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Operating profit for 2005 was € 91 m, up from € 13 m for the previous year. The increase was due to the one-off adjustment of the provisioning charge. Net income before taxes and net income reached € 1 m, reflecting the allocation of € 90 m to the provision for restructuring costs. Adjusted for special/one-off effects, the ROE would be 2.8 % before taxes and 2.1% after taxes, clearly below the cost of capital. The ongoing SME Plus project aims at making the SMEs Austria business segment profitable on a sustainable basis. In 2006 we will implement numerous partial projects in this context: � Initial efforts will focus on optimising results from business with those customers that are currently not making a satisfactory contribution to the bank’s value creation. This will be done by charging prices which cover costs and through riskadjusted margins on loans. Our objective is to expand business relations on a profitable basis. With the “FinanzCheck” which we offer to small and medium-sized businesses free of charge, we can analyse the volume of business in the mutual interest. In particular, we want to increase our “share of wallet” through intensive cross selling. Given the fact that business has so far concentrated on lending, we will step up efforts to provide services, risk management products and investment/ pension-planning products. A computer-based system will enable account managers to quickly identify business potential in each case. This will also involve a restructuring of daily activities, with the objective of further relieving account managers of administrative work and focusing on services for defined customer groups. � It is important to use low-cost settlement and processing procedures that are suitable for both customers and the bank in order to intensify the bank’s customer relationships and enhance service quality. The degree of automation will be increased through online sales channels, including the expansion of BusinessNet, mainly for day-to-day business. We will introduce appropriate incentives in this respect. � Last but not least, internal processes such as the lending process will be redesigned. As part of end-to-end process reengineering, and using a target-costing approach, we will closely adjust procedures to business structures on an automated and user-friendly basis. Our ROE target for the SMEs Austria segment for 2006 is 7.5 %. 34 Management Report of the Group Large Corporates and Real Estate *) € m 2005 2004 Change adjusted Operating revenues … after net charge for losses on 627 627 0 0 % 0 % loans and advances 591 592 –1 0 % 0 % General administrative expenses – 292 – 291 –1 0 % – 2 % Operating profit 300 301 – 2 –1% 2 % Net income before taxes 430 261 168 64 % 23 % Net income Net income – share 315 196 119 60 % 27 % of Group total 29 % 29 % 24 % Equity – share of Group total 20 % 23 % 20 % ROE before taxes 30.1% 17.3 % 22.5 % ROE after taxes 22.1% 13.0 % 17.5 % *) including ACPM (Active Credit Portfolio Management) The Large Corporates and Real Estate business segment comprises multinational companies, public sector customers and financial institutions. The segment also serves as the BA-CA Group’s centre of competence for international corporate business, ranging from trade finance and cash management to special-financing transactions such as leasing and commercial real estate financing, to corporate finance and M&A. In 2005, the environment for these operations was characterised by excess liquidity in the business sector after a period of balance sheet restructuring. On the other hand, lively acquisition activities and international expansion strategies of corporates were favourable factors enabling us to demonstrate our CEE competence. For all of these reasons, the trend away Capital allocation and contribution of business segments to net income in % 60 30 30 30 20 10 0 –10 13 7 17 Private Customers Austria 13 2 0 SMEs Austria 29 24 20 Large Corporates and Real Estate Share of average equity allocated Contribution to net income of BA-CA Contribution to net income of BA-CA, adjusted for special/one-off effects 3 12 13 International Markets 29 55 47 Central and Eastern Europe 22 –3 –3 Corporate Center
from classic on-balance sheet products towards high valueadded financial market instruments and advisory services continued. We also encouraged this modernisation process in our own interest. Moreover, we reviewed our loan portfolio and reduced risk-weighted assets on a selective basis through placements in the secondary market, i.e. with no impact on customer relationships. The effect is reflected in business volume. For example, for the first time, BA-CA Leasing sold contracts totalling € 425 m from its Austrian motor-vehicles and equipment leasing business by way of an asset-backed securitisation transaction. Overall, risk-weighted assets (RWA) in this business segment, including Active Credit Portfolio Management, declined by 5.7 % or € 1.2 bn; the reduction of RWA at BA-CA AG amounted to 13 % or € 2.1 bn. The income statement of the Large Corporates and Real Estate business segment shows only minor changes in operating components compared with the previous year. However, the figures reflect a strong performance of individual business areas, mainly those generating high commission and fee income. At € 627 m, operating