Conversion to Meritz Financial Holding Company. June 2010

Transcription

1 Conversion to Meritz Financial Holding Company June 2010

2 Agenda 1 I. Why do we need to convert Ⅱ. Conversion Method Ⅲ. Conversion Effect Ⅳ. Scheduled Date

3 The need to create synergy to secure revenue-based business and maintain stable market position 2 under the current group business line In order to overcome weaknesses of subsidiaries under Meritz group, the creation plan of recapitalization and synergy consolidation is in need to raise the necessary conditions ROE 35.0% 25.0% 15.0% 5.0% -5.0% -15.0% Domestic Non-life insurance, securities, asset management positioning matrix Meritz Securities Meritz Asset management KB Asset Management Meritz F&M Korea Investment Daewoo Samsung Securites Secuties Dongbu F&M LIG Hyundai Marine Mirae asset Management Samsung F&M -0.1% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% (Source: Financial Statistic Information, FY09 3Q Public data) M/S Comparison with other industries Non-life Insurance M/S Share s equity Assets Meritz 8.2% ,800.8 Top 5 Avg 18.1% 1, ,999.6 GAP -9.9% -1, ,198.8 Securities M/S Share s equity Assets Meritz 1.3% ,991.8 Top 5 Avg 7.8% 2, ,147.8 GAP -6.4% -1, ,156.0 Asset Management M/S Share s equity Assets Meritz 0.2% Top 5 Avg 8.6% GAP -8.3% (Source: Financial Statistic Information, FY09 3Q Public data, Unit-bn KRW) Based on 12 non-life insurance (Including Kyobo direct)

4 Need of diversification of financial business to provide comprehensive ensive financial service 3 Enhance customer s s loyalty through one-stop comprehensive financial service, and in order to secure new engines for sustainable growth of the group, diversification of financial business is needed. Function of financial service and business line Operating business Function of Financial service Financial Payment Derivative Credit Deposit Information Non-life Asset Management Financial Investment Sales professional Loan Security Asset Management Insurance Variable Insurance Trust Foreign Exchange Operating Assets Research Consulting bank Life insurance Credit information Savings Loan bank Non-operating operating business

5 Need of proactive measure for division of manufacturing and sales s of financial products 4 - In order to proactively respond to introduction of exclusive sales company for the sales of comprehensive financial products and development of Integrated-type type channel, It needs to strengthen the competiveness of the group s sales company. - Financial holding company which can share customer DB will benefit to take off the sales company. < Exclusive sales company of financial product will be introduced in i 2010> Sales of any kind of financial products are possible Maintain independent status segregated from manufacturer Provide comprehensive financial service through visiting solicitor (=financial product sales plaza) Purpose of new Measure to segregation of manufacture and sales Sales of any kind of financial products are possible Comparison among financial products Reformation of Financial consumer protection system bank Life insurance card loan... Non- life Asset Financial Manage- investment ment Sales subsidiary Individual customer Corporate customer... VIP

6 Limit of diversification of business line 5 There is limit to provide comprehensive financial service as the amounts of investment affordability under the current corporate governance are KRW110 bn ~ 160 bn. Corporate governance and investment affordability Major shareholder 21.4% Meritz Fire Total Investment affordability : KRW155.7 bn Amount invested : KRW143.1 bn (invested to subsidiaries) Remaining amount to invest : KRW 12.6 bn 30.5% 100% 100% 100% Securities Investment affordability - KRW100 bn ~ 150 bn Investment Financial Information serv No affordability to invest Ritz Partners

7 Need to establish the independent management system 6 As Meritz Fire govern the subsidiaries directly, there is a possibility that the risks of subsidiary can spread into F&M s business. Therefore change of the structure of governance is in need for the independent management of subsidiaries. Structure of group governance Fire 30.5% 100% 100% 100% 51% Security Investment IT Ritz Hanjin Korindo 100% Shin dong bang 90% Hwagi invest unlisted (Hong kong) unlisted (China) unlisted (Indonesia)

