The Group KD Group and KD Group dd

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The KD Group Annual Report 2009 2. BUSINESS REPORT REPORT OF THE CHIEF EXECUTIVE OFFICER OF KD GROUP D. D. Global financial crisis provided an incentive for reorganisation of the Group KD Group and implementation of measures for business rationalisation. These activities began in 2009 and will continue 2010. The loss of EUR 44 million incurred by the Group KD Group in 2009 is to a large extent the consequence of poor performances of companies operating abroad and also a result of global financial crisis. The Group KD Group has already adopted strategic decisions concerning companies operating abroad in terms of which markets should be pursued further and from which to withdraw. The relevant measures have already been implemented. The poorest results were recorded by companies operating in South-eastern Europe (Romania, Bulgaria, Ukraine, and Serbia), the region where the financial crisis impact on financial institutions was worst and where the consequences were the largest. The major share of the loss incurred by the Group KD Group is due to the Group's withdrawal from the South-eastern European markets in which the Group did not have the controlling interest and where no profits were expected in the long-term. The proceeds will be used to realise the adopted strategy. Companies operating in Slovenia are performing well and in 2009 exceeded the planned results. The KD Group's performance in 2009 was better than in 2008, resulting in a loss of EUR 44 million. Operating revenue in 2009 reached EUR 368 million, a decrease of 6 percent compared with 2008. Decrease in the revenue is due to the disposal of enterprises in the cinematographic division in 2008. Revenue from insurance premiums, which account for the majority of revenue, rose by 3 percent compared with 2008. At the end of the year, total assets amounted to EUR 848 million, an increase of 7 percent compared to 2008, whereas total capital was reduced by EUR 41 million or 21 percent compared with 2008. At the end of 2009, the Group KD Group reported EUR 152 million of capital and EUR 182 million of financial liabilities. The majority (almost EUR 100 million) represents long-term financial liabilities maturing in 2015. I wish to stress that the Group KD Group regularly meets its obligations concerning interest and principal repayments. We have established good relationships with all commercial banks. In 2010, the Group KD Group is expected to generate profit of EUR 4 million, rising to as much as EUR 11 million in 2011. The results of the first few months of 2010 confirm these trends. The Group KD Group believes that the adopted strategic decisions provide solid basis for continued development of the Company and the entire Group KD Group. Majority of the KD Group's revenue comes from the third largest insurance in Slovenia, Adriatic Slovenica, the largest investment management company in Slovenia - KD Skladi, fast growing life insurance companyKD Življenje, and KD Banka, a private bank, rounding up a comprehensive palette of financial services provided by the Group. Insurance Insurance companies within the Group KD Group were in 2009 involved in intense expansion and improvement of their range of products and services as well as development of new, specialised insurance products aimed at individual target groups. Market share of 12.56 percent recorded in 2009, makes Adriatic Slovenica the third largest insurance company in Slovenia. In terms of property insurance, the insurance company held a 17.01 percent share in 2009, 23.9 percent share in health insurance places the company in the second place on the health insurance market, while the company holds the leading position on the market of above-standard health insurance. Due to its consolidated market network and modern insurance products supplemented by first-class assistance services, the insurance company has set even more ambitious goals for the next financial year. Life insurance company KD Življenje is the second largest life insurance providers in Slovenia and in spite of unstable economic conditions at the end of 2009 it increased its market share to 14.1 percent. Slovenian life insurance market was in 2009 marked primarily by the financial crisis reflected in an average 3.8 percent decline which was preceded by several years of continuous growth of the life insurance sectors. The goals for 2010 include life insurance premiums of over EUR 84 million, over 256 million premiums for property insurance (including health insurance premiums) which translates into 3.6 percent increase in property insurance premiums and 5 percent growth in the health insurance market. In accordance with the adopted strategic decisions, the Group KD Group will withdraw from those markets where the results are below the expectations and will instead, concentrate on the Slovenian market. 8
The KD Group Annual Report 2009 Investment fund management KD Skladi maintained its leading position among the Slovenian management companies in terms of assets and range of funds and at the end of 2009 it managed over EUR 421 million of assets in 17 sub funds of KD Krovni sklad and KD ID, delniška investicijska družba. Five management companies operate within the Group KD Group which jointly manage 27 mutual funds and two investment companies. By the mid 2009 conditions on the capital markets were slowly stabilizing and from March onwards we have seen increase in share prices indices which improved the general level of investors’ optimism. Funds within the Group KD Group performed well in terms of their return (majority recorded positive returns) and in terms of new investors. In terms of return, they successfully competed with local and foreign competition with some of them being the leaders in individual categories. The increased trend in the number of accession forms continued and funds recorded positive inflows. At the end of 2009 total value of managed assets of all asset management companies in the KD Group reached EUR 449.1 million, compared to EUR 360.6 million recorded at the end of 2008. In 2010 we will continue with our efforts to confirm our excellence in asset management and justify investors' trust. We will intensify our efforts for improved recognition of KD funds in order to preserve the leading position in Slovenia and consolidate our market shares in South-eastern Europe. Banking 2009 marked the entry of the Group KD Group in the banking sector. On 2 March 2009, following a resolution of the Bank of Slovenia to grant licence to KD BPD for the performance of banking and financial services and resolution of the Securities Market Agency to grant permission to KD BPD for statutory conversion from a limited liability company into a public limited company, the company became a public limited company and assumed a new name of KD Banka. Initially, KD Banka concentrated on private, personal and investment banking services, including stockbrokerage, individual asset management and corporate finance services. However, in order to adjust to the changed economic conditions, KD Banka decided for early implementation of the basic corporate banking services, while at the same time it was developing services for the mass market, which began to be marketed through the sales network of branch offices by KD Finančna točka in February 2010. At the end of 2009 KD Banka had more than 3,200 clients, while total value of assets held by private clients and assets in individual management stood at EUR 51 million, and 336 million of brokerage assets. In 2010 we intend to improve our range of banking services with new services including investment consultation, a range of credits and savings, as well as other financial instruments. The range of services adjusted to the needs and wishes of clients will be available through a variety of marketing channels. 2010 The basic orientation of the Group KD Group is to consolidate its position on the financial services market. In 2010 we will continue the process of business consolidation, preserve the existing strategy concerning strategic investments, and continue with well-thought disposal of investments which are not of strategic importance. In addition we will focus on successful companies and support their further development. Our mission is a satisfied customer able to choose between a comprehensive and complete range of financial services. We are gaining new, satisfied and loyal clients who are able to find solutions to their financial issues and realise their wishes at a single location – in the companies within the Group KD Group. Draško Veselinovič, PhD CEO 9
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