'S-HERTOGENBOSCH, Netherlands, Aug. 31, 2005 (PRIMEZONE) -- Van Lanschot: Acquisition of CenE Bankiers and growth of core business boost net profit.
-- Acquisition of CenE Bankiers helps lift net profit 30.1% from 59.0 million euro in the first half of 2004 to 76.8 million euro in the first half of 2005; earnings per share up 15.3% from 2.03 euro to 2.34 euro.
-- Integration of CenE Bankiers is fully on track.
-- Successful launch of new investment products and growth in client base stimulate growth of core business
-- Expected growth in earnings per share 2005 at least 10%.
"Van Lanschot is maintaining its strong forward momentum," said Floris Deckers, chairman of Van Lanschot NV's Board of Managing Directors. "Profit is growing satisfactorily, the integration of CenE Bankiers is fully on track and the Bank is developing new initiatives on numerous fronts. Thus new investment products have been launched successfully. The integration of CenE has enabled us to adapt our organisation even more closely to our clients' needs. This is already producing tangible results".
Outlook
Economic indicators are pointing towards a trend of limited recovery for the next few quarters. In tandem with an improving corporate earnings outlook this could stimulate demand for loans and advances to corporate clients. Continuing pressure on the interest margin will however limit the benefit to the Bank of further growth in lending to corporate clients and private individuals. Investors seem to be regaining confidence in the stock market. This could boost commission income.
On the basis of the outlook presented above, Van Lanschot is modifying its 2005 profit forecast to the effect that, barring unforeseen circumstances, growth in earnings per share for this year is now expected to be at least in line with the medium-term objective of 10% per year on average.
Major strategic developments
1) Smooth progress of integration of CenE Bankiers accelerates synergy effects Considerable effort was devoted on all fronts during the first half year to completing the integration of CenE Bankiers. This is fully on track and we accordingly continue to expect that the integration will be fully completed by the end of this year. The smooth progress of the integration process will enable the Bank to benefit earlier than expected from the cost synergies arising from the merger of CenE Bankiers and Van Lanschot Bankiers. Van Lanschot currently expects full realisation of the originally budgeted cost synergies of 11 million euro a year in 2006 instead of 2007.
The integration prompted us to critically review Van Lanschot's own organisation. Business banking for instance has become a separate line of business within the organisation, reflecting the Bank's ambition to broaden its operations in this field as well. Equally important is the segmentation being put in place in both private banking and business banking, with which CenE Bankiers had already acquired ample experience. This will enable even closer customisation of our services. In private banking this translates, for instance, into separate desks for directors/majority shareholders, young members of income target groups, expats and people from the world of media & entertainment or sport. In business banking it translates into more specialties such as a property team and a structured and leveraged finance department, which engages in financing take-overs, business succession issues and asset restructuring.
2) Growth in core business Van Lanschot achieved growth in its core business in the first half year thanks to a further increase in its number of clients and the successful launch of a number of new investment products. The mortgage loan portfolio increased by 4.6% and loans and advances to corporate clients by 6.0%. A highly successful product launched was the Van Lanschot Bond Opportunity Fund, which focuses not just on government bonds and bonds issued by large companies with high credit ratings also targeted by the bulk of rival funds, but on all fixed-interest asset categories. The first six months also saw the launch of Van Lanschot Euro/Turkse Lira Notes. Maturing after four years, this investment product offers a comparatively high coupon yield (5%) as 30% of the principal is invested in Turkish lira. Equally noteworthy are the Van Lanschot Egeria Private Equity Notes. These provide investors with an opportunity to invest in unlisted companies which are not start-ups, but companies that have a proven track record, such as family businesses lacking a successor. The minimum subscription per client for this fund was 100,000 euro. Other products launched included Golf Team Holland depositary receipts, offering an investment in Golf Team Holland BV, which supports talented Dutch golf professionals.
3) Upgrading of information systems As announced previously, Van Lanschot intends to overhaul its information systems over the next few years. We expect to have completed the decision-making process on this by the end of the year.
Net profit for the first six months of 2005
Van Lanschot's net profit for the first six months of 2005 was substantially higher than for the comparative period a year ago. The acquisition of CenE Bankiers as of 30 September 2004 contributed strongly to this. But even without the effects of the acquisition, the increase in net profit was satisfactory. Our core business benefited from a further expansion of the number of clients by 2.5% in the first half of 2005.
Overall, net profit rose 30.1% from 59.0 million euro in the first half of 2004 to 76.8 million euro in the first six months of 2005. This was due to a rise in income of 25.7% (from 194.0 million euro to 243.9 million euro) and an increase in expenses of 22.8% (from 119.3 million euro to 146.5 million euro). Allowing for the increase in the average number of shares outstanding from 28.2 million euro to 31.9 million euro following the issue in the latter part of 2004, earnings per share rose 15.3% from 2.03 in the first half of 2004 to 2.34 euro in the first half of 2005. On a pro forma basis (i.e. on the basis of a combination of Van Lanschot and CenE in the first half of 2004), net profit rose 9.9%.
