Banca Intesa’s Board of Directors met today, chaired by Giovanni Bazoli, and approved the Parent Company’s draft financial statements and the consolidated financial statements for 2004.
Results showed a growth in profitability, in line with the 2003-2005 Business Plan forecasts: consolidated net income rose to 1,884 million euro (up 55.2% from 1,214 million in 2003) and earnings per share were up to 0.28 euro from 0.19 euro in 2003 thus hitting the Business Plan target for 2004 (0.27-0.31 euro).
The Board will be proposing for the approval of the Ordinary Shareholders’ Meeting the distribution of a dividend per share of 10.5 euro cents to ordinary shares and 11.6 euro cents to saving shares (with respect to 4.9 and 6 euro cents respectively for 2003) for a total amount of 729 million euro (with respect to 330 million for 2003).
The ratio between this dividend per share and the average annual stock price of Banca Intesa in 2004 returned a dividend yield of 3.4% for ordinary shares and 4.8% for saving shares. The dividend yield calculated on the stock price of Banca Intesa on 4th March 2005 is 2.8% for ordinary shares and 3.4% for saving shares.
The substantial pay-out, equal to 39% of consolidated net income, is not prejudicial to the ongoing strengthening of capital ratios: the Tier 1 Ratio, calculated on the basis of the above-mentioned proposal, rose to 8.5% as at 31st December 2004 compared to 7.8% at 2003 year-end.
The Board summoned the Ordinary Shareholders’ Meeting for 13th April 2005 on first call and 14th April 2005 on second call. Payment of dividends, if approved by the Shareholders’ Meeting, will take place starting from 21st April 2005 (with coupon presentation on 18th April 2005).
2004 income statement
The 2004 consolidated income statement recorded net interest and other banking income of 9,726 million euro, up 2.2% compared to 9,519 million for 2003, driven by the sustained trend of revenues from the retail business (Retail Division and subsidiary banks in Italy and in Central-Eastern European Countries), which rose by 7% reaching 7.6 billion euro from 7.1 billion of the previous year.
As part of it, interest margin amounted to 5,182 million euro with a 1.5% rise compared to 2003 due to the increase in both net interest income which rose to 4,962 million euro from 4,937 million (+0.5%) and dividends and income from investments carried at equity which reached 220 million euro from 166 million (+32.5%). The rise in net interest income reflected the trend of lending activities which picked up again - notwithstanding the decision to structurally reduce loans to large corporates, mainly international ones (curtailed by around 5 billion euro in the last twelve months) - driven by the increase in loans to other enterprises and households (up by around 7 billion euro).
Net commissions went up to 3,447 million euro from 3,326 million with a 3.6% increase, mainly attributable to the rise in commissions on bancassurance (+65%), dealing and placement of securities (+53%), debit and credit cards (+9%). Profits on financial transactions went up 2.8% to 737 million euro compared to 717 million of the previous year.
Total operating costs amounted to 5,830 million euro, down 4.2% compared to 6,088 million in 2003. As part of it, personnel costs decreased by 4.6%, other administrative costs were unchanged with respect to the previous year despite the expense increase in advertising (up over 60%) and IT services (up 8%). Depreciation and amortisation were down 15.5% in spite of heavy investments under way due to the rationalisation of real estate assets and the extinguishing of the depreciation period of past investments.
Consequently, operating margin rose to 3,896 million euro, up 13.6% compared to 3,431 million in 2003, with a marked improvement in the cost/income ratio, down to 59.9% from 64% of the previous year.
Total provisions and net value adjustments (excluding goodwill amortisation) amounted to 1,073 million euro decreasing, as forecasted, by 32.2% compared to the 1,583 million of 2003, with a 67% degree of coverage for doubtful loans.
Therefore, ordinary income rose to 2,693 million euro, up 56.8% from 1,718 million in 2003.
Extraordinary items showed a negative result of 61 million euro compared to the 131 million income in 2003. Use of reserve for general banking risks and allowance for risks and charges arising on consolidation amounted to 163 million euro compared to 26 million in 2003. Therefore, these non-recurring components as a whole recorded a positive result down to 102 million euro in 2004 with respect to 157 million in 2003.
