VAN LANSCHOT'S 2006 PROFIT UP BY 21%

• Net profit rises by 21.1% to € 184.5 million
• Income from operating activities increases by 10.0% to € 534.3 million
• Return on shareholders' funds rises to 17.4%
• Earnings per share grow by 17.8% to € 5.48
• Proposed dividend for 2006 of € 2.75 per share (+10%)
  
  
• Kempen & Co's 2006 net profit beats expectations; incorporation of Kempen & Co and Van Lanschot well on its way; in addition to the announced revenue synergy benefits, the incorporation of Kempen & Co will also result in annual cost synergies of € 8 million from 2008 onwards

 

 

 

 

Van Lanschot realised a solid growth in profit in 2006. Thanks to the upbeat sentiment on the stock exchanges during the year, private individuals conducted many securities transactions, resulting in a substantial increase in securities commission fees. Income from securities and associates and profit on financial transactions also increased sharply. Net interest income, on the other hand, dropped. There was a healthy growth in the loans portfolio, but due to the continued fierce competition on the mortgage market in particular, and the further levelling off of the yield curve, there was a further squeeze on the interest margin from 1.61% to 1.42% and a decrease in net interest income by 6%.

 

All segments experienced a solid rise in the number of clients during the reporting year. At Private banking, the number of clients rose by 5.3% and at Business Banking by 9.7%. Furthermore, the number of Healthcare clients was up by 9.2%. At Private Banking, securities commission in particular developed positively. The mortgage book grew from € 7.3 billion to € 7.8 billion. Savings accounts went up from € 2.5 billion to € 3.7 billion. However, owing to a further interest margin contraction, interest income decreased slightly. Business banking also felt the pressure on the interest margin. Despite growth in the corporate loans portfolio from € 5.0 billion to € 5.3 billion, interest income fell because of this fact. In the Healthcare segment, the loans and advances to healthcare institutions suffered due to competition from public institutions. However, the bank kept up its successful track record in the target groups medical practitioners and pharmacists.

 

As a medium-sized financial institution, Van Lanschot will increasingly focus on a number of complementary specialist activities, with which the bank can set itself apart from the competition. The acquisition of Kempen & Co allows Van Lanschot to reinforce its profile as a leading private bank. Within the scope of this refined strategy, Van Lanschot is carefully considering the future of its intermediary operations in the field of insurance, as conducted by Van Lanschot Assurantiën. A decision will be taken in the course of 2007.

 

Net profit generated by Kempen & Co in 2006 totalled € 36.3 million, i.e. a 53.8% increase compared with 2005 (€ 23.6 million). An amount of € 4.8 million of this net profit resulted from the release of a pension provision. After elimination of this release, Kempen & Co's net profit amounted to € 31.5 million.

 

Van Lanschot decided to combine and base the institutional brokerage and asset management operations of Van Lanschot and Kempen & Co in Amsterdam. This operation has nearly been finalised. The transfer of operations results in a saving of about forty jobs. By placing employees elsewhere in the organisation, for example, we will however manage to keep the number of forced redundancies to a minimum. In September, when we announced our plans to acquire Kempen & Co, we noted that this could lead to synergy benefits of € 10 - 20 million per year from 2008 onwards, in particular in the form of additional income. Furthermore, current expectations are that, partially due to the decrease in the number of job positions, we will also realise an annual cost synergy of € 8 million from 2008 onwards. At year-end 2006, Van Lanschot and Kempen & Co jointly had € 14.3 billion worth of assets under management.

 

The financing of the acquisition of Kempen & Co has now been finalised. A relatively minor amount remained, which was intended to be financed through the issue of new shares or depositary receipts for shares. However, in view of the bank's solid financial position, it was decided not to carry out this share issue.

 

The bank is involved in a major renewal of the full IT infrastructure. This project involves a major effort in terms of staff and resources and will run until 2009. The total budget for this project has been increased to € 90 million. This was done in view of the project's increased complexity, higher fees of IT consultants and a longer implementation period.

The first applications have already been put into use. Internet banking was for example extended considerably at the beginning of this year, and a new Customer Relationship Management system will support our consultants in rendering customised services to our clients.

