HERTOGENBOSCH, The Netherlands, Aug. 20, 2004 (PRIMEZONE) -- Van Lanschot NV:
Further result improvement
-- Operating profit up due to further growth in private and
corporate target group accounts
-- Increase in income partly as a result of rise in commission
-- Net profit up 13.7%; earnings per ordinary share up 14.2%
Strategy implemented further with intended acquisition
-- Purchase price CenE Bankiers expected to be approximately 250
million
-- Financing of purchase price trough issue of new shares of around
140 million in combination with hybrid capital
-- Issue of new shares will improve liquidity of Van Lanschot share
-- Similar corporate cultures will make integration easier
-- Merger provides major commercial and strategic benefits
Outlook
-- The 2004 profit expectations reiterated: increase in profit per
ordinary share at least 10%, excluding the effects of the CenE
Bankiers acquisition
-- The acquisition and integration costs are budgeted at a maximum
of 23 million
-- CenE Bankiers is expected to be consolidated as from the fourth
quarter of 2004 and will contribute to earnings per share as from
2005
Floris Deckers, Chairman of the Management Board of Van Lanschot NV: "Over the past six months we succeeded in increasing our profit once more. Thanks to our services that focus on personal attention and customised financial solutions, the number of both private and corporate target group accounts has risen further. Van Lanschot's stability and continuous and healthy profit growth provides an excellent financial position for future growth and gives us the confidence to make an important acquisition such as CenE Bankiers. CenE Bankiers and Van Lanschot's cultures are very similar and that is an important factor for the success of the acquisition. Also, both companies are very professional in the way they approach clients, with personal service, flexibility and customised solutions as key elements. This way, we strengthen our position in the Dutch market as the most distinctive bank for high net-worth individuals, family businesses and institutional investors."
Major developments
Improved results in uncertain economic climate
The economy showed hesitant signs of improvement in the first half of 2004. Due to this uncertain climate, both consumers and businesses continued to adopt a cautious approach. The less favourable circumstances in the housing market remained unchanged as well. Even so, Van Lanschot succeeded in extending its mortgages. The market conditions limited the total number of activities performed by current clients and the growth of the number of new clients. Private individuals where however somewhat more optimistic about investing in securities, particularly in the first quarter.
Continued growth in number of target group accounts
Despite these market conditions Van Lanschot was able to increase the number of both private and corporate target group accounts further, thus improving its market share in the first half of this year. The bank achieved a rise in income (1.1%), mainly due to higher commission and a light underlying increase in interest income. Investment advice continued to focus mainly on possibilities for spreading risks and on providing risk-averse investment products. The volume of assets managed by the bank rose by nearly 160 million to over 5.3 billion in the first half of 2004. Assets held in custody for clients grew by more than 700 million to 14.4 billion.
Expenses in the first half of 2004 were slightly higher (0.4%) compared to a year ago. The efficiency ratio, i.e. operating expenses as a percentage of income, was 56.7%, as against 56.9% for the first half of 2003.
Improved operating profit and net profit
In the first six months of 2004, Van Lanschot's operating profit before taxation increased by 2.1%. Thanks to the lower tax burden, net profit of 60.5 million was up 13.7% on the 53.3 million achieved in the first half of 2003. Earnings per ordinary share rose by 14.2% from 1.83 for the first half of 2003 to 2.09 for the first half of 2004. The average number of ordinary shares remained virtually unchanged. The increase in earnings per share is relatively stronger than the increase in net profit because a lower than proportional amount of net profit has to be distributed on preference shares. The return on average shareholders' funds for the first six months was 17.4%, up from 16.1% for the whole of 2003. Van Lanschot's core activities private banking, business banking and institutional securities business all contributed to this improvement. Belgium, Van Lanschot's second home market, likewise achieved positive results in the first half of 2004. In the first half of 2003 its results still amounted to a small loss, but the upward trend that started in the second half of 2003 could be further continued in 2004.
