Archive 2006 Press-/Ad-hoc Publications

DEPFA BANK raises dividend from € 0.25 to € 0.40 (+60%) - Net profit of € 110 m in the third quarter -

Press and Investor Relations Release

Dublin/Frankfurt, 30 October 2006.

DEPFA BANK plc released its third quarter 2006 results today. The net profit for the third quarter of 2006 amounted to € 110 m, which is below the very good first two quarters of 2006 mainly because of further reduced contributions from the segments Global Markets and Corporate Centre. DEPFA is still on track to achieve its full year Return on Equity (RoE) target of 20-25% after taxes. Current conditions however support an estimated RoE at the lower end of this range. DEPFA continues to place the emphasis on the more sustainable client-facing segments Budget Finance, Infrastructure Finance and Client Product Services. Altogether they constitute 83% of the pre-tax profit of the business segments (excl. Corporate Centre) for the first 9 months 2006 against only 51% for the first 9 months 2005. At the same time total profit before taxation increased from € 478 m to € 494 m. DEPFA BANK plc is planning a substantial increase in dividends from 25 cents per share to 40 cents per share (+60%). After years of a continuous build-up in its equity base this will bring DEPFA's pay-out ratio and dividend yield closer to its European banking peers. At the same time the bank is ensuring that there is ample scope for a further strengthening of capital.

- Third quarter results -

Net interest income remained flat year-on-year at € 101 m, but is lower than the levels of the previous two quarters. The segmental breakdown of net interest income reveals a more encouraging trend. The combined interest income from Budget Finance, Infrastructure Finance and Client Product Services was up 18% year-on-year to € 100 m and was also slightly higher than in the previous quarters this year.

Net fee and commission income increased by € 2 m to € 7 m due to continued growth in liquidity and Letter of Credit (LoC) facilities in the U.S.which is the main contributor to this p&l item. The trading result of € 9 m was down 64% y-o-y, mainly due to negative valuation effects from hedge accounting under IAS 39. The income from sale of assets fell by 25% to € 70 m and related to opportunities arising from credit spread movements of mostly high grade mature market assets. Total revenues fell 16% overall to € 187 m.

The cost income ratio for the third quarter amounted to 28%. Total expenditure was flat y-o-y at € 53 m which underscores DEPFA´s determination to maintain cost discipline even in a phase of continuing investments in the product range as well as in front office and support area manpower. Income before taxes amounted to € 134 m.

Company profile:

DEPFA BANK plc is a leading provider of financial services to public sector clients worldwide. It is a Dublin-based public limited company, incorporated under Irish law, with a network of subsidiaries and branch offices across Europe, as well as in the US, Japan and Hong Kong. DEPFA’s products and services cover the entire range of the public sector’s financing needs whether they be related to budget financing or funding of public infrastructure projects, advising on the rating process associated with the privatisation of public services, debt restructuring, supporting bond placements or extending credit lines. Thanks to its strong focus on the public sector, and its extensive experience with the specific financial, political and social requirements involved, DEPFA is a strong financial partner, and an independent advisor to its clients.

WKN:                         765818 / ISIN: IE 0072559994
Exchange listing:      Frankfurt (MDAX)
Quote symbols:        DEPF.DE (REUTERS), DEP GR (Bloomberg)

Contacts Corporate Communications:

Managing Director
Hanno Strube
Phone: +49 69 92882-271
Hanno.Strube@depfa.com

Investor Relations
Marc Towner
Phone: +49 69 92882-277
Marc.Towner@depfa.com

Media Relations
Henrik Hannemann
Phone: +49 69 92882-275
Henrik.Hannemann@depfa.com

 

 

Segment Reporting

Budget Finance provides the core of the bank’s earnings with income generated from DEPFA´s micro hedged public sector portfolio. Net interest income rose by 11% year-on-year to € 89 m helped by continued steady growth in the asset portfolio. In the underwriting of new business DEPFA has remained prudent. DEPFA´s policy is to add assets to its books that preserve margin stability and the high credit quality of the portfolio while at the same time managing volumes according to existing and expected opportunities. The bank has successfully targeted marketing efforts in certain developed public sector markets where it has been historically underrepresented; notably with UK local authorities and supranational agencies. The United States Municipalities can be added to this list where DEPFA has continued to prosper even in more difficult conditions of falling Municipal debt issuance. Funding activities continued to underpin the profitability of the Budget Finance business. DEPFA’s strong credit profile in the debt markets and ability to attract new investors to its short term and long term funding instruments are instrumental in maintaining the bank’s price competitiveness. Funding costs of money market instruments have remained stable at ca. 6 bps below Euribor for the past 5 years. Covered bond funding costs have improved over the last three years and during the course of 2006 have declined to sub-Euribor levels at a range of -2/-3 bps. Total revenues totalled € 159 m, a 53% increase year-on-year. Income before taxes stood at € 140 m.

