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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 - PowerPoint PPT Presentation
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KBC Bank & Insurance Group
Company presentation Summer 2004
Website: www.kbc.com
Ticker codes: KBC BB (Bloomberg) KBKBT BR (Reuters)
B:KB (Datastream)
ISIN code: BE0003565737
2
Table of contents
1. Company profile
2. Strategy overview
3. 1Q 04 - Financial highlights
4. Additional information
Company profile
4
Considerable scale in Euroland
Note: DJ Euro Stoxx Banks constituents as of 31 Jan 2004
0
5
10
15
20
25
30
35
40
45
50
BN
P P
BS
CH
DB
BB
VA
AB
N A SG
CA
SA
UC
IIn
tesa
Dex
iaS
PI
KB
CA
IBB
P E
span
Bo
Irela
ndH
VB
Alm
anij
Com
mer
zM
edio
ban
Aus
tria
MP
SE
rste
BC
PN
at G
reec
eC
apita
lia
Pd
Ver
ona
Eur
oban
kF
ideu
ram
Alp
haLa
voro
Pop
Uni
teA
ngl.
Irish
Ant
onve
neta
Nat
exis
Dep
faB
ES
Sab
adel
lB
Lom
b.
Giant cap
Large cap
Mid cap
Number 12 in Euroland
bank ranking
KBC is a top-20 financial service provider in the Euro-zone with a market cap of ± 14 bn
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.
1998 1999 2000 2001 2002 2003
Retail (B) CEE CIB
Share in allocated capital
(excl. goodwill and group items)
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+
6
Banking Insurance
Allocated capital
Slovakia:Market share: 6% (no 4)
Czech Republic:Market share: 18% (no 1)Total assets: 18.3 bn
Hungary:Market share: 11% (no 2)Total assets: 5.5 bn
Poland:Market share: 6% (no 7)Total assets: 4.8 bn
Slovenia:Minority interest (34%)Market share: 43% (no 1)
Czech Republic:Life M share: 9% (no 4)Non-life M share: 4% (no 6)
Slovakia:Life M share: 4% (no 8)Non-life M share: 2% (no 6)
Hungary:Life M share: 2% (no 13)Non-life M share: 4% (no 6)
Poland:Life M share: 5% (no 5)Non-life M share: 14% (no 2)
Slovenia:Startup life business
Prominent player in the region
1998 1999 2000 2001 2002 2003
7
Building a 2nd home in CEE
Minority in CSOB
Insurance
Majority in CSOB Bank
& CSOB Insurance
Take-over of IPB banking
Take-over of IPB
Insurance& majority in ERGO
Minority in K&H Bank & creation of
Argosz Non-life &
K&H Life
Majority in K&H Bank
Merger of K&H/
ABNAmro Magyar
Minority in Kredyt Bank
Majority in Agropolisa
Minority in WARTA
Majority in Kredyt Bank Majority in
WARTA
Minority in NLB Bank
Creation of NLB Life
1999 20012000 2002 2003< 1999
Czech/
Hungary
Poland
Slovenia
Slovak
8
Group revenue profile
7%
50%
4%
7%
13%
19% Commission income
Technicaland investment income, insurance
Other
Yield income(Interest ÷nd),banking
Trading income
Capital gains on disposals, banking
9
Balanced credit portfolio
3.0%1.0%
15.9%
3.0%
10.0%
5.0% 4.0% 3.0% 3.0%1.1% 1.0%
13.0%
17.0%20.0%
Indiv
iduals
Finance
Servic
esTra
de
Real esta
te
Constru
ction
Electri
city
Sovere
igns
Autom
otive
Food
Aviatio
n
Teleco
m
Shippin
gOth
er
CEE.17 bn
Other3 bn
W. Eur23 bn
Note : credit portfolio as of 31 Dec 03, incl. corporate bonds and loans to banks, excl. reverse repos.
US6 bn
Retail
CEE
Corporate
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dec 00 Dec 01 Dec 02 Dec 03
Sector breakdown
Geographical breakdown Breakdown by area of activity
Belgium, retail38 bn
Belgium, corporate15 bn
10
Performing asset manager
11%
16%
12%
47%
6%
5% 3%
Assets under management (bn EUR) Breakdown of retail funds
Equity, Belgium
Bonds & MM,
Belgium
Mixed, Belgium
Capital-guaranteed, Belgium
Funds of funds, Belgium
Market share, retail funds
Belgium : 31% Czech Republic : 19% Slovak Republic : 6% Hungary : 8%
Belgium:87%
CEE: 5%
42
14
17
9
40
14
17
9
45
15
19
11
2001 2002 2003
Institutional, group assets Institutional, third-party assets Retail, private assets Retail, funds
Retail
Corporate
89 bn81 bn82 bn
Retail CEE
Unit-linked, Belgium
11
Long-term shareholdership
Cera Holding& Almancora
Other stable shareholders
MRBB
Almanij
StockMarket
Gevaert Private equity
KBC Bank & Insurance
KBLPrivate bank
± 17%± 16%± 37%
± 78%
100%
± 67%
± 29%
± 31%
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.
