Published on March 6, 2014
Capital management, a balanced approach to ensure growth while respecting capitalization and liquidity constraints Deputy CEO presentation
Agenda 1. Insurance businesses 2. General Account 3. Capital Management and Dividend Policy 4. Conclusion FORTIS I 9/25/2009 I page 2
Reminder: key figures first half year 2009 H1 09 H1 08 Change H2 08 263 350 (25%) (319) 35 31 13% (6) Net profit Insurance after minority interests 228 319 (29%) (313) Net profit General (incl. eliminations) 658 * Net profit after minority interests EUR mio Net profit Insurance before minority interests Net profit attributable to minority interests (294) (322) 886 25 (635) - 1,613 (29,025) 886 1,638 (46%) (29,660) 2,475 2,195 13% 2,396 Earnings per share (EUR) ** 0.36 0.75 (52%) (12.38) Net equity per share (EUR) 3.11 12.48 (75%) 2.75 Net result on discontinued operations Net profit attributable to shareholders Weighted average number of shares (mio) Net shareholders’ equity (as per 30 June 09) 7,686 AG Insurance 2,328 Fortis Insurance International 2,616 General (incl. eliminations) 2,742 includes EUR 1.3 bln of discretionary capital (see slide 12) * Of which EUR 534 related to closing transactions with BNP Paribas, the Belgian State and Fortis Bank, as well as a tax charge related to the legal dispute with Fortis Capital Company Ltd ** Based on average number of outstanding shares FORTIS I 9/25/2009 I page 3
Reminder: special items in first half year 2009 results H1 09 net result of EUR 658 mio (including eliminations), mainly due to EUR 697 mio: Capital gain on sale 25 +1 share AG Insurance to Fortis Bank EUR 301 mio: Net-of-tax charge related to legal dispute with FCC Ltd Impact of elements related to transactions closed on 12 May 2009 EUR 482 mio: Valuation call option related to BNP Paribas shares EUR 344 mio: Fair value future quarterly interest payments related to Relative Performance Note EUR 760 mio: Equity investment in Royal Park Investments Net cash position General on 30 June 2009 of EUR 3.0 bn Assuming full redemption EMTN programme and Inflation linked Notes; EUR 1.0 bn outstanding at 30 June 2009 FORTIS I 9/25/2009 I page 4
History of stable underlying Insurance profits* (1) EUR mio Non-Life Insurance Life Insurance 671 564 562 207 61 174 319 390 464 105 501 6 156 228 44 214 184 H1 08 H1 09 -150 2005 2006 2007 2008 Life Insurance result is on average two thirds of total Insurance profit In 2008, total impact of investment losses amounted to EUR 639 mio (AG Insurance EUR 534 mio, and Insurance International EUR 105 mio) In H1 2009 Life result impacted by higher negative impact of financial crisis and Non-Life result down due to weather related events and higher claims in motor and fire * AG Insurance at 100% until 13 May 2009, thereafter 75% FORTIS I 9/25/2009 I page 5
History of stable underlying Insurance profits* (2) EUR mio Insurance International AG Insurance 671 564 118 562 40 76 319 488 553 71 522 228 33 248 195 6 2005 2006 2007 2008 H1 08 H1 09 AG Insurance forms a strong base for total Insurance net profit High recurrence of net profit Net profit 2008 impacted by investment losses (totaling EUR 639 mio) but Fortis Insurance remained profitable AG Insurance recorded H1 09 total negative net-of-tax impact on investment portfolio of EUR 82 mio, one-off tax recovery of EUR 94 mio * AG Insurance at 100% until 13 May 2009, thereafter 75% FORTIS I 9/25/2009 I page 6
Value creation in Fortis Insurance EUR mio Embedded Value development Fortis (in EUR mio) Insurance International 5,364 1,152 AG Insurance* Examples of Value creation in Insurance International: Embedded value development at TaiPing** (in bn HKD) Embedded value development at Millenniumbcp** (in EUR mio) 8.5 4,924 995 1,107 4.6 4,214 3,817 2004 2008 626 2006 2008 Very adverse financial markets caused only limited decrease AG Insurance upstreamed EUR 1.0 billion to the group during 04-08 * AG Insurance at 100% ** Embedded value at 100%; Taiping under local methodology; HKD/EUR 0.0873 at 22 September 2009 FORTIS I 9/25/2009 I page 7 2006 2008
Strong capital position: 229% solvency ratio of Insurance Activities Solvency Capital (Actual) VOBA EUR bn EUR 3.4 bn above Minimum Solvency targets of Fortis Insurance managed at Opco level Strong solvency levels contribute to rebuilding of trust 6.0 Prudential buffer in present circumstances Required Regulatory minimum (Minimum) 0.3 200% 3.7 2.6 Current capitalisation is strong and justified by anticipated growth, local stress tests, local rating, and other considerations (e.g. shareholder agreements) Capital of JV’s in line with agreements made with partner 2.2 1.9 Fortis expects to maintain a minimum capital ratio of 200% A further detailed review of the local capital models could lead to a revision of this target 0.7 AG Insurance Insurance International Total Insurance 194% 327% 229% FORTIS I 9/25/2009 I page 8