 

	Q3 2006 €m	Q3 2005 €m	Variance €m	Variance %
Net Interest Income	89	80	9	11%
Non Interest Revenues	70	24	46	192%
Total Operating Income	159	104	55	53%
Operating Expenses	-19	-20	1	-5%
Profit Before Taxation	140	84	56	67%
Balance Sheet:
Financing Volume (on-balance sheet)	170,980	159,001	11,979	8%
Financing Volume (off-balance sheet)	21,971	16,831	5,140	31%
Average Equity	1,338	1,238	100	8%
Ratios:
Cost/Income Ratio	12%	19%
RoE (pre tax)	42%	27%

The Infrastructure Finance segment has continued the strong upswing in performance that has taken hold since the second quarter of 2006. Net interest income in Q3 has more than doubled year on year to € 12 m. This strong development in earnings has been achieved by a controlled expansion in business volume. DEPFA manages its exposure to infrastructure risk very actively to achieve a well diversified portfolio and an optimal use of capital. The ‘EPIC’ securitisation that was completed in July removed more than € 600 m of risk-weighted assets with the effect already contributing to the improvement in RoE, that has now reached 16%. Syndication and sales in the secondary market also play an integral role in the portfolio risk management process. This has kept the growth in PPP exposures for the year to a measured pace, even though the overall amount of new business underwritten by the IFU in the second and third quarters has been particularly strong. Transaction activity in the third quarter was spread between the US, DEPFA’s strongest growing market for PPP financing, the UK, Italy and France inter alia. The helpful trend towards more robust legal frameworks for PPP contractual arrangements in countries like France generates increased opportunities. Income before taxes reached € 11 m in the third quarter, a significant increase against the comparable period in 2005.

 

	Q3 2006 €m	Q3 2005 €m	Variance €m
Net Interest Income	12	5	7
Non Interest Revenues	3	1	2
Total Operating Income	15	6	9
Operating Expenses	-4	-4	0
Profit Before Taxation	11	2	9
Balance Sheet:
Financing Volume (on-balance sheet)	4,963	1,635	3,328
Financing Volume (off-balance sheet)	1,553	1,057	496
Average Equity	278	125	153
Ratios:
Cost/Income Ratio	27%	67%
RoE (pre tax)	16%	6%

Total operating income of the Client Product Services segment was flat year-on-year at € 7 m, however was lower than the levels achieved in the first half year. Over the first nine month period the long term performance of this area is nevertheless dynamic with total revenues totalling € 48 m over the first 9 months, well in line with the growth expectations for this segment for the year. There is an element of seasonality in the Q3 result. However, a pick-up of client swap derivative transactions, which is the main revenue driver of this segment, can be observed. Furthermore, other product areas are likely to increase their contributions. The further build up of the book of Guaranteed Investment Contracts (GICs), which now has reached US$ 2.2 bn will over successive quarters provide an increasing income stream. The expected launch of AAA rated credit enhanced GIC entities should also give an added spur to growth. The bank has also added a new field in its offering of advisory services to the public sector by setting up a pension advisory unit. Income before taxes was € 1 m.

 

	Q3 2006 € m	Q3 2005 € m	Variance € m
Net Interest Income	-1	0	-1
Non Interest Revenues	8	7	1
Total Operating Income	7	7	0
Operating Expenses	-6	-4	-2
Profit Before Taxation	1	3	-2
Balance Sheet:
Financing Volume (on-balance sheet)	906	0	906
Financing Volume (off-balance sheet)	0	0	0
Average Equity	59	15	44
Ratios:
Cost/Income Ratio	86%	n/a
RoE (pre tax)	7%	n/a

Total operating income in the Global Markets segment declined significantly to € 30 m against the comparable period in 2005. This trend has been underway since the beginning of the year as a result of reduced positioning and the development in the interest rate environment. Going forward there is upside potential from new sources of trading revenues, in particular in the U.S. market where DEPFA can build on its successful BMA trading activity. Income before taxes totalled € 25 m.