 

For this project, € 3.4 million was charged against profit for 2006 (2005: € 1.2 million). In addition, € 25.2 million was capitalised (2005: € 2.3 million). Depreciation starts as soon as the systems are put into use; the first depreciation charges will be taken in 2007.

 

At present, this IT project involves a total of 179 staff, 106 of whom are Van Lanschot employees.

 

Despite the substantial costs involved in the IT project, we stick to our target of maintaining an efficiency ratio (the ratio of operating expenses to income from operating activities) of between 50% and 60%. For this purpose, we will focus on strict cost control in the current year. Our accommodation will be rationalised further and the purchasing process will be professionalised to a larger extent. In addition, we will investigate whether services such as facility services can fully be contracted out. Starting point in this respect is that cost-saving measures should not affect the quality of the services to our clients.

 

For several years now, the Dutch mortgage market has been characterised by fierce competition, putting further pressure on margins. In the reporting year, this led to a decrease in interest income. Mortgages are more and more becoming a standard product whose price tag is the most relevant criterion. Van Lanschot distinguishes itself by rendering customised advice to its clients, and the choice of the most suitable mortgage loan is part of broader financial planning advice. As a result, the focus is shifting away from the mortgage operations. This is the reason why we also strive for a further reduction of the balance sheet through securitisation of mortgages and a portion of the commercial property loans portfolio. In the reporting year, a major step was already taken by securitising € 600 million in commercial property loans, which was met with great interest from the market. Through further securitisations in 2007, the amount of the bank's risk-weighted assets will be reduced again, reinforcing the bank's already solid financial position.

 

 

For 2007, our expectations are that the yield curve will continue to flatten out. The European Central Bank is likely to continue its policy of interest rate increases, while we expect long-term interest rates not to rise accordingly. The margins on mortgages will certainly not improve. We also expect margins on other interest products, such as savings, to come under pressure. For Van Lanschot, margin erosion will, at best, be offset by increases in our volumes, higher market shares and our offering of customised products.

 

Last year, private investors seemed to be clearly more interested in the stock exchange market; a continuation of this trend will positively impact the securities commission fees. The year 2006 was however already a very favourable year. In addition to dividends received, income from securities and associates comprises gains on the sale of investments. These gains are difficult to predict.

 

Van Lanschot has made cost control a prominent theme for this year and has already set many measures in motion. At the same time, we will continue to invest heavily in our systems and the quality of our staff. This will all contribute towards our strategy to become the best private bank in the Netherlands and Belgium.

 

Van Lanschot realised a net profit of € 184.5 million in 2006, i.e. a 21.1% increase (2005: € 152.4 million).

 

 

Total income from operating activities rose by 10.0% from € 485.8 million to € 534.3 million. Exclusive of the line item 'amortisation of acquired surplus', income from operating activities was up 8.4% to € 543.6 million (2005: € 501.5 million). Despite a healthy growth in the loans portfolio in 2006 of 8.9% from € 13.5 billion to € 14.7 billion, net interest income, exclusive of amortisation of acquired surplus, declined by 8.1% from € 294.3 million to € 270.5 million. Owing to the interest rate trend, fewer loans were refinanced, which resulted in a sharp drop in penalty interest income: € 9.5 million in 2006 versus € 16.5 million in 2005. Furthermore, there was a further squeeze on the interest margin by 0.19 percentage point to 1.42%.

 

Net interest income, inclusive of amortisation of acquired surplus, declined from € 278.6 million to € 261.2 million. The amortisation of acquired surplus arose from the acquisition of CenE Bankiers and relates to the difference (€ 36 million) between the fair value and the carrying amount of the assets and liabilities which is being amortised over the fixed-interest term. The amortisation of this difference led to a charge to profit for 2006 of € 9.3 million, in the line item 'interest' (2005: € 15.7 million). The movements in the line item 'amortisation of acquired surplus' are expected to be as follows:

Income from securities and associates climbed from € 20.5 million to € 45.1 million. In 2006, gains from 'available for sale investments' totalled € 33.6 million (2005: € 1.2 million). Dividend payments on shares in the investment portfolio, reported in this item, decreased from € 19.0 million in 2005 to € 15.0 million in 2006.