8 Control Tower s management is in need to improve efficiency In order to improve group s efficiency, Control Tower s strategic role: : restructuring, expansion of new business, the managing role: : prevent risk, trimming down overlapping resources, the operating role: : strengthening business through customers, channels, products is in need Control Tower 7 Management role Strategic role Operating role F&M Securities Asset management Ritz Partners Financial Information

9 Improvement of efficiency through focusing on core competence 8 Improvement of management efficiency by integrating the common roles r to relevant subsidiaries while each company focusing on core competence Core function Common function Holdings Fire Securities Investment Ritz Partners IT Service Outsourcing business plan HR ㆍ IT ㆍ CS plan Marketing ㆍ Supporting Investment/Loan Product Risk management Actuary Compliance Audit IR Finance management Accounting Advertising System operation IT maintenance Purchasing Rent Call center HR Salary Legal service Accounting Real estate Recovery - Brand managing Shared Service Center - Call center Outsourcing company -Maintenance, Rent, Purchasing, Education

10 Agenda 9 Ⅰ. Why do we need to convert Ⅱ.. Conversion Method Ⅲ. Conversion Effect Ⅳ. Scheduled Date

11 Meritz Financial Group as of March 31 st (KRW :Bn : Bn) Meritz F&M Meritz Securities Meritz Asset Management Meritz Financial Information Ritz Partners Asset 6, , Liability 5, , Capital Capital Stocks Net Income * 종금증권 : 종금, 증권합산수치 (e)

12 Meritz Financial Company s Share Structure ( ) 11 Major Shareholder 21.4% Meritz F&M Capital Stocks: KRW61.9 bn Market Cap : KRW bn Treasury: 13.9% 30.71% 100% 100% 100% Meritz Securities Meritz Asset Management Meritz Financial Information Ritz Partners Financial Co Financial Co Non-Financial Co Financial Co Capital : Market Cap : Capital: 15.0 Capital: 1.0 Capital : 10.0 * Meritz Securities stake : includes special account (767,430 shares, 0.2%) * Meritz F&M Treasury : Includes Treasury fund(1,110,550 shares, 0.9%) * Market Cap: Based on

13 Meritz Financial Company s Share Structure ( ) 12 (Unit : Shares, %) Major Shareholder Meritz Asset Meritz Financial Meritz F&M Meritz Securities Ritz Partners Management Information Shares % Shares % Shares % Shares % Shares % 26,500, % 5,013, % Meritz F&M ,851, % 3,000, % 200, % 2,000, % Related Companies 5,400, % 17,955, % ESOP 6,181, % 14,135, % Total Treasury 17,232, % 3,952, % Treasury 16,121, % 3,952, % Treasury Fund Favorable Share 1,110, % ,315, % 135,907, % Others 68,484, % 172,959, % Total 123,800, % 308,867, % 3,000, % 200, % 2,000, % Face Value (unit: won) 500-1,000-5,000-5,000-5,000 -

14 Transformation and Shareholder s structure 13 Splitting part of Meritz F&M subsidiary s s stocks and Treasury, cash assets to establish Holding Company, and after IPO, Holding Company will buy Meritz F&M s shares through tender offer to meet shareholders requirements for holding companies (listed 30%, non-listed 50%) 1 st st step : Meritz F&M Investment Division Split 2 nd nd step : Tender offer for Meritz F&M Exception Hanjin Korindo 51% Asset Financial Ritz Securities Management Information Partners Major Shareholder 21.4% F&M 21.4% 30.5 % 100% 100% 100% 100% MBS 34.4%+α 30.5%+β 21.4% + Investment in kind s exchange shares Major Shareholder Holding Co Investment in kind (Tender offer method) 100% 100% 100% 100% Treasury(13.0%), part of cash asset Division Holding Company Spin offs : After the split, distributing holding company s s shares proportionally to existing shareholders. After -ex) Existing 10 shares (1%), Supposedly using 7:3 split method, = Split to Meritz F&M 7(1%): Holding 3(1%) F&M Asset Financial Ritz Securities Management Information Partners MBS 51% 100% Hanjin Shin dong bang Korindo Ltd 90% Investment Advisory α : Participation of regular shareholder s s in tender offer β : Acquisition of Meritz Securities transferred cash assets transferred

