KBC Group
Sanford Bernstein ConferenceMerrill Lynch Conference
28 September 2005 - 5 October 2005
Web site: www.kbc.com
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This presentation is provided for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to buy any security
KBC believes that this presentation is reliable, although some information may be condensed or incomplete
This presentation contains forward-looking statements with respect to our earnings development involving assumptions and uncertainties. The risk exists that these statements may not be fulfilled and that future results differ materially.
By receiving this presentation, each investor is deemed to represent that it possesses sufficient expertise to understand the risks involved
Important information
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Introduction: strategic framework
The strategic framework entails: Focused business scope:
Retail-, bancassurance- and wealth-management-oriented Geographical focus on Belgium and CEE and selected Western European markets
Standalone basis: no M&A ambitions (neither domestic, nor cross-border - neither as acquirer, nor as
target) however, opportunistic operational alliances possible in certain areas to generate
cost advantages through scale (‘industralization’ of operations) Solid level of financial strength/solvency Attractive shareholder return, including steady dividend growth
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55%25%
20%
Introduction: business mix
KBC is a top bancassurer and asset manager in Belgium and has successfully expanded its operations in CEE-5, its 2nd home market
Recently, private banking has become more of a key focus. The PB business was expanded to include a Western European network.
Revenu - geographical breakdown(1H 2005)
Belgium:- retail bancassurance- asset management- private banking- commercial banking (SME/corporate)
CEE:- retail bancassurance- asset management- private banking- commercial banking (SME/corporate)
Selected other markets (mostly in W. Europe):- private banking- commercial banking (SME/corporate)- capital markets
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Business mix: growth profile
Main facts: 70% of gross income is realized in markets with leading market positions (i.e. Belgium
and most CEE countries) An increasing share of income (currently 30%) is generated in high-growth markets (CEE)
Key strategic topics: Topic 1: securing growth trend in (mature) Belgian market, given its size Topic 2: further increasing share in high-growth markets, inter alia, by boosting market
power in countries where KBC has sub-optimal scale (mainly Poland)
LO
W
Market growth potential
LOW HIGH
PrivatebankingBelgium
RetailBelgium
Commercial banking Belgium
Slovenia
Czech Rep.
Hungary
Poland
HIG
H
Slovakia
Ma
rke
t s
ha
re
Internationalcommercial
banking
Europeanprivate banking
Based on KBC estimates
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Business mix: value profile
LO
W
Allocated capitalLOW HIGH
Private banking Belgium
Retailbancassurance
Belgium
Commerial bankingBelgium
BancassuranceCEE
HIG
H
Re
tun
on
all
oc
ate
d c
ap
ita
l
International commercial banking
Europeanprivate banking
Based on selective 1H2005 data, adjusted for one-offs
Main facts: 85% of capital employed is allocated to businesses yielding 20% or more (roughly twice
the cost of capital) – no activity is value-destroying On the other hand: 15% of total capital base (2.3 bn) is ‘immediate free surplus’ capital
Key strategic topics: Topic 3: shifting European private banking into much higher gear Topic 4: adequately employing excess capital
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Do not underestimate market potential: KBC Group is well positioned:
Savings ratio amongst highest in the world (every year, ca. 15% of GDP flows into fin. assets)
Market highly receptive to cross-selling of AM & insurance, fueling strong growth trend in AM and life insurance business
Strong mortgage growth trend (ca. 10% per year) expected to continue, as residential property price levels are still below other European markets
After a temporary surge of price competition (late 2004/early 2005), epecially for interest-bearing products, pricing rationality is tending to be restored
Fee rates for retail banking services only 50% of European average (gradual increase expected)
Top-3 market position, esp. strong in Northern region (one of the wealthiest regions in the EU)
Innovative product offering in retail AM (steadily increasing market share over the past 10 yrs.)
