UniCredit Group Published Consolidated Financial Results for 2007
OREANDA-NEWS. On 17 March 2008 was announced, that UniCredit Group published consolidated financial results of its performance for 2007.
Normalized pro-forma (1) net profit made ?7,282 million in 2007, an increase of 10.4% YoY.
Proposed dividend of ?0.26 per ordinary share, an increase of 8.3% YoY (?0.275 per savings share).
UniCredit Group (Pro-forma):
Group’s portion of net profit ?6,566 million;
Earnings per share excluding Capitalia ?0.62, +17% YoY. Normalized earnings per share ?0.55;
Core Tier 1 5.83%, an improvement over 2006, despite the impact of the acquisition of ATF in Kazakhstan and Capitalia shareholders’ exercise of withdrawal rights following the merger;
Operating profit ?13,346 million (+11.4% YoY) thanks to the solid performance of the commercial banks3 (+15.3% YoY);
Negligible exposure to US subprime: ?164 million at December 2007 (-?82 million on September 2007);
Cost/income ratio down by 2.6 pp YoY at 55.0%
Asset quality improves:
Net impaired loans down by approximately ?3 billion YoY (-15%);
Coverage ratio of net impaired loans improved (54.5% at December 2007, +3 pp YoY).
The successful integration of Capitalia continues: integration costs of ?1.3 billion expensed in 2007.
UniCredit Group results including Capitalia as of the fourth quarter (merger effective from October 1st 2007):
Group’s portion of net profit - ?5,961 million (+9.4% YoY),
Operating income - ?25,893 million, an increase of 10.4% YoY thanks to the solid performance of net interest income (?14,843 million, +15.4% YoY),
Operating costs - ?14,081 million, +6.2% YoY,
Operating profit - ?11,812 million (+15.7% YoY)
The Board of Directors of UniCredit approved the consolidated results for 20074 which show a net profit of approximately ?6 billion (bn), an increase of 9.4% YoY, and of 14.7% YoY on a like-for-like basis (5). Net profit for fourth quarter 2007 amounted to ?1,232 million (mn).
ROE (6) in 2007 came in at 15.6% (compared to 16.7% in 2006). EVA® (7) generated in the year amounted to approximately ?2.7 bn, compared to ?2.4 bn in 2006 (+12.8% YoY).
The operating profit reached ?11,812 mn, up 15.7% YoY and 11.9% YoY on a like-for-like basis. This significant improvement over 2006 is due both to growth in revenues (which rose 5.5% YoY on a like-for-like basis to ?25,893 mn) and the continuation of cost-containment policies (operating costs grew only +0.6% YoY on a like-for-like foreign exchange and perimeter basis).
Almost all of the divisions made strong contributions to the increased operating profit: once again CEE and Poland’s Markets reported excellent performances (with increases of +28% YoY and +16% YoY, respectively), Private Banking showed strong growth (+30% YoY), while the divisions which made the largest contribution to the consolidated results were Retail, which grew 16.4% YoY and Corporate, which was up by 7.2% YoY. Markets and Investment Banking (MIB) reported excellent results in the first half of 2007 but the market turmoil begun in August 2007 caused operating profit to drop in the second half of the year (-10.6% YoY).
In terms of operating income the growth on a like-for-like basis (?25,893 mn, +10.4% YoY) is mainly attributable to net interest income (?14,843 mn, +9.5% YoY on a like-for-like basis), while net non-interest income was stable (?11,050 mn, +0.7% YoY). The latter is mainly attributable to the performance of the MIB Division: the crisis of the financial markets caused a sharp drop in the Group’s net trading, hedging and fair value income (?1.057 mn, 45.9% YoY on a like-for-like Group basis).
Net interest amounted to ?14 bn: the growth rate (+9.3% YoY on a like-for-like basis) is attributable, on the one hand, to market interest rates which boosted the profitability of deposits and, on the other hand, to a significant increase in lending volumes. Important numbers were recorded by Retail (+7% YoY), Corporate (+4.9% YoY), and CEE (+22.6% YoY). The MIB Division’s performance also stands out (+26.3% YoY) as the Market’ssegment’s losses have been compensated by the performance of the Financing activities.
Net customer loans at December 31st, 2007 grew by 30% YoY, including Capitalia, to approximately ?574 bn. Net Capitalia the stock equalled approximately ?476 bn, +7.8% YoY. The main growth drivers were Corporate (+9% YoY) and the CEE Division (+31% YoY, with strong growth in Turkey and Russia). The leasing and consumer credit product factories also performed well (+25% and +25.7% YoY, respectively, on a like-for-like basis), while mortgages were basically unchanged.
Customer deposits (excluding securities) including Capitalia came in at ?391 bn, an increase of approximately 36% over the previous year. Net Capitalia the stock amounts to ?328 bn, an increase of 14% YoY: once again, Corporate and Retail reported important growth (+20% YoY and +10% YoY, respectively).