15 Asset Changes 14 STEP 1 : Division (expected date: ) Existing Corporate Cash and Deposits Securities 3,203.8 Loans Tangible Assets Other Assets 1,380.9 Special Accounts Assets Total 6,595.6 Meritz F&M New Corporate Cash 33.2 Securities Meritz Securities Meritz Asset Management 11.8 Meritz Financial Information 3.4 Ritz Partners 8.3 MBS 1.0 Meritz F&M (Existing Co) 65.6 Intangible Assets Total Investment In Kind Meritz F&M s Shares months of time Required. (Unit: KRW Bn) STEP 2 : Investment in Kind (expected date: ) Financial Holdings Cash 30.8 Securities Meritz Securities Meritz Asset Management 11.5 Meritz Financial Information 4.4 Ritz Partners 7.8 MBS 1.0 Meritz F&M (Existing Co) Tangible Assets Intangible Assets Total (*) Fluctuation in Subsidiary s shares are due to Business Guidance s change in 6 months

16 After division- Capital Adequacy & ROE 15 Capital Adequacy - Splitting part of Equity shares of Meritz F&M (its Subsidiaries), Treasury, Cash assets to establish the holding company, Meritz F&M s Asset and Capital will reduce, and therefore RBC and solvency ratio will drop down. However, RBC will surpass its target goal of 170% and maintain 200% within two years. Nov.2010 At Division Point March 2011 March 2012 March 2013 Before After K-GAAP K-IFRS (K-IFRS) (K-IFRS) Solvency Ratio 232.8% 155.2% 159.0% 148.5% - - RBC 264.8% 183.4% 184.0% 173.1% 183.5% 200.0% * From April 1 st 2011, IFRS regulation will be applied: Then only the RBC is used ROE - First year after the division, ROE will drop to a certain degree, but after two years Holding company will manifest higher ROE Meritz F&M plan (FY2010) After Division (FY2010) Meritz Holding F&M+ F&M Co Holding Co Meritz F&M FY2011 Holding Co F&M+ Holding Co Meritz F&M FY2012 Holding Co F&M+ Holding Co 22.5% 25.1% 4.7% 18.7% 33.4% 29.3% 32.0% 30.2% 23.5% 27.6% * Meritz F&M ROE : Adjusted ROE

17 Dividends and BPS Dividends Total Dividends (unit:krw bn) - Rise in dividends per share as a result of decrease in shares and increase in payout ratio (No dividends from Holding company at first year because of limited profit available for dividend) After (FY2010) FY2011 FY2012 Meritz F&M (FY2010) Holding F&M+ Holding F&M+ Holding F&M+ F&M F&M F&M Co Holding Co Holding Co Holding (Unit: KRW) Dividends per share , ,300 Adjusted Dividends * Meritz F&M payout ratio : 30.0% / Holding Co : 20% * Dividends : Meritz F&M: : 0.7 / Holding Co : 0.3 * Meritz F&M(FY2010) original dividends : 30% of payout ratio estimated to figures of FY2010 guidance BPS - BPS will continue to rise. Stock Price moves proportionally with BPS, therefore there are enough capacity for F&M and Holding s stock price to rise Meritz F&M original plan (FY2010) After (FY2010) FY2011 FY2012 F&M + F&M + Meritz F&M Holdings Meritz F&M Holdings Meritz F&M Holdings Holdings (Unit: KRW) F&M + Holdings Holdings 7,445 8,270 7,408 7,989 10,402 9,225 9,918 12,703 11,015 12,009

