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UniCredito Italiano. “THE VALUE OF NEW EUROPE”. Roberto Nicastro – Deputy CEO. MS European Banks Investing in Central & Eastern Europe Seminar. London – June 26 th 2002. MAIN POINTS. - PowerPoint PPT Presentation
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MS European Banks Investing in Central & Eastern Europe Seminar
UniCredito Italiano
“THE VALUE OF NEW EUROPE”
London – June 26th 2002
Roberto Nicastro – Deputy CEO
2
New Europe is a significant element in UCI’s profile and strategy,
carrying a significant value creation potential
Value creation in New Europe is driven by Revenues/Profitability
growth and decreasing level of risk
New Europe Banking is quite homogeneous and can be managed
with one Business Model
2001 Results and Q1 2002 confirm the good performance in New
Europe and support UCI’s track record and ambitious value
creation targets in the region
Turkey’s acquisition represents the last element, integral part of
New Europe’s strategy
MAIN POINTS
3
New Europe within UCI’s Group
Market scenario in New Europe
Strategy, Organisation and Key Projects in New Europe
Recent performance
Next steps
Agenda
4
UCI: A EUROPEAN LEADER IN DISTRIBUTION, A GLOBAL PLAYER IN ASSET MANAGEMENT WITH OUTSTANDING PROFITABILITY AND EFFICIENCY
MKT CAP.Euro 28.1 bn (1)
(1) As of 21.06.2002 including market cap for minorities that are going to be acquired in July 2002 (S3 project)
NET INCOMEEuro 1,454 mln
C/I RATIO52.7%
PRE-TAX ROE32.9%
ROE18.0%
BRANCH NETWORK3,998
2001 KEY FIGURES
5
Improving accountability and market recognition of the various business lines
New Initiatives
OUR DIVISIONAL STRUCTURE SUPPORTS THE GROUP’S VISION TO BECOME A EUROPEAN MULTISPECIALIST FINANCIAL GROUP
Italian Banking
... WHAT DOES IT MEAN ?
Generating new, focussed, fast growing business lines in a systematic way
Facilitating ad hoc “strategic moves” per business line (e.g. on a dimensional and a geographical scale)
Improving capital allocation and value based management
BEING A MULTISPECIALIST FINANCIAL GROUP ....
Wholesale Banking
New Europe Banking
6
Demirbank – Romania82.5% acquired in May 2002
Zagrebacka Group – CroatiaBosnia- Herzegovina
82.5% acquired in March 2002
Warsaw
Bratislava
Sofia
Zagreb
UniBanka - Slovakia
UCI ALREADY ACQUIRED A LEADING PRESENCE IN NEW EUROPE
(*) Total assets 2000 Market share(1) 2000 data.
Total assets (Euro mln)
Market share*
Net income (Euro mln)
ROE
698
4%
3.1
9%
Largest player in Poland with Euro 1,044 mln in Assets under Management
24% market share in Poland Total AuM of Euro 161 mln in Czech
Republic
Pioneer
72.4% acquired in October 2000
Branches
51
Group Pekao - Poland
Total assets (Euro mln)
Market share*
20,852
17%
53.2% acquired in May 1999
Net income (Euro mln)
ROE
Branches
353.4
22.2%
817
Bulbank - Bulgaria
Total assets (Euro mln)
Market share*
1,439
27%
85.2% acquired in October 2000
Net income (Euro mln)
ROE
Branches
36
15%
98
End of 2001 data
BucarestTotal assets (Euro mln) 74.7
Market share* 1%
Net income (Euro mln) 2.5
ROE 13.9%
Branches 11
(1)
Total assets (Euro mln)
Deposits (Euro mln)
Customer loans (Euro mln)
Market share*
Net profit (Euro mln)
ROE
Branches
6, 512
5,260
2,331
30%
63
13.5%
235
Koc Fin. Serv. - Turkey
Total assets (Euro mln)
Market share*
Branches
4,963
2.8%
115
50% to be acquired in September 2002
7
THE NEW EUROPE DIVISION IS INCREASING ITS WEIGHT ON UCI GROUP
2001Restated
RARORAC (%)
Net Income (% of UCI)
17,03° **
18.0%°
Revenues (% of UCI)
Amount invested (bn €) 2.5*
* Including ZABA and KFS
Total Assets (bn €) 34.5*
Nr. of clients (mln) 6*
Net Income UCI ownership (mln €) 267.4°
New Europe carries a significant weight on Group performance
Weight increasing as result of region’s growth, restructuring and new investments
RARORAC above Group level
A very significant EVA contribution (EPS 2001-04 CAGR > 20%, declining cost of equity)