Consolidated net income totalled 1,884 million euro compared to 1,214 million euro in 2003 (up 55.2%) after the deduction of income taxes for 805 million euro and the allocation of minority interests for 106 million euro. The Parent Company’s net income amounted to 1,141 million euro with respect to 1,359 million of the 2003 net income (the different trend between the Parent Company’s net income and consolidated net income is mainly accounted for by the different impact of extraordinary items: the Parent Company had benefited from net extraordinary income for 450 million euro in 2003 while registering net extraordinary charges for 190 million euro in 2004).
2004 fourth-quarter income statement
The 2004 fourth-quarter consolidated income statement registered net interest and other banking income of 2,461 million euro, up 2.8% with respect to the previous quarter and up 3.6% with respect to the 2003 corresponding period.
As part of it, interest margin amounted to 1,310 million euro, basically unchanged with respect to the previous quarter and up 6.3% to the 2003 fourth quarter. Net interest income totalled 1,252 million euro, basically unchanged to the previous quarter and up 3.4% on the corresponding quarter of 2003. Dividends and income from investments carried at equity amounted to 58 million euro compared to the 42 million euro of the previous quarter and the 21 million of the 2003 corresponding period.
Net commissions amounted to 917 million euro, up 8% with respect to the previous quarter driven by commissions on dealing and placement of securities (+120%), tax collection (+40%) and debit and credit cards (+11%). A 3% increase was recorded with respect to the 2003 fourth quarter, determined by the sustained trend of bancassurance (+128%) and dealing and placement of securities (+90%). Profits on financial transactions amounted to 148 million euro with a decrease compared to the 160 million of the previous quarter and an increase on the 136 million of the 2003 corresponding period.
Total operating costs amounted to 1,530 million euro with a 9.8% increase on the previous quarter due to the usual seasonal peak registered in the last quarter of the year by expenses (other than personnel ones) which in 2004 was largely the result of advertising and IT expenses with an overall rise of 30%. A 3.9% decrease was instead recorded with respect to the 2003 corresponding period due to the reduction in personnel costs, amortisation and depreciation.
Consequently, operating margin amounted to 931 million euro, down 7% on the previous quarter and up 18.9% on the 2003 corresponding period.
Total provisions and net value adjustments (excluding goodwill amortisation) equalled 337 million euro with respect to the 174 million of the previous quarter and the 672 million of the 2003 fourth quarter (in the latter, provisions had been booked for 288 million euro on the Parmalat exposure and for 152 million related to the BCP stake write-down).
Ordinary income amounted to 561 million euro compared to 794 million registered in the previous quarter and 75 million of the 2003 fourth quarter.
Extraordinary items showed a 9 million euro income with respect to the negative results for 61 million in the previous quarter and the 53 million income registered in the 2003 fourth quarter.
Consolidated net income totalled 543 million euro compared to 465 million of the previous quarter and 176 million of the 2003 corresponding period, after the deduction of income taxes for 124 million euro, the use of the reserve for general banking risks and the allowance for risks and charges arising on consolidation for 142 million euro and the allocation of minority interests for 45 million euro.
Balance sheet as at 31st December 2004
As regards the consolidated balance sheet figures, as at 31st December 2004 loans to customers amounted to 158 billion euro, up 2% with respect to 31st December 2003 notwithstanding the reduction in the exposure to Large Corporates - mainly international ones with no business links with Italy - by around 5 billion euro and the securitisation for about 1.5 billion euro of lease receivables closed at the beginning of 2004. Doubtful loans net of adjustments decreased to 4.2 billion euro, diminishing 7.8% with respect to December 31st 2003, and represented 2.7% of total loans; the degree of coverage was 67%, the target which had been set out in the Business Plan for 2005.
Customer deposits under administration amounted to 473 billion euro, with a 3% increase with respect to 31st December 2003. As part of it, direct customer deposits reached 180 billion euro with a 4.9% increase and assets under management amounted to 118 billion euro, down 3.3%. The outflow in mutual funds (around 8 billion euro for the captive network), mainly due to monetary and short-term bond funds, was largely exceeded by the overall inflow in structured bonds (around 7 billion euro) and life insurance policies (around 6 billion euro).
As at 31st December 2004 capital ratios resulted in: Core Tier 1 ratio at 7.6% (6.9% at 31st December 2003), Tier 1 ratio at 8.5% (7.8% at 31st December 2003) and total capital ratio at 11.6% (11.7% at 31st December 2003).