18 [Reference] Meritz F&M Financial Statement (After) 17 Estimated P/L (Unit : KRW Bn) FY2010 FY2011 FY2012 Earned Premium 3, , , ,655.1 Premium Income 3, , ,112.1 Premium paid Net premium written 3, , ,781.1 Unearned premium carried forward Incurred loss 1, , ,361.1 Refund of long-term insurance policies ,125.5 Net operation Expenses , ,235.7 Increase in premium reserve for longterm savings-type Net increase in policyholder s dividend reserve Increase in catastrophe reserve Underwriting Profit (34.7) (34.7) 4.5 (13.2) Net investment income Total operating profit Net-operating income (4.0) (4.0) (4.0) Net income before income tax Income Tax Net profit

19 [Appendix] Meritz F&M Financial Statement (After) 18 Estimated B/S (Unit : KRW Bn) FY2010, FY2011 FY2012 Operating Assets 5, , ,179.2 Real estate Others 4, ,452.4 Non-operating operating Assets 1, , ,009.8 Accrued bonds Security deposit Deferred Acquisition Cost 1, , ,575.4 Others Separate Account Assets Total Assets 6, , ,553.8 Policy Reserve 5, , ,552.4 Catastrophe Reserve Other liabilities Separate Account Liabilities Total Liabilities 6, , ,669.7 Capital stock Retained Earnings Other Capital Total shareholder s s equity

20 [Appendix] Meritz Financial Holding Co Financial Statement 19 Estimated P/L (unit: KRW mn) FY2010 FY2011 FY2012 Operating income 1, , ,691.9 Equity-method income 1, , ,955.0 Interest income Earnings in Brandusage Operating expense ,011.4 Equity-method loss Interest expense Management cost Total operating Profit 1, , ,680.5 Profit before tax 1, , ,680.5 Income tax (*) Net income 1, , ,565.7 (*) Tax may not occur as dividends income may not be included in taxable income Estimated B/S (unit: KRW mn) FY2010 FY2011 FY2012 Cash and deposit 3, , ,000.0 Securities 27, , ,870.1 Tangible assets Intangible assets Total assets 31, , ,227.9 Loan - 3, ,037.6 Corporate tax payable Deferred tax liabilities 1, , ,091.7 Total liability 1, , ,244.0 Capital stocks 1, , ,768.2 Capital surplus 30, , ,346.4 Capital adj (5,064.1) (5,064.1) (5,064.1) other comprehensive income accumulated 1, , ,309.7 Retained earnings 1, , ,623.7 Total shareholder s equity 30, , ,983.9 Liability portion 3.6% 9.4% 6.5% Holdings portion 64.4% 97.5% 98.0%

21 Other similar cases 20 6 other companies market cap increased using same conversion method - Our method : Spin offs and both holding and - 6 companies : Hanjin Marine, Kolon, Young-won Trade, KISCO Holdings, Humax, KC Green Holdings Changes in market cap after division (unit : bn,, p) Before Hanjin Marine 15,243 After After After 1 month After 6 months Hanjin Marine 1, , ,326.3 Hanjin Marine Holdings Total 1, , ,574.1 G/R 16.6% 29.0% 68.9% KOSPI 1, KOSPI G/R 4.6% 0.2% 3.3% Kolon Kolon 9,988 Kolon Industry Total ,098.5 G/R -5.5% -8.4% 10.0% KOSPI 1, KOSPI G/R -4.7% -4.2% -2.0% * Paid-in capital increase due from kind contribution is not reflected

22 21 Changes in Market Capital after division (unit : bn,, p) Before After After After 1 month After 6 months Young won Trade 5,866 Young-won Trade Holdings Young-won Trade Total G/R -5.6% -7.2% 27.4% KOSPI 1, KOSPI G/R 10.4% 14.5% 15.3% KISCO Holdings 5,544 KISCO Holdings Korea Iron and stell 계 G/R 11.8% -61.7% 5.1% KOSPI 1, KOSPI G/R -9.4% -39.4% -22.6% * Paid-in capital increase due from kind contribution is not reflected

