|Milano, 6th March 2006|
The Board of Directors of Banca Intesa, which met today under the chairmanship of Giovanni Bazoli, examined the preliminary results for 2005 drawn up in accordance with the new international IAS/IFRS standards. The draft of the Parent Company’s financial statements and Banca Intesa’s consolidated financial statements as at 31st December 2005 will be submitted for approval to the Board of Directors summoned for 28th March 2006.
Consolidated net income would be 2,525 million euro, with a 37% rise compared to 2004 if the main non-recurring components were excluded (on one hand capital gains of 731 million resulting from the sale of 65% of Nextra, in the framework of the strategic agreement for asset management activities with Crédit Agricole, and that of the loan servicing business of Intesa Gestione Crediti, on the other the strengthening, on a prudential basis, of the allowance for risks and charges by 250 million euro and charges of 63 million for the stock granting programme and a related tax saving of 82 million).
Earning per share climbed to 0.44 euro from 0.28 euro in 2004. EPS would be 0.37 euro - higher than the 0.32-0.35 euro target set out in the Business Plan for 2005 - if the above-mentioned non-recurring components were excluded.
At the Ordinary Shareholders’ Meeting the Board will be proposing for approval the distribution of a dividend per share of 22 euro cents to ordinary shares and 23.1 euro cents to saving shares (compared to 10.5 and 11.6 euro cents respectively for 2004) for a total amount of 1,532 million euro (versus 729 million for 2004). The ratio between this dividend per share and the average annual stock price of Banca Intesa in 2005 returned a dividend yield of 5.7% for ordinary shares and 6.5% for saving shares. The dividend yield calculated on the stock price of Banca Intesa on 3rd March 2006 is 4.5% for ordinary shares and 5% for saving shares.
The substantial pay-out, equal to 51% of consolidated net income, is not detrimental to the ongoing strengthening of capital ratios: the Tier 1 Ratio, calculated on the basis of the above-mentioned proposal, rose to 7.9% as at 31st December 2005 compared to 7.6% at year-end 2004.
The Board summoned the Ordinary Shareholders’ Meeting for 19th April 2006 on first call and 20th April 2006 on second call. The agenda of the Meeting will also include the approval of the purchase of own ordinary shares and their assignment, for free, to employees. Payment of dividends, if approved at the Shareholders’ Meeting, will take place starting from 27th April 2006 (with coupon presentation on 24th April 2006).
Preliminary statement of income for2005
The consolidated statement of income for 2005 registered operating income of 10,167 million euro, up 8.5% with respect to the 9,372 million of the previous year and above the 7.4% annual average increase targeted in the Business Plan for the 2005-2007 period.
As part of it, net interest income amounted to 5,377 million euro, up 6.3% with respect to the 5,058 million of the previous year; this increase would be 6% excluding the IAS/IFRS impact related to higher interest income from the recovery of time value on non-performing loans and lower interest expenses due to the reallocation, over the product residual life, of up-front revenues from structured bonds issued by the Group (derecognised from the shareholders’equity under the first-time adoption of the new accounting standards as at 1st January 2005).
Net fee and commission income registered 3,935 million euro with a 12.5% rise over the 3,499 million of the previous year, driven by commissions on insurance products (almost doubled to 412 million euro from 222 million), placement of third-party structured bonds (for approximately 160 million euro earned entirely in the first half of the year, whereas no amount was present in 2004), dealing and placement of other securities (up 25%, to 311 million euro from 248 million) and credit and debit cards (up 8%), versus the decrease in commissions on assets under management which were down 5.5% to 761 million euro from 805 million. Profits on trading reached 689 million euro, up 3.5% with respect to the 666 million of the previous year.
Operating costs equalled 5,593 million euro, up 0.2% with respect to the 5,582 million of the previous year and below the 1.1% annual average increase set out in the Business Plan for the 2005-2007 period. This rise is due to a 1.1% growth in personnel expenses following the registration of 63 million euro charges related to the stock granting programme; excluding this component, both personnel expenses and total operating costs would be down 0.9%. Other administrative expenses diminished 1.2% as a result of a 2.2% rise in growth-related expenses (ICT, training and advertising) and a 2.6% decrease in other expenses; depreciation was down 0.2%.
Consequently, operating margin rose to 4,574 million euro, up 20.7% on the 3,790 million of the previous year and higher than the 15.6% annual average growth target set out in the Business Plan for the 2005-2007 period. The cost/income ratio showed a marked improvement, down from 59.6% to 55% (to 54.4%, excluding charges related to the stock granting programme).