 

Net commission was up 13.2%, from € 166.3 million to € 188.3 million, which can mainly be attributed to the securities commission. This commission rose by € 20.3 million to € 132.2 million. Securities commission rose as a result of increased activity of private clients thanks to the favourable economic conditions and the positive trend on the stock markets. The number of securities transactions by private individuals rose by 20.5% in 2006. Insurance commission was up 8.1% from € 27.1 million to € 29.3 million. Commission on cash transactions and funds transfers fell slightly by 3.3% from € 18.4 million to € 17.8 million. Other commission of € 9.1 million remained at nearly the same level as in 2005.

 

Profit on financial transactions jumped from € 20.4 million to € 39.7 million. Profit on financial transactions comprises realised and unrealised valuation differences on the trading portfolio, exchange differences, hedge derivatives and realised and unrealised gains and losses on derivatives used for balance sheet management purposes. The largest increase was realised on the economic hedges, i.e. from a loss of € 2.7 million in 2005 to a gain of € 11.0 million in 2006.

 

Until 2006, net interest income also comprised the gains on 'available-for-sale interest-earning securities'. Under IFRS, these gains are included under 'profit on financial transactions'. The comparative figures for 2005 have been adjusted accordingly. In 2006, gains and losses on 'available-for-sale interest-earning securities' were € 3.4 million, compared with € 7.8 million in 2005.

 

In 2006, operating expenses rose by 10.4% from € 278.4 million to € 307.3 million. This increase was not only caused by a further improvement of the quality of our services to clients and of transaction processing, but also by tighter laws and regulations.

 

On balance, staff costs rose by € 10.9 million to € 185.3 million. IFRS-related items on balance had a € 4.5 million negative impact on staff costs.

                                                                                                €          - 4.5 million

 

The higher staff costs are the result of several factors, i.e. a 6.5% increase in the number of employees (from 2,225 to 2,370), regular pay increases, further alignment of remuneration with the market situation, and further investments in staff quality through training and education for instance.

 

Other operating expenses rose by 23.6% from € 83.9 million to € 103.7 million. This increase can partly be attributed to a number of mandatory projects within the scope of laws and regulations and compliance. The main increase was however the result of the rise in IT costs from € 17.7 million to € 28.0 million. This amount was in particular spent on direct costs (€ 3.4 million) and indirect costs for the upgrading of the bank's IT environment.

 

Depreciation and amortisation fell 9.0% from € 20.1 million to € 18.3 million. This fall was largely the result of amortisation on intangible assets, while depreciation on buildings also declined. Depreciation on IT, software and communication equipment and other assets remained more or less stable.

 

The addition to the line item impairments of € 2.9 million in 2006 was substantially lower compared with € 16.9 million in 2005. The addition to impairments as a percentage of the risk weighted assets declined from 0.15% in 2005 to 0.02% in 2006. Loans written off in 2006 were € 9.9 million. The percentage of the non-performing loans covered by the impairment provision was 138.3% in 2006 (2005: 121.5%).

 

Income tax on operating profit for 2006 was € 39.6 million. This corresponds with a tax burden of 17.7% (2005: 20.0%). The reduction in the tax burden results, on the one hand, from a reduced corporate income tax rate (from 31.5% to 29.6%) and, on the other hand, from higher income subject to the participation exemption.

 

The efficiency ratio, i.e. the ratio of operating expenses to income from operating activities, rose by 0.2 percentage point to 57.5%, and thus remained within the 50% to 60% range.

 

Earnings per share for 2006 came to € 5.48, a 17.8% rise compared with 2005 (€ 4.65).

 

 

Profit available to shareholders is € 181.3 million. This amount is after deduction of € 9.7 million in interest on the perpetual loan, which is due to the holders of this loan, and after adjustment of the amortisation of acquired surplus of € 6.5 million. Based on the average number of outstanding ordinary shares (31.9 million), the earnings per share available to shareholders are € 5.68 (2005: € 4.99). It will be proposed to the General Meeting of Shareholders to distribute a dividend for 2006 of € 2.75. This is a 48.4% pay-out ratio. When taking account of the fact that the new shares issued in January 2007 as part of the takeover of Kempen & Co also qualify for dividend, this means that 52.1% of the net profit available to shareholders will be distributed. The dividend will be distributed in cash.