A more vigorous strategy
Van Lanschot performed a strategic analysis in the first half of 2004. Cost control has been Van Lanschot's main focus over the past few years and thanks to the results Van Lanschot is able to focus mainly on growth again over the next few years. Increasing the scale of operations is important with rising costs relating to ICT, the introduction of International Financial Reporting Standards (IFRS) and Basel II, as well as marketing and product development. The personal attention that is a characteristic of Van Lanschot's services will continue to be a priority, even as its operations grow. In addition, Van Lanschot considers its independence to be a critical success factor that guarantees independent advice to its clients.
Competition has become fiercer, mortgage margins are less attractive and credit funds are more expensive. Van Lanschot will continue its efforts to increase the number of services provided to each client.
Van Lanschot focuses on providing financial services in the Netherlands and Belgium. And its international private banking activities provide services to clients abroad. Van Lanschot is a client-oriented bank, with a network of 45 offices (32 of which are in the Netherlands), that attaches the greatest importance to quality and a personal approach. The following three target groups will remain the focus of Van Lanschot's strategy: (1) high net-worth individuals (private banking and the mass affluent segment with income and/or freely disposable income from 100,000), (2) (family) businesses and managing directors/majority shareholders, and (3) (medium-sized) institutional investors. Van Lanschot's expertise is not restricted to private banking only; its own background as a family business and its age-long experience make it the ideal bank to offer added value to family businesses. For managing directors/majority shareholders the combination of private and business banking is very important since both areas are relevant for them. Furthermore, the bank offers institutional clients a wide range of services and products in the areas of securities advice and brokerage, asset management, custody and treasury services. This range of services enables the bank to continue to offer private individuals distinctive services and products. Van Lanschot will make its proposition in the area of asset management more vigorous.
Thanks to its strong financial base, Van Lanschot can support autonomous growth through selective acquisitions. The intended takeover of CenE Bankiers announced after the end of the reporting period fits in perfectly with this strategy. Van Lanschot's acquisition policy also focuses on the Dutch and Belgian markets. Potential acquisitions must supplement Van Lanschot's activities and be active in similar segments. Similarities in culture and target group policy are of critical importance. The steps that Van Lanschot will take in this field must be limited in terms of size so as to allow the companies to be acquired to be integrated in the Van Lanschot organisation in a relatively short period of time. Van Lanschot's acquisition policy will take into account the organisation's maximum size to safeguard its personal services.
Financial strategy
Van Lanschot has a very strict risk management system in place and values stability and predictability; achieving its financial objectives being the underlying principle. The bank strives to increase profit per ordinary share on average by 10% for the medium term and return on average shareholders' funds by 15% on average. Van Lanschot aims to maintain its efficiency ratio at between 50% and 60%, and strives to outperform the average efficiency ratios of large banks at all times. Van Lanschot's objective for its BIS total capital ratio is a minimum of 10% (minimum requirement 8%). Furthermore, Van Lanschot strives to obtain a single A rating from both Standard & Poor's and Fitch IBCA in the future.
Liquidity of the shares
As part of Van Lanschot's strategy it aims to further increase the liquidity of its shares. The bank will utilise its position as a listed company as much as possible to finance any acquisitions. The share issue planned as part of the acquisition of CenE Bankiers is aimed specifically at a better spread among institutional investors in particular. The bank considers this to be in the interest of all shareholders since it will increase the liquidity of its shares.
Merging with CenE Bankiers
On 20 July -- after the end of the reporting period -- Van Lanschot announced that it expected to reach agreement with ING Group on the intended acquisition of all the shares in CenE Bankiers. The final agreement is likely to be signed in September, pending advice from the works councils on the transaction. The acquisition is subject to receiving a declaration of no objection from De Nederlandsche Bank and is expected to be completed in October 2004. If the transaction goes ahead, CenE Bankiers is expected to be consolidated as from the fourth quarter of this year.
Integration
After the formal acquisition has been completed, the commercial activities of CenE Bankiers and Van Lanschot will be integrated. This will be done in such a manner that CenE Bankiers' specific client approach is respected and the financial services to health care are continued under the name of CenE Bankiers. Both insurance companies will also be integrated. The new combination resulting from the integration will make some 130 job positions redundant, mainly in mid and back offices and staff departments. The commercial departments will not be affected. New jobs within the combination will be available for approximately 50 of the employees involved (i.e. 40%), restricting the total of supernumerary staff to some 80 employees or 3.5% of the total number of employees (pro forma around 2,200).