Total provisions and net value adjustments (net provisions for risks and charges, net adjustments to loans, net impairment losses on other assets) equalled 1,190 million euro, down 1.3% from 1,206 million in 2004 although in 2005 allowance for risks and charges was prudentially strengthened by 250 million euro. Profits/losses on investments held to maturity and on other investments registered a positive balance of 834 million euro compared to the 219 million for 2004 mainly due to the capital gain of 682 million euro resulting from the strategic agreement for asset management activities with Crédit Agricole.
Income before tax from continuing operations was up 50.3% to 4,212 million euro from 2,803 million in2004.
In 2005, consolidated net income rose to 3,025 million euro, up 64.3% compared to the 1,841 million in the previous year after the registration of income taxes for 1,089 million, income after tax from discontinued operations for 33 million, which included the 49 million capital gain on the sale of the loan servicing business of Intesa Gestione Crediti, and minority interests for 131 million. The Parent Company’s net income amounted to 1,564 million euro compared to net income of 1,234 million for 2004 (the difference in performance between the Parent Company’s net income and consolidated net income is mainly attributable to the 682 million capital gain related to the strategic agreement for asset management activities registered by Intesa Asset Management, the Group’s company which sold 65% of Nextra in the framework of the strategic agreement for asset management activities with Crédit Agricole)
The indicator EVA® (Economic Value Added) - which basically measures the value creation resulting from the difference between the return on and the cost of capital employed - more than doubled reaching 1,764 million euro from 681 million in 2004.
Statement of income for the fourth quarter of 2005
The consolidated statement of income for the fourth quarter of 2005 registered operating income of 2,543 million euro, down 1.5% with respect to both the previous quarter and the corresponding period of 2004 due to profits on trading which decreased to 132 million euro from 183 million for the previous quarter and 238 million for the corresponding period of 2004.
Within operating income, net interest income amounted to 1,355 million euro, down 1.4% with respect to the previous quarter and up 5% compared to the corresponding quarter of 2004. Net fee and commission income rose to 1,001 million euro, up 1.3% on the previous quarter when approximately 50 million euro had been accounted for as income from tax collection activities pertaining to the first half of the year. Commissions on insurance products (up 15%) and assets under management (up 5%) were the components which increased the most. Net fee and commission income was up 8.7% with respect to the fourth quarter of 2004 driven by commissions on insurance products (up 80%), current accounts (up 8.5%) and assets under management (up 7%).
Operating costs equalled 1,538 million euro, up 12.6% on the figure of the previous quarter and 2.5% on that of the same period of 2004. Personnel expenses grew 9% on the previous quarter and 3.8% on the 2004 corresponding period; excluding the stock granting programme charges of 63 million euro, personnel expenses and total operating costs would increase, respectively, 1.1% and 8% on the previous quarter and decrease, respectively, 3.7% and 1.7% on the same period a year earlier. Other administrative expenses grew 15% on the previous quarter as a result of a 45.5% rise in growth-related expenses (ICT, training and advertising) and a 3.5% increase in other expenses. Compared to the fourth quarter of 2004, other administrative expenses diminished 0.4% as a result of an 8.6% rise in growth-related expenses and a 4.6% decrease in other expenses. Depreciation increased 26.8% on the previous quarter and 5.2% on the same period a year earlier; this rise was mainly due to the acceleration in the last quarter of 2005 of the roll-out process of the new branch model.
Consequently, operating margin registered 1,005 million euro, down 17.4% on the figure of the previous quarter and 7.1% on that of the corresponding period of 2004.
Total provisions and net value adjustments amounted to 464 million euro with respect to the 223 million of the previous quarter and 485 million of the fourth quarter of 2004. Figures for the fourth quarter 2005 included approximately 135 million euro for the strengthening, on a prudential basis, of the allowance for risks and charges and 32 million euro set aside on loans overdue more than 180 days (a category of non-performing loans introduced by the Bank of Italy in the preparation of the banks’ financial statements drawn up under IAS/IFRS) which, at group level, amounted to 715 million euro as at 31st December 2005. Profits/losses on investments held to maturity and on other investments showed a positive balance of 709 million euro, with respect to the positive balance of 43 million in the previous quarter and 84 million in the fourth quarter of 2004, due to the above-mentioned capital gain of 682 million euro resulting from the strategic agreement for asset management activities with Crédit Agricole.
Income before tax from continuing operations totalled 1,244 million euro, up 20.1% on the previous quarter and up 82.7% on the corresponding period of 2004.
This quarter closed with a consolidated net income of 1,180 million euro with respect to the 645 million for the previous quarter and 487 million for the fourth quarter of 2004 after the registration of income taxes for 64 million, income after tax from discontinued operations for 25 million, which included the 49 million capital gain on the sale of the loan servicing business of Intesa Gestione Crediti, and minority interests for 25 million.
