The Dexia group is holding an Investor Day today in Paris, with four main themes
1. Implementation of the IFRS - Modification of the accounting and analytic
The impacts on management accounts of the reorganization decided in 2004 and
effective in 2005, as well as the impacts of the changeover to IFRS, have been
described by Rembert von LOWIS, Group Chief Financial Officer. The main impacts
are summarized below.
Summary of main IFRS impacts
- Increase of the shareholders' equity in opening balance sheet as of January
- The changeover to the new standards leads to a slight positive increase
of the net income of the first quarter 2004.
- No negative impact is expected from the first application of the IAS 32&39
and IFRS 4 on the shareholders' equity in opening balance sheet as of January
1, 2005, except the impact of the treasury shares which will be deducted from
- The use of the "European Portfolio Hedge" ("carve out")
will allow to appropriately reflect the current sound balance sheet management
in the accounts, with a limited impact in terms of volatility of earnings
- Some activities will generate accounting volatility.
The first time adoption of the IFRS as of January 1, 2004 (except IAS
32, IAS 39 and IFRS 4) leads to an increase by EUR 1,651 million of the group
shareholder's equity (capital and reserves), from EUR 9,790 million under the
previous standards to EUR 11,441 million under the new standards. This increase
stems from (pre-tax impacts):
- General Banking Risks Reserves being now in equity: EUR + 1,793 million
- obligations regarding the pension benefits: EUR - 322 million
- reversal of provisions previously accounted in liabilities: EUR + 136 million
- adjustments on tangible assets: EUR + 24 million
- depreciation of intangible assets: EUR - 45 million
- other adjustments, including tax impacts: EUR + 65 million
Q1 2004 financial results of the group and of its various business lines
under the new referentials were compared to those established under the previous
This comparison underlines that, for the period concerned, whilst the structure
of the income statement differs quite substantially, the net income under IFRS
is only slightly above the one accounted for using the previous standards. Nevertheless
the first quarter 2004 is not representative of the entire year, as certain
expenses are incurred in the second part of the year, and besides IAS 32 &39
and IFRS 4 are not applied in 2004.
The impact of the first application of the IAS 32, IAS 39 and IFRS 4 standards
on January 1, 2005 has been analyzed and more precisely, the classification
of portfolios and the accounting treatment of derivatives in hedge relationships.
The Dexia group has chosen to apply the European Portfolio Hedge ("carve
out") regarding the hedging of its interest risk exposure. This option
allows Dexia to appropriately reflect its current sound asset and liability
management in the accounts, with a limited impact in terms of volatility of
earnings and reserves. However, the changeover to the new standards will cause
accounting volatility related to some activities (in Credit enhancement business
and parts of Treasury and Financial Markets) either because those activities
use derivatives which will be recognized at fair value with adjustments accounted
for in the income statement (such as the Credit Default Swaps insured by FSA),
or because they use derivatives for hedging purposes, with fair value adjustments
recorded in the reserves.
2. New calculation method of Economic Capital
The Dexia group has undertaken to reform its methodology to calculate economic
capital. It did so in view of the forthcoming introduction of new standards
under Basel II, and so as to take the "pillar 2" prescriptions into
account. The reform concerns three main aspects: i) the changeover from the
scenario-based method to a more statistical method; ii) the consideration of
all natures of risk for banking and insurance activities (credit risk, market
risk, exchange risk, operational risk, behavioural risk, …); and finally
iii) the raising of the confidence interval to 99.97%, corresponding the AA/Aa2
criteria of rating agencies, which is the group's objective. The economic capital
was calculated with this new method on the situation at June 30, 2004; it reaches
EUR 8.7 billion and is thus materially below the regulatory capital on the same
date (EUR 10,9 billion as Tier One ratio, and EUR 12,1 billion as total capital
ratio, under current regulatory capital standards).
3. Present situation and prospects for the group's core business: Public/Project
Finance and Credit Enhancement
Part of the investor day consists in presentations of Jacques GUERBER, member
of the Management Board of Dexia, and Chief executive of the business line;
Robert COCHRAN, Chairman & Chief Executive Officer of Financial Security
Assurance (FSA) and Bruno DELETRE, Managing Director of Dexia Crédit
Business results and FSA financial results, disclosed on February 9th, were
discussed. Guidelines and strategies were developed concerning, among other,
the enlargement of the range of products and service, the diversification in
terms of types of customers, and the current and future development of new operations.
4. Performance and financial objectives of the group in the mid-term
Pierre RICHARD, Chairman and Chief Executive Officer of the Management Board
of Dexia, started by talking about the year 2004. He then explained the main
financial objectives of the group for 2007.
Earning growth expectations maintained for 2004
2004 was an excellent year for Dexia in terms of commercial activity as well
as of earning growth, which was predicted early in the year. The expected high
double-digit growth year on year is therefore confirmed both for the underlying
earnings and for total earnings (i.e. including nonrecurring items). The group
also completed its share buy-back objective for the year by reinvesting about
EUR 700 million, representing 4% of the existing shares -which are to be cancelled
upon decision of the next annual general shareholders meeting - and will carry
on its share buy back program in 2005.
FINANCIAL OBJECTIVES IN THE MID-TERM
The main hypotheses and contents of the 2007 plan, presented to the Board of
Directors on February 3rd, have been described at the investor day. The main
financial objectives are: i) an annual average growth of the earnings per share
above 10%; ii) a growth of the dividend per share of at least 10% every year;
iii) bring the cost/income ratio down to about 52.5% in 2007, and iv) achieve
return on equity of 16.5% in 2007.
Pierre RICHARD declared:
"The main objective of our plan is the creation of value. The three
years to come will be dedicated to the achievement of this goal but also to
the preparation of our long-term future, by detecting future growth levers,
while being conscious of our shareholder's increasing requirements in terms
of efficient use of our capital.
Our priorities lie in the growth of the revenues of our business lines -,
based on a targeted and bold commercial development -, on the careful management
of costs and the search of synergies within the group.
Dexia benefits from an excellent visibility on its revenue and results.
This stems directly from the nature itself of Dexia's activities. This fundamental
characteristic of Dexia, and its structural ability to generate wealth, gives
us the capacity, as was the case in 2004, to finance our organic development,
deliver a robust and growing dividend, and make value creating investments."
The documents presented at the Investor Day are accessible on
the website: www.dexia.com.