Still high cross-selling potential for insurance products and well-performing bancassurance distribution model
Well-diversified revenue structure (50% fee income) and further increase in fee income targeted (e.g. in SME/corporate)
Of the top players, level of customer satisfaction is high(est)
Topic 1: drivers for growth, Belgium
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Mid-term financial outlook, Belgium
Gross income C/I, banking LLR Net profit
Retail 5% CAGR Low 60s < 0.25% >10% CAGR
Business customers >2% on RWA < 43% < 0.35% >10% CAGR
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Strong market-growth momentum: KBC Group is well positioned:
Topic 2: growth drivers in CEE
Nom. GDP growth in 2005-07 at 6.5% yearly, outgrowing EMU by 3-3.5%
Ongoing catch-up in product penetration (currently, on avg., only 45% of the population has a bank account and 5% a mortgage loan)
Mortgage volumes growing at double-digit pace (up by 32%, annualized, in 1H05)
Financial sector could grow five-fold if financial assets to GDP were to reach current levels of S. Europe
Solid market position in retail and corporate businesses with nationwide branch networks
Competitive advantage in enhancing cross-selling of asset management and insurance products and well positioned in HNWI and private banking through epb know-how
Availability of capital within the Group for: buy-out of third-party interests or
selective bolt-on M&A more aggressive organic growth in
Poland since immediate M&A opportunies are not expected
Potential entrance into Romanian market
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Bancassurance fueling CEE earnings
KBCCross-sell
rates2004
CZ HU PL SK BE
Consumer loan
XLife
83% 50% 100% 94% 67%
Mortgage loan
XLife
45% 50% 100% 75% 67%
Mortgage loan
XProperty
insurance
54% 71% 42% 30% 50%
Now the model is in place:
Transfer of know-how and streamlining of business processes and IT systems
Implementation of KBC’s distribution model and setting up of sales incentives and adequate sales approach
Unified management responsibility (joint management committee of bank and insurance)
= competitive advantage relative to other CEE players
Cross-selling results are encouraging:
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Growth in AM fueling CEE earnings
KBC is well positioned:
Strong appetite for ‘risk-free’ investments in the market, fully in line with KBC’s core competencies and successful track record in Belgium for capital-guaranteed funds
Cost/AUM below average (around 15 bps vs. 20 bps for Europe)
= competitive advantage relative to other CEE players
Results are encouraging:
AUM grew in 1H05 by 40%, annualized. Continued high growth expected in coming years
Via the funds business, new customers are being recruited. Existing customers who use deposits to buy funds replenish their deposit accounts after one year
Market share
2003 2004 1H05 Trend
CZ 19% 22% 26% +++
HU 8% 9% 11% ++
SK 6% 7% 8% +
SLO - 8% 10% ++
PL 3% 4% 4% +
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Mid-term financial outlook, CEE
RWA CAGR
Net profit CAGR
Loan-loss ratio
Cost/Incomeratio
Banking 10% – 15% 10% – 15% < 0.50% < 60%
Premium income CAGR
Net profit CAGR
Combined ratio
Insurance 15% – 25% 25% - 35% 95%
AUM growth, mutual funds
AUM growth, pension producs
AM 15% – 20% 10% - 20%
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Topic 3 : value drivers in private banking
Dual brand strategy: network-led vs. ‘independent boutique’
Growth drivers: network trade-up, extension of product offering and hiring of private bankers
Business model: integrated private banking business in selected European markets focusing on clients with >€1m of investable assets. The network has been built over the past few years via separate acquisitions. Operations need to be further integrated. Total assets currently amount to 76 bn (Sep-05)
Integrated network of local pure-play private banking brands (boutique style)
Priority of reducing costs by creating synergies within a central ‘hub’
Growth drivers: increased share of wallets, hiring of PB managers and opportunistic M&A
Low-growth market, focus on profitability (leveraging the hub)
If possible, steer repatriated assets to KBC onshore
Small today, but strong market growth expected (>15% p.a.)
Strengthening a network-led model, leveraging Belgian experience
Belgium W. Europe onshore W. Europe offshore CEE
AUM expected to growth at 9% CAGR on an organic basis.