Balance sheet as at 31st December 2005
As regards the consolidated balance sheet figures, as at 31st December 2005 loans to customers amounted to 169 billion euro, up 6.3% on the figure as at 31st December 2004 restated to take into account IAS/IFRS and the items related to the sale of doubtful loans accounted for on a consistent basis; excluding repurchase agreements (down one third from 6 to 4 billion euro), loans to customers would have risen by 7.9%. Doubtful loans net of adjustments totalled 1.2 billion euro - also as a result of the sale of approximately 9 billion euro of gross doubtful loans, corresponding to 2 billion of net doubtful loans - compared to one billion euro as at 31st December 2004 restated on a consistent basis, with an impact of 0.7% on total loans (0.6% at year-end 2004) and a coverage degree of 69% (slightly decreased from 71% at year-end 2004 after the debt-for-equity swap of the Parmalat position which had a degree of coverage at 88%).
Customer deposits under administration amounted to 475 billion euro, with a 5.1% rise compared to 31st December 2004, restated on a consistent basis due to the exit of Nextra from the full consolidation area at year-end 2005 after the finalisation of the agreement for asset management activities with Crédit Agricole. As part of it, direct customer deposits equalled 188 billion up 3.9% compared to those of 31st December 2004 and indirect customer deposits reached 288 billion, up 6% compared to those of year-end 2004 on a consistent basis. The finalisation of the agreement for asset management activities with Crédit Agricole led to a roughly 20 billion euro decrease in the Group’s indirect customer deposits due to the deconsolidation from Gruppo Intesa’s assets under management of the portion of assets under management by Nextra collected via non-captive networks. Instead, the portion of assets under management by Nextra collected via captive networks - which represents the most significant portion – has remained under Gruppo Intesa’s assets under administration and in custody though no longer included in assets under management. Assets under management, in which mutual funds are no longer included, reached 59 billion euro, with a 15.7% rise over the figure at the end of 2004 due to both individual portfolio management schemes (up 12.8%) and bancassurance (in 2005, Gruppo Intesa placed approximately 8.3 billion euro of life insurance policies).
As at 31st December 2005, capital ratios resulted in: Core Tier 1 ratio at 7.1% (6.7% at 31st December 2004), Tier 1 ratio at 7.9% (7.6% at 31st December 2004) and total capital ratio at 10.3% (11% at 31st December 2004).
* * *
As at 31st December 2005, Gruppo Intesa’s operating structure was made up of 3,970 branches – of which 3,106 in Italy and 864 abroad – and 60,778 employees, 302 higher than at 31st December 2004. Taking into account the acquisition of UPI Banka in Bosnia and Herzegovina, finalised in February this year, and the acquisition under way of Ukrsotsbank in Ukraine the number of branches would increase to 4,513 and that of employees to more than 71,000.
* * *
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 2005, the Division showed a sustained trend in profitability, owing to significant revenue growth and cost containment. Operating income rose by 8.2% to 5,358 million euro from 4,951 million in 2004, accounting for 53% of consolidated operating income (the same as in 2004). Revenue growth was fostered in particular by mortgages (up 13%), personal loans (up 63%) and Intesa Vita’s premiums (up 40%). Operating costs decreased 0.8% to 2,956 from 2,981 million leading to a 21.9% increase in operating margin, which rose to 2,402 million euro from 1,970 million, and a decrease in the cost/income ratio down to 55% from 60%. Total provisions and net value adjustments rose by 48.7% to 455 million euro from 306 million. After losses on investments held to maturity and on other investments of 2 million, income before tax from continuing operations was up 16.9% to 1,945 million euro from 1,664 million.
The Italian Subsidiary Banks Division, which includes subsidiary banks all strongly rooted in regional markets (among which Cassa di Risparmio di Fano acquired in 2005) highlighted a significant growth in profitability owing to the increase in revenues. Operating income rose by 7.3% to 1,553 million euro from 1,448 million, with a 15% contribution to consolidated operating income (the same as in 2004). With operating costs of 785 million euro, up 3.4% compared to the 759 million of 2004, operating margin was up 11.5% to 768 million euro from 689 million and the cost/income ratio at 51% from 52%. Total provisions and net value adjustments amounted to 231 million euro, up 34% from 172 million of 2004. After profits on investments held to maturity and on other investments of 18 million euro, income before tax from continuing operations rose 4.3% to 555 million euro from 532 million in 2004.
