- Net profit of € 693 million with growth of 48.7% YoY (including € 200-million capital gain on "Serenissima"), +10.5% vs. 4th quarter of 2004
- Operating profit of € 1,209 mn (+13% YoY, +7.6% vs. 4th quarter of 2004) thanks to contribution of all Divisions
- Strong volume growth: customer assets under management +9.4% YoY (+5.2% vs. December 2004), customer loans +10.4% YoY (+3.0% vs. December 2004)
- Constant increase of market shares:
- Lending at 10.88% in March 2005 (+5 bp vs. December 2004)
- Mutual funds in Italy at 14.7% in April 2005 (+16 bp vs. December 2004) - since March UCI No.2 player in market
- Improvement of Cost/Income ratio to 55.4% vs. 57% in 1st quarter of 2004
Today the Board of Directors of UniCredito Italiano approved consolidated results for the first quarter of 2005 (1Q05).
1Q05 ended for the Group with net profit of € 693 million (mn), with an increase of almost 50% over the same period in the previous year (€ 466 mn in 1q04). This result benefited from a capital gain of some € 200 mn coming from sale of the 20.3% interested owned in the company Autostrada Brescia Verona Vicenza Padova (the "Serenissima" motorway operator).
ROE was 21.6% in annualised terms and at a level of 15.4% net of extraordinary profit items.
The Group's total revenues rose to € 2,712 mn, with a 9% increase over 1Q04 (+7.8% net of the foreign exchange (forex) effect) as a result of robust growth of both net interestincome (€ 1,299 mn, +8.9% reported and +7.4% at constant exchange rates) and of net non-interest income (€ 1,413 mn, +9.1% reported and +8.2% net of the forex effect). (1)
Growth in net interest income excluding dividends (€ 1,274 mn, +7.1% YoY) - in the presence of limited variations in interbank rates since the beginning of 2004 - was strongly fuelled by a positive trend in volume intermediated. The reported quarterly trend (-2.3% vs. the last quarter of 2004 (4Q04), -0.1% at constant exchange rates) was affected by an adverse forex effect, which in practice fully explains the slippage vs. 4Q04.
Customer loans net of repos (repurchase agreements) and totalling € 139.6 bn, grew by 10.4% YoY (by about +12% YoY including loans securitised by Locat) and by 3.0% vs. 2004 year-end. During the first quarter UniCredit Banca also undertook major securitisation of performing mortgage loans (about € 3 bn). These were reclassified as at the end of March among "other types of loans" pending settlement of the operation by the legal vehicle - which affected the dynamics of the other technical types involved. Net of the effects of this operation, mortgages continued to feature robust growth, still positively influenced by the real estate market's trend and by low interest rates, with an increase of 4.1% QoQ and of 19.7% YoY. Lastly, loans relating to financial leasing contracts grew by 2.1% vs. December but were down vs. March 2004 due to the securitisation transaction undertaken at the end of September 2004.
The market share of our Italian business units showed further progress, rising to 10.88% at the end of March vs. 10.83% at the beginning of the year, and vs. 10.79% in March 2004. In the medium-/long-term segment market share was 10.73% vs. 11.05% in December and 10.74% in March 2004. Considering also the securitised mortgages, market share would be 11.13% in March 2005.
Total net customer doubtful loans amounted to € 5.0 bn, increasing by 2.8% vs. December 2004 (+1.9% YoY).
The total net doubtful loans/total loans ratio decreased from 3.49% at 2004 year-end to 3.46%, with the coverage ratio substantially stable at just over 48%. Going into greater detail, the ratio of net non-performing loans to total loans decreased from 1.87% in December 2004 to 1.84% with a coverage ratio stable at 60.2%.
Direct deposits reached a level of € 160.1 bn, increasing by 2% in the quarter. Indirect deposits totalled € 264.9 bn, i.e. € 11.6 bn higher than at the end of December (+4.6%), with a 7.3% increase over March 2004. Within indirect deposits, there was a positive trend of both administered assets (+3.7% QoQ and +4.6% YoY) and managed assets (+5.6% since the beginning of the year and +10.1% in the 12-month period).
Net non-interest income amounted to € 1,413 mn (+9.1% YoY reported, +8.2% at constant exchange rates), driven by the significant progress of commissions and other net income, set against a moderate decrease in profits from financial transactions (trading).
