“Since 1997 we have recorded an improvement in our results and our return on equity every year. We can justifiably point to 2004 as a record result” continued Treichl. “Erste Bank’s consistently strong growth and continuously improving performance in Austria and the Central European markets have been recognised by the financial markets, leading to a current stock market value of more than EUR 10 billion for the first time. As a result of the good performance, the Managing Board has announced that it will ask the Annual General Meeting to approve a one-third increase in the dividend to EUR 0.50 per share”.
Highlights in figures:
When comparing the figures for 2004 with those for the previous year it should be remembered that, since 2004, Erste Bank has adopted IFRS 3 in conjunction with IAS 36 and 38 (goodwill write-offs on pro rata basis no longer apply).
• Net interest income was up from EUR 2,586.8 m to EUR 2,695.5 m (+4.2%)
• Net commission income rose from EUR 996.6 m to EUR 1,141.1 m (+14.5%)
• Operating income climbed from EUR 3,830.9 m to EUR 4,087.9 m (+6.7%)
• General administrative expenses increased from EUR 2,460.8 m to
EUR 2,592.9 m (+5.4%).
• Operating profit improved from EUR 1,370.1 m to EUR 1,495.0 m (+9.1%).
• Annual pre-tax profit increased from EUR 761.6 m to EUR 1,061.1 m (+39.3%).
• Net profit after tax and minority interests was up from EUR 353.3 m to
EUR 544.5 m (+54.1%).
• The cost/income ratio improved from 64.2% (end-2003) to 63.4%.
• Return on equity soared from 13.7% (end-2003, cash RoE 16.6%) to 18%.
• Total assets increased from EUR 128.6 bn to EUR 139.7 bn (+8.6 %).
• Earnings per share increased from EUR 1.49 (adjusted for the share split; cash earnings per share EUR 1.83) to EUR 2.28.
• Core capital ratio as at 31 December 2004 was 6.7% (previous year: 6.3%).
The 9.1% improvement in operating profit to EUR 1,495.0 m was attributable to two positive developments: on the one hand, measures adopted in 2004 to optimise the Group’s structure and processes began to take effect, causing a flattening of the cost curve, especially in the final quarter. At the same time, revenues from the bank’s core business saw further growth, thanks both to strong demand for banking and insurance products in Central Europe and to our successful and consistent implementation of measures in our Austrian business.
As a result, the Erste Bank Group’s operating income was 6.7% higher at EUR 4,087.9 m. General administrative expenses grew by 5.4% in 2004 to EUR 2,592.9 m.
The cost/income ratio further improved in 2004 to stand at 63.4% at the year end.
Loan loss provisions were, as forecast, unchanged on the previous year at EUR 406 m.
Annual pre-tax profit for 2004 showed a 39.3% rise to EUR 1,061.1 m, while the return on equity surged ahead from 13.7% in the previous year to 18%. The contribution to annual profits from our Central European subsidiaries increased to 59% in 2004, from 53.7% in the previous year.
Dividend and profit sharing
“Our excellent results will benefit not only our employees, who will receive a share of the profits under the new salary scheme, but also our shareholders,” declared Reinhard Ortner, Finance Director of Erste Bank. Hence, the Managing Board will propose that the Annual General Meeting approve payment of a dividend of EUR 0.50 per share. This represents a 33.3% increase on the previous year’s dividend (EUR 1.50 per share or EUR 0.375 after adjustment for the share split in 2004).
Outlook
Ortner further explained that “given the strong results in 2004, the successful implementation of our Group Architecture Project as well as the excellent positioning as a retail bank in Europe’s only growth market, we are confident that we will at the least meet our targets for 2006”. Our expectation for 2006 is that Group net profit will reach between EUR 720 m and EUR 750 m and earnings per share will be in the range of EUR 2.98 to EUR 3.11. This gives a target (cash) return on equity of at least 18%, while the cost/income ratio should be no higher than 61% in 2006. We will provide with the presentation of our first quarter 2005 results a more detailed outlook for the year and will elaborate on our group net profit target for 2005 which, on the strength of the 2004 results, will be at least EUR 600m.
“Having systematically and successfully expanded our home market since 1997, in the years ahead we will be extending our regional focus. We aim to achieve growth in the Central European region in those markets which fit with our existing network and in areas which offer the clients real added value,” explained Andreas Treichl, as he outlined Erste Bank’s future acquisition plans.