Opportunistic acquisitions may imply investments of 150-250 m per year
AUM 28 bn
AUM 27 bn
AUM 18 bn
AUM 3 bn
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€m
* Synergy benefits defined as peak recurring annual increase in pre-tax bottom-line result (2009 - peak level)
16.7
12.6
27.7
74.6
12.6
3.9 1.0
0
10
20
30
40
50
60
70
80
Cross sales
Newbusiness
Optimi-zation
Pro-cure-ment
People
Source of benefits*
Costsavoided
Total
The KBC-Almanij merger enables synergies to be achieved via cost-cutting and cross-selling.The total benefit amounts to 75 m euros (pre-tax) per year (50% will already be realized as of 2006)
Merger synergies in private banking
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The private banking hub
Centralized global custody services, processing/settlement of international payments and processing of financial market transactions (for all major asset classes i.e., Cash, Bonds, Equities, Funds, Structured Products)
Full harmonization of major IT tools Front-office support: product sourcing and
design capability and ‘Centres of Excellence’
Back office: great majority of local back-office costs eliminated
Dealing rooms: a minimum level of local market activities will remain
IT: only local IT support will remain
Significant reduction in other overheads
Organizational impactOur endgame vision of the hub
Cost/income ratio to be improved from 67% (2004) to 55%
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Mid-term financial outlook, private banking
AUM growth Net profit Cost/Income
Private Banking 9% CAGR * 10% CAGR < 55%
*14% Belgium, 15% CEE, 0% offshore and 10% W. Eur. onshore
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Topic 4: valuing excess capital
Capital position
Available capital 1
Surplus capital 2
Immediatefree surplus 3
Total 14.7 bn 4.3 bn 2.3 bn
Internal capital budget requirements
Deleveraging of the holding company 0.4 – 0.6 bn
Buy-out of 3rd parties in CEE 0.8 – 1.3 bn
External growth in CEE 1.0 – 2.0 bn
Total 2.2 – 3.9 bn
1 Regulatory capital under Basel I/Solvency I (incl. hybrids and minority interests, after elimination of intangibles and goodwill), based on capital position as at 30/03/20052 Difference between available capital and internal minimum level3 Surplus capital excl. expected adverse IFRS impact on Tier-1 banking as of 2006 (ca. 0.6 bn), unrealized gains on tied-up assets (insurance, 0.8 bn) and value of Agfa-Gevaert
Immediate free surplus capital amounts to 2.3 bn, primarily to be spend in CEE
KBC currently conducting ‘due diligence’ for BCR in Romania. Outcome expected to be known in the coming months
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Conclusion: growth and value proposition
LO
W
Market growthLOW HIGH
PrivatebankingBelgium
RetailBelgium
Commercial banking Belgium
Slovenia
Czech Rep.
Hungary
Poland
HIG
H
Slovakia
Ma
rke
t s
ha
re
Internationalcommercial
banking
Europeanprivate banking
Based on KBC estimates
Selective approachEfficiency enhancement
Third-party buy-outsAcceleration of bancassurance/AM
Assessment of entrance into Romania (by end 2005)
Higher share of walletHigher margin products
Organic growth accelerationM&A (mid-term)
Attractive growth and value proposal within current franchises.
Main focus is on execution - shift to completely new markets/business lines unlikely
Use of excess capital highly dependent on outcome of privatization round in Romania
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Conclusion: growth and value proposition
The ‘growth and value’ outlook is reflected in ambitious mid-term financial targets:
Outlook for 2005: On the basis of the solid 1H 05 earnings and the prevailing view regarding the relevant economic and financial parameters, KBC’s 2005 net profit isexpected to exceed the10% growth level, amounting to more than 2 bn euros
Efficiency: Cost/income, banking
Combined ratio, non-life
max. 58%
max. 95%
Financial strength:
Tier-1, banking
Solvency margin, insurance
min. 8%
min. 200%
Value creation: Adjusted ROE
EPS growth (CAGR)
min. 16%
min. 10%
AppendicesFoto gebouw
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Market cap ranking in Euroland
1 BSCH (63 bn)2 BNP Paribas (53 bn)
3 BBVA (47 bn)
4 Deutsche Bank (39 bn)
5 Société Générale (39 bn)
6 ABN AMRO (37 bn)7 Crédit Agricole (33 bn)
8 Fortis (31 bn)9 Unicredit (29 bn)
10 KBC (25 bn)
11 Intesa BCI (23 bn)
12 Dexia (20bn)
13 San Paolo IMI (18 bn)
14 HVB (17 bn)
15 Allied Irish Banks (16 bn)16 Bank Austria (13 bn)