** UCI Group RARORAC = 10,23%.
18.6*
° Including only ZABA
8
New Europe within UCI’s Group
Market scenario in New Europe
Strategy, Organisation and Key Projects in New Europe
Recent performance
Next steps
Agenda
9
WHAT DO WE CONSIDER NEW EUROPE?A REGION INCLUDING EU ACCESSION COUNTRIES PLUS CROATIA AND BOSNIA
Year 2001 New Europe EU
Population, mln
496
4,595
9,006
23,885
Source: Datastream and EIU.
GDP, bln €
Per Capita GDP, €
SlovakiaWarsaw
Prague
Bratislava
Budapest
Bucharest
Lubjana
Zagreb
Sofia
Tallinn
Riga
Vilnius
Estonia
Czech Rep.
Poland
Hungary
Latvia
Lithuania
Bulgaria
Croatia
Romania
Istanbul
Sarajevo
Bosnia Turkey
Slovenia
377180
9,006
23,8853,472
627
10
Reasonable and further declining economic & political risk
Already different from other Emerging Markets areas
Perspective entry into EU and EMU guarantees a predetermined convergence path
WHY NEW EUROPE STANDS FOR A VERY ATTRACTIVE OPPORTUNITY FOR UCI
Abundant EPS growth expected: GDP and banking sector growth
Plenty of economies of scope/know-how transfer opportunities
Italian driven corporate business
Favourable tax environments
Cost of equity
Bank revenues and EPS
11
NE growth rate (past and expected) well above EU and USA
Current gap in per capita income between EU and NECs (New Europe Countries) suggests a continued more dynamic growth
Source. Per capita GDP in PPP (Purchasing Power Parity): EU Commission estimates, 2000. Real GDP growth: UCI- FBD Research Team and UBM.
Gap in 2000 per capita GDP in PPP
24
72
100
0
20
40
60
80
100
EU 15 Slovenia (highest)
Bulgaria (lowest)
CATCHING UP PROCESS TOWARDS THE EU SUGGESTS A LONG PERIOD OF FAST AND SUSTAINABLE GROWTH
Real GDP growth
0%
2%
4%
6%
2000 2001
NE Eurozone USA
2004
Bank EPS
12
STRUCTURAL REASONS FOR GROWTH ARE RELATED TO THE NATURE OF NECs AS TRANSITION ECONOMIES, SIGNIFICANTLY DIVERGING FROM EMERGING MARKETS
EXISTING SKILLS AND
INFRASTRUCTUREEU ACCESSION
PROCESS Pre-determined path of
convergence and forced structural reform process
Harmonisation of legal and regulatory framework
Integration and liberalisation of markets
EU financial support for convergence
Existence of industrial assets
Developed infrastructures
Skilled labour force and availability of human capital
Historical linkages with EU countries
Foreign Direct Investments Internal demand
Bank EPS
13
PAST EXPERIENCES OF EU ENLARGEMENT ADDRESS TO IRELAND, SPAIN, AND PORTUGAL AS SUCCESS ROLE MODELS
Source: University of Groningen database.
Per capita GDP in PPP
5,000
8,000
11,000
14,000
17,000
20,000
1971 1981 1991 2001
Average Growth 1986/01
EU
IE+SP+POR 4.2%
2.1%
Ireland
Spain
EU
Portugal
1973Ireland in EU
1986Spain and Portugal in EU
Source: University of Groningen database.
The experience of past EU enlargement processes shows that catching up implies decades of average growth above EU standards
Spain, Portugal, and Ireland experienced for 20 years growth by 2/3% points higher, compared to the EU
Bank EPS
14
In NE volume effect to offset contraction in spread, supporting NIM growth...
