Highlights in figures:
– Net interest income was up from EUR 657.7 m to EUR 681.2 m (+3.6%)
– Net commission income rose from EUR 280.5 m to EUR 311.1 m (+10.9%)
– Operating income climbed from EUR 1,009.0 m to EUR 1,055.1 m (+4.6%)
– General administrative expenses increased from EUR 643.1 m to EUR 658.9 m (+2.5%).
– Operating profit improved from EUR 365.9 m to EUR 396.2 m (+8.3%).
– Pre-tax profit increased from EUR 255.1 m to EUR 292.9 m (+14.8%).
– Net profit after tax and minority interests rose from EUR 93.7 m to EUR 160.3 m (+71.1%).
– The cost/income ratio improved from 63.7% (at Q1 04) to 62.4% (YE 04 63.5%).
– Return on equity was 18.0%, up from 12.9% (at Q1 04) (YE 200417%).
– Total assets increased from EUR 139.6 bn (YE 2004) to EUR 148.2 bn (+6.0 %).
– The core capital ratio improved from 6.7% (YE 2004) to 6.8%.
– Quarterly earnings per share rose from EUR 0,39 to EUR 0,67 yoy.
(From 1 January 2005 the revised IASB standards IAS 32 (Financial Instruments: Disclosure and Presentation) and IAS 39 (Financial Instruments: Recognition and Measurement) are binding. These principally affect how the securities business is presented and how loans are valued. In accordance with the transitional provisions, the values stated for the previous year had to be restated. The rates of change shown here refer to these comparative values. Details of the change-over to the revised IFRS standards were explained in a news release dated 3 May 2005, which can be downloaded from the Erste Bank website at www.erstebank.com.)
I. Performance in detail
Overall, the operating income climbed 4.6% from EUR 1,009.0 m to EUR 1,055.1 m.
The operating profit (operating income minus general administrative expenses) rose 8.3% from EUR 365.9 m to EUR 396.2 m in the first quarter of 2005.
The cost/income ratio (general administrative expenses divided by operating income) improved from 63.7% in the same period 2004 to 62.4% in the first quarter of 2005.
The other operating result was EUR –2.0 m, largely unchanged on the first quarter 2004 figure of EUR –2.6 m. The first quarter 2005 result showed a higher contribution from securities outside the trading portfolio, up from EUR 14.6 m to EUR 28.5 m.
Pre-tax profit registered a 14.8% rise from EUR 255.1 m to EUR 292.9 m.
In spite of a higher pre-tax profit, taxes on income fell by 19.7% to EUR 68.8 m.
The decrease in minority interests in the quarterly results is mainly attributable to the increase in the shareholding in Slovenska sporitelna and the non-recurrence of profit arising from last year’s sale of the Group’s property insurance businesses in the Czech Republic.
As a result of these changes the Group net profit after tax and minority interests for the first quarter of 2005 rose significantly by 71.1% from EUR 93.7 m in 2004 to EUR 160.3 m.
The subsidiaries in Central Europe contributed 68.4% to the Group’s net profit for the first quarter. Quarterly earnings per share rose from EUR 0,39 to EUR 0,67 yoy.
Return on equity (RoE) based on the Group net profit after tax and minority interests was 18.0% in the first quarter of 2005, against 17.0% for the whole of 2004.
II. Outlook
Erste Bank is well on track to achieve its goal of a Group net profit of EUR 750 m in 2006. This translates into a target (cash) return on equity of at least 18% and a cost/income ratio of no higher than 61% in 2006.
Erste Bank Hungary is now aiming for a RoE of at least 20% in 2005, the target ROE of at least 25% in 2006 remains unchanged.
III. Segment reporting
(Comparisons with the first quarter of 2004 or the end of 2004 are between restated figures only. Results published by group entities are not directly comparable with those reported here, as they, amongst other elements, include equivalent refinancing costs.)