23 Agenda 22 Ⅰ. Why do we need to convert Ⅱ. Conversion Method Ⅲ.. Conversion Effect Ⅳ. Scheduled Date

24 Advantage in entering new biz in aspect of capital raising and investment affordability Investment affordability of KRW350bn by reinstatement of Meritz Fire s investment affordability and raising capital of holding company. Advantage in aspect of capital raising in the case of entering into new business through joint venture. - opportunity costs : KRW8.45bn (capital raising by issuing subordinated bonds : KRW130bn ) 23 Group investment affordability Direct Investment and J. Venture KRW160bn % KRW 350bn Holding s Securities Fire Entering into New Biz Fire Domestic Credit J/V Holdings Securities Domestic Credit J/V Annuity On-line ins. Saving Bank Domestic Credit J/V Before After - New biz interest for issuing subordinated bonds : 6.5%

25 Opportunity to expand new biz according to the ease regulation for Ins. Holdings As Ins. Holdings allowed to have non-financial company, there are opportunities to enter into non- financial business for new business or to establish non-financial company for providing customer services in Group Subsidiary Granddaughter 100% Insurance Company 30%(50%) (O) (O) (O) (X) Financial C. N.Financial C. Exc. Bank, other ins. (X) 30%(50%) Exc. approved company by insurance Act. (O) (O) Insurance Holdings (O) Financial company (O) 30%(50%) (X) (O) 30%(50%) 20%(40%) Exc. Bank, ins. N.Financial C. savings, Investment com., securities (O) (O) Non financial company 100% 100% 100% 100% Incl. relevant company with financing business (X) (X) 20%(40%) (O) 20%(40%) Great Grand Financial C. N.Financial C. Financial C. N.Financial C. Financial C. N.Financial C. Financial C. N.Financial C. daughter Exc. Bank, other ins. Financial C. Exc. Bank, ins. savings, Investment com., securities C. Financial C. N.Financial C. Incl. relevant company with financing business Incl. relevant company with financing business (O) %-listed company, (%)-unlisted company minimum requirement for retention shares (particular rules for ins. Holdings dominance on subsidiary comapny (the regulation for Financial holding company 25))

26 Synergy effect - customer information share Allowed to share customer information for the purpose of business s with holding company according to the law of financial holding company. Creation of various values by combined customer information and strategic development on customer segmentation. Improvement of profit synergy through making use of the customer information among subsidiaries for various sales operation and enhancement of brand values by group joint marketing Effect of Customer information share Effect of joint Marketing Fire - Customer DB : 81,000 persons (Customer DB of Securities) Securities - Customer DB : 2,675,920 persons (Fire Customer DB) Fire Securities Profit by cross sales FY2010 FY2011 FY2012 Total Trust fees Broking fees Total Nb) cross sales profit = incremental u/w profit ratio 9.8%+ incremental investment profit ratio 5.6%(FY2009), incremental u/w profit ratio = 1-(incurred loss ratio 75.5%+ sales costs ratio 14.7%) Assumption 25 (Unit : KRW bn) Sales ratio by TM with auto ins. DB: 2.79%(By Securities DB) Package sales ratio with auto and long term : 7.8% Ratio having over 2 insurance : 30.93% Prem. per person : KRW1.1M, cross sales profit: 15.4% Account open ratio : 1% (Bain&Company s consulting :0.6%) Profit per account KRW41,197, depositary asset KRW26.2M Shinhan life recorded 9.1% higher growth rate than market average during FY04~FY08 after having holdings applied 2% point increase given the branch nos. Incremental profit ratio : 8% Securities having Holdings recorded 2.47% higher results than market in trust fees during FY01~FY04 Weighted average ratio in contributed profit during FY04~FY08 : 78.7% Securities having Holdings recorded 10.7% higher results than market during FY01~FY04 Weighted average ratio in contributed profit during FY04~FY08 : 78.7%