… with significant increases in fees generation, although lower than in Italy in 1996-01…
… and decreasing credit risk
Source: UCI – Foreign Banks Division Research Team, simulated model for NECs data. 10 Year macroeconomic assumption for OEF. Data for Italy, Prometeia
Operating Costs
4.4%2.9%
Total Net Revenues
6.8%6.5%
-12.5%
Provisions/Loans
-8.6%
7.3%
Loans+Deposits
NewEurope
01-11
Italy96-01
11.7%
POSITIVE PERSPECTIVES CONFIRMED VIA COMPARISON WITH ITALIAN SITUATION IN LAST 5 YEARS (EMU CONVERGENCE PERIOD)
CAGR
NewEurope
01-11
Italy96-01
NewEurope
01-11
Italy96-01
NewEurope
01-11
Italy96-01
Bank EPS
15
AS A RESULT BANKING PROFITS EXPECTED TO GROW DOUBLE DIGIT IN THE NEXT DECADE
Double digit volumes growth, declining or stable spread, increasing fees and commissions, improving cost/income, slightly declining cost of risk
Lower growth in Poland due to declining spread, higher growth in Croatia driven by sustained GDP growth and currency switch
Note: 10 Year macroeconomic assumption from Oxford Economic ForecastingSource: UCI - FBD Research Team, simulated model for NECs data* Conservative scenario. Under more aggressive growth scenario, pre-tax profit growth respctively: Poland 15%, Slovakia 21%, Bulgaria 17%, Croatia 24%
Potential for Pre tax profit growth*(simul. 2001-10 CAGR for NECs)
15,4% 14,4% 15,7%
10,1%
0%
5%
10%
15%
20%
Poland Slovakia Bulgaria Croatia
Bank EPS
16
RISK IN NEW EUROPE IS DECREASING AND ALREADY THE LOWEST AMONG EMERGING MARKET REGIONS
Commitment to structural reforms guarantees low and decreasing risk, confirmed also in terms of spread over EU bonds**
* Asia is defined as Indonesia, Malaysia, Thailand, Korea, Philippines ** Spread over Eurobond is based upon SUEMI: Sole24Ore UBM Emerging Market Index, for Euro-denominated high-yield benchmark (total returns traded sovereign debt instruments in Euro with fixed interest rate, 76 sovereign bonds for 22 countries and a market capitalisation of EUR 36 bln) Source: S&P’s database and UBM Research
S&P's Country Rating
BBB-BB-BB
BBB
B
BBB-
ASIA* MERCOSUR NE
1998 2001
Country spread over Eurobond
259
692
0
200
400
600
800
New Europe Latin America
Risk
17
PERSPECTIVE ENTRY INTO EU AND EMU GUARANTEES A PREDETERMINED CONVERGENCE PATH
Phase 1: pre-accession
Phase 2: EU membership
No Euro adoption
Phase 3: full EMU
membership
Accession negotiations
Ratification(18 months)
ERM II Upon fulfillment of
Maastricht criteria (min. 2 years) – no opting out
Poland, Slovakia, Hungary,3 Baltics, Czech R.,
Slovenia
EU entry
Bulgaria,Romania and
Croatia2007
2004EMU entry
T Min T+2
Risk
Timetable confirmed in Sevilla,
June 22nd, 2002
18
New Europe within UCI’s Group
Market scenario in New Europe
Strategy, Organisation and Key Projects in New Europe
Recent performance
Next steps
Agenda
19
AN EFFECTIVE ORGANISATION MODEL HAS BEEN ADOPTED, BASED ON A FEDERAL MODEL…
Homogenous region:
Countries with similar dynamics (while on different life-cycles)
Converging regulation (EU convergence)
OPPORTUNITY
Selective focus on Affluent and SME segments
Very similar strategies by segment in each country
Same business models and target IT systems
Economies of scale (eg. card processing, purchasing) and product (eg. Pioneer, Leasing)
Strong P&C
STRATEGY AND ORGANIZATION MODEL
20
... AND A COMMON STRATEGY BY SEGMENT
Segment Situation Strategy
Large Corporate
Selective development fee- driven
Mass
Cost focus Cross selling