Ratings Fitch S&P Moody's A+ A- A2 Stable Stable Negative 9-Jul-09 3-Aug-09 15-Jul-09 A A- NR Stable Stable 9-Jul-09 3-Aug-09 Long-term BBB+ BBB- Baa3 Outlook Stable Stable Developing 9-Jul-09 3-Aug-09 20-Jul-09 AG Insurance Insurance Financial Strength Outlook Last change MilleniumBCP Fortis Insurance Financial Strength Outlook Last change Fortis Holdings Last change * Includes a.o. management contracts of public car parks FORTIS I 9/25/2009 I page 9
Recap Insurance activities Insurance activities have history of stable underlying earnings Life Insurance result is on average two thirds of total Insurance profit Insurance activities are well balanced between profitability in more mature markets and value creation in growth markets The Insurance activities are well capitalised, permitting to regain further stability following an uncertain period and allowing to develop additional growth Fortis expects to maintain a minimum capital ratio of 200% FORTIS I 9/25/2009 I page 10
Agenda 1. Insurance businesses 2. General Account 3. Capital Management and Dividend Policy 4. Conclusion FORTIS I 9/25/2009 I page 11
Balance sheet General Account: a view on liquidity and capital EUR bn, 30 June 2009 Assets Net Cash: EUR 3 bn Passed on Liabilities Discretionary Capital on balance sheet 4.2 0.9 0.5 Royal Park Investments Call option net of tax on BNP P Perpetual loan to AG insurance 0.8 0.5 0.1 Total LT assets & LT liabilities Cash & Cash equivalents Due from Fortis Bank Belgium Other 6.9 ST (EMTN (1.0) + Bank (0.2)) NITSH I & NITSH II RPN(I) Other FRESH Net equity 1.2 0.9 0.4 0.5 1.2 2.7 Total 6.9 Shareholders equity + FRESH Invested in non-current assets on balance sheet Total Capital Contingent asset off balance (Fortis Bank Tier 1 loan, due Sept 2011) Already committed to projects (Tesco JV and Italy) Discretionary Capital * (if available in cash) 3.9 1.4 2.5 1.0 0.2 1.3 EUR bn EUR bn EUR bn EUR bn EUR bn EUR bn Part of discretionary capital will be reserved for prudential reasons in order to ensure liquidity at all times The remainder might allow a number of potential investments currently under consideration and aimed at creating value * Fortis defines discretionary capital as the lower of the available cash and total capital of the General Account corrected for (contingent) illiquid assets and existing investment commitments FORTIS I 9/25/2009 I page 12
General account is carefully managed for value Equity and liquidity carefully monitored General Account contains optionality: On Balance: Value of BNP Paribas option (EUR 482 mio, net of deferred tax liability) Stake in Royal Park Investments (EUR 760 mio) Prudent approach adopted, no value included in balance sheet for: Claim on payment of EUR 301 mio post-tax to holders of Fortis Capital Company Future compensation for exchange of MCS Litigation: Litigation is contingent liability Part of discretionary capital reserved for future uncertainties FORTIS I 9/25/2009 I page 13
BNP Paribas Fortis Bank loan and public offer on Fortis Finance debt Fortis will not take up a EUR 760 mio tranche of a EUR 1.0 bn loan facility provided by Fortis Bank ‒ Facility was granted to refinance acquisition of equity stake in Royal Park Investments ‒ Fortis had until end of September to decide ‒ Taking up this facility would have impacted net interest income negatively and would only temporarily have provided additional liquidity ‒ Fortis has until May 2010 to decide on the remaining EUR 240 mio facility Public offer by Fortis Finance on the European Medium Term Note programme and Inflation Linked Notes announced on 24 September ‒ Amount outstanding at 30 June 2009: EUR 1 bn ‒ Public offer at the same price as the early redemption procedure announced on 8 December 2008 ‒ Positive effect on interest income due to high fixed coupon FORTIS I 9/25/2009 I page 14
