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KBC Group Summer presentation June 2005

KBC Group Summer presentation June 2005. Web site: www.kbc.com Ticker codes: KBC BB (Bloomberg) KBKBT BR (Reuters) ISIN code: BE0003565737. Contact information. Investor Relations Office Luc Cool Nele Kindt Marina Kanamori Tel.: +32 2 429 49 16 investor.relations @ kbc.com

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KBC Group Summer presentation June 2005

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  1. KBC Group Summer presentationJune 2005 Web site: www.kbc.comTicker codes: KBC BB (Bloomberg) KBKBT BR (Reuters)ISIN code: BE0003565737

  2. Contact information Investor Relations OfficeLuc CoolNele KindtMarina KanamoriTel.: +32 2 429 49 16 investor.relations @ kbc.com Surf to www.kbc.com for the latest update.

  3. Important information • KBC Group’s financial accounts are presented according to IFRS reporting standards as of 1Q2005 • As IFRS have a material impact on the way earnings are presented, this presentation is drafted to increase their visibility and to help the investment community to understand the underlying profit trends • KBC believes that this presentation is reliable, although some information may be condensed or incomplete • By receiving this presentation, each investor is deemed to represent that it possesses sufficient expertise to understand the risks involved • 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 • This presentation contains forward-looking statements with respect to our earnings development. By their nature, these forward-looking statements involve assumptions, uncertainties and opportunities. The risk exists that these statements may not be fulfilled and that future results differ materially.

  4. Financial highlights - 1Q 2005 - Group performance - Headlines per segment FY 2005 profit outlook Additional information on 1Q 2005 results 2004 pro forma IFRS quarterly accounts Foto gebouw

  5. Strong earnings momentum Net profit+91% yoy Pro forma (IFRS 2004), MergCo As published (Bel. GAAP), KBC Old IFRS 2005

  6. Key figures Notes: (1) Related to settlement of a ‘historic’ Slovakian loan (net 68 m) and value gains on shares of Irish insurer FBD (net 68 m) (2) Comparison with 2004 figures not fully valid since IAS 32/39 and IFRS 4 not applied to 2004 figures (3) Comparison not relevant due to significant impact of IFRS 4 application (4) Gross income minus technical charges, insurance, plus ceded R/I result minus operating expenses

  7. Highlights • Underlying profit at 581 m*, up 32% q-o-q and 55% y-o-y • Strong growth of commission income (+20%) due to successful sales and management of mutual funds • Comparison of individual P/L lines with pro-forma 2004 figures distorted by application of IFRS 32/39 and IFRS 4 as of 2005 • Stable interest income in adverse competitive and market-yield environment • Further downward trend in expenses - cost/income ratio, banking at 55 %* • Very low combined ratio, non-life (92%) • Zero credit-risk provisioning (loan-loss ratio 0%) • Increased profitability in all business segments • Satisfactory results in Poland (17 million profit contribution and zero credit cost) • Outlook for 2005 remains positive * Adjusted for one-off results of 136 m

  8. Main changes IFRS 2004 – 2005 • Impact of M2M of financial instruments (IAS 32/39): • Impact of the M2M of hedging derivatives has been to a high degree ‘hedged’ by use of the ‘FIV’ book’ (intentional M2M of part of the bond portfolio via P&L) • Impact on 1Q05: -29 m (before tax and minorities), recognized under ‘trading’ income (net profit of financial instruments at fair value) • Net impact of IFRS 4 on insurance contracts very limited (8 m) • Material impact on individual I/S lines: ‘net interest income’ and ‘trading income’ (IAS 32/39) and ‘premium income (IFRS 4). The most important changes are: • Reclassification of interest component of hedging derivatives from ‘interest income’ (+63 m) to ‘trading income’ (-63 m) • No recognition of premium income (-457 m) of unit-linked insurance products (additional margin recognized as commission income: +13 m)