Institutionals Belgium
28%
Retail Belgium
29%
Institutionals UK9%
Institutionals Continental
Europe13%
Institutionals North
America20%
Institutionals Rest of the
world1%
Free float (October 2003)
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
1998 1999 2000 2001 2002 2003
EPS 2.69 3.26 3.90 3.39 3.42 3.68
DPS 1.09 1.23 1.42 1.48 1.52 1.64
Payout 41% 38% 36% 44% 44% 45%
Yield 1.8% 2.1% 3.1% 3.6% 4.2% 4.9%
Note: yield = gross DPS versus average share price.Figures 2000 excl. value gain on CCF
2.69
3.26
3.90
3.39 3.423.68
1.42 1.48 1.52 1.641.23
1.09
1998 1999 2000 2001 2002 2003
EPS DPS
13
Valuation still not too demanding
* Sources EPS forecasts for KBC: KBC (2004) and I.B.E.S. (2005)
Situation as of 31 May, 2004
P/E 04-05
CEE banks (1) 13.8
Eurozone banks (2) 12.3
CEE exposed banks (3) 11.5
KBC 10.3
Bel banks (4) 9.8
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
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 relative to peer group :
Strategy overview
15
Group focus and profit growth
Traditionalstrenghts:
- Belgium - retail /SME
Merger:• Cross selling
banking/insurance• Cost synergies
(1st phase)
Expansion to CEE:• New home
markets/ acquisitions
• Mitigated ‘wholesale’ profile
Consolidation (6 C dimensions):
• Cross selling• Customer
satisfaction• Canvassing
affluent customers• Control of risks• Cost efficiency
enhancement• Cross border
synergies
• Stronger organic growth (and add-on acquisitions)
• Refinement of C- programs
• Profit growth
Leading bancassurer in Belgium and CEE, delivering superior
return levels
“Consolidatingbusiness platform"
"Broadeningbusiness platform"
"Realising full potential
of the platform"
1998-2001
2001-2004
2004-…
Reconfirmed confidence in our strategy fundamentals
16
The potential of the Belgian market should not be underestimated.
Strategy and earnings drivers
Multiple OPPORTUNITIES to unlock value
The expanded horizons in ‘emerging/converging’ Europe will fuel top-line growth at acceptable risk
17
Group strategy
Key objectives :
1. Cross selling (bancassurance) in Belgium
2. Reducing banking costs in Belgium
3. Strengthening the second home market in CEE
KBC is a bancassurer focusing on local clients (individuals and SME)
in Belgium and selected countries in (Central) Europe
18
Strategy and earnings drivers
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)
Key objective 1 :Cross selling (bancassurance) in Belgium
19
Strategy and earnings drivers
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
Key objective 2 :Reducing banking costs in Belgium
20
Strategy and earnings drivers
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)
Key objective 3 :Developing a second home market in CEE
21
Note: combined ratio excl. re-insurance
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%
Demanding financial objectives
Minimumtargets for 2005
1Q 04 - Financial highlights
23
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
24
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
25
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
26
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
27
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
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)
719 773 826 800 806
610 587 520 570 708
123
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
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)
546 527
241 255 258 239
128 162
552 553 568
253
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
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
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
31
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
32
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
33
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
34
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 %
35
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
36
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
37
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
38
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
39
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
40
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
41
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
42
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
43
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
