Annual report 2006 - Dexia.com

PUBLIC/PROJECT FINANCE
MANAGEMENT REPORT
COMPTES CONSOLIDÉS
COMPTES SOCIAUX
Costs were up EUR 47 million compared to 2005, a 6.1%
increase (6.7% at a constant exchange rate), but still
3.8 percentage points lower than the revenues’ increase. This
progression is largely explained, as previously exposed, by the
significant development of the franchise and book of assets
worldwide. But among the other reasons for the increase, it
should be noted that the cost base increased at FSA due to the
fact that expenses on Credit Default Swaps (CDS) transactions
can no longer be deferred (impact of EUR 7 million on
the annual cost line), and that, on the other categories of
products, the proportion of deferred costs keeps decreasing.
In the other units of Dexia in America, costs progressed as
a consequence of increasing staffing requirements linked to
business expansion and developments, as it was the case in
many other countries such as France, the United Kingdom
and Italy. At headquarters level, costs also rose, in relation to
the opening of Dexia Japan, Dexia Switzerland and the other
international developments of the activity (i.e. representative
office in China and India).
As a result, gross operating income amounted to
EUR 1,669 million in 2006, an 11.8% increase compared to
2005, and +12.6% at a constant exchange rate. This has led
to the continuing slightly declining trend of the business line
cost-income ratio, from 33.8% in 2005 to 32.6% in 2006.
The cost of risk in 2006 amounted to EUR 56 million, above
the level reached in 2005, but still at a low level. The increase
is marginally related to the rising proportion of corporate and
project finance transactions within the book, but also because
there were a number of provision write-backs in 2005, and
fewer in 2006.
Tax expense rose slightly (+1.7%) to EUR 426 million in 2006.
It should be noted that this rather small progression in one
year stems from various factors going in opposite directions:
• a more coordinated tax management at Group level;
• a better corporate tax environment in Belgium; and
• in the opposite direction, increased taxable earnings.
On the whole, the performance in Public/Project Finance and
Credit Enhancement produced a very robust return on economic
equity (ROEE) of 22.9%.
UNDERLYING STATEMENT OF INCOME (EXCLUDING NON-OPERATING ITEMS)
(in millions of EUR, except where indicated) 2005 (1) 2006 Variation
Income 2,256 2,478 +9.9%
of which net commissions 160 191 +19.5%
Costs (762) (809) +6.1%
Gross operating income 1,493 1,669 +11.8%
Cost of risk (30) (56) +88.6%
Impairments on (in)tangible assets 0 0 n.s.
Tax expense (419) (426) +1.7%
Net income 1,044 1,187 +13.6%
Minority interests 45 47 +4.2%
Net income – Group share 999 1,140 +14.1%
Cost-income ratio 33.8% 32.6%
ROEE (2) 23.4% 22.9%
Total allocated equity (average) 4,384 5,199
(1) Pro forma.
(2) Return on economic equity (net income – Group sahre/allocated equity – Group share).
84 | Dexia / Annual Report 2006