 

 

 

Total assets were up 4.3% in 2006, from € 18.0 billion to € 18.7 billion. On the assets side, loans and advances to the public and private sectors showed healthy growth of 8.9% from € 13.5 billion to € 14.7 billion. The growth in the mortgage portfolio of € 0.5 billion to € 7.8 billion made a major contribution to this increase. In addition, other loans showed a healthy growth from € 4.7 billion to € 5.1 billion.

 

On the liabilities side, liabilities to the private sector fell slightly by 0.4% to € 11.4 billion. Savings accounts climbed from € 2.5 billion to € 3.7 billion, while deposits declined. The issued debt securities climbed from € 3.2 billion to € 3.8 billion. Floating Rate Notes were issued for € 0.6 billion as part of the securitisation of commercial property loans.

 

The bank's funding ratio (the ratio of public and private sector liabilities to total loans and advances) was 77.4% at year-end 2006. For 2007, Van Lanschot strives for a funding ratio of 85%.

 

Shareholders' funds totalled € 1,367 million as at 31 December 2006. In the opening balance sheet for 2006 this was € 1,279 million. The increase in shareholders' funds can mainly be attributed to retained earnings.

 

Return on average shareholders' funds for 2006 was 17.4%, compared with 16.3% for 2005. In the reporting year, the BIS core Tier 1 ratio was up from 6.7% to 7.3% (target: 7.5%). This increase was mainly caused by the securitisation completed in December 2006. As a result, the bank's risk weighted assets were up just 0.9% from € 11.6 billion to € 11.7 billion. The BIS Tier 1 ratio increased from 9.4% to 10.0% (target: 9.5%), while the required minimum is 4%. The BIS total capital ratio rose from 13.5% to 13.7% (target: 12.5%), while the minimum requirement is 8%.

 

 

The assets managed by the bank increased from € 5.9 billion to € 6.5 billion in the reporting year. This increase can be attributed to, on the one hand, a growth in assets managed for private clients and, on the other hand, an outflow due to the restructuring of the bank's own investment funds. The assets managed for private clients climbed 28.0% from € 2.5 billion to € 3.2 billion, thanks to the continued success of the Manager of Funds concept. The assets managed by Manager of Funds totalled € 548 million at year-end 2006 (year-end 2005: € 170 million). Of the growth in total assets managed, net new money accounted for 67% and market performance for 33%.

 

Assets held in custody increased in 2006 from € 18.3 billion to € 19.1 billion. The increase in the assets held in custody for private clients of € 1.2 billion was offset by a decrease in the assets held in custody for institutional clients and investment funds of € 0.4 billion.

 

As well as the increase in off-balance sheet assets managed and assets held in custody, interest in the Index Guarantee Contracts, which are reported in the balance sheet, remained extremely high. Even though our clients showed a recovering interest in investing on the stock markets, they still felt the need for security. This resulted in the amount invested in Index Guarantee Contracts rising from € 870 million at year-end 2005 to € 1,048 million at the end of 2006, i.e. an increase of 20.5%.

 

 

In mid-December 2006, Van Lanschot finalised its first securitisation transaction. In this transaction, the credit risk on a loans portfolio was sold to a Special Purpose Entity (SPE), Lancelot 2006 BV. Lancelot 2006 BV financed the purchase price by issuing bonds to institutional investors. The portfolio transferred amounted to € 600 million and is comprised of commercial property loans.

 

 

Kempen & Co joined Van Lanschot on 2 January 2007. Kempen & Co's net profit rose by 53.8% from € 23.6 million to € 36.3 million.

 

Key data

 

 

Income for 2006 of Kempen & Co totalled € 111.9 million, a 16.1% rise compared with 2005 (€ 96.4 million). Expenses in 2006 amounted to € 63.3 million, compared with € 66.3 million in 2005, inclusive of an exceptional income item relating to pensions. Exclusive of this exceptional income, net profit for 2006 totalled € 31.5 million.

