Under full sail Under full sail KBC Investor Day Prague Prague, 7 December 2006 Asset management, 5 forging ahead Stefan Duchateau CEO, KBC Asset Management
Contents Introduction Some basic statistics General organisation Asset management strategy T/A/SP/I/O Some results Conclusion & outlook 85
Wealth management in KBC AUM as of 30 Sept. 2006 Belgium CEE European Private Banking Merchant Banking AUM: 141.2 bn euros AUM: 9.2 bn euros AUM: 54.1 bn euros AUM: 0.6 bn euros KBC Asset Management managing 150.6 bn euros 86
160 140 120 100 KBC AM: AUM trend 80 60 40 20 0 90 91 92 93 94 95 96 97 Breakdown of AUM & FUM : see appendix (1) Strong organic growth : see appendix (2) 98 Some peers UNION: 147 bn (09/2006) Robeco: 137 bn 99 00 01 02 03 04 05 1Q06 AUM as of 10/2006: 153.6 bn 09/2006 : 150.6 bn 2Q06 3Q06 okt/06 87
KBC AM: general organization Product- and Management platforms Dublin Active equity Tracking error > 5% Luxembourg Bonds Brussels Research Structured products Index tilted equity Sector funds CEE Local Shanghai Coordination Details on organisation : see appendix (3) 88
Current base of AUM Strong volume base Belgium (Flanders) Strong growth base Belgium (Flanders), Central Eastern Europe, 89
Per capita net financial wealth (2003/4, in EUR) 60000 50000 40000 30000 20000 10000 Belgium UK Netherlands Italy France EU-15 (*) Sweden Germany Austria Finland Spain Portugal Denmark Czech Rep. Hungary Croatia Poland Slovakia NE (**) Turkey Bulgaria Romania 0 Source: PFA database (UniCredit Group) Strong volume base 90
Allocation of customer assets in CEE 100% 90% Strong growth base 80% 70% 60% 50% 40% 30% Other Insurance (Life, Pension) Funds+direct investments Deposits 20% 10% 0% CEE AVG Eurozone USA Japan Only 23% of client money in funds/direct investments (Eurozone 1.7x, US 2.3x) CAGR 2001-04: 44% - expected growth rate > 25% 91
Contents Introduction Some basic statistics General organisation Asset management strategy T/A/SP/I/O Some results Home Markets strategy Conclusion & outlook 92
KBC s asset management strategy Competition Shareholder Unique Substantial Strategy concerns the creation of a unique and valuable position, involving a different set of activities Valuable Sustainable Customers Personnel 93
Asset management strategy The phased roll-out of our strategy T A SP I O Targets Analysis Strategic Positioning Implementation Operational Efficiency 94
Clearly defined targets The 150% target: AM s target market share in a home market is the average market share in banking x 150% Financial asset growth >> Economic growth Provide a full range of products: All Weather Portfolio Right time, Right product, Right price, Right customer Provide low-risk, substantial and recurrent income 95
Asset management strategy The phased roll-out of our strategy T A SP I O Targets Analysis Strategic Positioning Implementation Operational Efficiency Deep understanding of the customer s fundamental needs drives our innovation process 96
Asset management strategy Targets Analysis Strategic Positioning Implementation Operational Efficiency Background instruments Key drivers in my industry? Macroeconomic fundamentals Risk-aversion patterns Regulatory issues Manufacturing Linking analysis to targets 97
Targets Analysis Strategic Positioning Implementation Operational Efficiency How to increase market share? Be the fastest mover in the fastest-moving (substantial) segment of the market Fastest mover Strategic Positioning Implementation Operational Efficiency Fastest-moving segment Targets Analysis A real life example of how analysis leads to effective product-positioning 98
Client typology Very def def dyn very dyn 1 2 3 4 5 6 7 8 9 10 11 12 Investment horizon Downside Risk ~0. in 1996 > 35 bn EUR in 2006 99
Global product mismatch 100% Capital Protection? 100% 90% 80% 70% 60% 50% 40% 30% 63% importance little somewhat much 90% 80% 70% 60% 50% 40% 30% 20% 10% 20% 10% Protected 0% 1 Customer needs 0% 1 Product offerings Source : Mc Kinsey & Company, 9 th Annual Investment and Wealth Management CEO conference 01/2006 100