Review of operations
The market for mortgage refinancing remained firm as mortgage interest rates continued to decline. This was the main reason why net interest income, which rose 35.4% excluding the item premium amortization, also showed further growth on pro forma basis. Despite continually increasing competitive pressure in the mortgage market in the first half year, growth in interest income on a pro forma basis was 5.1%. In tandem with the unabated competitiveness of the market for lending this resulted in a further slide of the interest margin, after last year's erosion from 1.43% to 1.32%, to 1.17% in the first half of this year.
The successful launch of a number of new investment products contributed to a rise in commission income by 22.3% from 68.1 million euro to 83.3 million euro, with securities commission increasing 17.3% from 47.5 million euro to 55.7 million euro. On a pro forma basis, total commission income was up 8.0%, with securities commission rising 7.9%.
Income from securities and participating interests increased from 6.7 million euro to 8.7 million euro owing to stronger results from investments and higher dividends received. Partly because of IFRS, profit on financial transactions climbed from 10.1 million euro to 12.0 million euro.
Operating expenses increased 23.9% from 111.8 million euro to 138.5 million euro. On a pro forma basis the increase was 5.0%. Staff costs rose 26.2% from 71.6 million euro to 90.3 million euro. On a pro forma basis the increase was 4.6%, especially as a result of IFRS rules on employee benefits (causing an increase in pension costs, healthcare obligations and costs of the employee stock option plan of 3.2 million euro). The workforce in FTEs decreased in the first half of the year from 2,068 to 2,032. The Bank made an extra contribution amounting to 30 million euro to the pension fund in the first half of the year. This was the main factor in the increase of the coverage ratio of the pension fund in the first half of the year from 111% to 129%. Other administrative expenses, rising 18.2% from 32.4 million euro to 38.3 million euro, increased 3.4% on a pro forma basis, mainly owing to higher marketing costs. Depreciation on the other hand (which rose from 7.7 million euro to 9.8 million euro) was also substantially higher on a pro forma basis partly as a result of the amortization of intangible fixed assets arising from the acquisition of CenE Bankiers.
The addition to value adjustments to receivables edged up from 7.5 million euro to 8.0 million euro, but fell sharply on a pro forma basis owing to the high quality of the debtor portfolio. Tax on operating profit amounted to 20.5 million euro, which implies a tax burden of 21.1% (first half 2004: 21.0%).
As a result of the developments outlined above, the efficiency ratio (the ratio of operating expenses to income) for the first half of 2005 at 56.8% improved 0.8 percentage points compared with the first half of 2004.
Van Lanschot Belgium
Van Lanschot Belgium again succeeded in considerably extending its number of clients in the first six months, by 4.5%. Total funds entrusted by clients (off and on-balance sheet) grew 11% from 2.2 billion euro to 2.5 billion euro. Loans and advances rose 13% from 263 million euro to 298 million euro. Both interest income and commission income were sharply up on the first six months of 2004 and because this rise substantially outpaced the increase in expenses, Van Lanschot Belgium achieved a strongly higher net profit on balance.
International private banking
Van Lanschot Luxemburg reported sharply higher net profit owing to higher commission income, while Van Lanschot Switzerland's net profit was, on the contrary, down as a result of lower commission income, following the repatriation of assets to Belgium by a number of clients. Van Lanschot Curacao's net profit was little changed.
Assets managed and assets held in custody Thanks to the further growth in the number of target group clients, together with the rising stock exchange prices and the successful launch of a number of investment funds, the assets managed by the Bank rose from 5.3 billion euro to 5.5 billion euro in the first six months of the year. Total assets held in custody for clients increased from 16.1 billion euro to 17.2 billion euro.
Assets management has been extended by the addition of the new concept Van Lanschot Manager of Funds, which primarily targets clients with assets in the range of 100,000 euro to 500,000 euro. This provides genuine convenience for clients: their portfolio, comprising investment funds and guarantee products, is actively managed on their behalf on the basis of the central Van Lanschot investment policy. The managers structure the portfolio, adapt investments based on market circumstances and monitor portfolio compliance with clients' risk profile.
Balance sheet
Total assets as at 30 June 2005 amounted to 17.6 billion euro, against 16.5 billion euro as at 1 January 2005. Loans and advances rose 4.5%, from 12.6 billion euro to 13.2 billion euro. Mortgage lending accounted for 308 million euro of the increase, reflecting a 4.6% increase in the mortgage loans portfolio from 6.7 billion euro to 7.0 billion euro. The mortgage refinancing market again provided a major impetus, but growth was dampened by the ongoing keen competition between mortgage lenders and the very lean rates they offered as a result. Loans and advances to corporate clients increased 257 million euro, or 6.0%, from 4.3 billion euro to 4.5 billion euro.
