Annual report 2006 - Dexia.com

FINANCIAL RESULTS
to business development projects and geographic expansion
were identified, respectively EUR 25 million and EUR 14 million,
representing together 20% of the underlying cost base
drift, year on year.
The cost-income ratio was 49.6% in the full year 2006, much
below that of 2005 (54.0%). The underlying cost-income
ratio stood at 55.1% (down compared to 56.2% in 2005).
This reduction is satisfactory when considering the expenditures
engaged to develop the business and franchise of Dexia
both domestically and internationally during the year along
with the projects which took place in 2006.
Minority interests
Minority interests went strongly up in 2006, largely because
the costs on hybrid Tier 1 instruments are classified in that
rubric, and as the volumes thereof have increased in the
fourth quarter of 2006 and in 2006. Besides, DenizBank
was fully integrated in the financial statements but, as only
75% was owned by Dexia in the fourth quarter, 25% of the
results belong to minority interests. From 2007, Dexia will
own 99.8% of DenizBank’s shares and there will be very few
minority interests to remunerate.
MANAGEMENT REPORT
COMPTES CONSOLIDÉS
COMPTES SOCIAUX
Gross operating income
The gross operating income amounted to EUR 3,531 million
in 2006, up 28.5%. At constant scope of consolidation
and on an underlying basis, the growth was +10.9%. This
number sums up the very good underlying performances
of the business lines, with Public/Project Finance delivering
a +11.8% growth year on year, Personal Financial Services
going up 4.4%, Asset Management achieving +32.5%, Investor
Services progressing by a strong +48.3%, Treasury and
Financial Markets by +17.3%, whilst Insurance Services went
down slightly (-2.3%) but this small slippage has no economic
meaning in view of the current analytical treatment of this
segment (see detailed analysis on pages 91-92). Overall, the
exchange rates fluctuations in 2006 had a small influence on
the gross operating income (EUR 5 million negative impact).
Cost of risk
The cost of risk (impairments on loans and provisions for
credit risks) amounted to EUR 124 million in 2006, compared
to EUR 52 million in 2005. Excluding the provision movements
at Dexia Bank Nederland, the underlying cost of risk went up
to EUR 89 million in 2006 from EUR 57 million in 2005, Deniz-
Bank representing EUR 11 million of this increase. Overall, the
cost of risk remained nevertheless at a very low level (2.4 basis
points on average outstanding banking commitments). Concerning
the situation of Dexia Bank Nederland, a full disclosure
is made on pages 99-101 of this annual report.
Overall financial performance
The profit margin (net income before minority interests
related to total revenues) stood at 40.5% in 2006, compared
to 35.0% in 2005.
Return on equity stood at 23.1% (compared to 20.0% in
2005) partly pulled in 2006 – and to a lesser extent in 2005
– by the influence of the non-operating items.
Earnings per share (EPS) reached EUR 2.49 in 2006 (undiluted),
up 33.2% over the previous year. Of note, the number
of shares has varied considerably during the course of the year,
with a buy-back program during the first quarter (amounting
to EUR 50 million), then new shares issued in the second part
of the year in connection with the acquisition of DenizBank
and the employee share plan. The daily average number of
shares increased by 1.2%.
Group Tier 1 ratio stood at 9.8% at year end (10.3% as of
December 31, 2005). Taking into account only 50% of the
hybrid Tier 1 capital instruments, the ratio stood at 9.2% at
year end.
Proposed dividend
In view of the good 2006 results, the Board of Directors will
propose a gross dividend of EUR 0.81 per share. Subject to
shareholders’ meeting approval thereon, the dividend will be
paid on May 24, 2007.
Outlook
Taxes
Tax expense (comprising both current and deferred tax)
amounted to EUR 569 million in 2006, down 5.5% compared
to 2005. The variation of the tax charge is largely explained
by the higher amount of capital gains in 2006, compared to
2005, having in mind that such gains are not taxable in Belgium.
The effective tax rate in 2006 was 17.2% (compared
to 23.1% in 2005) on the basis of reported earnings, and
it was 23.2% (compared to 27.0% in 2005) on the basis of
underlying earnings. In the forthcoming reporting periods,
the effective underlying tax rate is likely to stabilize, on average,
around the current level.
Given the very strong commercial momentum experienced in
2006 and before, Dexia is confident to continue achieving its
financial objectives, as set and communicated to the market
on September 26, 2006.
Post-balance-sheet event
In the third week of February 2007, Dexia announced the
signing of the sale of Dexia Banque Privée France. This will
generate a capital gain of about EUR 42 million (after taxes).
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Dexia / Annual Report 2006