A N N U A L R E P O R T Record profit. February 9, 2006

Transcription

1 A N N U A L R E P O R T Record profit February 9, 2006

2 Agenda Slide Highlights 3 Business trends 4 Outlook 10 Trends in business areas 11 NB and NIB integration 16 Q&A session 24 2

3 HIGHLIGHTS Performance highlights - Record-high profit and substantial investments Net profit 38% to DKr 12.8bn Strong fundamentals and net reversal of credit loss expenses Income up 20% on volume growth, remortgaging activity and securities trading Costs up 18% due to acquisitions and international expansion EPS up 42% to DKr 20.4 (DKr 14.4) ROE: 18.5% (13.9%) Index Income 29,187 34, Expenses 15,393 18, Profit before credit expenses 13,794 16, Credit loss expenses 759-1,096 - Profit before tax 13,035 17, Tax 3,718 4, Net profit for the year 9,317 12, Dividend per share (DKr) DKr bn (end-period) Index - Corporate loans Retail loans Bank loans ex repos Repo loans Mortgage loans Trading portfolio Deposits Shareholders' equity Total assets 2,053 2, Risk-weighted assets ,500 10,250 5,000 9, Income, ex NB&NIB Breakdown of profit growth Income, NB&NIB Expenses, ex NB&NIB Expenses, NB&NIB Credit losses 12,822 Tax

4 BUSINESS TRENDS Net interest income - Strong volume growth, continued margin pressure Net interest income 16% Volume story: double-digit retail and corporate lending growth Strong remortgaging activity in Denmark Significant margin pressure due to changes in product mix and competition Market share gains in Sweden, Norway and the Republic of Ireland DKr bn 1,200 1, Lending (ex repos) and NII Net interest income 4,500 4,000 3,500 3,000 % Retail Corporate DB BG RD NO SE NB* NIB* * Lending growth Q4 05 / Q1 05 Lending growth Y/Y 2005/2004 Q405/Q305 Net interest income 14,752 4,462 Scandinavian banks Loan volume 1, Lending margin -1, Deposit volume Deposit margin Allocated equity Other Total, Scandinavian banks Other banking activities 1, Mortgage Finance Other changes Net interest income 17,166 4,432 4

5 BUSINESS TRENDS Net fee income - Strong customer activity Net fee income 24% High lending and trading volume throughout the year Record-high remortgaging activity Large contribution to growth from Norway Higher percentage of fees from operations outside Denmark 0 DKr bn 8 4 Net fee income Y/Y 24% 500 Remortgaging & loan fees Y/Y 12% Q/Q 3% 650 Securities & custody comm. Y/Y 25% Q/Q 12% 300 Payment services fees Y/Y 24% Q/Q 21% 600 Guarantee & other comm. Y/Y 47% Q/Q 5%

6 BUSINESS TRENDS Net trading income - One-offs add to strong underlying performance Net trading income 33% Heavy customer-driven activity throughout the year One-off items: DKr 956m (DKr 425m) Investment portfolio benefited from strong stock market and declining interest rates 7,000 4,500 The Groups interest rate sensitivity amounts to DKr 508m 2,000 Trading income Y/Y 33% Trading income breakdown Index Trading activities 2,353 3, Proprietary trading Investment portfolio 1,205 1, Institutional banking Total, Danske Markets 4,546 5, Danske Bank & BG Bank Other trading activities Total trading activities 4,877 6, One off-items Sale of UK/US assets - 90 Sale of unlisted shares Sale of HandelsFinans One-off items, total

7 BUSINESS TRENDS Expenses -Flat underlying cost base Expenses 18% 1% ex NB & NIB Consolidation and integration of NB and NIB drove up costs: Integration expenses: DKr 554m Amortisation of intangibles: DKr 459m 12 branches opened in Sweden C/I ratio improving slightly despite integration costs and amortisation DKr bn Expenses & C/I ratio C/ I ratio % Underlying cost base in line with 2004 Expenses in the Danish retail banking business were flat Higher performance-related bonuses at Danske Markets Underlying cost base Index Costs 15,393 18, Bonuses Severance payments Restructuring UK/US Operating costs NB & NIB - 1,594 - Integration expenses Amortisation intangibles NB/NIB Real estate agencies, SE & NO Operational leasing Nordania Underlying cost base 13,309 13, Total FTE (end-period) 16,235 19, Including FTE, NB & NIB - 2,658-7

8 BUSINESS TRENDS Credit loss expenses - Net reversal for yet another quarter and for the full year Sound macroeconomics & good credit control High growth, low unemployment, rising house prices and high consumer confidence Low level of new credit provisions and reversal of previously booked provisions Expected loss over a business cycle: 14 bp Credit loss expenses Average DKr bn Allowance account Danish GAAP bp Expected loss (Through a business cycle) IFRS

