Adjusted for-non-recurring results, amortisation of goodwill and cost price adjustments, the operating
results was € 212 million, compared with € 124 million in 2003, an increase of 71%. All business lines
showed substantial improvement in their performance.
Shareholder’s equity before profit appropriation and proposed repayment from other reserves amounted
to € 1.9 billion, down 11% from 2003. The decline stemmed from dividend distribution and repayment of
reserves to the shareholders, totalling € 400 million, partly compensated by the profit for the year 2004
and fair market revaluation of equity participations and commercial property not used by NIBCapital. If
the proposed distributions (as explained on page xx) are approved by the General Shareholders Meeting
on 31 March 2005 the shareholders’s equity will amount to € 1.6 billion.
OPERATING RESULTThe table below shows the details of NIBCapital’s operating result.
OPERATING INCOMEIn 2004, operating income increased 22% to € 435 million. This increase reflects the focus of NIBCapital on more client and distribution related income. Interest margin remained flat while commission income and other revenues rose with 90% to € 166 million. The increase in non-interest income from 25% to 38% of total income comprises the following items:
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An increase of commission income with 25% to € 43 million. This increase stemmed mainly from a
growth in assets under management to € 4.9 billion.
Result from financial transactions more than tripled to € 90 million as result of higher income from
structured credit trading, results on loan portfolio trades, active roles in distressed debt restructuring and
increased income from client driven derivatives and hedgefund related transactions, partly compensated
by detoriating results realised by NIBC Petercam Derivatives. Furthermore, the realised results of the SBU
Principal Investments improved substantially compared to 2003.
OPERATING EXPENSESIn 2004, NIBCapital’s operating expenses amounted to € 167 million, up € 34 million (25%) from 2003. The increase in personnel expenses was largely due to increase in FTE’s in the consolidated strategic partnerships and an increase of compensation costs, including higher Stock Appreciation Right costs, which are accounted for in NIBCapital’s profit & loss account. The average number of Full Time Equivalents (FTE’s) in active service increased 6% to 673 in 2004 compared to 2003 (637). This includes a growth of FTE’s in the consolidated partnerships of around 25 FTE’s and a growth of around 10 FTE’s in the Netherlands and the wholly-owned foreign offices. Other administrative expenses rose 7% to € 46 million, which is fully attributable to the expense of the IFRS project costs, excluding these costs, other administrative expenses dropped 2% due to tight cost control and savings from rationalisation of corporate processes. The increased depreciation charge is due to higher level of ICT Investments and full refurbishment, including new dealing room, of The Hague Offices which was completed in the first quarter of 2005. Value adjustments to receivables dropped significantly to an € 18 million release in 2004 compared to a € 68 million loss in 2003. This is a reflection of the current business environment and the tightening of the credit risk policies since 2000. The effective tax rate increased to 26% compared to 21% in 2003. The decrease of the share of tax exempted income in total income, in combination with the management decision not to recognise certain deferred tax assets, explain this increase. In 2004, the operating profit per FTE almost doubled in 2004 to € 425.000, while the efficiency ratio remained stable around 38%, compared to 2003.
RESULTS BY STRATEGIC BUSINESS UNIT
The overview below gives a breakdown of the operating results before taxation per SBU and the
comparative figures for the year 2003.
The SBU Operating results before tax are shown after pre-tax minority interest. Further details per
SBU are shown on page XX to XX.
NET PROFIT
Net profit increased to € 175 million from € 74 million in 2002. On the basis of the structural operating
profit, the other results components are summarised below.