 

All three core activities of Kempen & Co contributed to the increase in the 2006 profit. At Kempen Capital Management, an increase in assets managed, in tandem with favourable market trends, new investment funds and a further development of fiduciary management, led to a rise in commission income. Kempen & Co Securities experienced a rise in commission and trading income thanks to positive market trends. Kempen & Co Corporate Finance also saw an increase in income in 2006, especially thanks to higher income from mergers & acquisitions consultancy.

 

The takeover of Kempen & Co is recognised in accordance with IFRS 3 'Business Combinations'. The takeover sum is € 314.5 million, including costs directly attributable to the takeover of € 5.6 million. Payment was partially made in cash (€ 172.2 million), partially in shares (€ 116.6 million) and partially in share options (€ 20.2 million).

 

After the provisional allocation of the takeover price to the acquired assets (including identifiable intangible assets) and the contingent and other liabilities taken over, based on their fair value on the takeover date, the goodwill that arose totalled € 170.5 million. This allocation is based on the provisional fair value of the acquired assets and liabilities taken over and can be adjusted until 31 December 2007 based on further information gained relating to the fair value.

 

Amortisation of intangible assets will total approx. € 13.6 million in 2007 and approx. € 10.9 million per annum in the period 2008-2011. Total amortisation for the subsequent years (2012 - 2026) is approximately € 53.5 million.

 

 

In 2007, Mr M.W. Dekker and Prof. T.J. Peeters will stand down as supervisory directors. As they will then have served as members of the Supervisory Board for twelve years, they will not be eligible for reappointment. Mr C.W. de Monchy will also step down. He is available for reappointment for a new term of four years. Mr de Monchy will be put forward for reappointment. The Supervisory Board will propose to the General Meeting of Shareholders on 10 May 2007 that the following persons be appointed supervisory director of Van Lanschot NV and F. van Lanschot Bankiers NV.

 

In order to fill the vacancy on the retirement of Mr Peeters, Mr W. Duron will be nominated for appointment as member of the Supervisory Board. Mr Duron is a Belgian national and former delegate director and former chairman of the Executive Committee of KBC Group NV.

 

In order to fill the vacancy on the retirement of Mr Dekker, Mr A.J.L. Slippens will be nominated for appointment as member of the Supervisory Board. Mr Slippens is chairman of the Board of Sligro Food Group NV. In addition, until Van Lanschot's takeover of Kempen & Co, he was a supervisory director of Kempen & Co.

 

Finally, Mr T. de Swaan, former member of the Management Board of ABN AMRO Holding NV and of ABN AMRO Bank NV will be nominated for appointment as member of the Supervisory Board. Mr de Swaan's nomination is made in anticipation of the end of the third term of office of Mr de Vries, the Supervisory Board's chairman, in 2008. These nominations are still subject to the review of the Dutch Central Bank.

 

 

Income from operating activities in the Private banking segment rose by 6.1% in 2006 compared with 2005. This increase was fully caused by a substantial increase in securities commission. Private client assets managed were up 28.0% to € 3.2 billion, thanks to a transition from advice to management. Private client assets held in custody increased in 2006 by 7.9% to € 15.1 billion. Interest income was about 5.3% behind last-year's figure, as a result of the squeeze on the interest margin. The volumes of both loans and advances (from € 8.6 billion to € 9.6 billion) and savings accounts (from € 2.5 billion to € 3.7 billion) increased, meaning that the impact on interest remained limited. Total expenses were up by 7.6% compared with 2005. For Private banking, impairments decreased from € 6.5 million to € 0.9 million. Operating profit for Private banking totalled € 88.4 million, a 3.0% increase. This corresponds with 39.5% of the total operating profit of Van Lanschot for 2006 (2005: 45.0%).