9 BUSINESS TRENDS Solvency and RWA - New targets reflect risk profile and growth traction Target ranges for core/hybrid capital & dividends Lower risk Geographical diversification Mortgage loans Downscaling of UK/US New growth agenda Healthy growth prospects not only in Denmark RWA up more than 10% in 2006 Expected dividend payout 2006: 40% Capital targets (as % of RWA) Old target New target end-2005 Core capital ex hybrid capital Hybrid capital Core capital Supplementary capital Solvency Payout ratio, % % Growth in RWA % Core capital ratio, ex hybrid core capital NB & NIB 17 % 6-5 >10 % 5 % 2 % 2 % -1 % E E 9

10 BUSINESS TRENDS Corporate governance - New measures approved by the Board of Directors Details on Publication of remuneration policy for Board of Directors and Executive Board Disclosure of fees and salaries of individual directors and executive officers Reduction of directors term of office to two years Introduction of an evaluation process for the BD More detailed charters for individual committees under the BD and publication of summary business procedures of the two boards Webcast of the AGM 10

11 OUTLOOK Outlook for Sound underlying growth, but decline in profit before tax Assumptions and underlying conditions Favourable macroeconomic conditions in our core markets Moderately rising interest rates (avg. 40 bp above 2005) Two additional months of NB and NIB Lower remortgaging and trading activities Double-digit retail and corporate lending growth, but intense price competition Financials Income in line with 2005, despite significant one-offs in 2005 Expenses up about 5%, up about 2% ex costs related to NB and NIB Profit before credit loss expenses: slightly up when adjusted for one-off income in 2005 Credit loss expenses below the average expected loss over a business cycle Profit before tax lower than =>2006 Income 34,891 => In line with 2005, despite one-offs Expenses 18,198 => Up 5% due to integration of NB & NIB Profit bef. credit losses 16,693 => Slightly up when adjusted for one-offs Credit loss expenses -1,096 => Low credit loss expenses Profit before tax 17,789 => Lower than in

12 TRENDS IN BUSINESS AREAS Trends in business areas - Broad-based increase in profit before tax Profit before tax Index % of total 05/ Banking Activities 6,643 10, Danske Bank 3,481 5, BG Bank 1,462 1, Sweden Norway Northern Ireland Ireland Other BAs 714 1, Mortgage Finance 2,222 2, Danske Markets 2,934 3, Danica Pension 1,631 1, Danske Capital Other , Total for the Group 13,035 17, Index Y/Y growth in lending and income 140 Lending Income DB BG SE NO NB* NIB* RD * Lending growth Q4 05 / Q

13 TRENDS IN BUSINESS AREAS Banking Activities Danske Bank - Strong customer activity throughout the year Profit before tax 66% Profit before tax Heavy demand for loans, strong capital markets and low credit losses 6,000 Competition remains intense: margin pressure continues, mostly in unsecured consumer lending 4,000 5,767 Danske Prioritet volume: DKr 31bn (DKr 22bn) Strong fee income growth 2,000 3, NII Other income Expenses Credit losses 2005 DKr bn Trend in lending volume (ex. repos, end-period) % Spreads 150 Retail: Y/Y 22% Q/Q 8% Corporate: Y/Y 20% Q/Q 4% 4 Total margin 75 3 Lending spread

14 TRENDS IN BUSINESS AREAS Banking Activities BG Bank - Double-digit lending growth Profit before tax 22% Higher fee income, lower expenses and net reversal of credit loss expenses BG Bolig Plus: DKr 13bn (DKr 8bn) Continued margin pressure 2,000 1,500 1,462 Profit before tax 1,782 1, NII Other income Expenses Credit losses 2005 DKr bn 50 Retail: Y/Y 17% Q/Q 6% Trend in lending volume (ex. repos, end-period) Corporate: Y/Y 12% Q/Q 6% % Spreads 5 Total margin 30 4 Lending spread

15 TRENDS IN BUSINESS AREAS Banking Activities Sweden - Sound performance and increasing market share Profit before tax 22% Double-digit lending growth and market share gains NII up 8%: volume growth offset rate cut and margin pressure Increased costs due to branch openings Acquisition of Skandia Mäklarna Three branch openings planned for NII Other income Profit before tax Expenses Credit losses SKr bn Y/Y 29% Q/Q 8% Trend in lending volume (ex. repos, end-period) % Market shares 6 4 Lending Deposits

16 TRENDS IN BUSINESS AREAS Banking Activities Norway - Strong results, investment phase concluding Profit before tax 80% Solid growth in fee income, up 40% due to cross-selling Double-digit lending growth and market share gains Continued margin pressure Expenses up 20% due to business development Two branch openings expected in NII Other income Profit before tax Expenses Credit losses NKr bn Y/Y 28% Q/Q 7% Trend in lending volume (ex repos, end-period) % Market shares Lending Deposits

17 TRENDS IN BUSINESS AREAS NB and NIB integration (1) - Three dress rehearsals completed successfully Progressing according to plan Financial plans finalised: future product offerings, pricing structure and organisation Recruitment of key personnel Training plan prepared and programme begun Danske Guide and Danske Visit under way Increased employee motivation and satisfaction Integration expenses - status 1,500 1, Remaining Used 2005 Business plans Analysis and specification phase Construction phase M-Day Staff training Test and dress rehearsals TDR DR1 DR2 DR3 Q Q Q Q Q Q