The non recurring results in 2004 include the results from the events announced in the post balance sheet
events in the 2003 Annual Report. These events are:
SPIN-OFF NIB CAPITAL PRIVATE EQUITY N.V.Following a further review of the group’s strategy in 2003, management has decided to position NIBCapital Private Equity, as a stand-alone company. This transaction completed the optimisation of the financial structure of NIBCapital. On January 20, 2004 NIBCapital signed a restructuring agreement between NIBC and its shareholders, the ABP & PGGM pension funds. This agreement states that the shares of NIBCapital Private Equity will be distributed as repayment of share premium in kind. The approval for this repayment was received on the Shareholders Meeting of 1 April, 2004. Following the above, NIBCapital Private Equity has no longer been consolidated as from 1 January 2004, hence we have excluded the results of NIBCapital Private Equity from the 2003 operating result in this management analysis and included the contribution of NIB Capital Private Equity in 2003 and the result of the spin-off in 2004 of € 246 million as non-recurring results. GOODWILL IMPAIRMENT
In addition NIBCapital has included a goodwill impairment of € 246 million in the 2004 Annual Accounts. This impairment is based on a internal valuation analysis of the remaining business. The capitalised goodwill is related to the acquisition of De National Investeringsbank N.V. in 1999 and Alpinvest Holding N.V. in 2000. All cost price adjustments have been fully amortised as at 31 December 2003, hence the amortisation of cost price adjustments are nil in 2004. The decrease in minority interests to € 4 million positive relates to strategic partnerships NIBC Petercam Derivatives, NIBC Wealth Management and Harcourt Investment Consulting. BALANCE SHEET AND RATIOS The risk profile of NIBCapital is translated into economic capital criteria formulated by management. Economic capital is defined as visible shareholders’ equity of the company, less capitalised goodwill plus the fund for general banking risks, the estimated value of NIBCapital Private Equity (only in 2003) and issued hybrid capital. The difference between the allocated economic capital and the available economic capital can be used for dividends and growth and expansion. The table below shows the maximum distribution over the various risks as well as the allocated and available economic capital over 2004 and 2003. The economic capital framework has been further refined during 2004. For comparison reasons the 2003 numbers have been adjusted, however the totals remained almost unchanged.
In the table above the economic capital for mortgages exceeds the maximum. This is temporary. Planned
securitisations in the first half of 2005 will bring the economic capital allocation below the maximum.
Total assets of NIB Capital at year-end 2004 amounted to € 24.9 billion, up 16% on year-end 2003
(€ 21.6 billion). Of the increase in total assets, € 3.4 billion stemmed mainly from growth of the
residential mortgage activities (€ 4.1 billion). Of this growth € 1.9 billion stemmed from governmentguaranteed
mortgages under Nationale Hypotheek Garantie. Other assets remained, on balance, relatively
stable.
Shareholder’s equity before profit appropriation and proposed repayment from other reserves amounted
to € 1.9 billion, down 11% from 2002. The decline stemmed from dividend distribution and repayment of
reserve to the shareholders, totalling € 400 million, partly compensated by the profit for the year 2004 and
fair market revaluation of equity participations and commercial property not used by NIBCapital.
The capital ratio, i.e. shareholders’ equity as a percentage of total assets, was about 7.4% at the end of
2004, a 24% decline compared to year-end 2003. This however should be seen in the light of the allocated
economic capital (as explained on page xx), which shows that the use of economic capital remained relatively
stable from 2003 to 2004. Because NIBCapital believes that in the near future no substantial additional
capital is needed to grow the current business a € 300 million dividend distribution is proposed in
these Annual Accounts. After dividend distribution the Tier-1 ratio will be 10.7%, which NIBCapital believes
is a strong and comfortable level. If no dividend distribution would have been proposed in the 2004
Annual Accounts, the Tier-1 level would remain at the same level as 2003 (12.8%).
The net earnings per share increased to € 6.42 in 2004 from € 2.71 in 2003. For the evaluation of the
realised return on shareholders’ equity, the specific accounting policies of NIBCapital must be taken into
consideration. In particular the capitalisation of goodwill paid on acquisitions and the recognition of the
costs of option schemes on the profit and loss account distort comparison with most other financial
companies. The operational return on net asset value, defined as the operating result divided by the
average sum of economic capital less hybrid capital gives a ratio that is more suitable for comparison
purposes within the financial sector. The operating return on net asset value increased from 6.4% in 2003
to 12.2% in 2004, which exceeds the original 2007 target of 10% in the Medium Term Action Plan.
NIBCapital proposes to pay out the full net profit for the year 2004 (€ 175 million) as cash dividend. In
addition, NIBCapital proposes to distribute € 125 million cash dividend from the other reserves. The total
proposed pay-out amounts to € 11.02 per share. If the proposed distributions are approved by the General
Shareholders Meeting on 31 March 2005, shareholders’ equity will amount to € 1.6 billion.
The graph below shows the development of NIBCapital’s Risk weighted assets and realised return. The
return of 1.46% is the highest return since 1999.