Net fees and commissions totalled ?9,430 mn in the year (?2,687 mn in the fourth quarter), an increase of 8% YoY net Capitalia. This included a significant increase in fees and commissions from asset management and administration (which amounted to ?4.7 bn, +12.1% YoY), and especially wealth management (+19.7% YoY). This positive result was achieved despite the drop in the Group’s Asset Management Division’s assets under management which totalled ?258 bn (-7% YoY net Capitalia) at the end of the year. A drop which contrasts sharply with the trend reported in the first half (+9%) and largely attributable to the crisis of the financial markets in the second half which also adversely affected net inflows.
Commissions from forex dealing also grew (+12.7% YoY net Capitalia), as did fees from collection and payment services (?1,509 mn, +6.6% YoY net Capitalia).
The drop in net trading, hedging and fair value income (?1,057 mn, -45.9% YoY on a likefor-like basis) is primarily attributable to the MIB Division (-53.7% YoY) and reflects a market situation which puts serious pressure on investments and trading positions. The division, however, was able to cope with the crisis and limit its losses.The fair value valuation of the Generali option also had a positive impact, recovering ?147 mn over year-end 2006.
Other net income totalled ?563 mn, an increase of ?229 mn YoY.
Operating costs amounted to ?14,081 mn and were in line with 2006 on a like-for-like basis (+0.6%YoY) thanks to a balanced mix of restructuring and efficiencies, on the one hand, and development initiatives, on the other.
Payroll expenses dropped by 1.1% on a like-for-like basis to ?8,210 mn due to the optimisation of human resources, a reduction in the variable compensation linked to MIB’s business results and the effects of the Italian and Austrian pension reforms, all of which offset the increased costs in Eastern European countries associated with network expansion.
Other administrative expenses were slightly below ?5 bn (+4.7% YoY on a like-for-like basis) and were primarily attributable to the opening of new CEE branches (above all in Turkey, Russia and Hungary), the development of Group-wide projects by the Holding (for example, Basel II, Treasury), business expansion in the Divisions (particularly Retail and Corporate) and outsourcing carried out by the GBS Division in Germany.
Amortisation, depreciation and impairment losses on intangible and tangible assets dropped 4% YoY on a like-for-like basis.
The cost/income ratio showed marked improvement. The Group ratio fell from 56.5% at the end of 2006 to 54.4% in 2007.
Provisions for risks and charges amounted to ?663 mn (+ ?190 mn YoY). These good operating results were accompanied by noticeable improvements in credit risk. Net impairment losses on loans and provisions for guarantees and commitments amounted to ?2,152 mn, a drop of 8.2% YoY on a like-for-like basis. This result is attributable to the contribution made by most divisions thanks to the improved credit processes in Italy, Austria and Germany and MIB’s credit quality which resulted in significant recoveries in Germany.
Net impaired loans at the end of 2007 totalled ?16.9 bn (approximately -?3 bn YoY) or 2.95% of total customer loans. Net Capitalia, the total impaired loans/net customer loans ratio (net impaired loans at December 31st, 2007: ?11.7 bn) fell from 3.23% at December 2006 to 2.45% at the end of 2007.
The coverage ratio rose from 48.9% at December 2006 to 52.3% at the end of 2007, reaching 54.5% including Capitalia.
Integration costs, following the mentioned operation with Capitalia, reached ?1.2 bn (8). These costs are largely linked to exit incentives to be paid to surplus staff, as well as the write-off of assets primarily in the IT area. It is important to note that almost all the restructuring costs were charged in 2007 and that the integration process is proceeding even more rapidly than expected at both HQ and divisional levels. Net investment income, which amounted to approximately ?1.5 bn (+30% YoY), is largely attributable to the disposal of equity interests in Mediobanca (approximately ?600 mn), FMS Bank (9) and Borsa Italiana (?290 mn and approximately ?190 mn, respectively).
Income tax for the period reached ?2,677 mn, approximately 30% higher YoY on a like-forlike basis, and includes one-off charges of more than ?360 mn attributable to the net effect on deferred taxes of fiscal reforms in Germany and Italy. The tax rate rose from 26% in 2006 to 28.6% in 2007 despite greater capital gains from the disposal of equity interests in the year.
Net profit, therefore, came to ?6,678 mn (+13.3% YoY on a like-for-like basis).
Minorities at the end of December 2007 grew slightly over the same period in 2006 (?717 mn compared to ?680 mn in 2006).
The Group’s portion of net profit totalled, therefore, ?5,961 mn versus ?5,448 mn in the previous year.
The Group’s portion of net equity amounted to ?57,724 mn (?38,468 mn at the end of December 2006).
In the fourth quarter the four conduits set up by HVB (BUFCO, Black Forest, Arabella and Salome) were consolidated. Bavaria TRR, rather, was not consolidated as it was wound down at the end of February 2008.