Net commissions remained just slightly above the high levels of 4Q04, with an increase of +9.1% vs. 1Q04 (+8.7% at constant exchange rates). This growth was driven both by wealth management and securities in custody fees (+8% YoY) and by commissions for other services (+11.1% YoY), among which we highlight a marked increase in those for loans granted and received (+26.3%), thanks to the results achieved by UBM in its finance arrangement business.
Among wealth management and securities in custody fees, there was significant recovery of those relating to dealing, placement and other services for administered securities (+14.3% YoY), buoyed up by the activity of the Group's investment bank, and of those for managed discretionary accounts (+29%) - confirming the success of the eminently customisable lines launched in 2004. Lastly, further progress was also shown by fees and commissions on mutual funds (+4.8%) linked to the increase in inflows and assets, whilst commissions on insurance products picked up (+5.5%) after the downturn reported in 2004.
Profits from financial transactions (trading) - following the physiological stabilisation experienced in 2004 after a 4-year period of outstanding growth - were substantially confirmed at the same levels as in 1Q04 (-1.7%). They were also tangibly higher, thanks to favourable 1Q seasonality reflecting customers' definition of their budgets, than in the previous quarter (+66%) and also than the 2004 quarterly average (+15.7%).
Other net operating income increased by € 50 mn (+24.4%) vs. 1Q04 (+21.4% at constant exchange rates).
Operating costs (€ 1,503 mn, +6% YoY and +4.7% at constant exchange rates) were only slightly higher than the 2004 quarterly average (€ 1,485 mn, +1.2%).
Within operating costs, personnel costs (€ 883 mn, 5.5% YoY or 4.5% at constant exchange rates) increased due to (a) higher costs for the MBO system - stemming both from good performance in 4Q04 and from high provisioning for the current year, and (b) the impact on 1Q05 of recent renewal of the Italian national collective labour contract for the banking industry. These components were only partly absorbed by the decrease in total headcount since March 31st 2004 (-848 employees).
Over a third of the increase in other administrative expenses (€ 518 mn, +9.1% YoY reported, +7.7% at constant exchange rates) is explained by higher indirect taxes and duties which increased by 25.8% vs. 1Q04 following increases envisaged as part of the Italian Finance Act. Net of this item the YoY increase was 6.5% (5.3% at constant exchange rates).
The cost/income ratio thus improved in 1Q05 to 55.4% vs. 57% in 1Q04 (vs. 57.3% in FY2004).
Group operating profit in the first quarter rose to € 1,209 mn, higher not only than in 1Q04 (+13% reported, +11.8% at constant exchange rates) but also than in 4Q04 (+7.6%).
All Divisions made a positive contribution to the Group operating profit growth.
Total amortisation and provisions in the quarter amounted to € 328 mn vs. € 272 mn in 1Q04. We specifically note:
- Amortisation of goodwill and of positive consolidation differences totalling € 70 mn vs. € 71 mn in 1Q04
- Provisions for risks and charges of € 43 mn, as opposed to € 10 mn in 1Q04, for risks relating to revocations, litigation underway, and other risks. The increase was mainly attributable to the Corporate Division
- Loan-loss provisions and provisions for guarantees and commitments, net of write-backs, totalling € 214 mn, vs. 192 mn in 1Q04. The increase (€ 22 mn or 11.5%) was basically due to higher loan-loss provisioning by the Retail Division, which was also due to significant lending growth
- Write-downs of financial assets, net of write-backs, amounting to € 1 mn, as opposed to net write-backs of € 1 mn in 1Q04.
Extraordinary items generated net extraordinary income of € 207 mn, inclusive of the capital gain - already mentioned earlier - of € 200 mn made on sale of the equity interest in the "Serenissima" motorway, vs. € 2 mn in 1Q04
Income tax, totalling € 348 mn, increased by 17.6% over 1Q04, benefiting, as in the previous year, from the effects of consolidated tax return. The tax rate, as a percentage of pre-tax profit decreased to 32%, also by virtue of the tax-exempt capital gain on the "Serenissima" disposal, as compared with 37% in 1Q04.
Net profit for the quarter rose to € 740 mn vs. € 504 mn in 1Q04 (+46.8%). After minority interests' profit of € 47 mn (vs. € 38 mn in 1Q04), Group net profit thus amounted to € 693 mn vs. € 466 mn in 1Q04 (+48.7%).