(bancassurance, mortgage, credit cards)
Average ROE
SME Specialised service model
Private
Affluent/Small Business
Low average revenues per customer but attractive sub-segments
< 10%
> 15%*
> 40%
> 25%
< 10%Overcrowded, thin margins
Attractive, growing
Small but attractive
Attractive, growing
Highly differentiated service model
Specialised service model
* Segment with highest profitability differences by country
21
UCI’S NEW EUROPE ORGANISATION MODEL
NEW EUROPE DIVISION
SPECIALISED FUNCTIONS
N.E. FACTORIES
Planning & Development Corporate Banking Retail Banking Credit Risk Process IT/Organisation
Asset Mgmt/Pioneer TradingLab/CorporateLab Leasing Card Processing Bancassurance (Allianz)
* Taking into account difference in service content of banking products and the heavier regulatory and supervision environment
BANKS:
Pekao Zagrebacka Bulbank UniBanka Demirbank KFS
Some organization reference model for N.E. Division:
Nordea (Scandinavia) Leading global retailers*
(Carrefour, Auchan, McDonald’s, Blockbuster)
Local CEO & Mgmt Team Expatriate COO & Selected
Managers
22
BANKS:
Achieve budget
Make customers happy
Manage commercial
policies
Take credit decisions
Manage Human Resources
Keep relationships with
local stakeholders
Implement UCI business
model
A CLEAR DISTINCTION IN ROLES BETWEEN BANKS AND HOLDING
HOLDING/SPECIALISED FUNCTIONS:
Performs Strategy & Control function
Strategy Appoints Top Management Ensures Performance and Risk
Budgeting & Controlling Audit
Supports development of: Products and service model Operation & Process IT Systems HR policies and training Centralized production
“New Europe” Federal Model
23
SEVERAL KEY PROJECTS HAVE BEEN LAUNCHED WITHIN NEW EUROPE BANKS TO ENSURE SUSTAINABLE PROFITABILITY GROWTH AND MARKET LEADERSHIP
REVENUES
Divisionalisation
Homogeneous retail strategy - service model, product range -
(all banks)
Development of regional product companies to enlarge
product range in revenues pool (leasing, factoring)
Affluent client acquisition model
COSTS IT implementation
Centralized card processing
Credit excellence (all banks)
Centralized market risk management (all banks)RISK
KEY PROJECTS UNDERGOING
24
PEKAO COMPLETED AN INNOVATIVE DIVISIONALISATION PROCESS, AIMING AT SIGNIFICANTLY INCREASING COMMERCIAL EFFECTIVENESS
FOUR BUSINESS UNITS WITH DEDICATED CHANNELS AND SERVICE MODELS
MassAffluent &
Small Business Private Corporate
Revenues growth by cross selling
Cost effectiveness/ Multichannel usage
830 Branches and Outlets
4,700 mass Customers Service Representatives
Retain affluent clients
Gain new clients
Increase share of wallet
Leverage on existing resources
800 fully dedicated Sales Managers
125 dedicated Branches
Dedicated financial advisors
Separate location to provide “exclusive” service
25 corporate hubs and 5 corporate regions
Clear cost effectiveness
Improved service to clients through product specialists
Improved share of wallet/ profitability
Corp.Hubs
Corp.Hubs
Revenues
Corp.Hubs
25
SPECIALIZED BUSINESS MODEL LAUNCHED IN ALL NE BANKS
PrivatePrivate
AffluentAffluent
24 Private bankerswith client portfolio in “1st floor locations”
800 Relationship Managers* with client portfolio in VIP corners in branches
45 Account Managers with client portfolio in dedicated corners in branches
63 Account Managerswith client portfolio in corners in branches
MassMass4,700 Mass Customer Service Representatives in branches
133 Retail Sellers with client lists in branches