Profile of General Account Net interest income is dependent on investment profile of the net cash position Successful public offer on EMTN programme and Inflation linked Notes should increase net interest income Volatility in Treasury and Financial markets mainly driven by the BNP Paribas call option and RPN(I) Excluding volatile items, results will depend on the investment policy for the net cash position. If invested in bonds, higher net interest income could result in a slightly positive net result FORTIS I 9/25/2009 I page 15
Recap General Account Discretionary capital of EUR 1.3 bn. Discretionary capital is the lower of the available cash and the total capital of the General Account corrected for (contingent) illiquid assets and existing investment commitments ‒ Fortis will need to reserve part of the discretionary capital for unexpected events in order to ensure liquidity at all times ‒ The remainder might allow a number of potential investments aimed at creating value currently under consideration Fortis will not take up a EUR 760 mio tranche of a EUR 1.0 bn loan facility provided by BNP Paribas Fortis Bank Announcement of public offer on the European Medium Term Note programme and Inflation Linked Notes on 24 September Objectives: ‒ To carefully manage the General Account for value. Equity and liquidity closely monitored ‒ To optimize capital and liability management ‒ To resolve the legacy issues FORTIS I 9/25/2009 I page 16
Agenda 1. Insurance businesses 2. General Account 3. Capital Management and Dividend Policy 4. Conclusion FORTIS I 9/25/2009 I page 17
Capital Management: allocation of capital A balanced approach to ensure organic and external growth while respecting capitalization and liquidity constraints Invest in businesses Return to shareholders Return to debt holders Support organic growth Pay dividend Buyback of debt To selectively acquire Shares buy-back (is EPS accretive) Limited amount of debt: NITSH I & II, Hybrone and FRESH 1) To strengthen current Businesses 2) To create new partnerships 3) Explore opportunities with BNP Paribas Lowering of cash position could pose liquidity risk Strategic flexibility reduced Potential increase in NAV Positive carry in P&L Also, lowering of cash position could pose liquidity risk Strategic flexibility reduced Find the right balance between risk (including liquidity risk) and return FORTIS I 9/25/2009 I page 18
Ranking of employment of Capital Determine amount of discretionary capital that can be invested, leaving enough buffer to cope with volatility reduces the risk of forced sales Investment in businesses should be preferred as long as returns on investments are expected to exceed cost of equity If no investment opportunities in businesses are envisaged or possible, one should start to redeem capital with highest cost, being equity Key investment criteria Critical size Meaningful contribution Return in excess of cost of equity while taking into account the specificities of the business When evaluating the return generation and the profit contribution of growth businesses, the expected value creation will also be taken into consideration Fortis does not intend a buy back of hybrid instruments at this stage FORTIS I 9/25/2009 I page 19
Profile of expected free cash flows of Insurance businesses Net profit Capital requirement Continental Europe and UK finance the growth of Asia Available for regular dividend Cash flows AG Insurance Cont. Europe UK Asia Dividend target is to pay-out 40% to 50% of the net profit of the Insurance activities FORTIS I 9/25/2009 I page 20
Dividend policy Fortis is committed to pay a dividend in cash for book year 2009 as communicated in May 2009 Future regular dividend streams will depend on cash generation of insurance activities Dividend policy objectives: ‒ Payment in cash ‒ Annual payments Fortis targets to pay out 40% to 50% of the net profit of the insurance activities FORTIS I 9/25/2009 I page 21
Agenda 1. Insurance businesses 2. General Account 3. Capital Management and Dividend Policy 4. Conclusion FORTIS I 9/25/2009 I page 22
Conclusion Strong recurring insurance profits Strong capital position of insurance activities is justified in present circumstances A further detailed review of the local capital models of the insurance activities could lead to a release of capital over time. A minimum solvency ratio of 200% is expected to be maintained Carefully managed General Account could include substantial upside Part of discretionary capital in General Account aims to be invested in businesses to enhance shareholder value Dividend policy to a target pay-out of 40% to 50% of the net profit of the Insurance businesses FORTIS I 9/25/2009 I page 23
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