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KBC Bank & Insurance Group

KBC Bank & Insurance Group. Website: www.kbc.com Ticker codes: KBC BB (Bloomberg) KBKBT BR (Reuters) B:KB (Datastream) ISIN code: BE0003565737. Company presentation Summer 2004. Table of contents. Company profile Strategy overview 1Q 04 - Financial highlights

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KBC Bank & Insurance Group

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  1. KBC Bank & Insurance Group Website: www.kbc.comTicker codes: KBC BB (Bloomberg) KBKBT BR (Reuters) B:KB (Datastream)ISIN code: BE0003565737 Company presentation Summer 2004

  2. Table of contents • Company profile • Strategy overview • 1Q 04 - Financial highlights • Additional information

  3. Company profile

  4. Considerable scale in Euroland KBC is a top-20 financial service provider in the Euro-zone with a market cap of ± 14 bn Giant cap Number 12 in Eurolandbank ranking Large cap Mid cap Note: DJ Euro Stoxx Banks constituents as of 31 Jan 2004

  5. Successful core businesses • Top bancassurer in Belgium : • 3rd bank (market share: ± 22%) • 1st asset manager (± 31% in funds) • 3rd retail insurer (± 13% Life, ± 8% PC) • Successful expansion in the 5 most advanced countries in ‘Emerging Europe’ : • Growth market of ± 65 m inhabitants • ± 3.4 bn capital invested • Prominent position in banking • Focused activities in corporate and investment banking. As investments in CEE progressed, CIB activities have been scaled down. KEY FIGURES : Total assets : ±226 bn Net profit ‘03 : 1.12 bn ROE ’03 : 12.7 % Headcount : ± 50 000 Customers : ± 12 m Credit rating : AA-, AA3, A+ Share in allocated capital (excl. goodwill and group items)

  6. Prominent player in the region Insurance Banking Czech Republic:Market share: 18% (no 1)Total assets: 18.3 bn Czech Republic:Life M share: 9% (no 4)Non-life M share: 4% (no 6) Slovakia:Market share: 6% (no 4) Slovakia:Life M share: 4% (no 8)Non-life M share: 2% (no 6) Hungary:Market share: 11% (no 2)Total assets: 5.5 bn Hungary:Life M share: 2% (no 13)Non-life M share: 4% (no 6) Poland:Market share: 6% (no 7)Total assets: 4.8 bn Poland:Life M share: 5% (no 5)Non-life M share: 14% (no 2) Slovenia:Minority interest (34%)Market share: 43% (no 1) Slovenia:Startup life business Allocated capital

  7. Building a 2nd home in CEE 2000 2002 2001 < 1999 2003 1999 Czech/ Slovak Hungary Poland Slovenia

  8. Group revenue profile Commission income Technicaland investment income, insurance Yield income (Interest &dividend),banking Trading income Capital gains on disposals, banking Other

  9. Balanced credit portfolio Breakdown by area of activity Geographical breakdown Other3 bn US 6 bn Belgium, retail 38 bn W. Eur 23 bn CEE. 17 bn Belgium, corporate 15 bn Sector breakdown Note : credit portfolio as of 31 Dec 03, incl. corporate bonds and loans to banks, excl. reverse repos.

  10. Performing asset manager Assets under management (bn EUR) Breakdown of retail funds Retail CEE Funds of funds, Belgium Equity, Belgium 89 bn 81 bn 82 bn Corporate Unit-linked, Belgium Bonds & MM, Belgium Belgium:87% Mixed, Belgium Retail Capital-guaranteed, Belgium CEE: 5% Market share, retail funds Belgium : 31% Czech Republic : 19% Slovak Republic : 6% Hungary : 8%

  11. Long-term shareholdership MRBB Other stable shareholders Cera Holding& Almancora Free float (October 2003) ± 16% ± 37% ± 17% StockMarket Gevaert Private equity 100% ± 29% Almanij KBLPrivate bank ± 78% ± 67% ± 31% KBC Bank & Insurance • Almanij is an investment company(of which KBC is ± 75% of the assets) committed to supporting KBC in the long run • Core holders include the Ceragroup (co-operative investment company), a farmers’ association (MRBB) and a syndicate of industrialist families. KBC/Almanij is a major asset for all of them.