The Core Tier 1 ratio rose to 5.83%, slightly higher than the previous year (5.82%) despite the acquisitions made and Capitalia’s exercise of withdrawal rights. Total Capital Ratio reached 10.11% compared to 10.50% at the end of 2006.
At the end of December 2007, the Group’s organisation consisted of a staff10 of 169,816, 143,066 heads net Capitalia (an increase over the 137,197 heads reported in December 2006). This total is the result of a combination of different factors: on the one hand, the reduction of more than 4,200 heads due to outsourcing and rationalisation of the former Capitalia Group companies; and on the other hand, an increase in resources due to the inclusion of new companies in the perimeter of consolidation, in particular ATF in Kazakhstan (5,260 heads) along with growth initiatives primarily in Russia and in Turkey, Retail Italy and in Corporate.
The Group’s network at the end of 2007 consists of 9,714 branches11, including 2,036 Capitalia Group branches (7,357 at December 2006).
Group’s exposure to US Subprime financial instruments isn’t relevant. The Group has US Subprime exposure of ?164 million which is due to investments in RMBS (?89 million) and CDO of ABS with partial US Subprime (?73 million). Further, the Group also has exposures arising from retained interests held by Pioneer Investments for ?1 million and positions for ?2 million arising from investments in Structured Investment Vehicles (SIV).
The Holding UniCredito Italiano SpA has no exposure towards US subprime.
The Board of Directors approved the draft of the financial statements for UniCredito Italiano SpA that showed net profit of ?1,866 million (?3,015 million in 2006).
The Board of Directors proposed a dividend of ?0.26 per ordinary share, an increase of 8.3% yoy, and of ?0.275 per savings share (+7.8% yoy). The dividend, in the amount approved by the shareholders meeting, will be payable as from May 22th 2008, with coupon detachment on May 19th 2008.
Note:
The pro-forma figures are calculated on the basis that the merger with Capitalia was effective as of January 1st, 2007. Please note that the pro-forma income statement was prepared for purely illustrative purposes and is not to be construed, therefore, as representative of the results that might have been obtained had the merger actually taken place at the beginning of the period used as a reference.
Normalized 2007 Net Profit does not include integration costs related to Capitalia (?841 million after tax), the capital gain on the sale of Mediobanca shares (?549 million after tax), the one-off impact of the Italian and German tax reforms (?362 million) and the effect on profit and loss of PPA (-?62 million).
Retail and Corporate banking services, Private Banking and CEE Region.
The commentary refers to the UniCredit Group including Capitalia as of the fourth quarter, when the merger became effective (October 1st 2007). The other changes in the scope of consolidation in 2007 include: inclusion in the HVB Group of three Retail Division subsidiaries (Planethome AG and its subsidiaries Planethome GmbH and Enderlein) and one Private Banking Division entity (Wealth Management Capital Holding GmbH) in H1 2007; the entry of three Aton Group companies purchased by BA-CA in July, as well as of the JSC ATF Bank Group purchased by BA-CA in November; consolidation in the fourth quarter of the four conduits set up by HVB (BUFCO, Black Forest, Arabella and Salome, while Bavaria TRR was not consolidated as it was wound down at the end of February 2008) and the Euro Immo Profil property fund; the exit of Indexchange and HVB Payments & Services GmbH, which were sold by HVB in H1 2007, the exit of LocatRent which Locat sold at the end of August 2007, as well of FMS Bank, sold by HVB in December. Comparison with the 2006 income statement is affected by the sale of Splitska Banka, Uniriscossioni, 2S Banca and Banque Monegasque de Gestion in 2006. The main assets recognized as “Non-current assets and disposal groups classified as held for sale” in the balance sheet at the end of 2007 are those relating to the BPH200 Group.
At same perimeter and constant exchange rates, excluding Capitalia. The 2007 figures do not include the integration costs related to the business combination with Capitalia and the capital gain generated by the disposal of the equity interests in Mediobanca.
Calculated on the basis of the average shareholders’ equity for the period (excluding dividends to be distributed, reserves for AfS assets and hedge cash flows) The fourth quarter shareholders’ equity, in order to ensure comparability with previous periods, is shown net the goodwill resulting from the Capitalia merger.
EVA®: Economic Value Added, equal to the difference between NOPAT (net operating profit after taxes) and the cost of capital.
At UniCredit Group pro-forma level integration costs amount to ?1.3 bn as they include additional ?0,1 billion costs booked by Capitalia in the first nine months of 2007.
FMS Bank is the German securities services company.
“Full time equivalent”, calculated according to a new methodology which does not include unpaid leaves. In the figures reported the Koc Financial Services Group, proportionately consolidated, is included at 100%.
In the figures indicated the companies which are proportionately consolidated, reported the Koc Financial Services Group, are included at 100%. The figure for the branches at December 2006 was restated on a like-for-like basis for the subsequent quarters (approximately 90 additional branches).
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