18 TRENDS IN BUSINESS AREAS NB and NIB integration (2) - Heading for M-day IT migration Human Resources Organisation, products & marketing IT system construction completed Key personnel appointed and staffing plans completed New regional branch network structure implemented Major part of the testing executed (47,000 test cases) Three dress rehearsals performed successfully Free personal laptop and broadband access delivered to all staff Comprehensive training programme started Future product portfolios and pricing determined Marketing plans and customer communication programme completed and initiated Shared Services Markets Business controlling Customer Direct (call centre) established in Belfast Funding and liquidity management established Financial plan finalised New cabling in the branch network fully completed Domestic clearing solutions arranged, including BACS membership Strategy for the financial planning and investment area completed Investment product range determined Credit processes optimised and significantly improved Efficient, consolidated financial reporting established 18

19 TRENDS IN BUSINESS AREAS Northern Bank and National Irish Bank - Performance in line with expectations Profit before tax DKr 23m Improving political landscape in Northern Ireland Lending totalled DKr 40bn end-2005 Growth rate since end-q1 2005: - Retail: 12% -Corporate: 16% Expenses include: - Integration expenses: DKr 349m - Amortisation of intangibles: DKr 374m 2005 Income 1,810 Expenses 1,751 Profit before credit losses 59 Credit loss expenses 36 Profit before tax 23 Profit before tax DKr -106m Growing slightly faster than the market Lending totalled DKr 34bn end-2005 Growth rate since end-q1 2005: - Retail: 27% -Corporate: 45% Expenses include: - Integration expenses: DKr 204m - Amortisation of intangibles: DKr 85m 2005 Income 753 Expenses 855 Profit before credit losses -102 Credit loss expenses 4 Profit before tax

20 TRENDS IN BUSINESS AREAS Mortgage Finance - An excellent year Profit before tax 24% Record-high remortgaging activity driven by low interest rates, rising property prices and product innovation NII up 12% Gross lending dominated by fixed rate loans: 48% (31%) Market share of gross lending: 29.5% (32.0%) 2,800 1, Profit before tax DKr bn Gross lending, nominal volume & market share % DKr bn Loan portfolio (end-period) Y/Y 9% Q/Q 2% 65 Market share Interest-only loans Other loans

21 TRENDS IN BUSINESS AREAS Danske Markets - Increased customer activity Profit before tax 32% Result better than expected Rising interest rates in Q4, strengthened dollar, strong equity markets Customer-driven activities drive profit increase One-offs: DKr 866m (DKr 425m) 4,000 3,000 2,000 Profit before tax 20% Distribution of daily P&L Average quarterly income (Q Q4 2005) High Average Low 15% 10% Prop. trading Trading income % % - + DKr Trading act. Prop. trading Inv. portfolio Inst. banking 21

22 TRENDS IN BUSINESS AREAS Danica Pension (1) - Improvement despite unsatisfactory health and accident result Net income 3% 15% growth in gross premiums Return on investment, customers funds: 12.6% (10.3%) Unsatisfactory technical result in health and accident insurance: 100% of risk result included in Danicas accounts, DKr -74m in risk allowance and DKr -173m in health care business DKr 441m booked from the shadow account Income from insurance business Index Net return on allocated capital Risk allowance 926 1, Unit-linked business Health care business Change in shadow account balance Income from insurance business 1,631 1, Technical provisions (DKr bn) Gross premiums (DKr bn) Share from unit-linked/danica Balance Asset allocation % 15 Return on investment Customers funds Equities 16% Properties 8% 76% Bonds

23 TRENDS IN BUSINESS AREAS Danica Pension (2) - New consolidation model and policy changes Risk allowance: Weightings of risk allowance components changed Unit-linked business (FSA principle): PV of unit-linked provision should be larger than or equal to the policies surrender value Changes in 2006 opening balance sheet: Unit-linked provisions up DKr 0.6bn Deferred tax down DKr 0.2bn Shareholders equity down DKr 0.4bn Return on capital: Full return, not only risk-free return, on allocated capital included in Danicas accounts Risk return on excess capital included in the accounts Overview of changes 2005 practice Future practice + % of life ins. provisions etc Up to % of health/accident ins. result % of risk result % of cost result 30 0 = Risk allowance Sum Sum Return on allocated capital Risk-free Full return Return on excess capital 0 Full return - Risk-free Funding, % on excess capital 0.75% 0.75% Unit-linked etc. PV provisions surrender value 100% of risk result FG Unchanged FD (non-life insurance) Unchanged Change in shadow account balance Unchanged Net income from insurance business Sum Sum Restatement effects 2005 () Risk allowance -151 Return on total capital 154 Unit-linked business -182 Total effect on net income from ins. bus Effect on risk allowance Risk allowance, % of ins. provisions etc

24 Q&A session Press 1 to ask a question Press # to cancel Press Ask a question in your webcast player 24