44
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 %
35
25 24
3234
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)
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
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
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
47
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
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
Additional information
50
1.80%
1.85%
1.90%
1.95%
2.00%
2.05%
2.10%
2.15%
1Q01
2Q01
3Q01
4Q 01
1Q02
2Q02
3Q02
4Q02
1Q03
2Q03
3Q03
4Q03
3.5%
4.0%
4.5%
5.0%
5.5%
Interest margin, Belgium (left)10 y EUR T-bonds (right)
Interest spreads in BelgiumInterest margin, banking Spread on new loans
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
Investment credit, Belgian SME loan book
Corporate bond A-rating
Going forward, increasing market rates could fuel top-line growth
51
Credit portfolio : cyclical sectors
% of total portfolio Dec '01 Dec '02 Dec '03 EUR bn Chg 03-02
Real estate 5% 5% 5% 7.2 -6%
Electricity & water 6% 4% 4% 4.6 -24%
Aviation 1% 1% 1% 1.5 -7%
Shipping 1% 1% 1% 1.4 -7%
Telecom 2% 2% 1% 1.4 -37%
Hotel & restaurant 1% 1% 1% 1.2 -16%
IT 0.4% 0.4% 0.4% 0.6 8%
Media 0.5% 0.4% 0.3% 0.5 -16%
52
Low Interest rate risk covered by
provisions (4% ref. rate)
Premium growth 2002
Life portfolio
Life reserves, Belgium (non-linked)
Rate 4.75% 3.75% 3.25% 2.75% Other Total
Traditional 14% - 8% - - 22%
Universal 28% 23% 22% 2% 3% 78%
Note : Universal life: flexible premium payments with 10-year interest rate guarantee on current premiums and without guarantee for future premiums
Premium growth 1H2003
Premium growth 2H2003
Asset-backing allowing hedging
of Interest rate risk
53
Sound business, even in low-interest-rate environment
Profitability dynamics, life (non-linked)
Reserve (1st yr) 100
Return on investment4.83 %
Allocated capital9.25
Investment income, reserves
4.83
Investmentincome, capital
0.45
Investment income5.27
Guaranteed rate2.75
Profit BT2.52X
X
+ -
Simplified example :
ROAC20%
Tax0.68
Investment mix :
75% Treasury bonds Return : 4.20%
(Example) 20% Shares 6.70%
5% Real estate 6.70%
4.83%Return on allocated capital
Note : reserve for year n = 100 x 1.048 ^n
ROAC Year1 Year 2 Year3 Year n
Rate at 2.75 % 20% 21 % 23%
Rate at 3.25 % 16 % 17 % 19%
-
54
Low combined ratio, significant leverage on return
Profitability dynamics, non-life
Reserve ratio200
Return on investment5.45%
Allocated capital40
Investment income,reserves
10.9
Investment income,capital
2.2
Premium100
Combined ratio-95.0
Investment income+13.1
Profit BT18.1
Tax- 3.7
ROAC36%
X
X
+ +
-
Investment mix :
50% Treasury bonds Return : 4.20%
(Example) 45% Shares 6.70%5% Real estate 6.70%
5.45%
Combined ratio 105 % 100% 95%
ROAC 16 % 26 % 36 %
-
Simplified example :
Return on allocated capital
55
Czech & Slovak republics - CSOB
Market position :• Inhabitants : 15 m• Market share : 18% / 6 %• Customers : ± 3.2 m• Branches : 281 (+3400 POS)• Workforce : ± 10 400 FTE
KBC’s footprint :
• 1999 : Majority (privatization)
• 2000 : Take-over of IPB Bank Current stake : 90% Investment : ± 1.4bn (± 2.3 xBV)
Financial track record :
m EUR, IAS ‘99 ‘00 ‘01 ‘02 ‘ 03
Net profit 78 134 175 214 196
RWA : 6.8 bn (7% of KBC’s banking operations)
• Allocated equity : 1.0 bn (13% of KBC banking)
Gross margin
Cost/income
Loan loss
Pretax margin
Ratio 10.0% 71% 34bp 2.5%
Share in KBC banking total
12% 13% 6% 13%
Margins on RWA
Profit contribution 2003 :
Sustained satisfactory results(though positive impact of exceptionals mainly in ‘01-’02)
Note: participation including increase from 85% to 90% in 2004
56
Hungary - K&H Bank
Market position :• Inhabitants : 10 m• Market share : 11%• Customers : ± 0.7 m• Branches : 155• Workforce : ± 3 800 FTE
KBC’s footprint :
• 1997 : Reference stake (32%)
• 2000 : Full ownership (100%)
• 2001 : Merger ABN Amro Magyar
Current stake : 59% Investment : 0.3 bn (1.3 x BV)
Financial track record :
m EUR, IAS ‘99 ‘00 ‘01 ‘02 ‘ 03
Net profit - 32 10 15 46 36
RWA : 3.8 bn (4% of KBC’s banking operations)
• Allocated equity : 0.3 bn (4% of KBC banking)
Gross margin
Cost/income
Loan loss
Pretax margin
Ratio 8.2% 78% 32bp 1.6% /0.8%
Share in KBC banking total
6% 7% 2% 2% /5%
Margins on RWA
Profit contribution 2003 :
Turnaround proven to be successful.K&H Equities loss in '03.