Group net equity as at March 31st 2005 amounted to € 14,797 mn (vs. € 14,036 mn as at 2004 year-end).
The estimated Core Tier 1 ratio was 7.36% at the end of March 2005, stable vs. December 2004. The estimated Total Capital Ratio was 11.47% (vs. 11.64% in December 2004).
As at the end of March 2005, the Group's organisation (2) consisted of a staff of 68,300 employees (-271 heads vs. December 2004 and -848 heads YoY) and of a network of 4,455 bank branches (+13 vs. 2004 year-end, -36 YoY).
As up to the end of March 2005 the Retail Division reported a net profit of € 187 mn (+48.4% vs. 4Q04 and +47.2% vs. March 2004).
Total revenues in 1Q05 amounted to € 1,178 mn, up by 1.8% 4q04 and by +15.9% vs. 1Q04, thanks to the positive contribution of both net interest income and of commissions and other net income.
Going into greater detail, the Division's net interest income totalled € 627 mn (+11.6% YoY). This trend was partly the result of slight recovery of remuneration rates (average 1-month Euribor up by + 4 bp) but was above all underpinned by good volume performance. Customer loans (€ 58.2 bn) in fact grew by +16.2% vs. March 2004, driven in particular by the medium-/long-term segment (growth of over 17% YoY and +3.3% QoQ, with loan payouts of over € 2 bn).
As regards asset quality, the Division's total net doubtful loans amounted to € 2.2 bn, +1.7% vs. December 2004 with a net doubtful loans/net total loans ratio that decreased from 3.86% in December 2004 to 3.82% in March 2005. The net non-performing loans/total net loans ratio was 1.97% (vs. 1.95% at 2004 year-end).
Direct deposits amounted to € 66.9 bn (-0.3% since the beginning of the year, +4.4% vs. March 2004), of which about € 45.2 bn consisting of customer deposits, up by 6% YoY and by 1.6% QoQ.
Net non-interest income (including profits from financial transactions (trading), fees & commissions and other net income) amounted to € 551 mn (+1.5% vs. 4Q04, +21.3% YoY). Besides the growth of other net income (higher charge-backs to customers following introduction of a higher rate of contract stamp duty), the YoY increase in net non-interest income was mainly due to net fees and commissions.
Going into greater detail, fees and commissions (+22.2% YoY) was basically driven by higher revenues on sales of asset management products, as well as by higher management fees, financing services, and the contribution of consumer credit products (Clarima). The positive results achieved in the quarter as regards non-interest income were also the consequence of the good trend in customer assets, with indirect deposits rising to € 123.6 bn at the end of March, up by 2.7% since the beginning of the year and by 3.5% YoY. Similar growth was also featured in the managed segment (up by 2.5% since the beginning of the year and by 3.6% vs. March 2004, mainly thanks to the contribution of managed discretionary accounts and bancassurance) and in the administered segment (which grew by 2.9% QoQ and by 3.4% YoY, due to the strong drive in loan bond sales).
Operating costs totalled € 762 mn (+2.6% vs. 4Q04, +5.8% YoY).
The increase in personnel costs (€ 403 mn, +3.9% vs. 4Q04, +4.4% vs. 1Q04) was affected by the higher cost of the 2004 MBO system (about € 13 mn), whereas excellent demanning progress (-769 heads vs. March 2004) basically absorbed the impact of renewal of the national collective labour contract. Substantial stability was shown by other administrative costs and by depreciation and amortisation of tangible and intangible fixed assets (€ 359 mn, € +4 mn vs. 4Q04), thanks both to cost management action already partly started in recent months and to planned activation of some project expenses only as from the second quarter. We note that the item includes the 2005 increase of contract stamp duty, which had an impact of € 12 mn in the first quarter. Net of this item, other administrative costs would have been lower than in 4Q04.
Operating profit thus amounted to € 416 mn, up by 0.5% vs. 4Q04 and by +40.5% YoY.
Provisions and net write-downs in the quarter totalled € 94 mn, of which € 83 mn relating to loan-loss provisions, in line with accounts for 4Q04. The YoY increase (+51.6%) was instead due both to (a) higher provisioning for performing loans following growth of lending and (b) progressive alignment with the standards required by the Basel II Accord, as well as to (c) increased coverage of doubtful loans.