17 Commerzbank (13bn)
18 Mediobanca (12 bn)
19 Bank of Ireland (12 bn)
20 Bco Popular (12 bn)
August 2005
DJ Euro Stoxx Banksconstituents
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Shareholder structure
CERA/Almancora27.1%
(own shares: 2.3%, including ESOP hedge)
Other committed shareholders 11.7%
MRBB11.6%
Free float47.3%
KBC is majority-owned by a group of committed shareholders, thereby providing continuity for the pursuit of long-term strategic goals
Core shareholders include the Cera/Almancora Group (co-operative investment company), a farmers’ association (MRBB) and a syndicate of industrialist families
Situation as at 30 June 2005
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2005 H1
25%
KBC’s presence in CEE
CEE profit contribution to KBC Group
Retail 57%
Other22%
SME/Corp 21%
Share of business segments in gross income, CEE Banking
Profit contribution, CZ + SK
2003 2004
143 m 162 m
Czech Republic
Total assets, bank: 18 bn EURMarket share, bank: 21% (No. 2)Market share, life: 8% (No. 5)Market share, non-life: 4% (No. 6)
Profit contribution, Poland
2003 2004
-295 m 25 m
Total assets, bank: 5 bn EURMarket share, bank: 5% (No. 8)Market share, life: 3% (No. 7)Market share, non-life: 11% (No. 2)
Profit contribution, Hungary
2003 2004
11 m 31 m
Total assets, bank: 7 bn EURMarket share, bank: 11% (No. 2)Market share, life: 4% (No. 7)Market share, non-life: 4% (No. 6)
Slovakia
Total assets, bank: 2 bn EURMarket share, bank: 6% (No. 4)Market share, life: 4% (No. 8)Market share, non-life: 2% (No. 7)
Profit contribution, Slovenia
2003 2004
10 m 26 m
Minority stake (34%)Market share, bank: 41% (No. 1)Market share, life: 6% (No. 5)
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Group income statement, 1H 2005
(in m euros) Banking Insurance AM KBL epb Gevaert Holding Group
Net interest incomeGross earned premium, insuranceDividend incomeNet gains from FI at FV Net realised gains from AFS assetsNet fee and commission incomeOther income
1 8070
67121
63605223
2661 707
864
144-148
29
-10781
1841
7907
8221
20633
-203
1437
049
-3000
-40
-2235
2 1221 707
169225265839330
Gross income 2 887 2 088 199 429 101 200 5 660
Operating expensesImpairments - o/w on loans and receivables - o/w on AFS assetsGross technical charges, insuranceCeded reinsurance resultShare in results, associated companies
-1 685-34-34
100
17
-254-20
-1-18
- 1464-33
0
-30000000
-287-501002
-4211100
15
-257000000
-2 313-57-34-16
-1 464-3333
Profit before taxes 1 185 316 169 137 75 -57 1 826
Income tax expense
Minority interests
-306-96
-66-4
-430
-39-4
-12-1
-20
-469-104
Net profit 784 246 126 94 63 -59 1 253
Excl. intrasegment eliminations
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Areas of activity overview, 1H 2005
(in m euros) Retail CEE SME/Corp.
Markets KBL epb Gevaert Total
Banking and AM
Gross incomeOperating expensesImpairmentsIncome tax expenseMinority interestsNet profit – group share
1 288-734
+7-178
0383
925-526
-7-71-41282
508-183
-34-84
0208
410-235
-2-67
0106
429-289
-5-39
-494
3 515-2 004
-39-415-100
1 003
Insurance
Gross income (- tech. chg.)Operating expensesImpairmentsIncome tax expenseMinority interestsNet profit – group share
373-156
-15-46
-1155
131-83
-1-10
-730
47-15
-4-10
017
591-254
-20-66
-4246
Holding Co
Net profit – group share 63 3
Group total
Net profit – Group shareShare in group resultROAC
53943%29%
31225%54%
22518%20%
1068%
28%
948%
16%
635%
11%
1 253
20%
Excl. non-allocated results
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Valuation
weighted P/E 2005-06
unweighted P/E 2005-06
CEE banks 2 15.0 15.1
CEE-exposed banks 3 11.6 12.4
Euro-zone banks 4 11.5 12.4
KBC 1 10.9 10.9
BEL banks 5 10.3 10.4
Key figures: Share price: 66.6 euros Net asset value: 40.0 euros 1H 2005 EPS: 3.50 euros
Analysts’ estimates: 1
2005 EPS consensus: 5.97 (+33% y/y) 2006 EPS consensus: 6.24 (+4% y/y) 2005-06 P/E: 10.9
Recommendations: Positive: 42% Neutral: 42% Negative: 16%
Valuation relative to peer group:
Weighted and unweighted averages of IBES data :2 OTP, Komercni, Pekao, BPH PBK, BRE3 BA-CA, Erste, Unicredit, Soc. Gen., Intesa BCI4 Top-20 DJ Euro Stoxx Banks 5 Fortis, Dexia
Situation as at 18 August 2005
5 Smart consensus collected by KBC (18 estimates)
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Contact information
Investor Relations Office
Luc CoolNele KindtMarina Kanamori
Surf to www.kbc.com for the latest update.
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