Private sector liabilities rose in the first half of the year by 5.2% from 11.1 billion euro to 11.7 billion euro. Both savings accounts (up 137 million euro or 5.3%) and the other funds entrusted (up 442 million euro, or 5.2%) developed satisfactorily. The funding of the Bank was in addition underpinned by the issue of 749 million euro in new Floating Rate Notes under the Euro Medium Term Note programme. This was the main factor in the 666 million euro rise of the item debt securities in the first half of the year. Owing to a decline of subordinated debts by 47 million euro and an increase in shareholders' funds by 58 million euro, the group capital base was little changed on balance at 1,365 million euro.
Return on average shareholders' funds for the first six months of 2005 reached 17.0% (adjusted for the perpetual loan), versus 13.0% for the year 2004. The Bank's risk-weighted assets rose from 10.6 billion euro to 11.3 billion euro in the first half of 2005. The BIS Tier 1 ratio was 8.3% (2004: 9.2%), again amply above the minimum requirement of 4%. The BIS total capital ratio was 10.9% (2004: 11.8%), likewise comfortably exceeding the minimum requirement of 8%.
Impact of International Financial Reporting Standards (IFRS)
Van Lanschot applies IFRS reporting rules with effect from 1 January 2005, and the comparative figures for 2004 have been restated accordingly. However, as permitted by IFRS 1, the 2004 comparatives have not been restated for the effect of IAS 32 and IAS 39.
The impact of IFRS on 2004 net profit is very limited: under IFRS, net profit for 2004 was 100.8 million euro, as against 102.6 million euro under Dutch GAAP. This decline is caused mainly by IAS 19 Employee Benefits. Shareholders' funds at 1 January 2005 amounted to 1,017 million euro under IFRS standards, 198 million euro higher than under Dutch GAAP. This increase is in part caused by the reclassification of the perpetual loan and the release of the Fund for general banking risks. More information on this is provided in the annexes to this Press Release. In addition, under IFRS, goodwill acquired and intangible fixed assets are reported separately on the balance sheet. In accounting for the acquisition of CenE Bankiers, 35.1 million euro in goodwill and 19.7 million euro in intangible fixed assets were recognized as at 1 January 2005. Under Dutch GAAP, goodwill was charged to shareholders' funds.
In the first half of 2005 application of IFRS benefited net profit by 2.1 million euro, mainly due to the treatment of derivatives, interest on the perpetual loan, employee benefits and impairments of loans and advances.
The new accounting rules will result in the higher volatility of reported results. For Van Lanschot this is most likely to affect a number of non-cash items and restructuring provisions. The non-cash items concerned are:
- The item 'amortization premium' arising from the acquisition of CenE Bankiers
- Amortization of intangible fixed assets
- Unrealized results on derivatives that are not recognized as hedges under IFRS, but that are used as such (e.g. the hedge used by the Bank for its perpetual loan)
- Unrealized results on investments that were previously taken to the profit and loss account and are now taken direct to reserves
Restructuring provisions potentially relate for instance to the restructuring charge reported in 2004 for the integration of CenE Bankiers.
These items have affected net profit for the first six months of 2005 as follows:
- Amortization premium CenE (net) 5.4 million euro (-) - Amortization of intangible fixed assets 0.6 million euro (-) + Unrealized results on hedging derivatives 6.3 million euro (+) - Unrealized results on investments 5.2 million euro (-)
Modification of protective measures Following consultations with the Board of Stichting Administratiekantoor Gewone Aandelen A Van Lanschot, the Supervisory Board and the Board of Managing Directors decided to eliminate the protective function of issuing depositary receipts for shares. Van Lanschot does intend to retain depositary receipts, but is prepared to grant holders of depositary receipts voting powers at all times. The 1% provision in the articles of association, that limits the transferability of the Van Lanschot shares and therefore the exercise of voting powers, will be abolished.
This means a single protective measure as referred to in Annexe X to the Securities Listing Rules will remain in place, namely the option of issuing preference shares C. Van Lanschot aims to increase the authorization of the Stichting Preferente Aandelen C to issue protective preference shares from 50% to 100% of the issued share capital. In line with conventional practice, Van Lanschot will propose that the period within which it is required to submit a proposal for cancellation of the protective preference shares to the meeting of shareholders be shortened from 24 to 12 months.
Van Lanschot intends to submit these proposals for approval to the General Meeting of Shareholders to be held on 10 May 2006.
We refer to the statement from the Board of Stichting Administratiekantoor Gewone Aandelen A Van Lanschot in the annex.
Financial calendar 2006 Announcement of 2005 full-year results 16 March 2006 General Meeting of Shareholders 10 May 2006 Announcement of 2006 half-year results 17 August 2006
F. van Lanschot Bankiers NV is the oldest independent Dutch bank, with a history dating back to 1737. The Bank focuses on three target groups: high net-worth individuals, medium-sized businesses (including family businesses) and institutional investors. Van Lanschot stands for high-quality services founded on integrated advice, personal service and customized solutions. Van Lanschot NV is listed on the Euronext Amsterdam Stock Market.
The full report including tables can be downloaded from the following link: http://hugin.info/133415/R/1009079/156152.pdf