Net inflows in capital-protected structures Constant proportion portfolio insurance 35.000.000.000 An engine for growth 30.000.000.000 25.000.000.000 Option-based portfolio insurance 20.000.000.000 KBC AM Ratio open funds / CGF: ~50/50 See appendix (4) 15.000.000.000 10.000.000.000 5.000.000.000 - sep/06 101 ju n / 0 6 m r t / 0 6 d e c / 0 5 sep/05 ju n / 0 5 m r t / 0 5 d e c / 0 4 sep/04 ju n / 0 4 m r t / 0 4 d e c / 0 3 sep/03 ju n / 0 3 m r t / 0 3 d e c / 0 2 sep/02 ju n / 0 2 m r t / 0 2 d e c / 0 1 sep/01 ju n / 0 1 m r t / 0 1 d e c / 0 0 sep/00 ju n / 0 0 m r t / 0 0 d e c / 9 9 sep/99 ju n / 9 9 m r t / 9 9 d e c / 9 8 sep/98 ju n / 9 8 m r t / 9 8 d e c / 9 7 sep/97 ju n / 9 7 m r t / 9 7 d e c / 9 6
Back to strategy Unique Substantial Valuable Sustainable 102
Targets Analysis Strategic Positioning Implementation Operational Efficiency Variety-based Highly interactive distribution COMMERCIAL BANKS KBC s specific approach design Access-based Needs-based performance PRIVATE BANKING INSTITUTIONAL MARKETS service 103
Targets Analysis Strategic Positioning Implementation Operational Efficiency High Growth Area Balanced funds with floor protection Capitalguaranteed Funds Structured products Real estate funds Special Bonds Hedge funds Special equity Low Growth Area Equity Bonds Low Fee Area Highly instrumental for product-positioning... High Fee Area 104
Implementation Relationship Management Participation Portfolio Committee Marketing Committee Motivational Structures Trailer fees Knowledge transfer Information Processes 548 m EUR in 2006 (15 times the level of 1996) Product Delivery Pro-active positioning Strong focus on ADVICE 105
Targets Analysis Strategic Positioning Implementation Operational Efficiency Attractive Products Conditions Efficient Wrapper Production Cost Knowledge Transfer Good Performance 106
Targets Analysis Strategic Positioning Implementation Operational Efficiency Efficient Wrapper Production Cost Knowledge Transfer Good Performance Attractive Products Innovative approach? Perception? How well can you put innovation into practice? Innovation is not about incremental change, but addresses fundamental needs 100% tuned to network Based on real demand Dedicated product development Minimal time-to-market De-commoditize Allows for innovation premium Innovation product proliferation Innovation implies out-of-the-box thinking 107
Targets Analysis Strategic Positioning Implementation Operational Efficiency Attractive Products Production Cost Knowledge Transfer Efficient Wrapper ICB Unit-linked Mutual funds Discret. Management Efficiency Fiscal treatment Transparency Liquidity Good Performance 108
Targets Analysis Strategic Positioning Implementation Operational Efficiency Attractive Products Efficient wrapper Production Cost Comparison of overall costs to the sample's distribution 2004, bp 70 60 50 40 30 Right-sourcing Manage Complexity KBC Belgium: 5.8 Knowledge Transfer Good Performance 20 10 0 Source: McKinsey European Asset Management Survey 2005 European average 109 19.2
Targets Analysis Strategic Positioning Implementation Operational Efficiency Attractive Products Efficient wrapper Production Cost Knowledge Transfer Good Performance Focus on attributes instead of products Make choices digestible Make complexity approachable Performance measure? Consistency? Advice? 110
Investment ranking over 3 years (30/9/2006) 30,00% 77% of funds under management are ranked in the first two quartiles All funds 25,00% 20,00% 17,04% 22,65% 12,87% 18,27% Normal Distribution 15,00% 12,34% 10,00% 5,00% 5,84% 3,55% 4,78% 2,28% 0,39% 0,00% 1 2 3 4 5 6 7 8 9 10 111
Performance? How good was your performance? 100 The answer should be relevant to your client base Did you also advise your clients to invest in your (past) outperformers? 90 80 70 92% 94% 60 Balanced funds provide the acid test On a 3-year basis, 92% of our balanced funds rank in the first 2 quartiles On a 1-year basis, 94% of our balanced funds rank in the first 2 quartiles 50 40 30 20 10 50% 50% 0 3 Y 1 Y 112
Testing our strategy Products? Unique But most of all: Our people At AM level At sales-support level At branch level 113
This is us 114
Example : ČSOB ads follow KBC AM practice and include personalised pictures of IAs. 115 8
Testing our strategy Market share? (Growth) Unique Substantial Valuable Sustainable 116