86 Retail Tellers in branches
Small Business
Small Business
800 Account Managers* with client portfolio in dedicated corners in branches
SME Officerswith client lists in dedicated corners in branches
17 Small Business Account Managers with client portfolio in dedicated corners in branches
51 Micro Sellers with client lists in branches
2 Private bankerswith client portfolio in “1st floor locations”
Note: Salesforce figures at 04/2002* Affluent/SB joint service in progress: 800 in total
Revenues
26
IT DEVELOPMENT
Priorities
New IT system in Pekao (end 2003) & Bulbank (end 2002)
Convergence in IT developments
STRATEGY
Definition of common business models within
New Europe Banks and along the lines of the
Italian Business Model
Different hardware solutions between Pekao
(mainframe) and smaller banks (AS 400) in the
context of a common platform
Development of homogeneous target systems
(architecture, facility management, application
portfolio), with tailored approach per:Language Regulations legacies
Reliance on standardized/already tested IT
solutions and applications (minimise proprietary
development)
Costs
27
Introduce the
“best
practices” in the
credit area,
closing the gap
between New
Europe and
Italian Banks
LOGIC
KEY ACTIONSTARGET:
REDUCE COST OF RISK
Training and upgrade of credit officers teams
Electronic underwriting tool
Credit rating system corporate,small business and retail
Credit management system
Work Out system
HR/Skills
Of corporate clients introducing new rules for valuation and structural procedures
Of Corporate, Small Business and Retail clients introducing risk measurement procedures
Identification of Retail and Small Business clients abnormalities and setting of a pre-defined pattern
CREDIT EXCELLENCE: REDESIGN CREDIT PROCESS ALONG RESULTS OF DIAGNOSTIC HIGHLIGHTING IMPROVEMENT OPPORTUNITIES IN SEVERAL AREAS
Risk
Active management on collection of NPL of Corporate and Small Business
28
New Europe within UCI’s Group
Market scenario in New Europe
Strategy, Organisation and Key Projects in New Europe
Recent performance
Next steps
Agenda
29
A CONSISTENT TRACK RECORD OF PERFORMANCE IMPROVEMENT LEADING TO OUTSTANDING RESULTS, ZAGREBACKA ACQUISITION FURTHER STRENGHTENS NE DIVISION
1999 2000* 2001* 2001 (incl. Zaba)
602787
Operating Income
Total Revenues
Operating Costs
Cost/Income ratio
+31%
ROE*
19.5%21.1%
2000 2001 2001 (incl. Zaba)
244
*At Unchanged FX as at the end of 2001
(Euro mln)
1,3911,541
+11%
1999 2000* 2001* 2001 (incl. Zaba)
786
56.7%48.9%
-7.8pp
1999 2000* 2001* 2001 (incl. Zaba)
69.0%
789 753
-4.6%
1999 2000* 2001* 2001 (incl. Zaba)
542
Perimeter for 2000 and 2001 : Group Pekao, Bulbank, Unibanka and Splitska (sold in Apr. 02)Perimeter for 1999: Group Pekao only
+1.5pp
+5.5#pp
# For 2000 Bulbank Net Profit net of Euro 79 mln (pre tax) extraordinary income from UBB disposal
866
1,784
917
51.4%
19.4%
Incl. ZaBa
2001 perimeter
Pekao
30
NEW EUROPE BANKING TOT. REVENUES – UCI’s PORTION (restated): EURO 1.1 bn
A MORE BALANCED PORTFOLIO AS A RESULT OF ZAGREBACKA ACQUISITION
(1) At Unchanged FX(2) For 2000 Bulbank Net Profit net of € 79 mln (pre tax) extraordinary income from UBB disposal(3) Excluding extraordinary items for Pliva shares disposal and revaluation of replacement bonds and based on Italian accounting standards
GROUP PEKAO 63.4% (Euro 727.4 mln)
Total Division
Net Income – % y/y growth (1)
ROE, %
UniBankaGroup Pekao
Bulbank
n.s.