27 Growth opportunity of integrated distribution channel 26 Synergy effect by the growth of integrated distribution channel and the influx of external customer will be improved dramatically according to C.D. Channel frenetic pace of development I.D Channel s customer nos. by year Synergy effect by the influx of external customer Internal Customer External Customers Total FY2011 FY2012 FY2010 2,958 11,831 14,789 FY2011 8,366 33,465 56,620 Incr. custome r nos. Sales / Account nos. Prem. / Deposito ry assets profit Incr. customer nos. Sales / Account nos. Prem. / Depositor y assets Profit note 1) FY ,592 74, ,577 FY , , ,268 FY , , ,859 Fire 11, ,465 1, Securities 11, , Total 11, ,465 1, Note 1) applied sales growth rate for new accounts in FY11 (Fire 25.1%, Securities 7.3% FY11 FY12 Sales growth rate) the influx of external customer will be plus factor in Group joint marketing (internal : external=20%:80%) - Sales ratio by TM with Auto ins. DB : 2.79%, sales by on-line auto ins. - Package sales ratio with auto and long term : 7.8% - Ratio of having over 2 accounts among existing customers : 30.9% - premium per person : KRW71,000 (average premium per person) Customer nos. by year mean new customer

28 Management efficiency through focusing on core competence 27 Synergy effect by strategy share, redundant resource reduction and enforcement of specialty through changing to the management by customer, products and divisions (horizontal ( structure) from the management by subsidiaries (vertical structure) (Unit : KRW bn) Integrated purchase Shared Service Resource relocation Size Cycle Group total FY2010 FY2011 FY2012 Expendable/propertied Large Repetition Savings Customer service Education HR Sub-total Savings Redundant - 10 person 12 person Savings Total Savings Integrated purchase and cost of labor: FY2010-0,FY2011~FY2012 saving 2%, raise in wage 5.5%, minimal resource relocation

29 Estimated Synergy for FY2010 ~ FY Generating synergy by group joint marketing, increase of cross sales and customer information share after holding company. Particularly, Fire and Securities are expected to achieve synergy in profit and cost savings (Unit : KRW bn) (Unit : KRW bn) Synergy Aspect FY2010 FY2011 FY2012 Total Synergy by company Profit Cost Customer information share Marketing Resource redundancy Common (3.1,12.0%) Securities Fire (11.1, 42.8%) (11.7, 45.2%) 소계

30 Comparison of group financial statement after holding company 29 Expected to achieve 42% growth in Asset and 75% in net profit within 2 years after changing into holding company by strategic business plan Total asset (KRW Tn) 42% Net Income (Krw ( bn) 75% C Capital a pi t al (Unit : KRW bn) FY2007 FY2008 FY2009 (before) FY2010 FY2011 FY2012 Asset 6, , , , , ,318.3 Liability 6, , , , , ,997.0 Net worth , , , ,321.3 Net income Synergy Liab. Profit , Ratio % 3.3% 3.4% Against net income Asset Ratio % 0.72% 0.77% Against total asset 주 1) Estimated group business plan for FY2010 ~ FY2012

31 Agenda 30 Ⅰ. Why do we need to convert Ⅱ. Conversion Method Ⅲ. Conversion Effect Ⅳ. Scheduled Date

32 Schedule date Scheduled data can vary depending on application approval time 31 Main Task Year/Month Preparation 1 st st Step May~Aug 2. Preparation for division 3. Board resolution of financial holding company 4. Financial holding s preliminary application and approval 5. Board resolution for division ( (Wed)) 2 nd nd Step Aug~Dec 3 rd rd Step 4 th th Step Mar~June 6. Shareholders meeting for division 7. Division 8. Apply and approval of financial holdings 9. Request re-listing of holding company and IPO 10. Preparatory procedures for kind contribution 11. Board resolution for tender offer and new shares issued 12. Proceed tender offer 13. Follow-up procedures after the completion of tender offer Establish Holding company