under full sail
TRANSCRIPT
Under full sail…
Under full sailKBC Investor Day – Prague
Asset management, forging ahead…5
Prague, 7 December 2006Stefan Duchateau
CEO, KBC Asset Management
85
Introduction
• Some basic statistics• General organisation
Asset management strategy
• ‘T/A/SP/I/O’• Some results
Conclusion & outlook
Contents
86
Wealth management in KBC
Belgium CEE MerchantBanking
EuropeanPrivateBanking
AUM:0.6 bn euros
AUM:54.1 bn euros
AUM:9.2 bn euros
AUM:141.2 bn euros
AUM as of 30 Sept. 2006
KBC Asset Managementmanaging 150.6 bn euros
87
020
4060
80100
120140
160
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 1Q062Q063Q06okt/06
KBC AM: AUM trend Some peersUNION: 147 bn (09/2006) Robeco: 137 bn
Breakdown of AUM & FUM : see appendix (1)Strong organic growth : see appendix (2)
09/2006 : 150.6 bn
AUM as of 10/2006: 153.6 bn
88
KBC AM: general organization
DublinActive equity
Tracking error > 5%
BrusselsResearch
Structured productsIndex tilted equity
Sector funds
Coordination
LuxembourgBonds
CEE
Shanghai
Local
Product- and Management platforms
Details on organisation : see appendix (3)
89
Current base of AUMStrong volume base
• Belgium (Flanders)
Strong growth base• Belgium (Flanders), Central Eastern Europe, …
90
Per capita net financial wealth
0
10000
20000
30000
40000
50000
60000
Belgium UK
Netherl
ands
Italy
France
EU-15 (*
)Swed
enGerm
any
Austria
Finlan
dSpa
inPort
ugal
Denmark
Czech
Rep
.Hun
gary
Croatia
Poland
Slovak
iaNE (*
*)Turk
eyBulg
aria
Roman
ia
Source: PFA database (UniCredit Group)
Strong volume base(2003/4, in EUR)
91
Allocation of customer assets in CEE
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CEE AVG Eurozone USA Japan
Other
Insurance(Life,Pension)Funds+directinvestments
Deposits
Strong growth base
Only 23% of client money in funds/direct investments (Eurozone 1.7x, US 2.3x)
CAGR 2001-04: 44% - expected growth rate > 25%
92
Introduction
• Some basic statistics• General organisation
Asset management strategy
• ‘T/A/SP/I/O’• Some results
Conclusion & outlook
Contents
Home Markets’strategy
93
KBC’s asset management strategy
UniqueUnique
ValuableValuable
SubstantialSubstantial
SustainableSustainable
Competition
Customers
Shareholder
Personnel
Strategy concerns the creation of a unique and valuable position,involving a different set of activities …
94
Targets Analysis Strategic Positioning
Implemen-tation
OperationalEfficiency
Asset management strategyThe phased roll-out of our strategy
T A SP I O
95
Clearly defined targetsThe ‘150%’ target:
• AM’s target market share in a home market is the average market share in banking x 150%
• Financial asset growth >> Economic growth
Provide a full range of products:• ‘All Weather Portfolio’
• Right time, Right product, Right price,…Right customer
Provide low-risk, substantial and recurrent income
96
Targets Analysis Strategic Positioning
Implemen-tation
OperationalEfficiency
Asset management strategyThe phased roll-out of our strategy
T A SP I O
Deep understanding of the customer’s fundamental needs drives our innovation process
97
Asset management strategy
Key driversin my industry ?
Background ‘instruments’
Macroeconomic fundamentalsRisk-aversion patterns
Regulatory issuesManufacturing …
Linking analysis to targets
Targets Analysis Strategic Positioning
Implemen-tation
OperationalEfficiency
98
Be the fastest mover in the fastest-moving (substantial) segment of the market …
– Fastest mover
– Fastest-moving segment
StrategicPositioning
Implemen-tation
OperationalEfficiency
Analysis
How to increase market share … ?
Targets
A real life example of how analysis leads to effective product-positioning…
Targets Analysis Strategic Positioning
Implemen-tation
Operational Efficiency
996
5
4
3
2
1
01 2 3 4 5 6 7 8 9 10 11 12
Very def def dyn very dyn
~0…. in 1996> 35 bn EUR in 2006
Investment horizon
Downside Risk
Client typology
100
Global product mismatch
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1
little
somewhat
much
importance
63%
Customer needs
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1
Product offerings
Protected
Source : Mc Kinsey & Company, 9th Annual Investment and Wealth Management CEO conference 01/2006
Capital Protection?