9.0
+80 (2)
14.722.2
+53
C/I Ratio, % 68.245.948.7
C/I Ratio – p.p. Ch. on 2000 -13.7-5.2-7.9
+81 (2-3)
51.4
-6.4
ROE – p.p. Ch. on 2000 n.s.+6.6 (2) +2.6 0.7 (2-3)
RARORAC, % 1.835.624.2 17.0
Zagrebacka Group+19(3)
13.3
63.3
-1.0
-1.28.6
19.4
UNIBANKA 2.1% (Euro 24.3 mln)
ZAGREBACKA 22.2% (Euro 253.5 mln)
KFS 6.6% (Euro 75.6 mln)
BULBANK 5.5% (Euro 63.4 mln)
31
POSITIVE PERFORMANCE IN Q1 2002 DESPITE ECONOMIC SLOWDOWN
RevenuesNet Op. ProfitNet ProfitC/I (%)
Bulbank - Bulgaria
311815.541.5
3217.812.244.8
-3.6+1.5+27-3.3
RevenuesNet Op. ProfitNet ProfitC/I (%)
Unibanka - Slovakia
9.3 3.7 2.760.4
+18+22+51-5.5
RevenuesNet Op. ProfitPre-tax ProfitC/I (%)
Zagrebacka Group - Croatia
1Q02 1Q01 %Ch
85244162.6
75282271.7
+14- 14+90-9.1
Revenues Net Op. Profit Net ProfitC/I (%)
Pekao - Poland
330173 8147.5
2751326251.2
+20+31+31-3.7
1Q02 1Q01 %Ch May02 May01 %Ch
May02 May01 %Ch
8.7 2.9 (1) 1.865.9
* 2001-2000 figures – excluding extraordinary items for Pliva shares disposal and revaluation of replacement bonds (1) Restated
Euro mln
32
Net Doubtful Loans
IN A CONTEXT OF PROBLEMATIC ASSET QUALITY AND ECONOMIC SLOWDOWN, STRONG FOCUS ON CONSERVATIVE LENDING ACTIVITY AND AGGRESSIVE RECOVERY ACTIONS
Net NPLs and Doubtful Loans as % of Total Net Loans
9.0
2001 1Q02
9.2
2.5 2.8
restated
78.6
2001 1Q02restated
78.6
54.656.8
Coverage ratios
Net Doubtful Loans/ Total Net Loans
Net NPLs/ Total Net Loans
On Gross Doubtful Loans
On Gross NPLs
Net NPLs
876 -3.3
+6.2240
Dec. 2001*
% ch. on
Dec.’01(Euro mln)
847
255
1Q’02
* Restated, excluding Zaba
Selective and conservative lending policies
Improvement of coverage ratios
Implementation of new lending rules and procedures, active monitoring
Effective recovery actions
Ratio better than the system
8.7
2.9
56.1
76.5
Incl. Zaba
33
TotalRevenues
2001
UCI’s portion of
Net Income 2001
UCI NEW EUROPE BANKING ALREADY COMPARABLE TO SIGNIFICANT PLAYERS BOTH FOR SIZE AND PROFITABILITY (4TH ITALIAN BANKING GROUP!)
Total size compared to:
Alpha bank
Banco Popular Español
Banco Espirito Santo
1,402
2,016
1.227
TotalRevenues
2001
Banca di Roma
BNL
103
342
Net Income
2001
Net Income2001
353
36
63
3
456
1,368
74
307
34
1,784
UCI’sStake
53.2%
85.2%
82.5%
72.4%
Pekao Group
Bulbank
Zagrebacka Group
(Euro mln)
Total (Euro mln)
Unibanka
267
183.3
30.9
51.1
2.2
Monte Paschi399
Source: Bankscope & Balance sheet
34
2004*
ROI (Return on UCI’s Investments)
AMBITIOUS TARGET GROWTH LEADING TO A 20% SUSTAINABLE EPS GROWTH
Cost/Income ratio
18-20%
~46%
Max weight of capital investments on UCI’s total group capital
25%
20% EPS
CAGR
* Pekao Group, Bulbank, UniBanka, Zagrebacka
35
New Europe within UCI’s Group
Market scenario in New Europe
Strategy, Organisation and Key Projects in New Europe
Recent performance
Next steps
Agenda
36
AS A RESULT OF CORPORATE RESTRUCTURING CURRENTLY BEING IMPLEMENTED, KFS WILL EMERGE AS ONE OF THE LEADING AND FINANCIALLY STRONGEST GROUPS IN TURKEY
KOCBANK
KFS IS THE RESULT OF A 50/50% PARTNERSHIP BETWEEN UCI AND KOC GROUP
KOC YATIRIM (brokerage)
KOC ASSET MGMT.