 

	Q3 2006 € m	Q3 2005 € m	Variance € m	Variance %
Net Interest Income	10	19	-9	-47%
Non Interest Revenues	20	90	-70	-78%
Total Operating Income	30	109	-79	-72%
Operating Expenses	-5	-8	3	-38
Profit Before Taxation	25	101	-76	-75%
Balance Sheet:
Financing Volume (on-balance sheet)	13,936	9,925	4,011	40%
Financing Volume (off-balance sheet)	0	300	-300	-100%
Average Equity	664	419	245	58%
Ratios:
Cost/Income Ratio	17%	7%
RoE (pre tax)	15%	96%

The Corporate Centre consists of various cost and revenue items that cannot be allocated to the other business segments. In the third quarter the impact of the non-interest revenue items was particularly pronounced, at -€ 15 m. This was caused principally by valuation effects of hedging derivatives that have not qualified for hedge accounting treatment under IAS39. Though the swing was quite large compared to the second quarter, the overall net impact over the year to date shows a much smoother development of + € 7 m.  As in the past net interest income is burdened by expenses for subordinated debt, which unlike Tier 1 hybrid capital issues are not spread between the segments. Profit before taxes in the Corporate Centre showed a negative -€ 43 m result.

 

	Q3 2006 € m	Q3 2005 € m	Variance € m	Variance %
Net Interest Income	-9	-4	-5	125%
Non Interest Revenues	-15	1	-16
Total Operating Income	-24	-3	-21	700%
Operating Expenses	-19	-17	-2	12%
Profit Before Taxation	-43	-20	-23	115%
Balance Sheet:
Financing Volume (on-balance sheet)	4,802	6,644	-1,842	-28%
Financing Volume (off-balance sheet)	0	0	0	-
Average Equity	207	285	-78	-27%

DEPFA BANK plc: group figures third quarter 2006 according to IFRS

 

Earnings	Q3 2006 € m	Q3 2005 € m	Change
Net interest income	101	100	1.0%
Net fee and commission income	7	5	40.0%
Net trading income	9	25	-64.0%
Gains less losses from financial assets	70	93	-24.7%
Other operating income	-	-	-
Total operating income	187	223	-16.1%
Operating expenses	-53	-53	-
of which staff costs	-32	-32	-
of which administrative expenses	-18	-20	-10.0%
of which depreciation and amortisation	-3	-2	50.0%
of which other operating expenditure	-	1	-100.0%
Profit before taxation	134	170	-21.2%
Taxation	-24	-38	-36.8%
Profit for the period	110	132	-16.7%
Key ratios	Q3 2006	Q3 2005
Cost/Income ratio	28.3%	23.8%
Earnings per share €	0.32	0.39
RoE after taxes	17.3%	25.4%
Key balance sheet items	30 Sep 2006	31 Dec 2005
Financing Volume    of which drawn    of which undrawn	219,111 195,587 23,524	205,418 183,947 21,471	6.7% 6.3% 9.6%
Shareholders´ Capital	2,611	2,304	13.3%
Total assets	228,898	228,630	0.1%

DEPFA BANK plc: group figures first nine months 2006 according to IFRS

 

Earnings	9M 2006 € m	9M 2005 € m	Change
Net interest income	318	306	3.9%
Net fee and commission income	24	14	71.4%
Net trading income	112	-111
Gains less losses from financial assets	207	420	-50.7%
Other operating income	-	7	-100.0%
Total operating income	661	636	3.9%
Operating expenses	-167	-158	5.7%
of which staff costs	-102	-99	3.0%
of which administrative expenses	-55	-52	5.8%
of which depreciation and amortisation	-7	-7	-
of which other operating expenditure	-3	-	-
Profit before taxation	494	478	3.3%
Taxation	-110	-101	8.9%
Profit for the period	384	377	1.9%
Key ratios	9M 2006	9M 2005
Cost/Income ratio	25.3%	24.8%
Earnings per share €	1.12	1.10
RoE after taxes	20.8%	24.8%
Key balance sheet items	30 Sep 2006	31 Dec 2005
Financing Volume    of which drawn    of which undrawn	219,111 195,587 23,524	205,418 183,947 21,471	6.7% 6.3% 9.6%
Shareholders´ Capital	2,611	2,304	13.3%
Total assets	228,898	228,630	0.1%

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