As at March 31st 2005 the Retail Division had 24,721 employees (-415 vs. 2004 year-end, -769 vs. March 2004) and a retail banking network of 2,741 branches (-1 vs. 2004 year-end and -87 vs. March 2004).
Corporate & Investment Banking Division
The Corporate & Investment Banking Division ended 1Q05 with a net profit of € 251 mn, up by 3.7% vs. March 2004 and showing marked acceleration (+20.7%) vs. 4Q04.
Total revenues (€ 764 mn) showed a YoY increase of +5.5% (+17.5% vs. 4Q04), mainly thanks to the trend of commission and other net income (€ 169 mn, +36.3% YoY, +9.7% vs. 4Q04). This reflected the development of services to enterprises, confirming the enhanced relational capacity of the Division's companies vis-à-vis the corporate world.
Net interest income totalled € 362 mn, down by -2.7% YoY. This was totally due to the securitisation transaction of some € 3 bn undertaken by Locat in September 2004. The quarterly trend in net interest income was substantially stable (-0.8%) reflecting an increase in the Division's customer loans net of repos (€ 63.8 bn, +1.4% vs. December 2004) and slight shrinkage of spread.
Profits from financial transactions (trading) were at levels close to those of a year ago, i.e. € 233 mn in March 2005 vs. € 228 mn in March 2004 (+2.2%), reflecting sales of derivative products stabilised at physiological levels in relation to the market scenario.
The Division's net doubtful loans amounted to € 1.9 bn (+7.9% vs. December 2004) and net non-performing loans to € 1.1 bn (+1.4% vs. 2004 year-end). The net doubtful loans/total net loans ratio was 2.73% (vs. 2.60% in December 2004), whilst the non-performing loans/total net loans ratio was 1.62% (vs. 1.65% at 2004 year-end).
The Corporate Division's customer deposits, net of repos, totalled € 12.1 bn, with growth of 10.9% YoY (+2.4% vs. December 2004).
Operating costs amounted to € 221 mn (+3.3% YoY) and the cost/income ratio was 28.9% (29.6% as at March 2004).
Operating profit rose to € 543 mn (+6.5% YoY, +29.9% vs 4q04).
Provisions and net write-downs amounted to € 121 mn, with an increase of 13.1% YoY, also reflecting substantial forfeitary provisioning for performing loans.
As at the end of March 2005 the Corporate Division had 243 branches and 5,269 employees (-40 heads YoY, -26 vs. 2004 year-end).
Private Banking & Asset Management Division
The Private Banking & Asset Management Division ended 1Q05 with a net profit pertaining to the Group of € 97 mn, showing strong growth over 1Q04 (+44.6%).
Operating profit totalled € 132 mn, much higher than that of 1Q04 (+32%) and in line with that achieved in 4Q04.
More specifically, total revenues rose to € 312 mn (+10.2% YoY), thanks to growth of net interest income (+3.8% YoY) and to an increase of 10.9% YoY of net non-interest income (commissions and other net income).
The latter were positively affected by an increase in average total assets managed by Pioneer (+9.5% YoY), accompanied by an improvement in asset mix (higher incidence of hedge funds) and by higher productivity of Xelion's financial advisors (per-head AUM up from € 4.9 mn to € 6.2 mn, +26.5%).
A further positive impact came from the contribution of UPB and Xelion up-front fees, in turn driven by higher sales volume.
Operating costs (including depreciation & amortisation of € 6 mn) totalled € 180 mn, down by 6.7% YoY (-1.6% vs. 4Q04). In particular, personnel costs (about +5% YoY) felt the impact of renewal of the national collective labour contract, of the increase in highly skilled resources, of the business' international development, and of the incidence of the variable compensation component.
There was a significant decrease in other expenses and amortisation, both vs. 1Q04 (about -7%) and vs. 4Q04 (about -12%). These decreases were partly explained by the different seasonality of some discretionary expenses and partly by efficiency enhancement, thanks also to rationalisation of non-strategic companies stemming from acquisition of ex-ING assets.
The cost/income ratio was 57.7%, with significant improvement versus both the previous quarter (by about 2 percent points) and 1Q04 (by an impressive 7 percent points).
The Private Banking & Asset Management Division managed and administered € 178.6 bn of financial assets (some +11% YoY, +3.8% vs. 4q04) with an increase in the weight of the managed component from 79% in December 2004 to 79.4% in 1Q05.
The increase in total assets, also aided by the performance of the financial markets, was the result of net inflows in all the Division's business units.