The International Subsidiary Banks Division, which is in charge of subsidiary banks abroad providing retail and commercial banking services, showed an improvement in profitability determined by revenue growth. Operating income rose by 18.3% to 1,262 million euro from 1,067 million, making a 12% contribution to consolidated operating income (11% in 2004). Operating costs rose by 9.8% to 714 million euro from 650 million; operating margin, therefore, went up 31.4% to 548 million euro from 417 million and the cost/income ratio decreased to 57% from 61%. Total provisions and net value adjustments rose by 15.8% to 191 million euro from 165 million. After profits on investments held to maturity and on other investments of 9 million euro, income before tax from continuing operations increased by 45.2% to 366 million euro from 252 million in 2004. In Central-Eastern Europe, Gruppo Intesa’s services are currently available to a population of over 80 million people in six countries, taking into account the two transactions carried out in February this year, namely the completion of the acquisition of UPI Banka - the fifth largest bank in Bosnia and Herzegovina by total assets with 16 branches and 55,000 customers - and the acquisition under way of Ukrsotsbank - the fourth largest Ukrainian bank by total assets with 527 branches and 660,000 customers. In this area, Banca Intesa is already operational with the following: Croatia’s second largest bank Privredna Banka Zagreb (PBZ), Slovakia’s second largest bank Vseobecna Uverova Banka (VUB), the second largest bank in Serbia and Montenegro Banca Intesa Beograd (formerly Delta Banka) acquired in 2005 and Hungary’s fourth largest bank Central-European International Bank (CIB). Banca Intesa is also active in the Russian Federation with KMB, acquired in 2005, a leading bank in lending and leasing activities addressed to small enterprises, with ZAO Banca Intesa, set up in 2003, the only Italian banking subsidiary licensed to operate in the country and a Representative Office in Moscow. Moreover, Banca Intesa is present in the Czech Republic through VUB, in Slovenia with the operations of its Italian banking subsidiary Banca Popolare FriulAdria and in Poland with a Representative Office in Warsaw.
The Corporate Division serves companies with a turnover exceeding 50 million euro and is responsible for relations with Mid-Corporates, Large Corporates, Financial Institutions. It includes: Caboto, a factoring company and the international network made up of branches, representative offices and subsidiaries specialised in corporate banking. In 2005, this Division showed an improvement in profitability due to revenue growth and cost reduction. Operating income amounted to 1,904 million euro, up 5.9% compared to the 1,798 million in the previous year, accounting for 19% of consolidated operating income (the same as in 2004). With operating costs totalling 798 million euro, down 2.7% on the 820 million in 2004, operating margin amounted to 1,106 million euro, up 13.1% compared to the 978 million for 2004 and the cost/income ratio decreased to 42% from 46%. Total provisions and net value adjustments dropped to 14 million euro from 238 million. After losses on investments held to maturity and on other investments of 3 million euro, income before tax from continuing operations increased by 48.2% to 1,089 million euro from 735 million for the previous year. Since January 1st 2006 activities dedicated to the Public and Infrastructure sector have been transferred from the Corporate Division to Banca Intesa Infrastrutture e Sviluppo, a Group subsidiary with fields of action ranging from public works lending to securitisations for public entities and project finance.
* * *
As concerns the outlook for 2006, an improvement in operating performance is expected, compared to that of 2005, in line with the guidelines of the 2005-2007 Business Plan, also in the light of the results achieved in the first months of the current year with turnaround actions focused on asset management and the mid-corporate and SME segments.
In the first two months of 2006, mutual funds net subscriptions were positive (approximately 170 million euro) with a reversal of the negative monthly balances of the last two years. This reversal was mainly due to 1.8 billion euro subscriptions of Intesa Garanzia Attiva, the first capital guaranteed fund in Italy and the first product launched following the strategic agreement with Crédit Agricole.
There was also a turnaround in the trend of loans to mid-corporates. After their planned reduction and a 6% average decrease recorded last year, in January and February 2006 loans to mid-corporates grew by 4% with respect to the first two months of 2005 as a result of specific actions targeted to 3,000 priority customers of this segment.
Moreover, the implementation of the Plan to upgrade the relationship management of SMEs - which between December 2005 and January 2006 involved around 15% of the total segment - led the short-term loan growth rate to more than double over the same period compared to the average growth rate of short-term loans to customers yet to be involved by the Plan (namely 4.4% versus 1.8%) and, in particular, to register a 7.5% growth rate in advances on receivables.
* * *
In order to provide more complete information of the results generated in 2005, the consolidated statement of income and balance sheet and the Parent Company’s statement of income and balance sheet (reclassified in condensed format) examined by the Board of Directors are attached.
Banca Intesa notifies that, pursuant to provisions set forth in Art. 82, par. 2 of Consob resolution 11971 of 14th May 1999 as amended, the draft Parent Company’s financial statements and Banca Intesa’s consolidated financial statements as at 31st December 2005 - which will be submitted for approval to the Board of Directors summoned for 28th March 2006 and to the auditing firm in charge of auditing the 2005 Annual Report - will be available for shareholders and the market within the deadline of 31st March 2006, instead of the quarterly report as at 31st December 2005.
Last updated 6 March 2006 at 16:07