnaround in banking: Substantially lower cost of risk (16 bp
on RWA versus 65 bp in 9M03) Gross income margin sligthly up from
2.5% to 2.6% Cost/income stable at 37% Profit increase most remarkable in
Belgium, ‘corporate US’ and the global structured finance activities.
Better return in re-insurance thanks to improved underwriting performance (CR 94 % versus 101% in 9M03)
Profit contribution (in m EUR)
Corporates
142
284
156
9M 2004
9M 04 at a glance :RevenueExpensesCredit risk
Highlights — Earnings components — Areas of activity — Outlook
40
Revenues
Expenses
85
21
97
67
11
61
9M 02 9M 03 9M 04 Equity-related activities
Money and capital markets
Profit contribution: 146 m, up 25% (ROAC 17%) mainly driven by strong income growth (cost/income stable at 64%)
1H04 very strong, Q3 rather very poor due to: Seasonal slowdown trading activities Adverse climate: rate incertainty,
flattening yield curve, low volatility, limited stock market momentum…
Profit contribution (in m EUR)
Financial markets
76
117
146
9M 2004
9M 04 at a glance :RevenueExpenses
Highlights — Earnings components — Areas of activity — Outlook
41
Overview of earnings headlines
Earnings components
Performance by areas of activities
Outlook
42
Outlook for 2004
FY04 net earnings expected to be up at least 35% (assuming stable economic and financial climate and stable stock levels)
Top-line growth in 4Q: Significant volume growth in deposits/life insurance in Belgium on the
back of successful ‘savings’ marketing campaign. Margin pressure not expected to lessen Potential gain on disposal of equity holdings
Commitment to maintaining strict cost discipline
Level of provisions in 4Q: loan losses expected to be much lower than in 2003 Claims ratio may increase depending on weather conditions (seasonal effect) No further equity impairments (insurance division) expected (‘stable market
assumption’)
Restructuring in Poland has been successful. FY profit expected to be > 30 m
Highlights — Earnings components — Areas of activity — Outlook
43
Highlights — Earnings components — Areas of activity — Outlook
On 22 November 2004, Almanij / KBC confirmed that
they are currently examing whether it is possible to carry out
a structural change within the Group.
At this stage of the investigation, it is not possible to
comment on the outcome, the timing or the practical details
of such an investigation.
This statement is still valid.
Additional information
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45
Year-to-date results
In millions of EUR 6M 04 3Q 04 q-o-q 9M 04 y-o-y
Gross operating income 3 599 1 610 -11% 5 209 +7% - banking 3 094 1 352 -11% 4 446 +5% - insurance 510 264 -5% 774 +21%Administrative expenses - 2 174 - 1 004 -6% - 3 178 +1% - banking - 1 838 -844 -7% - 2 682 -3% - insurance -335 -158 -3% -493 +30%Operating result 1 425 606 -17% 2 031 +17% - banking 1 256 508 -17% 1 764 +20% - insurance 175 106 -7% 281 +8%Loan-loss provisions
Value adjust., non-recurring, extraordinary and other results
- 120
- 15
- 14
- 91
-82%
-
- 134
- 106
-68%
Pre-tax profit 1 290 501 -27% 1 791 +41%
Taxes - 333 -123 -24% -456 +43%Minority interests - 88 -46 +1% -135 +41%
Net profit 869 332 -30% 1 201 +40%
46
1 997 1 280 167 708 579 Gross operating income (m)
+3% +23% +3% +6% +12% (% y-o-y)
614 405 122 420 206 Net operating income (m)
+11% 66% +2% +9% 14% (% y-o-y)
322 223 101 284 146 Net profit, group share (m)
-11% - +5% +99% +25% (% y-o-y)
33 135 14 981 - 31 952 10 255 Risk-weighted assets (bn)
+2% -1% - -3% -8% (% y-o-y)
3 005 1 966 - 2 044 1 117 Allocated capital (bn)
+6% +1% - -3% -6% (% y-o-y)
14% 15% - 19% 17% ROAC
Areas of activity
Areas of activity
Retail CEE AM Corporate Markets9M 2004
47
CEE
CSOB K&H KB NLB Insurance
Expanded horizons in CEE paying off
9M 04 (in m EUR, % chg. y-o-y)
611(+15%)
293(+15%)
234(+1%)
170 Gross operating income
- 346(+2%)
- 205(+10%)
- 181(-10%)
- 137 General expenses
- 22 - 10 - 25 - Provisions
- 80 - 13 - 11 - 6 Taxes & extraordinary
163(+1%)
65(+27%)
32(n.r.)