AUSTRIA
This segment reported profit growth of 3.5%, up from EUR 61.1 m in the same period last year to EUR 63.2 m. There was a marked rise of 8.8% in net commission income, mainly driven by stronger securities business in the Retail & Mortgage and Trading and Investment banking as well as project finance business in the Large Corporates segments. In addition, the cost-cutting programme launched last year led to a 1.4% decrease in general administrative expenses, down from EUR 410.8 m to EUR 405.1 m. Some of this positive performance was offset by reductions in net interest income in the Savings Banks and Treasury segment (due to structural factors), although the cost/income ratio improved from 65.4% to 65.2%. Return on equity in this segment fell from 14.3% to 13.1%, due to the increase in total attributed equity capital.
CENTRAL EUROPE
Èeská spoøitelna
Net profit increased by EUR 22.7 m or 51.9% on the previous year, from EUR 43.8 m to EUR 66.5 m. In addition to a 15.5% rise in net interest income due to the expansion of the lending business, net commission income was also up significantly on last year’s very high levels (+19% to EUR 72.6 m). The net trading result saw a similarly pleasing development, in particular in the area of securities business and interest rates derivatives. The substantial improvement in other operating income can be attributed largely to profits gained from the revaluation and disposal of other assets available for sale. Thanks to a very positive earnings trend and the favourable development of the CZK/EUR exchange rate (+8%), the operating result increased by almost 18% to EUR 92.3 m. The cost/income ratio improved from 60.2% to 59.6% and return on equity was slightly down from 42,4% to 41,4%.
Slovenská sporiteµòa
The two major influences on the results of Slovenská sporiteµòa in comparison with the first quarter of 2004 were the absence of minority interests following the increase in the Erste Bank stake in SLSP to 100%, and the extremely positive net commission income result. Net interest income recorded only marginal growth of 0.3% , reaching EUR 45.6 m for the quarter. Moderate growth from credit business, lower interest rates and higher refinancing costs associated with the purchase of SLSP remaining shares, were the main drivers. Commission income rose by 27.6% to EUR 19.2 m on the same period last year thanks to positive developments in the payment services and the lending business. Partly due to negative currency effects, general administrative expenses increased by EUR 3.2 m to EUR 41.7 m. The operating result however, still rose almost 6%. The improvement in other operating income can be attributed to the proceeds generated by the sale of fixed income securities. As a result of these developments, return on equity increased from 40.1% to 50.7%, while the cost/income ratio saw a slight rise from 60.5% to 61.1%.
Erste Bank Hungary
EBH saw a significant increase in earnings in all areas compared with the first quarter of 2004. Net interest income rose by EUR 8.3 m or 21.5% compared with the same period last year, due largely to strong advances in the credit business. Commission income benefited predominantly from increases in payment services and securities business, rising by EUR 4.8 m or 41.4% . These above-average rates of growth coupled with a moderate increase in general administrative expenses (+3.5% to EUR 42.4 m) caused the operating result to increase significantly, rising by over 76%. Return on equity rose to 28% to 39.9%, while the cost/income ratio improved from 70.8% to 58.7%.
Erste Bank Croatia
Operating income increased by 24.2% on the previous year to EUR 15.8 m. Due to an increased business volume, interest income rose by 38.2% to 27.4 m, while commission income – above all in the area of payment services – increased by 42% to EUR 4.6 m. The significant decline in the trading result (EUR 0.1 m, following EUR 4.5 m in the same period of last year) is due mainly to the valuation of derivative positions. The significant increase in risk provisions can be attributed to several special factors that came into play in 2004, including the reduction of the percentage for general provisions by the Croatian National Bank from 2% to 0.8% and the introduction of a new rating system. These changes resulted in the one-off release of provisions last year. General administrative expenses rose by EUR 1.5 m or 10.2%, primarily as a result of the planned expansion of the bank’s branch network. Return on equity fell to 15.9%, due in part to an increase in allocated equity capital, while the cost/income ratio improved significantly from 53.8% to 50.8%.