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As at 31st December 2004 Gruppo Intesa’s operating structure was made up of 3,698 branches - of which 3,080 in Italy and 618 abroad - and 56,958 employees, 2,505 lower than at 31st December 2003.
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Results by business areas
The Retail Division serves Households, Affluent and Private customers, SMEs with turnover up to 50 million euro, Religious and Non-Profit Entities and includes product companies in the fields of wealth management, industrial credit and leasing. In 2004, the Division showed a sustained trend in profitability, owing to revenue growth and cost reduction. Net interest and other banking income rose by 5.2% to 5,302 million euro from 5,039 million in 2003, accounting for 55% of consolidated net interest and other banking income (53% in 2003). Total operating costs registered a 5% decrease to 3,250 million euro from 3,421 million and led to a 26.8% increase in operating margin, which rose to 2,052 million euro from 1,618, and a decrease in the cost/income ratio down to 61% from 68%. Total provisions and net value adjustments decreased 4.7% to 406 million euro from 426 million. As a result, ordinary income went up 38.1% to 1,646 million euro from 1,192 million. After extraordinary income for 14 million (13 million in 2003), pre-tax profit was up 37.8% to 1,660 million euro from 1,205 million.
The Corporate Division is responsible for relations with Mid Corporates, Large Corporates, Financial Institutions and Public Administrations; it includes product companies in the fields of capital market, factoring, tax collection and the international network made up of branches, representative offices and subsidiaries specialised in corporate banking. In 2004, the Division registered a profitability improvement due to the reduction in both costs and provisions. Net interest and other banking income recorded a 7.7% decrease to 1,811 million euro from 1,963 million in 2003 and made a 19% contribution to consolidated net interest and other banking income (21% in 2003), mainly due to the planned reduction of loans to large corporates. With total operating costs down 4.6% to 804 million euro from 843 million, operating margin went down 10.1% to 1,007 million euro from 1,120 million and the cost/income ratio rose to 44% from 43%. Total provisions and net value adjustments halved to 202 million euro from 406 million. Therefore, ordinary income went up 12.7% to 805 million euro from 714 million. After extraordinary items, which registered charges of 14 million euro compared to the 54 million income of 2003, pre-tax profit was up 3% to 791 million euro from 768 million.
The Italian Subsidiary Banks Division, which includes subsidiary banks strongly rooted in regional markets, highlighted a remarkable growth in profitability owing to the brilliant revenue trend. Net interest and other banking income rose by 7% to 1,459 million euro from 1,363 million in 2003 with a 15% contribution to consolidated net interest and other banking income (14% in 2003). While total operating costs registered a 1.3% increase to 791 million euro from 781 million, operating margin was up 14.8% to 668 million euro from 582 million and the cost/income ratio went down to 54% from 57%. Total provisions and net value adjustments decreased 33% to 136 million euro from 203 million. Therefore, ordinary income rose by 40.4% to 532 million euro from 379 million. After extraordinary income for 12 million (17 million in 2003), pre-tax profit was up 37.4% to 544 million euro from 396 million.
The International Subsidiary Banks Division, which is in charge of subsidiary banks abroad providing retail and commercial banking services, marked a noteworthy improvement in profitability, determined by the sustained trend of revenues registered in the Central-Eastern European subsidiaries and no more charges from the disposal of non-core assets. Net interest and other banking income rose by 9.8% to 1,021 million euro from 930 million in 2003, equal to a 11% contribution to consolidated net interest and other banking income (10% in 2003). Total operating costs were basically unchanged, to 603 million euro from 599 million; operating margin, therefore, went up 26.3% to 418 million euro from 331 million and the cost/income ratio dropped to 59% from 64%. Total provisions and net value adjustments were down 7.5% to 123 million euro from 133 million. As a result, ordinary income increased 49% to 295 million euro from 198 million. After extraordinary items, which registered a 5 million income compared to the 207 million charges of 2003, pre-tax profit rose to 300 million euro from a negative result for 9 million in the previous year.
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2004 marked the completion of the second year of Banca Intesa’s 2003-2005 Business Plan - addressed to the restructuring and re-launch of the Group - and the achievement of the main targets related to the reduction of the risk profile, improvement in asset quality, strengthening of capital ratios and increase in profitability.