KOC LEASE
KOC FACTORING
KOC NV (dutch
subsidiary)
KOC Azerbaijan
KOCBANK: the sixth largest private sector bank in Turkey in terms of total assets (US $ 3.8 bn) with an approx. 5% market share (total deposits US$ 2.6 bn, total net loans US$ 1.2 bn)
KOC YATIRIM manages the second largest portfolio of mutual funds with a 17% market share in Turkey
KOCLEASE: a leading institution in the Turkish leasing market
KOC FACTORING: Turkey’s largest factoring company in terms of business volume and asset size
KFS
37
STRATEGIC GUIDELINES Main objective of the strategic
partnership:
consolidate and grow KFS’ position in Turkey
realize a sizable value generation opportunity
2004 target ROAE: appr. 20%
THE INVESTMENT IN KFS REPRESENTS AN IDEAL ENTRY OPPORTUNITY FOR UCI IN THE TURKISH MARKET, A CORE ELEMENT OF NE STRATEGY
WHO IS KFS
Leading provider of financial services
Pro-forma BV: min. US$ 330 mln(1)
Capital Adequacy Ratio of approx. 12%
US$ 4.4 bn of assets, US$ 636 mln of AUM (as of Dec 01)
Turkish economy: is currently exhibiting a strong recovery
Turkish banking sector: is among the most attractive in NE in terms of:
size development potentialgrowth prospects
WHY TURKEY
Evaluation of 50% stake: US$ 240 mln
Agreement on an earn-out formula(2)
DEAL CONDITIONS
Closing of the transaction: Sep. 2002
(1) Estimate based on conservative provisioning and consequent recapitalisation to take place prior to closing(2) Additional payment by UCI based on the achievement of a minimum normalised return on investment of 20% consistently for the next three years
38
New Europe is a significant element in UCI’s profile and strategy,
carrying a significant value creation potential
Value creation in New Europe is driven by Revenues/Profitability
growth and decreasing level of risk
New Europe Banking is quite homogeneous and can be managed
with one Business Model
2001 Results and Q1 2002 confirm the good performance in New
Europe and support UCI’s track record and ambitious value
creation targets in the region
Turkey’s acquisition represents the last element, integral part of
New Europe’s strategy
MAIN POINTS
39
Annexes
40
NEW EUROPE BANKING: 2001 RESULTS BREAKDOWN BY BANK
(1) Balance due to roundings and elisions (*) Writeback
New perimeter: excluding Splitska
and including Zagrebacka
Mln €
Interest margin (incl. div.)
Net non interest income
Total revenues
Operating costs (incl. dep.)
Net operating income
Net income
ROE
Cost/income(excl. goodwill dep.)
POL’NO BANKA (72,4%)
Group PEKAO (53,2%)
823 21
13
34
23
11
3
9.0%
68.2%
545
1 368
666
702
22.2%
48.7%
353
Net loan loss provisions 5174
UCI stake
Net income (UCI’s portion) 2.2183.3
BULBANK (85,2%)
51
23
74
34
40
14.7%
45.9%
6*
36
30.9
47
18
65
31
34
18
23,8%
48,0%
12
10,9
SPLITSKA BANKA (62,6%)
TOTAL (1)
942
599
1 541754
787
410
21,1%
48,9%
185
227,3
TOTAL
ZAGRE-BACKA Group
(82.5%)
207 1 102
681
1 784
917
866
456
51.4%
101
307
195
113
63
13.3%
63.3%
18713
267.451.1
19.4%
41
NEW EUROPE BANKING: 1Q02 RESULTS BREAKDOWN BY BANK
Interest margin (incl. div.)
Net non interest income
Total revenues
Operating costs (incl. dep.)
Net operating income
Net income
ROE
Cost/income(excl. goodwill dep.)