Purchase price and financing
The purchase price for CenE Bankiers is expected to be approximately 250 million, of which around 82 million is goodwill. This is equal to a price/earnings ratio of approximately 13 (price/earnings ratio of Van Lanschot is approximately 11) and a price/book value ratio of some 1.5 (price/book value ratio Van Lanschot some 1.7). As a result of the intended acquisition, Van Lanschot's total assets will increase by 3.6 billion to some 16 billion.
Van Lanschot intends to finance the acquisition by issuing new shares and through hybrid capital. This will be done in such a manner that Van Lanschot's current Standard & Poor's rating (A- positive outlook) and Fitch IBCA rating (A) will be preserved as a minimum. This will require a share issue of some 140 million. The share issue is expected to take place in the autumn of 2004. One of the options Van Lanschot can use to fund its banking activities is the Euro Medium Term Note programme of 2.5 billion that was set up in the spring of 2003. Approximately 1.5 billion of this is now outstanding.
Major scale and synergy benefits
The intended acquisition of CenE Bankiers strengthens Van Lanschot's position as a leading private bank in the Netherlands considerably. The strategic and commercial synergy benefits for Van Lanschot will be substantial, since the number of clients will increase and the administrative and support functions will be integrated. The bank will also gain access to expertise in specific areas such as healthcare financing and private banking for top executives. The number of private and corporate clients will rise by some 16,000, the substantial part of which meet Van Lanschot's target group criteria. The average client profile and banking and insurance concepts of both banks are very similar. Relatively few clients are clients of both banks.
After full integration, the synergy effects of the acquisition are expected to amount to some 11 million per annum. Van Lanschot expects to be able to complete the integration process in a maximum period of three years. The acquisition and integration costs are budgeted at a maximum of 23 million.
Results for first half 2004
Income
Compared with the first half of 2003, income in the first half of 2004 increased by 2.1 million to 193.8 million. Despite the increase in mortgage loans granted to clients, interest income fell by 0.8 million to 109.1 million, partly because of lower interest margins. Furthermore, structured finance transactions were entered into on a more active basis; these lowered the tax burden but also reduced interest income by 2.8 million. At 6.5 million, income from securities and participating interests remained at virtually the same level. Commission income was 2.6% or 1.7 million higher at 68.1 million, mainly thanks to an increase in securities commission as a result of the more positive mood among private investors with respect to investing on stock exchanges. Foreign commission rose slightly while payment transactions commission fell somewhat. Insurance commission, too, declined marginally compared to the first half of 2003. Profit on financial transactions was up 1.1 million as a result of higher exchange gains on securities and higher income from foreign exchange arbitrage.
Operating expenses
In the first six months of 2004, too, the bank managed to contain costs. Consequently, operating expenses rose by a mere 0.6 million compared to the same period a year ago. This amount is the balance of 1.0 million higher staff costs and other administrative expenses and 0.4 million lower depreciation.
Despite higher pension and social security charges and higher costs for temporary staff, the increase in staff costs was limited, up 1.7 million (or 2.5%) to 69.6 million. Through natural staff turnover, the number of employees in the first half of this year fell further from 1,724 to 1,696 (on an FTE basis). Despite the increase in costs for IT systems and information management other operating expenses fell on balance by 0.6 million, or 1.9%, to 32.4 million.
Thanks to the healthy debtor portfolio, the addition to value adjustments to receivables is relatively stable. Because of a slight economic recovery the addition to value adjustments to receivables dropped slightly in the first half of 2004. On balance, expenses increased by 0.5 million or 0.4%. The bank's efficiency ratio (operating expenses as a percentage of income) for the first six months was 56.7%, 0.2 percentage points lower than for the first half of 2003.
Operating profit and net profit
Tax on operating profit amounted to 15.9 million, at a tax burden of 20.8%. The tax burden in the first half of 2003 was 28.8%. This decrease resulted partly from structured finance transactions that reduced taxes by 4.2 million. Since they also reduce interest income (2.8 million) the increase of net profit on account of these transactions is 1.4 million on balance, bringing net profit to 60.5 million compared to 53.3 million in the same period a year ago. These structured finance transactions will have a similar effect on taxes in the second half of the year.