In 2004 many projects were carried out with the aim of building growth in five main fields of action:
1. training: in 2004 over 335,000 man-days of training were provided which, added to the 255,000 delivered in 2003, have brought the total so far to 75% of the 800,000 indicated in the Business Plan for the three-year period 2003-2005. As part of it, over 20,000 persons were involved in Progetto Arcobaleno (the Rainbow project), the training programme for the improvement of the network’s sales effectiveness;
2. new products, among which:
2.1 Conto Intesa, the current account tailored for households, with the opening of over 300,000 current accounts in twelve months;
2.2 Conto Intesa Personal, the current account product launched last June, dedicated to customers searching for personalised solutions. Over 40,000 accounts were opened in six months;
2.3 Conto Intesa Business, the current account targeted to the small business segment, which serves the needs of free-lance professionals, retailers and artisans. 30,000 accounts were opened with the advertising campaign launched in mid-September;
2.4 Carta Intesa, the debit card with on-line authorisation, with over 750,000 cards sold over the twelve months;
2.5 PrestIntesa, the personal loan for a maximum of 30,000 euro available within 48 hours, with approximately 1.5 billion euro granted over the twelve months, thus more than doubling the 2003 personal loans;
2.6 Intesa Vita life insurance policies (Intesa Segnopiù, Intesa StrategiaPiù, Intesa4x4, IntesaObiettivo 24, IntesaProtezione Attiva, IntesaSempre) which recorded new premiums for 5.6 billion euro over the period, up 55% compared to 2003;
3. support for enterprise projects of growth and competitiveness re-launch. In the 2004 third quarter, Banca Intesa launched IntesaNova, dedicated to enterprises investing in innovation. This initiative is carried out in collaboration with some of the most prestigious universities and research institutions in Italy. Banca Intesa - under the usual creditworthiness process - grants medium-term loans (three-five years) to innovative projects within two weeks after the positive assessment of the university partners, without collateral and at more favourable conditions. In the coming weeks, Banca Intesa will make available Intesa Export, developed in collaboration with Italian export credit agency SACE and dedicated to strongly export-oriented enterprises. Under this initiative, Banca Intesa grants loans with a maximum five-year maturity, without collateral, at very competitive conditions and 70% guaranteed by SACE; these loans will be subsequently securitised and the related securities covered by the SACE insurance and placed on the market;
4. private banking. In the third quarter of the year, Intesa Private Banking was set up, the bank specialised in serving private customers, and was integrated into the Retail Division in order to fully exploit the commercial synergies with the SME sales organisation and the operational synergies with the Retail branch network. The distinctive feature of this organisational model is the flexibility in the relationship offered to the customer who may use the specialised bank (with its 60 private centres and 375 private bankers), the 2,000 branches of the Retail Division and the on-line distribution channels of Gruppo Intesa. Intesa Private Banking offers not only a full range of financial products and services produced by both Gruppo Intesa and high-profile outside companies but also a vanguard system in Italy for wealth management. Its service range also includes: legal and tax consulting, fiduciary and legal entity advisory, real estate and art advisory;
5. new branch model. Service and accessibility model of branches was completely reviewed. Over 120 branches were already wholly renovated and have a new lay-out which simplifies access for customers both as concerns the operating area and the space dedicated to consultancy which was increased and was specialised by customer segment. 150 other branches were restructured consistent with the new approach based on targeted services for each customer segment.
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As regards this year’s outlook, Banca Intesa confirms the targets of further significant improvement in net income set out in its 2003-2005 Business Plan which are taken as a reference basis for the 2005-2007 Business Plan to be disclosed to the market at the beginning of June, after the presentation of the 2005 first-quarter results compliant with the new international accounting standards, scheduled at the beginning of May.
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The consolidated statement of income and balance sheet and the Parent Company’s statement of income and balance sheet (reclassified in condensed format), the consolidated statement of cash flows and the Parent Company’s statement of cash flows included in the Report approved by the Board of Directors are attached in order to provide more complete information of results generated in 2004. It must be pointed out that the auditing firm in charge of auditing the 2004 Annual Report has not yet completed its examination.
Last updated 7 March 2005 at 16:39