65 27 Stand-alone profit
- 25 - 23 - 3 - + 4 Adjustments, o/w yield on excess capital
- 14 - 17 - 4 - 43 - 5 Minority interests
124(+7%)
25(+5%)
25(n.r.)
22 27(n.r.)
Profit contributionto Group
17% 19% 11% - 9% ROAC
48
Update on restructuring efforts in Poland
Risk issue adequately dealt with in 2003 Historic loan book ‘cleaned-up’ (one of the highest
provision coverage rates on the market and ytd 04 provisions below market avg.)
Risk management procedures upgraded and distressed asset portfolio closely monitored
Cost basis significantly reduced: Centralization of back offices, outsourcing
of non-core functions and divestiture of non-core assets (Ukraine, Lithuania, etc.)
Headcount reduced by 1 300 FTEs (-19%)
Renewed focus on business development as of 2H04 Including intensive transfer of KBC know-how Acceleration in bancassurance and AM sales
Key achievements :
Clearprofitabilityturnaround
- Risk
- Costs
+ Volumes
49
Market value of securities portfolio
In m EUR Book value
Market value
Non-realised
Fixed-income 49 020 50 448 1 429
- Banking 39 603 40 599 996
- Insurance 9 417 9 849 432
Equity 4 729 5 181 352
- Banking 1 766 1 913 147
- Insurance 2 877 3 081 204
30 September 2004
* Excluding trading portfolio
50
Non-audited simulation based on 31 Dec. 2003 figures. Impact partly to be reported in opening balance sheet as at 1 Jan. 2004 and partly as at 1 Jan. 2005. For more details, surf to www.kbc.com
Simulated impact on own equity In m EUR
Profit appropriation + 498
Value adjustment of financial instruments (IAS 32 / 39) +272
Reversal of provisions (IAS 4 / 37) + 215
Correction of depreciations of tangible assets and capitalization of internally generated software (IAS 16/38)
+ 34
Inclusion of special purpose vehicles in consolidation scope + 10
Reclassification from operational to financial leasing (IAS 17) + 9
Adjustment of deferred tax assets and liabilities (IAS 12) + 3
Impairment testing of goodwill (IAS 36) - 0
Translation differences - 2
Underfunding of defined benefit pension plans (IAS 19) - 402
Total equity correction + 637
Impact of IFRS
51
Quantitative impact simulation on required capital (Sept. 04): Credit risk: 84% of current required capital level (positive impact
from the lower weight of retail/SME credit portfolio) Operational risk: additionaly 11% of current required capital
(ca. 800 m EUR) On balance: 95% of current required capital level
Methodology: Credit risk: IRB Foundation method Operational risk: Standardized method
Implementation: 31 December 2006
Impact of Basle II regulation
Closing remarks on dividend policy and valuation
Foto gebouw
5
53
1.421.48 1.52
1.64
2000 2001 2002 2003
3.90
3.39 3.42
3.68
2000 2001 2002 2003
EPS
36%44% 44% 45%
2000 2001 2002 2003
Payout ratio
3.1% 3.6%4.2%
4.9%
2000 2001 2002 2003
DPS
Dividend yield
Steadily growing dividend
EUREUR
54
Valuation
P/E 2005
CEE banks (1) 12.8
CEE-exposed banks (2) 12.2
Euro-zone banks (3) 11.9
KBC 11.3
BEL banks (4) 10.0
Key figures: Share price: 55.7 EUR Net Asset Value: 38.2 EUR
Analysts’ estimates: EPS 2004 consensus: 4.82 EPS 2005 consensus: 5.17 P/E 2005: 11.3
Recommendations : Positive: 38% Neutral: 29% Negative: 33%
Valuation relative to peer group :
Unweighted average of IBES data :(1) OTP, Komercni, Pekao, BPH PBK, BRE(2) BA-CA, Erste, Unicredit, Soc Gen, Intesa BCI(3) Top 20 of DJ Euro Stoxx banks (4) Fortis, Dexia
Situation as at 16 November 2004