- Staff costs
- Other costs
TOTAL (1)UNI BANKA (72,4%)
Group PEKAO (53,2%)
BULBANK (85,2%)
224 10 7 245
114
359
169
190
93
18,4%
47,1%
3
9
6
4
2
11,4%
60,7%
5
15
7
8
11,1%
45,1%
106
330
157
173
18,6%
47,5%
81
872382
643359
Net loan loss provisions 482047
Tax Rate 34%28%36% 21%
(1) Including Euro 4.2 mln due to Splitska Banka consolidation at net equity; balance due to roundings
(Euro mln)
(UCI stake)
6
Net income (UCI’s portion) 54143 5
42
Customer volumes growth constrained by slight delay in macroeconomic pick-up and by tight pricing policy:
Selective Customer Loans growth: +1.5% yoy(2) (+9.6% y/y retail and corporate average volumes)
Customer Deposits: +2.7% yoy(2) (+4% y/y retail and corporate average volumes)
Net Interest Income
1Q01
154190
324359
52.5%
47.1%
Operating Income
Total Revenues
Cost/Income
207245
117 114
Non NetInterestIncome
+23.4%
-5.4 pp
(Euro mln)
OPERATING INCOME UP 23% Y/Y AND NET INCOME GROWTH AT +19% Y/Y (+23% AND +18% AT END 1Q02 FX RESPECTIVELY)
+23.4%
-2.6%
-2.6%
EFFICIENT COST CONTROL Staff costs down 1.1% at unchanged FX (-1.158
headcount reduction vs 1Q01) Tight procurement, centralised purchasing, outsourcing Real estate restructuring
INCREASED PRODUCTIVITY Total Revenues per employee up 16% at unchanged FX
from Euro 57 th. in 1Q01 to 66 th. in 1Q02
At end of March FX
At end of period FX(1)
Negative impact of conservative customer lending activity on commissions (-4.7% y/y)
Positive contribution of other income (+18.2% y/y) due to fees on current account packages
(1) Exchange ratio of 31 mar 02 for 1Q02, exchange ratio of 31 mar 01 for 1Q01
(2) End of period
1Q02
1Q01 1Q02
1Q01 1Q02
1Q01 1Q02
1Q01 1Q02
+10.8%
+10.1%
+18.4%
+17.2%
-5.7 pp
Perimeter: Group Pekao, Bulbank and Unibanka fully consolidated, Splitska at net equity with P&L impact of Euro 2.4 mln in 1Q01 and Euro 4.2 mln in 1Q02 in NE dividend figure
43
New Initiatives
2000 REVENUE COMPOSITION BY BUSINESS AREA (1) (Total: Euro 9.3 bn)
INCREASED CONTRIBUTION OF NEW EUROPE DIVISION
(2) Net of Corporate Centre and New initiatives negative contribution
Italian BankingAsset
ManagementInvestment
BankingNew Europe
2001 REVENUE COMPOSITION BY BUSINESS AREA (1) (Total: Euro 10.5 bn)
4.8%2.7%
13.7%
78.6%
0.2%
5.8%4.6%
14.7%
74.6%
0.2%
2000 NET INCOME COMPOSITION BY BUSINESS AREA (2) (Total: Euro 1.87 bn)
2001 NET INCOME COMPOSITION BY BUSINESS AREA (2) (Total: Euro 2.17 bn)
8.4%
6.0%
9.0%
76.6%
10.0%2.7%
10.5%
76.9%
(1) Net of Corporate Centre negative contribution
16.6%*15.7%*
12.1%*14.1%*
* pro-forma including Zagrebacka Group
44
KFS, TOGETHER WITH UCI’S EXPERIENCE AND SKILLS, AIMS AT EXPLOITING SIGNIFICANT VALUE CREATION OPPORTUNITIES
UCI EXPERIENCE
The Koç Group will have access to UCI’s:
proven expertise in banking and financial services
franchise in Western and “New Europe”
UCI’s proven track-record of successfully managing banks in “New Europe” and make each one of them a leading player in their respective markets will prove critical for the achievement of the partnership’s targets
KFS growth will be supported by UCI’s strong balance sheet and profit oriented approach
OPPORTUNITIES FOR KOC
UCI’s “New Europe” model that allows:
the independence of the banks management
in a context of UCI’s strong control and support
is an attractive proposition for the Koç Group
Improved credit rating will enable KFS to achieve a low cost funding base
Extract cost, revenues and funding synergies by sharing Group best practices
KFS international profile will be enhanced by UCI’s international standing and network
2004 ROAE TARGET 20%