Proud to deliver strong financials herman agneessens chief financial and risk executive
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2. Proud to deliver strong financials Herman Agneessens Chief Financial and Risk Executive. Delivering strong earnings. Highlights — Banking — Insurance — Areas of activity — Outlook. Net profit + 29% yoy. Group ROE 17 %. 392. Net profit m EUR. 355. Insurance: 32. 316. 304. 300.

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Proud to deliver strong financials Herman Agneessens Chief Financial and Risk Executive

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Proud to deliver strong financials herman agneessens chief financial and risk executive

2

Proud to deliver strong financialsHerman AgneessensChief Financial and Risk Executive


Delivering strong earnings

Delivering strong earnings

Highlights — Banking — Insurance — Areas of activity — Outlook

Net profit+ 29% yoy

Group ROE 17 %

392

Net profit m EUR

355

Insurance: 32

316

304

300

287

278

280

Q avg‘01-’03

(265 m)

256

259

230

Banking: 370

159

152

Holding: -10

Especially strong momentum in banking


Key points

Key points

Highlights — Banking — Insurance — Areas of activity — Outlook

Net profit at a high level, up 29% year-on-year :

  • 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

  • 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 %)

  • 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


Improving performance levels

Improving performance levels

Highlights — Banking — Insurance — Areas of activity — Outlook

* Combined ratio excluding reinsurance. ** Solvency insurance including unrealized gains.


Impact of consolidation changes

Impact of consolidation changes

Highlights — Banking — Insurance — Areas of activity — Outlook

Main changes in scope of consolidation :

2003

2004

Q1

Q2

Q3

Q4

Q1

Q2

Full consolidation, previously equity methodat 40 %

Warta Insurance (Poland)

Premium income  99 m EUR, 3/4 non-life (21% of non-life total, Group)

Impact on top line

Impact on bottom line

+2 %

-1 %


Solid quality of banking earnings

Solid quality of banking earnings

Year-on-year comparison

+ 186 m

- 65 m

+ 1 m

Positive impact of operational items: +120 m EUR

400 m

Expenses- 0.1%

Underlyingrevenue

growth

+ 14 %

Capitalgains-53%

Pre-taxprofit1Q 2003

Highlights—Banking — Insurance — Areas of activity — Outlook


Strong growth of operational income

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)

Quarterly income (m EUR)

1572

1424

1452

1416

1364

Highlights—Banking — Insurance — Areas of activity — Outlook


Expenses at stable level

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)

Quarterly expenses (m EUR)

938

929

931

928

897

Highlights—Banking — Insurance — Areas of activity — Outlook


Loan provisioning very limited

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

Quarterly loan provisions (m EUR)