117 Market share, Belgium 10 15 20 25 30 35 40 dec/93 mrt/94 jun/94 sep/94 dec/94 mrt/95 jun/95 sep/95 dec/95 mrt/96 jun/96 sep/96 dec/96 mrt/97 jun/97 sep/97 dec/97 mrt/98 jun/98 sep/98 dec/98 mrt/99 jun/99 sep/99 dec/99 mrt/00 jun/00 sep/00 dec/00 mrt/01 jun/01 sep/01 dec/01 mrt/02 jun/02 sep/02 dec/02 mrt/03 jun/03 sep/03 dec/03 mrt/04 jun/04 sep/04 dec/04 mrt/05 jun/05 sep/05 dec/05 mrt/06 jun/06 KBC: 33.92% Source : BeAMA
Market share Value share? Δ market share(1996-2006) Δ = 250 m EUR recurrent annual No. 1 in Cap.-guaranteed 54% No. 1 in Equity funds No. 1 in Bond funds No. 1 in Balanced funds 118
Market share, CEE 30,0 25,0 20,0 15,0 Total = 9.4 bn EUR 2002Q1 2006/09 10,0 5,0 0,0 Republic Republic Czech Hungary Slovak Poland 119
50% more approach Czech Hungary Slovak Poland Republic Republic Effective AM market share: 2002Q1 10% 6% 5% 5% 2006/09 27% 18% 10% 4% Banking market share 18% 12% 5% 5% Target AM market share 27% 18% 8% 8% AM activities were highly instrumental in achieving (helping to achieve) overall targets setfor M&A operations (30/10/2006: Local official professional sources ) 120
Rolling out our strategic concept 80 Market share in capital-guaranteed funds (local markets) 70 60 71 66 Cap guar 50 54 40 42 45 30 20 10 0 Slovak R. Czech R. Hungary Belgium Poland 121
Testing our strategy Unique Substantial Valuable Sustainable Sales 122
Total sales, 2000-2005 20 2005 total: 17.3 bn EUR (10/2005: 13.4 bn) 2006 total: 13.6 bn EUR 18 16 14 12 10 8 6 4 2 0 2000 2001 2002 2003 2004 2005 For details, see appendix (5) and (6) 123
Capital-protected Products 3Q 2006 Continuous Re-engineering Improved market conditions 124
More testing Are we creating Shareholder Value? Unique Substantial Valuable Sustainable 125
Revenue creation, AM activities (in m euros) Est. 2006 Management income * 645 Management costs -46 Administration fees 30 Allocated to KBC Administration costs -31 distribution networks Distribution fees 286 Direct collection by KBC distribution network Other income 24 Total 908 * incl. financial results KBC AM 126
Testing our strategy High Potential Industrial mapping KBC AM AM Low Potential Cannot add value Can add value Natural Owner Source = McKinsey & Company: Next 2006 127
Conclusion & outlook In 2007-09, AM s earnings contribution is expected to grow at 10-15% p.a. Successful implementation of our strategy in CEE countries: Most important targets have already been reached AM offers economies of scope / scale / financial diversification and synergies vis-à-vis the Group s strategy Continued strong position in Belgium: High savings rate and general product acceptance provide further room for growth, even from a platform with high market share Operationally effective and efficient Strategy for non-home markets: China: Oct. 06 license, strategic positioning in CGF USA: EAFE, high yield equity Germany / Spain / Taiwan / Hong Kong 128
Appendix (1) KBC Asset Management Assets under management Breakdown Funds under management Breakdown Institutional 23% Private 24% CEE Retail 47% Real Estate Hedge Funds 0,7% 0,4% Money Market 5,3% Balanced 23,7% Capitalguaranteed Structures 33.6% Equity 13,4% Fixed Income 22,9% 129
Appendix (2) :KBC: an organic growth story Financial news, September 2006 Growth: 01/2000 09/2006 Asset Manager Growth % KBC AM 342% Bridgewater Associates US 500 GMO UK 362 Union Investment GER 233 Dimensional advisors US 206 AIG Global Investment US 204 Capital Group US 197 Lord Abbett US 194 Russel Investment US 189 Eaton Vance US 188 130
Appendix (3) KBC, general organisation Brussels Lux Dublin London Prague Budapest Warsaw Bratislava Shanghai New York Global Products Design X Local Products Design X X X X X X X Sales Support X X X X X X X X X Administrative Functions X OS OS OS X X X X X Global Products Management X X X Local Products Management X X X X X X X X 131
Appendix (4)KBC, open funds relative to CGF 132
Appendix (5) KBC, total sales 2005-06 In thousands of EUR 3500000 2005 2006 3000000 2500000 2000000 1500000 1000000 500000 0 jan/05 feb/05 mrt/05 apr/05 mei/05 jun/05 jul/05 aug/05 sep/05 okt/05 nov/05 dec/05 jan/06 feb/06 mrt/06 apr/06 mei/06 jun/06 jul/06 aug/06 sep/06 okt/06 133
Appendix (6) KBC, capital-protected issues in bn EUR 14 12 CPPI OBPI 10 8 6 4 2 0 2000 2001 2002 2003 2004 2005 2006/10 134