 

Major income-generating items were as follows:

 

 

Van Lanschot Belgium can look back on an excellent year. Its client base grew by 6.7% and these were nearly all Belgian individuals. Total income-generating assets climbed by 13.3% from € 3.0 billion to € 3.4 billion. On-balance sheet funds entrusted remained stable at € 1.1 billion. The off-balance sheet assets held in custody were up from € 1.9 billion to € 2.3 billion. Loans and advances were up 7.8% to € 417 million. Gross profit more than doubled, from € 3.1 million in 2005 to € 7.4 million in 2006. Net profit improved from € 3.4 million to € 4.8 million.

 

Net profit of the international Private banking operations conducted by our foreign offices was up 7.7% from € 10.4 million to € 11.2 million. Van Lanschot Luxembourg reported a profit well above the 2005 level. Van Lanschot Curacao also ended the year with a rise in profits driven by higher interest and commission income. Van Lanschot Switzerland however reported a decline in profits due to lower-than-expected commission income and higher costs.

 

 

Business banking's income from operating activities declined by 12.7% in 2006. This was largely caused by the decline in interest income. While Private banking was able to compensate the decline in interest income with a solid growth in securities commission, Business banking suffered from the pressure caused by the so-called 'Bolkestein measure' in commission on cash transactions and funds transfers. (This measure relates to the EU Directive ruling that the rate for cross-border payments up to an amount of € 12,500 in each Eurozone country should be equal to the rate for a domestic payment). Total expenses fell by 4.8% compared with 2005, thanks to the line item impairments. This item decreased by € 10.0 million compared with 2005. Operating profit for Business banking totalled € 35.9 million, a 23.5% decrease. This corresponds with 16.5% of the total operating profit of Van Lanschot for 2006 (2005: 24.6%).

 

In the segment Healthcare, income from operating activities declined by 23.7% compared with 2005. This was largely caused by lower interest income. Total expenses were up by 13.1% compared with 2005. Operating profit for the Healthcare segment totalled € 9.8 million, a 42.0% decrease. This corresponds with 4.4% of the total operating profit of Van Lanschot for 2006 (2005: 8.9%).

 

 

Van Lanschot Assurantiën can look back on a good year. Insurance commission was up by 7.8%, from € 26.8 million to € 28.9 million. The rise in insurance commission was mainly caused by the growing number of private and corporate clients, as well as a non-recurring income item from previous years. A major number of collective health insurance contracts were concluded with corporate clients. With an operating profit before tax of € 9.3 million, Van Lanschot Assurantiën contributed 4.2% to Van Lanschot's total operating profit (2005: 2.4%).

 

The profit of the segment Other activities not only comprises the profits generated by Institutional asset management and Institutional brokerage, but also the profits of the Treasury activities and results that cannot directly be attributed to a specific segment.

Income from operating activities of this segment climbed by 87.7%. This was in particular caused by the rise in profit on financial transactions, of which about 90% falls in the segment Other activities. Income from securities and associates, almost fully falling in the segment Other activities, doubled from € 20.1 million to € 45.7 million, thanks to the realised profit on the sale of shares from the investment portfolio. Total expenses in this segment were up 23.9% compared with 2005. The line item 'other administrative expenses' more than doubled. This can be attributed to the costs involved in the restructuring of the Van Lanschot Global Equity Fund and Van Lanschot Investment Fund.

 

Bond investments hardly increased in value in the reporting year. Partly for this reason, institutional assets managed stood at € 1.7 billion at year-end 2006, virtually unchanged from year-end 2005.

 

Profit realised in the reporting year on institutional brokerage lagged behind last-year's level for the third year in a row.

 

 

 

Annual General Meeting of Shareholders	10 May 2007
Ex-dividend date	14 May 2007
Record date	16 May 2007
2006 dividend available for payment	22 May 2007
Publication of 2007 half-year results	17 August 2007
Publication of 2007 results	20 March 2008
Annual General Meeting of Shareholders	8 May 2008
Publication of 2008 half-year results	15 August 2008

 

 

's-Hertogenbosch, 23 March 2007

 

Press contact for Van Lanschot Bankiers Belgium: Gerrit Verlodt, Chairman of the Executive Committee.

Telephone +32 (0)3 286 43 22; mobile +32 (0)4 75 54 62 18, fax +32 (0)3 286 78 01.