revenues in 2005 matched the previous year’s level. Net interest income (€ 483 m) was slightly lower than in 2004 (–1%). Investment loans, accounting for 57 % of lending volume, increased mainly in the commercial real estate sector, while demand for working capital credits was weak. On the assets side, margins declined slightly, with stronger pressure being seen in the areas of export finance and public sector finance. On the liabilities side, time deposits rose strongly, reflecting high levels of liquidity in the business sector; sight deposits showed a weaker trend. The provisioning charge in the Large Corporates and Real Estate segment remained unchanged at € 35 m, absorbing 7.3 % of net interest income. Strong growth was achieved in net fee and commission income, which reached € 132 m. Contributions to the 11% increase came especially from financial derivatives, which many companies use for risk management purposes. BA-CA Leasing also further improved its net fee and commission income. Income from securities business exceeded the previous year’s level by almost 20 %. BA-CA Real Invest, the market leader among open-ended real estate funds, a relatively new market in Austria, placed a total of € 466 m and recorded significantly higher commission income. General administrative expenses remained constant at € 292 m; adjusted for UniCredit-related special expenses, the figure was 2 % lower than in the previous year. The cost/income ratio for the business segment was 46.5 % (after 46.4 %). Operating profit (€ 300 m) almost matched the previous year’s level. Gains on the sale of Investkredit shares (€ 120 m) were the main factor boosting net income before taxes by 64 % to € 430 m. Net income (€ 315 m) for 2005 was 60 % higher than in 2004; adjusted for one-off effects, the increase was 15 %. Equity allocated to the Large Corporates and Real Estate segment was 20 % of the total figure for the bank, and the segment accounted for 29 % of the bank’s profits. The (adjusted) ROE after taxes was 17.5 % (2004: 13.0 %). The product lines in business with international corporates benefited strongly as integration between Austria and CEE countries continued to make progress in 2005. The bank further expanded its leading market position. In the meantime, all CEE banking subsidiaries have set up local Trade Finance units. In 2005, CEE-based exporters increasingly opened up international markets including Russia and Ukraine. The Export and Investment Promotion Finance department achieved further increases in business volume and market share (both in OeKB and ERP financing). In the area of real estate financing, BA-CA holds leading positions in Austria and CEE. The volume of loan commitments to international customers in CEE more than doubled compared with the previous year, and income almost tripled. The real estate financing portfolio in Austria totalled € 8.8 bn, compared with € 3.7 bn in CEE. New business of the BA-CA Leasing Group totalled € 2.4 bn, of which more than twothirds came from CEE countries. In the area of arrangement mandates for syndicated loans in CEE (incl. Russia and CIS), BA-CA/UniCredit Group ranked sixth by volume and first by number of mandated transactions; these rankings reflect an improvement of 190 % over the previous year. In business with Public Sector customers, BA-CA lead-managed the first bond issue of Wien Holding GmbH and carried out very successful placements for major money-market investment funds. “FinanzCheck” was launched as an advisory product for municipalities. Public sector customers increasingly use the public private partnership expertise which we have gained in and outside Austria as an alternative to standard solutions. CA IB achieved its best result ever in 2005, with transaction volume exceeding € 10 bn. In its Austrian equity capital markets business, CA IB executed a sizable number of transactions. In Corporate Finance Advisory, CA IB worked on over 100 projects in 15 countries, including the € 4 bn acquisition of Ukraine’s largest steel producer Krivorizhstal by Mittal Steel. Management Report of the Group 35
Page 1 and 2: Annual Report Bank Austria Creditan
Page 3 and 4: The Bank Austria Creditanstalt Shar
Page 5 and 6: Annual Report Bank Austria Creditan
Page 8 and 9: Highlights 2005 Awards 2005 1 Janua
Page 10 and 11: A word of thanks to our employees T
Page 12 and 13: 8 Letter from the CEO of the new Un
Page 14: 4 pages reserved for illustrations
Page 17 and 18: “As a member of UniCredit Group w
Page 19 and 20: as an organisational principle has
Page 21 and 22: We attach great importance to human
Page 23 and 24: International Markets Willi Hemetsb
Page 25 and 26: Growth in Austria slightly above EU
Page 27 and 28: � Net income up by 60 %. 21% incr
Page 29 and 30: The “sustainable” income compon
Page 31 and 32: Net trading result € m 2005 2004
Page 33 and 34: higher revenue without significant
Page 35: In 2005 our multi-year Fit for Sale
Page 39 and 40: Net fee and commission income in CE
Page 41 and 42: employees’ qualification levels a
Page 43 and 44: Outlook Global economic environment
Page 45 and 46: Outlook for Bank Austria Creditanst
Page 47 and 48: Other shareholders 0.2% Austria 0.9
Page 50 and 51: IPO targets met ahead of time Finan
Page 52 and 53: Austrian Customer Business Bank Aus
Page 54 and 55: Linking sales channels � Mix of s