101
-
5.000.000.000
10.000.000.000
15.000.000.000
20.000.000.000
25.000.000.000
30.000.000.000
35.000.000.000
dec/96
mrt/97
jun/97
sep/97
dec/97
mrt/98
jun/98
sep/98
dec/98
mrt/99
jun/99
sep/99
dec/99
mrt/00
jun/00
sep/00
dec/00
mrt/01
jun/01
sep/01
dec/01
mrt/02
jun/02
sep/02
dec/02
mrt/03
jun/03
sep/03
dec/03
mrt/04
jun/04
sep/04
dec/04
mrt/05
jun/05
sep/05
dec/05
mrt/06
jun/06
sep/06
Net inflows in capital-protected structures
Constant proportionportfolio insurance
Option-based portfolio insurance
An engine for growth …
Ratio ‘open’ funds / CGF: ~50/50See appendix (4) KBC AM
102
Back to strategy…
UniqueUnique
ValuableValuable
SubstantialSubstantial
SustainableSustainable
103
Targets Analysis Strategic Positioning
Implemen-tation
Operational Efficiency
design
service
performance
distribution
INSTITUTIONALMARKETS
COMMERCIALBANKS
KBC’sspecific
approach
Needs-based
Access-based
Variety-based
Highly interactive
PRIVATEBANKING
104
Low FeeArea
High FeeArea
High GrowthArea
Low Growth
Area
Capital-guaranteed
Funds
Structured products
Hedgefunds
SpecialBonds
Balanced fundswith floorprotection Special
equity
Realestatefunds
EquityBonds
Highly instrumental for product-positioning...
Targets Analysis Strategic Positioning
Implemen-tation
Operational Efficiency
105
ImplementationRelationship Management
InformationProcesses
Product Delivery
MotivationalStructures
Knowledgetransfer
Portfolio CommitteeMarketing Committee
Trailerfees
Participation
Pro-active positioningStrong focus on ADVICE
548 m EUR in 2006(15 times the level of 1996)
106
AttractiveProducts
EfficientWrapper
ProductionCost
KnowledgeTransfer
GoodPerformance
Conditions
Targets Analysis Strategic Positioning
Implemen-tation
Operational Efficiency
107
Innovative approach ?• Perception?• How well can you put innovation into practice?• Innovation is not about incremental change,
but addresses fundamental needs
100% tuned to network• Based on real demand• Dedicated product development• Minimal ‘time-to-market’
‘De-commoditize’• Allows for innovation premium• Innovation ≠ product proliferation• Innovation implies ‘out-of-the-box’ thinking
AttractiveProducts
EfficientWrapper
ProductionCost
KnowledgeTransfer
GoodPerformance
Targets Analysis Strategic Positioning
Implemen-tation
Operational Efficiency
108
ICBUnit-linkedMutual fundsDiscret. Management
EfficiencyFiscal treatmentTransparencyLiquidity
Targets Analysis Strategic Positioning
Implemen-tation
Operational Efficiency
AttractiveProducts
EfficientWrapper
ProductionCost
KnowledgeTransfer
GoodPerformance
109
Right-sourcing …Manage Complexity…
Targets Analysis Strategic Positioning
Implemen-tation
Operational Efficiency
AttractiveProducts
ProductionCost
Efficientwrapper
KnowledgeTransfer
GoodPerformance
0
10
20
30
40
50
60
70
2004, bp
KBC Belgium: 5.8
European average 19.219.2
Comparison of overall costs to the sample's distribution
Source: McKinsey European Asset Management Survey 2005
110
Focus on attributesinstead of products
Make choices digestibleMake complexity approachable
Performance measure?Consistency?Advice?
AttractiveProducts
ProductionCost
Efficientwrapper
KnowledgeTransfer
GoodPerformance
Targets Analysis Strategic Positioning
Implemen-tation
Operational Efficiency
111
Investment ranking over 3 years (30/9/2006)
5,84%
17,04%
22,65%
18,27%
12,34%
3,55%4,78%
2,28%
12,87%
0,39%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
1 2 3 4 5 6 7 8 9 10
All funds
NormalDistribution
77% of funds under managementare ranked in the first two quartiles
112
Performance?How good was your performance?
• The answer should be relevant to your client base
• Did you also advise your clients to invest in your (past) outperformers?
Balanced funds provide the acid test …• On a 3-year basis, 92% of our
balanced funds rank in the first 2 quartiles
• On a 1-year basis, 94% of our balanced funds rank in the first 2 quartiles
94%92%
50%50%
0
10
20
30
40
50
60
70
80
90
100
3 Y 1 Y
113
Testing our strategy
Unique
Products?
But most of all: Our people
At AM levelAt sales-support levelAt branch level
114
This is us …
115
8
Example : ČSOB ads follow KBC AM practice and include personalised pictures of IAs.