  12. Steadily growing dividend • Board of Directors’ policy to maintain a steadily growing dividend • Gross dividend up every year over the past 5 years (at a CAGR of 9%) • Average payout : 40-45%(usually cash). Payout may be raised to keep dividend stable in case of temporary drop in profit • Note: yield = gross DPS versus average share price. • Figures 2000 excl. value gain on CCF

  13. Key figures : Price : 46.8 EUR Net Asset Value : 35.4 EUR EPS 2003: 3.68 EUR Analysts estimates : EPS 2004 consensus : 4.35 EPS 2005 consensus : 4.75 P/E forward 2 years : 10.3 Recommendations : Positive : 10 Neutral : 7 Negative : 5 Valuation still not too demanding Situation as of 31 May, 2004 Valuation relative to peer group : Unweighted IBES data : (1) OTP, Komercni, Pekao, BPH PBK, BRE (2) Top 25 of DJ Euro Stoxx banks (3) BACA, Erste, KBC, Unicredito, Soc Gen (4) KBC, Fortis, Dexia * Sources EPS forecasts for KBC: KBC (2004) and I.B.E.S. (2005)

  14. Strategy overview

  15. Group focus and profit growth "Realising full potentialof the platform" Leading bancassurer in Belgium and CEE, delivering superior return levels “Consolidatingbusiness platform" "Broadeningbusiness platform" • Stronger organic growth (and add-on acquisitions) • Refinement of C- programs • Profit growth • Consolidation (6 C dimensions): • Cross selling • Customersatisfaction • Canvassing affluent customers • Control of risks • Cost efficiency enhancement • Cross border synergies • Merger: • Cross sellingbanking/insurance • Cost synergies(1st phase) • Expansion to CEE: • New home markets/ acquisitions • Mitigated ‘wholesale’ profile Traditionalstrenghts: - Belgium - retail /SME 2004-… 2001-2004 Reconfirmed confidence in our strategy fundamentals 1998-2001

  16. Strategy and earnings drivers The potential of the Belgian market should not be underestimated. Multiple OPPORTUNITIES to unlock value The expanded horizons in ‘emerging/converging’ Europe will fuel top-line growth at acceptable risk

  17. Key objectives : Cross selling (bancassurance) in Belgium Reducing banking costs in Belgium Strengthening the second home market in CEE Group strategy KBC is a bancassurer focusing on local clients (individuals and SME) in Belgium and selected countries in (Central) Europe

  18. Achieved to date : Premium income boosted : Life premiums more than doubled from 1.1 bn in ’98 to 2.4 in ’03 (81% sold via bank outlets) Bank distribution of non-life products growing faster (+ 33%) than distribution via traditional channels (+5%) Going forward : Tap growth potential, though not to the detriment of technical performance : For SMEs (<10% market share in insurance vs > 20% in banking) For non-life insurance (10% via bank channel vs 81% in life) Strategy and earnings drivers Key objective 1 :Cross selling (bancassurance) in Belgium

  19. Achieved to date : Merger synergies : Integrated IT-infrastructure Branch mergers (-41%) Headcount objective reached (-12%) Going forward : Further cost reduction: Reduce product complexity in retail(action plan consisting of 364 items) Out-/co-sourcing of processing and back-office functions (within the group and with third-parties) Rationalisation of head office space and other non-FTE expenses Strategy and earnings drivers Key objective 2 : Reducing banking costs in Belgium

  20. Achieved to date : Expansion in 5 target countries : Prominent franchises Renewed IT-infrastructure Bancassurance models set up Strengthened of internalgovernance model/central management structure Going forward : Performance enhancement : Sales of banking, insurance, AM products (deposits/ GDP at 45%-80% and premium/cap < 20 % of EU avg) Business reorganization in CR (HQ) and Poland  10-15% FTE downsizing Cross border cost-sharing (payments systems, IT procurement, etc.) If opportunities arise, acquisitions in Poland(banking) and Hungary(insurance) Strategy and earnings drivers Key objective 3 : Developing a second home market in CEE

  21. Demanding financial objectives Minimumtargets for 2005 Cost/income ratio, banking 58% Combined ratio,non-life insurance 95% Tier-1,banking 8% Solvency, insurance 200% EPS growth (4y CAGR) 10% ROE, group 16% ROAC Retail in Belgium 16% Central and Eastern Europe 17% Corporates 12% Markets 18% Note: combined ratio excl. re-insurance

  22. 1Q 04 - Financial highlights

  23. 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

  24. 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

  25. Improving performance levels Highlights — Banking — Insurance — Areas of activity — Outlook * Combined ratio excluding reinsurance. ** Solvency insurance including unrealized gains.

  26. 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 %

  27. 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

  28. 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

  29. 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

  30. 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

  31. 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

  32. 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

  33. 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

  34. 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 %

  35. 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)

  36. 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

  37. Market value of securities portfolio significantly above book value

  38. Updated strategy for investment book * Excl. private equity and smaller porfolios held by subsidiaries

  39. 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

  40. 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

  41. 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

  42. 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

  43. 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

  44. 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

  45. 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

  46. 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

  47. 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

  48. 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

  49. Additional information

  50. Interest spreads in Belgium Interest margin, banking Spread on new loans Going forward, increasing market rates could fuel top-line growth

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