Van Lanschot Belgium
Van Lanschot also succeeded in improving its results in Belgium, its second home market. The scale of the bank's activities in Belgium is not what it should be yet. More and more, Van Lanschot Belgium is focusing on offering a full package of financial services, including lending. During the first six months of the year, this approach has led to more loans being granted. Income improved and so did the efficiency ratio, thanks to strict cost control. Van Lanschot Belgium has focused strongly on attracting new clients and its efforts have been very successful, increasing its client base by over 6%.
International Private Banking
Van Lanschot Luxembourg was unable to fully maintain the high profit levels of 2003, mainly due to lower interest margins. Profit for the first six months of 2004 was marginally lower than in the same period a year ago. Van Lanschot Switzerland and Van Lanschot Curacao both achieved slightly higher results, thanks for the most part to greater commission income. A decision was taken in the past six months to close the representative office in Hong Kong at 1 September 2004.
Van Lanschot Assurantien
The growth in the number of corporate and private target group accounts of our insurance activities is satisfactory, thanks among other factors to successful growth of the Summum concept for high net-worth individuals and the acquisition of corporate clients in the market for collective pensions and care. Commission was somewhat lower in the first half of 2004 -- due to the changeover from a system of one-off fees to continuous fees -- as were costs as a result of a slight decline in the number of employees and because parts of the back offices of various insurance companies have been centralised over the past six months.
Balance sheet developments
Total assets at 30 June 2004 amounted to 12.3 billion, 0.7 billion more than at 31 December 2003. The loans portfolio was up by 484 million. Even with fierce competition and the reduction in the number of houses sold, the mortgage portfolio showed a net growth of 341 million or 6.7%, while corporate lending increased by some 152 million.
In the first half of the year funds entrusted fell by 46 million to 7.86 billion. Savings accounts increased by 134 million while other funds entrusted fell by 180 million. Debt securities were 415 million higher as a result of issues as part of a Euro Medium Term Note programme of 2.5 billion that was arranged in the spring of 2003. Through this programme, Van Lanschot has the possibility to issue different types of debt security quickly and flexibly to fund the growth of the bank's assets.
Group capital base remained virtually the same compared to year-end 2003; it rose by nearly 2 million to 1,083 million as the item subordinated loans was 5 million lower and shareholders' funds were almost 7 million higher. Return on average shareholders' funds for the first six months of 2004 was 17.4%, compared to 16.1% for 2003 as a whole. During the period under review the bank's risk weighted assets went up from 7.8 billion to 8.1 billion. The BIS total capital ratio was 12.2% (2003: 12.6%), comfortably above the minimum requirement of 8%. At 8.7% the BIS Tier 1 ratio remained the same as for the whole of 2003 (minimum requirement 4%).
Outlook
The European economy is currently showing a modest recovery, with the Netherlands lagging behind. On that basis, Van Lanschot only expects a limited increase in activities by private investors in the second half of the year and a modest increase in the number of mortgages. Further growth of the number of target group clients, which is expected to be in line with the developments in the first six months, will affect profit positively.
Excluding the effects of the acquisition of CenE Bankiers, Van Lanschot reiterates its outlook of at least 10% increase in earnings per ordinary share over 2004, as announced at the Annual General Meeting of Shareholders of 12 May 2004. The acquisition and integration costs are budgeted at a maximum of 23 million. CenE Bankiers is expected to be consolidated with effect from the fourth quarter of 2004 and start contributing to earnings per ordinary share as from 2005. The client base will become considerably larger after merging with CenE Bankiers.
Annexes
Consolidated balance sheet at 30 June 2004 Consolidated profit and loss account Consolidated statement of cash flows Movements in shareholders' funds at 30 June 2004
Financial calendar for 2005 Publication of results for 2004, 17 March 2005 (the date of 18 March 2005 was stated in earlier publications) Annual General Meeting of Shareholders, 11 May 2005 Publication of half-year results for 2005, 18 August 2005
The full press release with tables can be downloaded from the following link:
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 customised solutions. Van Lanschot NV is listed on the Euronext Amsterdam Stock Market.