  9. Satisfactory quality of revenue Gross income (m) 3 462 3 178 3 175 2 756 2 517 Excl. one-offs (169 m) and IFRS reclassifications, solid quality of banking income: stable interest income (in adverse interest rate environment), strong commission line (+17% y-o-y) and lower trading revenue Nominal amount dropped, mainly due to a) non-recognition under IFRS 2005 of 464 m new unit-linked premium volume, b) M2M of financial instruments (IAS 32/39) and c) lower guaranteed life insurance (-667 m q-o-q and –95 m y-o-y) IFRS 2005 Pro forma IFRS 2004

  10. Operating expenses at low level 1 424 Operating expenses (m) 1 269 Cost/income of banking and asset management at 51%* 1 147 1 105 1 104 1Q05 down 13% y-o-y due to cost cutting, no provisioning for future operating expenses & timing differences (y-o-y trend not to be extrapolated to Q2) 4Q04 lifted by staff profit-sharing bonuses, marketing costs, litigation provision (KBC Bank) and restructuring provision (KBL epb) Pro forma IFRS 2004 IFRS 2005 * C/I of 55% excl. non-recurring income

  11. Without significant impairments 152 Impairments (m) 90 79 44 Historic low level of impairment charges (loan-loss provisions: net write-backs of 3 m) 15 Pro forma IFRS 2004 IFRS 2005

  12. Excellent underwriting result, non-life Combined ratio (%)) 103% 96% 95% 92% Very low combined ratio in most markets Pro forma IFRS 2004 IFRS 2005

  13. Asset growth Note: (1) Growth excl. (reverse) repo’s

  14. Financial highlights - 1Q 2005 - Group performance - Headlines per segment FY 2005 profit outlook Additional information on 1Q 2005 results 2004 pro forma IFRS accounts Foto gebouw

  15. Segment structure KBC Group NV KBCBank KBCInsurance KBCAM KBL epb Gevaert Primary segmentation by business segment

  16. Key points, business segments BANKING Banking: • Profit at record level of 470 m (402 excl. one-off), driven by: • Strict cost control (C/I at 55% incl. AM, excl. one-off) • Zero credit cost • Good top-line quality, not boosted by gains and trading income. Commissions were strong (up 17% y-o-y) and NII stable despite adverse interest yield climate Insurance: • Results increasing to 122 m on the back of: • Higher capital gains (esp. FBD – net non-recurring impact: 68 m) • Low impairment charges on portfolios (extremely high in 1Q04) • Excellent underwriting performance (CR, non-life 92%) • Interest income stable in spite of increased reserves invested due to interest yield context • Capital gains expected to be lower in coming quarters Net profit (m) IFRS 2005 Pro forma IFRS 2004 INSURANCE Net profit (m) IFRS 2005 Pro forma IFRS 2004

  17. Key points, business segments Asset management: • AUM in 1Q05 up 8% to 85.2 bn on the back of new money entries • Profit contribution at 58 m, +7 m y-o-y (driven by increased AUM), down 8 m q-o-q (exceptionally high dividend income in Q4) • Note: total 3rd assets of the group: 150.7 bn • Asset management segment: 72.3 bn (3rd party) + 12.9 bn (group assets) • Banking segment: 28.7 bn (mostly private and HNWI assets in Belgium and CEE) • European private banking segment: 49.7 bn (o/w 46.0 bn of private customers via epb network) European private banking: • Profit contribution at 53 m, up 10 m y-o-y and up 83 m q-o-q (Q4 heavily depressed by one-off restructuring provisions) • Top-line at high level (partly due to M2M of financial instruments) with sustained growth trend of commission income • Private banking AUM in 1Q05 up 6% to 49.7 bn • Cost/income at 63% • No relevant impairment charges Net profit (m) ASSET MANAGEMENT IFRS 2005 Pro forma IFRS 2004 Net profit (m) EUROPEAN PRIVATE BANKING IFRS 2005 Pro forma IFRS 2004