116
Testing our strategy…
UniqueUnique
ValuableValuable
SubstantialSubstantial
SustainableSustainable
Market share?(Growth)
117
Market share, Belgium
10
15
20
25
30
35
40
dec/
93m
rt/9
4ju
n/94
sep/
94de
c/94
mrt
/95
jun/
95se
p/95
dec/
95m
rt/9
6ju
n/96
sep/
96de
c/96
mrt
/97
jun/
97se
p/97
dec/
97m
rt/9
8ju
n/98
sep/
98de
c/98
mrt
/99
jun/
99se
p/99
dec/
99m
rt/0
0ju
n/00
sep/
00de
c/00
mrt
/01
jun/
01se
p/01
dec/
01m
rt/0
2ju
n/02
sep/
02de
c/02
mrt
/03
jun/
03se
p/03
dec/
03m
rt/0
4ju
n/04
sep/
04de
c/04
mrt
/05
jun/
05se
p/05
dec/
05m
rt/0
6ju
n/06
KBC: 33.92%
Source : BeAMA
118
Δ market share(1996-2006)Δ = 250 m EUR recurrent annual
No. 1 in Cap.-guaranteed 54%No. 1 in Equity fundsNo. 1 in Bond funds
No. 1 in Balanced funds
Market share Value share?
119
Market share, CEE
0,0
5,0
10,0
15,0
20,0
25,0
30,0
Republic Republic
Czech Hungary Slovak Poland
2002Q1
2006/09
Total = 9.4 bn EUR
120
‘50% more’ approach
(30/10/2006: Local official professional sources )
AM activities were highly instrumentalin achieving (helping to achieve) overall targets setfor M&A operations
Czech Hungary Slovak PolandRepublic Republic
Effective AM market share:2002Q1 10% 6% 5% 5%2006/09 27% 18% 10% 4%
Banking market share 18% 12% 5% 5%Target AM market share 27% 18% 8% 8%
121
Rolling out our strategic concept
7166
42
54
45
0
10
20
30
40
50
60
70
80
Slovak R. Czech R. Hungary Belgium Poland
Cap guar
Market share in capital-guaranteed funds (local markets)
122
Testing our strategy…
UniqueUnique
ValuableValuable
SubstantialSubstantial
SustainableSustainable
Sales
123
Total sales, 2000-2005
0
2
4
6
8
10
12
14
16
18
20
2000 2001 2002 2003 2004 2005
2005 total: 17.3 bn EUR (10/2005: 13.4 bn) 2006 total: 13.6 bn EUR
For details, see appendix (5) and (6)
124
3Q 2006Capital-protected Products
Continuous Re-engineeringImproved market conditions
125
More testing
UniqueUnique
ValuableValuable
SubstantialSubstantial
SustainableSustainable
Are we creatingShareholder Value?
126
(in m euros) Est. 2006
Management income * 645 Management costs -46Administration fees 30 Allocated to KBC Administration costs -31 distribution networks
Distribution fees 286 Direct collection byKBC distribution network
Other income 24
Total 908* incl. financial results KBC AM
Revenue creation, AM activities
127
Testing our strategy …
HighPotential
LowPotential
Cannotadd value
Can add value
Natural Owner
KBC AMKBC AM
Source = McKinsey & Company: Next 2006
Industrial mapping
128
Conclusion & outlookIn 2007-09, AM’s earnings contribution is expected to grow at 10-15% p.a.
Successful implementation of our strategy in CEE countries:• Most important targets have already been reached• AM offers economies of scope / scale / financial diversification and synergies vis-à-vis
the Group’s strategy
Continued strong position in Belgium:• High savings rate and general product acceptance provide further room for growth,
even from a platform with high market share • Operationally effective and efficient
Strategy for non-home markets:• China: Oct. 06 license, strategic positioning in CGF• USA: EAFE , high yield equity• Germany / Spain / Taiwan / Hong Kong
129
Appendix (1) KBC Asset Management
Assets under management– Breakdown
Funds under management– Breakdown
Retail47%
CEE
Private 24%
Institutional 23%
Capital-guaranteed Structures
33.6%
Fixed Income22,9%
Equity13,4%
Real Estate0,7%
Money Market5,3%
Balanced23,7%
Hedge Funds0,4%
130
Appendix (2) :KBC: an organic growth story• ‘Financial news’, September 2006• Growth: 01/2000 09/2006
Asset Manager Growth %
Bridgewater Associates US 500GMO UK 362Union Investment GER 233Dimensional advisors US 206AIG Global Investment US 204Capital Group US 197Lord Abbett US 194Russel Investment US 189Eaton Vance US 188
KBC AM342%
131
Appendix (3) KBC, general organisation
Brussels Lux Dublin London Prague Budapest Warsaw Bratislava Shanghai New York
Global Products Design X Local Products Design X X X X X X X Sales Support X X X X X X X X XAdministrative Functions X OS OS OS X X X X X Global Products Management X X X Local Products Management X X X X X X X X
132
Appendix (4)KBC, ‘open funds’ relative to CGF
133
Appendix (5) KBC, total sales 2005-06
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
jan/05 feb/05 mrt/05 apr/05 mei/05 jun/05 jul/05 aug/05 sep/05 okt/05 nov/05 dec/05 jan/06 feb/06 mrt/06 apr/06 mei/06 jun/06 jul/06 aug/06 sep/06 okt/06
2005 2006In thousands of EUR
134
Appendix (6) KBC, capital-protected issues
0
2
4
6
8
10
12
14
2000 2001 2002 2003 2004 2005 2006/10
in bn EUR
CPPIOBPI