More specifically, Pioneer Investments ended 1Q05 with net sales of € 3.3 bn with a positive contribution made by Italian and foreign operations. Total assets under management rose to € 135.7 bn, with growth of +4.6% vs. December 2004.
Xelion achieved a total net inflow in the quarter of € 450 mn, with a 17% market share, confirming the company's leadership in the sales network sector (source: Assoreti - the Italian association of sales networks).
New Europe Division
During the first quarter of 2005 the economies of New Europe countries featured an increasingly sound and sustainable growth trend.
Below we analyse the Division's main P&L and balance sheet highlights, quantified on the basis of constant exchange rates.
In 1Q05 the New Europe Division reported a net profit of € 150 mn, of which € 103 mn pertaining to the group, with an 18.1% increase vs. 1Q04 (+3.4% vs. 4Q04).
Total revenues amounted to € 475 mn, growing by 7.5% YoY (-1.2% vs. 4Q04). Net interest income (€ 292 mn) increased by 6.2% YoY, mainly thanks to good volume performance of both loans and deposits in all the Division's banks. Within loans, there was buoyant growth of mortgages (€ 2.2 bn, +25.7% YoY), leasing (€ 0.44 bn, +46.6% YoY), and consumer credit (€ 1.6 bn, +25.2% YoY).
The Division's customer loans (3) amounted to € 15.0 bn, growing by 15.9% YoY and by 5.0% vs. December 2004. Customer deposits (4) totalled € 23.1 bn (+4.2% YoY, substantially stable vs. December 2004).
Net doubtful loans totalled € 855 mn (-19.6% YoY, -5.0% vs. December 2004) whilst net non-performing loans amounted to € 371 mn (-13.5% YoY, -1.7% vs. December 2004). The net doubtful loans/net total loans ratio improved from 6.3% at 2004 year-end to 5.7% in March 2005, whilst the net non-performing loans /net total loans ratio remained substantially stable at 2.5%.
Net non-interest income (€ 183 mn) showed growth of 9.6% YoY, confirming the banks' effective commercial policy and development of sales of asset management products (mutual funds +34.3% YoY).
Operating costs increased by 6.7% YoY, primarily because of the increase in personnel costs (+6.6% YoY). This in turn was mainly ascribable to KFS due both to (a) an increase in headcount stemming from the opening of new branches and (b) alignment of minimum salary levels with the high levels of inflation. Other expenses and amortisation featured an increased of 6.8% mainly to support organic growth of minor banks or those featuring a marginal presence. In terms of efficiency, the cost/income ratio was 53.5%, improving both vs. 1Q04 (53.8%) and vs. December 2004 (55.2%).
Operating profit amounted to € 221 mn, up by +8.3% over 1Q04.
The numerous projects and actions designed to improve the entire lending process led to a significant reduction in net write-downs and provisions (€ 33 mn, -10.8% YoY). As stated, there was also clear improvement in the ratio between total doubtful loans and total customer loans, which was 5.7% vs. 8.0% in March 2004 and 6.3% in December 2004.
As at March 2005 the Division's employees totalled 27,702 (5) (+134 heads vs. December 2004 and -118 heads vs. March 2004) whilst its branches (6) totalled 1,305 (+18 vs. December 2004, +25 vs. 1Q04).
It is pointed out that the present quarterly report has been prepared according to the accounting standards used to prepare 2004 year-end financial statements. The Group plans to adopt international accounting standards (IAS) on occasion of its 2005 First Half Report as per the requirements of Article 81/2 of the Italian Issuer Regulation, i.e. according to present requirements with the addition of tables reconciling figures with those calculated according to IAS. The project for the switch to IAS, illustrated in the Annual Report, is proceeding according to plan.
(1) USD/Euro: +5.1% in quarter, -5.7% in 12 month period; zloty/euro: stable in quarter, +16% in 12 month period
(2) KFS has beeen considered at 50%. With KFS on a 100% basis total employees would number 70,376 whilst bank branches would total 4,546
(3) Net of repos
(4) Net of repos
(5) (6) Including KFS at 50%. With KFS included on a 100% basis, employees total 29,778 heads and branches total 1,396
Attached are the Group's reclassified balance sheet and P&L account and the key figures of the Group and Divisions. It is recalled that certification of quarterly reports by the independent auditor is not envisaged.