KBC closed the second quarter of 2006 with a profit of 736 million euros, bringing profit for the first half of the year to 1 715 million euros. Disregarding the impact of a number of one-off factors and changes in the fair value of ALM hedging derivatives, this represents an increase in underlying profit of 21% year-on-year.
According to André Bergen, the new CEO of the KBC group: "KBC's performance in the first six months of the year was commendable. Sales were strong and the financial and economic environments favourable. The latest surveys show that customer satisfaction has improved substantially and loan impairment charges, too, have generally remained low."
Results for the first half of 2006
Profit came to 1 715 million euros, with a return on equity of 25%.
Underlying group profit (i.e. group profit net of fair value changes in ALM hedging derivatives and one-off factors) came to 1 410 million euros and was up, on a comparable basis, by 246 million euros (+21%) on the first half of 2005. One-off factors related to the integration of Gevaert, the divestment of Agfa-Gevaert, the sale of office buildings (Czech Republic) and the increase in the free float of Kredyt Bank (Poland).
The various business units' contribution to underlying profit was as follows: Belgium, 597 million euros; Central Eastern Europe, 260 million euros; Merchant Banking, 482 million euros; European Private Banking, 99 million euros; and the Group Centre, -28 million euros.
Gross income totalled 6.2 billion euros. The first six months of the year were marked by a strong sales performance, with customer deposits, the loan portfolio, assets under management and life insurance reserves (on a comparable basis) increasing year-on-year by 8%, 12%, 19% and 33%, respectively. Developments on the interest rate and capital markets also had a net positive impact.
At 2.4 billion euros, expenses were 4% up on the figure for the first half of 2005. This increase was largely accounted for by the higher result-based expenses associated with the capital market activities, which generated a high level of income. In the banking business, the cost/income ratio - a barometer of efficiency - improved again to 51% (55%, if the non-recurring income is not taken into account).
Provisions for problem loans amounted to just 57 million euros, which meant the loan loss ratio remained limited to 0.08%. The non-life insurance activities continued to turn in a very good technical result (a combined ratio of 91%).
Income taxes amounted to 658 million euros, compared with 448 million euros a year earlier.
Financial highlights - 2Q 2006
Profit growth remained sound in the second quarter: underlying profit (i.e. excluding one-off factors and fair value changes in ALM hedging derivatives) came to 634 million euros, a good deal higher than the figure recorded for each of the quarters in 2005.
As expected, compared with the (particularly strong) performance in the first quarter of 2006, income growth in the wealth management business slowed slightly, due to the more difficult stock market climate that prevailed in May and June. In addition, fewer gains were realised on investments, while capital market revenues dipped. In other areas, the growth trend was unchanged. Total credit volume, for instance, went up by 3% compared with the end of the previous quarter, while home loans increased by 5% during the quarter under review.
The cost trend remained favourable. Operating expenses (adjusted for one-off factors) were able to be kept at the same level as a year earlier.
Loan losses continued to be relatively limited (61 million euros), though they exceeded the levels reached in previous quarters, when more loan loss provisions were able to be written back than additional provisions set aside.
Compared with the preceding quarter, income taxes were, relatively speaking, on the high side, mainly because of assessments on intragroup dividends and the lower level of tax-free gains.
Operating highlights to date in 2006
The investments in the Belgian industrial concern Agfa-Gevaert and in the Spanish Banco Urquijo were sold. In contrast, holdings in the Hungarian bank, K&H, and the Polish insurance company, Warta, were stepped up to 100%.
The new organisational management structure was also introduced in the second quarter that will enhance group steering capabilities.
As at 24 August, 8 584 477 treasury shares had already been repurchased in 2006 for a sum of 729 million euros. By year-end, 1 billion euros in own shares should have been bought back.
The presence in Slovenia through Nova Ljubljanska banka is currently being reassessed and new opportunities for expansion are being explored, mainly in EU (candidate) countries.
Outlook for the remainder of 2006
Company earnings growth has been exceptionally strong during the period under review, thanks to the strategic position the KBC group has acquired and the predominantly favourable financial and economic climate. KBC remains confident about the earnings potential of its strategy, but it is also alert to signs that outside factors are weakening. Taking account of a gain of 0.5 billion euros on the sale of Banco Urquijo in the third quarter and based on the assumption that the relevant financial and economic factors will remain unchanged, KBC expects that its group profit for 2006 will come to at least 3.2 billion euros.
KBC is one of the largest bancassurers in Belgium and Central Europe, and a leading wealth manager catering for retail and private banking clients in Europe. KBC group currently has a market capitalisation of some 32 billion euros, employs around 50 000 people and serves approximately 13 million customers. The earnings release and its appendices are available in English, Dutch, French and German at www.kbc.com, along with a PowerPoint presentation and a quarterly report (both in English).