Page 56 and 57: Lowering the proportion of lending
Page 58 and 59: Loans to private customers grow mor
Page 60 and 61: Flexible products for closing the p
Page 62 and 63: Cards for young people Security - a
Page 64 and 65: Network bank for international corp
Page 66 and 67: Corporate finance, not just for lar
Page 68 and 69: International Markets (INM) The Int
Page 70 and 71: Record year on the Vienna Stock Exc
Page 72: 4 pages reserved for illustrations
Page 75 and 76: “The upswing experienced by the C
Page 77 and 78: In the retail/private customers seg
Page 79 and 80: Our efforts to offer products meeti
Page 81 and 82: Slovakia - HVB Bank Slovakia € m
Page 83 and 84: Outlook With the planned expansion
Page 85 and 86: International Markets Business deve
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Following the big success of the pr
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Acquisition of Eksimbanka By acquir
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“As a bank with growing business
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Risk structure by region and busine
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“The higher the level of standard
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Basel II The roll-out of the module
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“Today we expect our bank employe
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manager, the higher his classificat
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Consolidated Financial Statements i
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Income statement of the Bank Austri
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Statement of changes in shareholder
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Notes to the Consolidated Financial
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IFRSs applied Title Application App
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Loans and receivables are carried i
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Accounting for leases as lessee: in
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The present value of pension obliga
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as the identification of intangible
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€ m 2005 2004 Staff costs 1,491 1
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€ m 2005 2004 Bonds and other fix
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Leasing business Total gross and ne
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Movements in investments in 2005
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In 2005, deferred taxes were partly
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Liabilities evidenced by certificat
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€ m 2005 2004 Negative fair value
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Emoluments of members of Bank Austr
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Most of the trading assets and trad
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Segment reporting € m Private SME
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€ m 2005 2005 2004 2004 Assets Li
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In the 2005 financial year, aggrega
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Market risk management encompasses
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VaR of the Bank Austria Creditansta
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Basis point values of the Bank Aust
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High-yield portfolio: composition o
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Market risk limit utilisation in CE
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Liquidity ratios of the Bank Austri
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Operational risk is defined as the
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experience in the past. Moreover, s
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Total volume of outstanding financi
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The following tables show the capit
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Report of the Auditors We have audi
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Report of the Supervisory Board In
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Corporate Governance Bank Austria C
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Supervisory Board and Managing Boar
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Income Statement of our Consolidate
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Balance Sheets of our Consolidated
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Glossary Important concepts and ter
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General administrative expenses div
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In 1988, the Basel Capital Accord (
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Office Network of the Bank Austria
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Central and Eastern Europe Bosnia a
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Other Countries 196 Office Network
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Investor Relations Investor Relatio
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