  18. Key points, business segments Net profit (m) GEVAERT Gevaert: • Profit contribution of 32 m, slightly higher than previous quarters (remind that in 2Q04 discontinued activities weighed heavily on the P/L) • Revenue shored up by M2M of private equity portfolio (15m) (according to IFRS standards) • Profit contribution from Afga Gevaert: 8m Holding company: • Net holding company costs at 18 m, somewhat above 2004 quarterly average due to increased debt leverage related to the minority buy-out of KBL (+530 m). • Debt funding will be gradually reduced in the next quarters IFRS 2005 Pro forma IFRS2004 HOLDING COMPANY Pro forma IFRS 2004 IFRS 2005 Net profit (m)

  19. Segment structure – cont’d 2 KBC Group NV 1 KBCBank KBCInsurance KBCAM KBL epb Gevaert Retail SME/Corporate CEE Markets European private banking 1 . Primary segmentation by business segment 2. Additional breakdown by area of activity Gevaert

  20. Changes as of 1Q 2005: Allocation of capital: Tier-1 of 8% (with 15% hybrid), previously 7% No further allocation of goodwill Integration of ‘Asset management’ business into retail and corporate divisions Additional areas: ‘European private banking’ and ‘Gevaert’ * Use of IFRS reporting standards Areas of activity in 2005: * Retail bancassurance (mainly in Belgium) Central and Eastern Europe Corporate services (SME and corporates) Market activities KBL European private banking Gevaert Reminder * Best-efforts approach for 2005 – will be reassessed in the future

  21. Retail Belgium and CEE Retail Belgium: • Net profit in line with previous quarter and 3x higher y-o-y driven by: • sound revenue growth (investments-related) • sustained cost discipline • absence of credit provisioning and strong non-life underwriting performance • normalization of value impairments on the investment portfolio (delta of 115 m) • ‘Private banking Belgium’ sub-segment contributes 17m • ROAC at 33% (pro forma FY04: 22%) CEE: • Profit contribution of 191 m, of which 181 m in banking (of which 68 m one-off) and 10 m in insurance. ROAC at 66% (pro forma FY04: 27%) • In CR/Slovakia: strong quarter (150 m), though backed by one-off (68m) and M2M of derivatives (20m) and zero credit provisioning • Hungary: further positive development of operating results, but higher loan-loss provisions (LLR 0.73%, similar to that of major peers). Profit at 10 m • Poland: strong quarter (23 m, of which 17 m in banking) with improved C/I and zero credit provisioning Net profit (m) RETAIL BELGIUM Pro forma Net profit (m) CEE Pro forma

  22. Earnings momentum in CEE, banking CSOB, C/S Rep. Kredyt Bank, Poland In m EUR In m EUR 1Q05 ROAC: 120% 1Q05 ROAC: 32% NLB, Slovenia K&H, Hungary In m EUR In m EUR 1Q05 ROAC: 17% * Pro forma

  23. SME and wholesale activities Net profit (m) SME/CORPORATE SME/corporate: • Strong profitability trend of 2004 continues as a result of, inter alia: • absence of loan losses • sustained solid technical result from reinsurance • Quarterly profit level even higher than that of previous quarters, thanks in particular to a commercial real estate transaction (12 m) • ROAC at 25% (pro forma FY04: 19%) Capital markets: • Profit contribution continues to be at level registered in previous quarter, but below record high of 1Q 2004 (when exceptionally fine results were booked in share and bond derivatives) • Income form convertibles & equity derivatives trading was particular weak • ROAC at 42% (pro forma FY04: 34%) Pro forma Net profit (m) CAPITAL MARKETS Pro forma

  24. 2005 profit outlook • The profit for the quarter cannot be extrapolated to the entire year. Nevertheless, KBC continues to be positive for the rest of 2005 • Tight cost control is being maintained • There are no signs of any substantial decline in credit quality • The impact of M2M of financial instruments has so far been relatively limited, due among other things to a adequate ‘hedge policy’, which will continue to be implemented • The interest rate environment is a factor of uncertainty • Reiteration/reconfirmation of previous guidance: 2005 net profit will be at least1 825 m (= adjusted pro-forma figure for 2004) • KBC will renew its financial objectives (previously set for the period 2002-2005) taking into account the impact of IFRS and the group enlargement. Disclosure on 23 June 2005.