Stand-alone incl. minorities
57
Poland - Kredyt Bank
Market position :• Inhabitants : 38 m• Market share : 6%• Customers : ± 0.8 m• Branches : 359• Workforce : ± 9 600 FTE
KBC’s footprint :
• 1997 : First stake (5%)
• 1999 : Reference shareholder (49%)
• 2001 : Full ownership (56%)
• 2002 : Full control (76%)
Current stake : 85% * Investment : 0.8 bn (c.2x est BV)
Financial track record :
m EUR, IAS ‘99 ‘00 ‘01 ‘02 ‘ 03
Net profit 28 39 -9 -108 -353
RWA : 4.4 bn (5% of KBC’s banking operations)
Allocated equity : 0.4 bn (5% of KBC banking)
Gross margin
Cost/income
Loan loss
Pretax margin
Ratio 7.8% 87% 9% Neg
Share in KBC total
6% 8% 54% Neg
Margins on RWA
Profit contribution 2003 :
Stand-alone, incl. minoritiesThorough clean-up of loan book since '02 (late in the cycle)
In-depth restructing plan being implemented.Turnaround to come
Note: investments including capital increase of 4Q03 and 1Q04
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CEE, credit ratings upgrade in 2003
Update Country rating Company rating Outlook
CSOB (CR) Jan. 2001 BBB+ BBB+ Stable
Sept. 2003 A- A- Stable
K & H (Hungary) Oct. 2000 BBB+ BBB+ Stable
July 2003 A- A- Stable
KB (Poland) Oct. 1999 BBB+ BBB+ Stable
Sept. 2003 BBB+ BBB+ Stable
NLB (Slovenia) Feb. 1997 BBB+ BBB+ Stable
Sept. 2003 A+ A- stable
Fitch credit ratings
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KBC in CEEStrengths Prominent market positions with
nationwide branch networks
Geographical diversification
Satisfying results to date in most markets, except banking in Poland
Common shared optimism on rebound of economic cycle in ’04 and long-term market growth in general
As of May 2004 : all CEE affiliates (5 countries) operating in the EU
Successful bancassurance and asset management concept at group level (knowhow is being transfered)
Excess capital at group level with stable core shareholders (long term)
Weaknesses Still high cost/income ratios
(work in progress)
Converging business margins
CEE still a higher risk zone(allthough tempered by EU entry)
Still unsatisfactory stability and scale in Poland (work in progress)
Central Europe2nd home market
Reconfirmed confidence in our strategy fundamentals
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0
500
1000
1500
2000
2500
FY 01 FY 02 FY 03
Legal Buffer Excess
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
FY 01 FY 02 FY 03
Legal Buffer Excess
Solvency
8.8% 8.8%9.5%
504%
320%316%
Banking business
(Tier 1)
Insurance business
(Solvency margin)
581 m
581 m
676 m
1 458 m
3 793 m
3 793 m
In m EUR In m EUR
Solid solvency in both banking and insurance allowing further investments if needed
(no double gearing and no DAC)
61
Basle II regulation Quantitative impact study (QIS 3) – 1st half 2003 :
required capital compared with current required capital level :
Approach Credit risk Total risk Standardized 95% 105% IRB Foundation 76% 87% IRB Advanced 74% 85%
Positive impact from the lower weight of retail/SME portfolio
But : for the time being, uncertainty prevails regarding risk classification in the CEE portfolio and on the changes emanating from the Jan-04 Basle Committee meeting
Basle II may free up some capital
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EU directive : 1Q03 Regulation: 3Q04 Application : 1Q05
Requirements Impact for KBC
Group solvency
No double gearing
Appropriate leverage
Minimum group solvency level
OK
OK
OK
Groupgovernance
'fit and proper‘ organization
Appropriate financial and risk procedures
Reporting and supervision on risk concentrations and intragroup transactions
Already anticipated :
Integrated Executive level
New Group CFRO function
Centralized group risk department
No material financial impact to be expected
Financial conglomerate regulation
63
Outstanding convertible bonds
In 2003, a mandatory convertible bond reached maturity :(coupon 12.2% in ’03) creating ± 6.8 m new KBCN shares (not dividend-entitled for 2003)
Outstanding convertible bonds : Convertible bond 2005 :
417 m EUR (coupon 2.50%), maturing Dec. 2005, optionally convertible in 5.2 m shares (± 80 EUR/ share) of which ± 2 m held by KBC
Mandatory convertible bond 2008 : 186 m EUR (coupon 3.50%), maturing 2008, to be converted in 2.7 m shares (± 69 EUR/share)
No relevant dilutive instruments in the coming 4 years
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Contact information
Investor Relations Office :
Luc CoolNele Kindt
Tel. : +32 2 429 49 16 E-mail : [email protected]
Visit www.kbc.com for the latest update on our company :
Press releases and E-mail alert service Financial information, annual and quarterly reports Company background, strategy and governance related items