The Chief Executive Officer
In 2005, Dexia achieved very solid growth in originations, revenues
and net income-Group share. This good performance comes after the record
year of 2004, and furthermore, the symbolic threshold of EUR 2 billion
net income has been exceeded in the ninth year of existence of Dexia
as a Group, remembering that the combined net income of its two
constituents was EUR 481 million in 1996.
Net income-Group share stood at EUR 2,038 million in the year 2005,
up 11.9% above 2004, and earnings per share amounted to 1.87 EUR, up
14.5%. This double digit growth was achieved in a very challenging
environment which has prevailed throughout the year in all the areas
and markets where Dexia operates, and despite the expenditure on
development projects which are expected to bear fruit in the mid term.
An excellent year in Public/Project Finance
It was clear as from the beginning of 2005 that competition would
toughen and that it would bear on origination margins. This has
certainly happened, but it did not prevent Dexia from seizing
considerable amounts of business opportunities offering a risk-reward
profile which responds to Group¿s requirements. Overall, long-term
credit commitments went up by a strong 25.0%, bringing the total book
to EUR 241.3 billion at year end. All the countries where Dexia holds -
or is the process of increasing ¿ market share, contributed to this
good performance. In the historic markets of France and Belgium,
growth of the outstanding commitments was respectively +5.1% and +7.0%;
these are substantial growth percentages in view of the mature
portfolios in those countries. In the newer markets, the progressions
were very strong (Italy: +19.6%; Spain: +30.5%; UK: +46.6%; USA:
+58.7%). This was particularly the case in Eastern and Central and
Eastern Europe where the book now exceeds EUR 3 billion of assets, only
a few months after starting. Particular success was experienced in the
area of Corporate /Project Finance, where outstanding commitments went
up 57.4% in one year to EUR 23.7 billion. Dexia ranks today among the
leading names worldwide in project finance, and is number one in the
fast growing field of Public Private Partnerships (PPP) financing. At
FSA, originations exceeded the USD 1 billion threshold in 2005, going up
9.4% on 2004, whilst total net par outstanding insured reached USD 351
billion, 7.9% above the level at year end 2004.
The financial performance of the business line followed these very
robust commercial trends: underlying net income-Group share went up 14%
in the year ¿ following four consecutive years of double digit earnings
growth -, a progression which contrasts with the frequently
encountered idea of a business where growth is modest. Return on
economic equity stood at a record high 22.7%.
Personal Financial Services: another year of robust growth
Customer assets went up 7.9% to reach EUR 123.2 billion at year end
2005. Not only were the flows of new business very good, but also the
mix of products has shifted in the right direction, with the
off-balance-sheet products progressing at the rate of 16.0% in one
year, by contrast to the balance sheet products. On the lending side,
outstanding volumes amounted to EUR 28.6 billion, up 11.4% in one year,
with a particularly good performance of mortgages (+ 14.6% to EUR 17.1
Here again, the financial performance of the business line was very
robust: underlying net income-Group share was up 13.3%, a very good
performance indeed when one remembers that the business line achieved a
strong double digit growth in the two previous years. Of particular
note is the fact that underlying costs were contained, with a +1.8%
growth in the year, whilst the underlying revenues were up 3.2% during
the same period ¿ despite technical factors that mitigated the revenue
Investment Management and Insurance Services (IMIS): underlying results up 28.6%
Commercial activity was strong at Dexia in 2005, owing to two main
factors: a greater appetite on the part of the clients for
off-balance-sheet products, and a good equity market environment. Dexia Asset Management
had a total book of EUR 90.6 billion at year end, up 26.8% in twelve
months, which was strongly increased both on account of new business
flows (+17.0%) and market performance (+9.8%). The fund administration
business did very well too: total assets under custody amounted to EUR
409.0 billion at year end (+17.5%), setting the scene nicely for RBC
Dexia Investor Services, which started operating in January 2006. Last,
the insurance activities performed strongly, with EUR 3,684 million of gross premiums written, up 22.7% above 2004.
The financial performance of IMIS has been excellent, with
underlying net income-Group share standing at EUR 230 million, up 28.6%
on the previous year.
Treasury and Financial Markets (TFM): growing activity and results
Group funding activities have again been very buoyant this year,
with EUR 29.7 billion new long-term notes issued, making of Dexia one of
the largest private issuers worldwide. Similarly, the Credit Spread
portfolio ¿ which contributes nearly half of TFM¿s revenues - was
increased to EUR 54.9 billion at year end with high credit quality
investments. The large volumes of investments made during the year (EUR
24.3 billion), make Dexia one of the main buyers on the market. The
other desks supplying expert knowledge and market access to Dexia
business lines had, for most of them a very good year, particularly the
Financial Engineering/Derivatives and Securitisation desks, where high
added value products are conceived and packaged.
Overall, the business line produced EUR 267 million underlying net
income-Group share, up 15.4% above 2004, and the return on economic
equity stood high, this year again, at 26.9%
Group overall financial performance was excellent
in 2005, as witnessed by the progression of most of the key indicators
which are monitored in relation to the mid term objectives:
The cost-income ratio stood at 54.0% in 2005, down from its level of 2004 (54.4%). More importantly, the underlying cost-income ratio (i.e without non-operating items) also improved, from 56.1% in 2004 to 55.8% in 2005.
The Return on Equity stood at 20.0% in 2005
(compared to 17.2% in 2004), way above the Dexia¿s term objective of
16.5%. This was of course enhanced by relatively large amounts of
non-operating income in the two years, but it also reflects the
disciplined capital management of the Group.
The Tier 1 ratio went up from 10.0% at the beginning
of the year to 10.3% at year end, despite the high growth momentum of
risk-weighted assets (+11.3% in one year).
All of this combined into good shareholder value, whether looked at through the increase of earnings per share growth (+14.5%, as discussed above), or net comprehensive asset value per share (+18.7% in one year).
In view of this good performance, the Management Board has put to the Board of Directors a proposal for a gross dividend of EUR 0.71 per share, up 14.5% on 2004.
We are optimistic about the future of Dexia, not only for the coming
few years but also on a longer time horizon. While current market
conditions continue to put pressure on margins, the capacity of Dexia to
act swiftly and to identify profitable business opportunities gives it
a strong edge on the market.
We also feel that a large number of markets will open up for Dexia,
which our current strategic review is in the process of identifying and
This gives a lot of prospects for Dexia, and management is eager to transform these opportunities into more value.
Chief Executive Officer
Chairman of the Management Board