  25. Financial highlights - 1Q 2005 - Group performance - Headlines per segment FY 2005 profit outlook Additional information on 1Q 2005 results 2004 pro forma IFRS quarterly accounts Foto gebouw

  26. Group income statement, 1Q 2005

  27. Gross income - reconciliation As of 1Q04: ‘gross’ instead of ‘net premium’ As of 1Q05: excluding unit-linked volumes As of 1Q04: incl. insur. sales commissions (-) and KBL’s fee income (+) 3 462 Investment income insurance largely to ‘interest income’ 3 178 3 175 2 756 2 517 1Q05: IFRS reclassification from ‘trading’(-) to ‘interest’(+) As of 1Q04: incl. insurance and KBL Pro forma (IFRS 2004), MergCo As published (B-GAAP), KBC Old IFRS 2005 Gross earned premium Net interest incomeNet fee & commission income Net realized gains AFSDividend income, net gains from FI at FV, other income.

  28. Operating expenses - reconciliation Banking +AM Insurance 4Q04 lifted at KBL by restructuring provision Holding Co KBL epb 1 424 Gevaert 1 269 1 147 1 129 1 105 1 103 1 104 1 071 1 004 IFRS reclassification as of 1Q04: paid commissions to ‘commission income’ 4Q04 lifted by staff profit-sharing bonuses and marketing costs IFRS reclassification as of 1Q04: incl. operating provisions 1Q05 down due to cost cutting, low provisioning & timing differences Pro forma (IFRS 2004), MergCo As published (B-GAAP), KBC Old IFRS 2005

  29. Impairments - reconciliation 1Q04: high equity impairments (under IFRS, impact not compensated by write-back of dedicated provisioning, as was the case under B-GAAP) Under IFRS, no further amortization of goodwill (avg. 10m/Q) 152 KBL/Gevaert’s 18 m write-back explains delta with B-GAAP 11 m real-estate impairments 90 79 Zero credit-loss provisioning 44 15 KBL’s 10 m write-back explains delta with B-GAAP KBL’s 10 m provisioning explains delta with B-GAAP Pro forma (IFRS 2004), MergCo As published (B-GAAP), KBC Old IFRS 2005

  30. Areas of activity overview, 1Q 2005 (1) (1) excl. Non-allocated

  31. CEE banking - I/S details, 1Q 2005

  32. IFRS balance sheet

  33. Composition of portfolios

  34. Number of shares

  35. Financial highlights - 1Q 2005 - Group performance - Headlines per segment FY 2005 profit outlook Additional information on 1Q 2005 results 2004 pro forma IFRS quarterly accounts Foto gebouw

  36. Important information • Pro forma figures 2004 are drafted according to the European IFRS. It is important to highlight that the impact of IFRS 32/39 on the valuation of financial instruments and of IFRS 4 on insurance contracts is therefore not included. As a result, the 2005 figures (which include the impact of the stated valuation rules) are not fully comparable with 2004 pro forma figures.

  37. Main changes in valuation rules, 2004

  38. Main changes in valuation rules, 2005

  39. Reminder: impact on FY2004 accounts Impact on own equity * Impact on P/L * in m EUR in m EUR * Pro forma 2004 (excl. IAS 32/39 and IFRS 4) versus Belgian GAAP

  40. Impact of IFRS standards on 1Q 2004 Impact on P/L 1Q04 * Impact on own equity 31Mar04* in m EUR in m EUR * Pro forma 2004 (excl. IAS 32/39 and IFRS 4) versus Belgian GAAP

  41. IFRS quarterly income statements, 2004

  42. Banking - I/S details, 2004

  43. Insurance - I/S details, 2004

  44. AM - I/S details, 2004

  45. KBL - I/S details, 2004

  46. Gevaert - I/S details, 2004

  47. Holding Co - I/S details, 2004

  48. CEE banking - I/S details, 1Q2004

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