252

204

141

79

43

* Net specific provisions to average gross customer loans

Highlights—Banking — Insurance — Areas of activity — Outlook


Development of earnings banking

Development of earnings, banking

+38 % organic growth

Year-on-year comparison

- 92 m

+ 33 m

+ 79 m

+ 186 m

- 65 m

+ 175 m

- 3 m

+ 36 m

+ 1 m

575 m

400 m

Loanlosses- 85%

Provisionfor futureexpenses

Gain on FFA

disposal

Underlyingincome

growth

+ 14 %

Capitalgains -53%

Lesssecuritiesimpair

ments

Pre-taxprofit1Q 2003

Pre-taxprofit1Q 2004

Other

Expenses- 0.1%

*

* Gains of financial fixed assets: Belgacom in Q1 04 versus Krefima in Q1 03

Highlights—Banking — Insurance — Areas of activity — Outlook


Development of earnings insurance

Development of earnings, insurance

-23 % organic change

Highlights—Banking — Insurance— Areas of activity — Outlook

Year-on-year comparison

+14 m

-40 m

-17 m

-281 m

+6 m

-4 m

+288 m

57 m

40 m

Pre-taxprofit1Q 2004

Less non-recurring - 9% *

Pre-taxprofit1Q 2003

Investmentincome+ 13%

Expenses+ 9%

Other **

Premiumgrowth+ 20%

Technicalcharges+ 23%

* Of which impairments on equity ** Of which consolidation changes


Continued fast growth of premiums

Continued fast growth of premiums

24 %

35 %

33 %

Highlights—Banking — Insurance— Areas of activity — Outlook

  • 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 m

Unit-linked477 m

*

*

Interest-guaranteed life401 m

*

* Growth rate, including extension of scope of consolidation


Satisfactory efficiency and underwriting performance in non life

Satisfactory efficiency and underwriting performance in non-life

Highlights—Banking — Insurance— Areas of activity — Outlook

  • 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

93.2 %

95.4 %

97.5 %

95.4 %

95.9 %


Insurance business suffering from low investment yields

Insurance business suffering from low investment yields

Highlights—Banking — Insurance— Areas of activity — Outlook

Investment return downto 5.6 % from 5.9 %

* Corresponds with 7.3 % of the market value of the portfolio (= 10 years’ adjusted average)


Proud to deliver strong financials herman agneessens chief financial and risk executive

Impairments on equity portfolio largely offset

Highlights—Banking — Insurance— Areas of activity — Outlook

  • 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

* Gain on the equity tranche of an unwoud private CDO structure


Market value of securities portfolio significantly above book value

Market value of securities portfolio significantly above book value


Updated strategy for investment book

Updated strategy for investment book

* Excl. private equity and smaller porfolios held by subsidiaries


Robust performance in belgian retail

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

Profit contribution (m EUR)

124

125

122

108

97

* Return on average allocated capital Margin and loan losses on average RWA

Highlights—Banking — Insurance— Areas of activity — Outlook


Robust performance in belgian retail1

Robust performance in Belgian retail

  • Cost efficiency

    • Programs of product simplification (less ‘cost drivers’) and co-sourcing (economies of scale)

  • Cross selling of insurance products

    • Cross selling to go beyond 40%

  • Customer satisfaction

    • Refined segmentation and increase of customer-facing time

  • Canvassing affluent clients

    • Broadening the affluent customer basis

Working along “4 dimensions” (4 C’s)

Highlights—Banking — Insurance— Areas of activity — Outlook


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

Expanded horizons in CEE gradually paying off

Contribution of banking operations to KBC Group profit :

* Profit contribution excl. return on excess capital and minority interests** adjusted for currency effects

CEE

2nd home

Highlights—Banking — Insurance— Areas of activity — Outlook


Cee banking share of banking wallet

CEE banking, share of banking wallet

Improved

cost structure

under way

Risk issue under control

Benefiting from higher margins

Impact of

paid goodwill

Note : banking business lines only

Highlights—Banking — Insurance— Areas of activity — Outlook


Expanded horizons in cee gradually paying off1

Expanded horizons in CEE graduallypaying off

Enhanced performance going forward

  • High economic growth and increasing penetration rate of financial products

  • Better cross selling of insurance products

  • Increase of organisational efficiency and intensified quest for Group synergies

  • In Poland, business re-engineering  cost level  / organizational strength 

Highlights—Banking — Insurance— Areas of activity — Outlook


Performing asset management activities

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)

35

34

32

25

24

Belgium :86 %

CEE : 4 %

Highlights—Banking — Insurance— Areas of activity — Outlook


Corporate activities stepping up

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)

Corporate activities stepping up

Profit contribution (m EUR, excl. minorities)

100

89

62

43

35

* On average RWA

Highlights—Banking — Insurance— Areas of activity — Outlook


Tail wind in financial markets

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

Tail wind in ‘financial markets’

Profit contribution (m EUR, excl. minorities)

64

41

41

35

7

Highlights—Banking — Insurance— Areas of activity — Outlook


Favourable trend in core markets

Favourable trend in core markets

Highlights—Banking — Insurance— Areas of activity — Outlook

GDP, real growth

2004-05

CEE:  1.5 % - 3 % above EMU avg

Belgium:  0.5 % above EMU avg

Source : KBC CEE Outlook, May 2004


Outlook 2004

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


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