"...there is no room for complacency and we must keep driving forward."
Dear Shareholders,
Having concluded the largest cross-border merger in the financial sector in Europe barely one year ago, we have moved decisively and aggressively to integrate operations in our major ‘home markets’. But we have never taken our eye off the ball: at the same time we have consistently delivered on our ambitious financial targets. In fact, we have outperformed many of our peers in most of the key performance areas.
On the integration side, the implementation also in Germany and Austria of our business division model aimed at providing leading solutions for each customer segment is now largely concluded.
The transfer to UniCredit of BA-CA’s direct control and assignment to the latter of the responsibility to manage the banks operating in Central and Eastern European countries, represented other milestones in the rationalisation of the Group’s corporate structure.
The setting-up of the CEE Division not only made it possible to pursue the significant growth opportunities available in this geographical area – where our Group is the undisputed leader – but also allowed us to optimise the integration of the banks by harmonising their operating systems and governance models. The year also saw the successful reorganisation of most of the activities of those business lines where international scale and reach are paramount.
In Asset Management, the processes of investment, distribution and product policy were concentrated under the Pioneer brand. Significant progress was made in the reorganisation of investment banking activities, thanks to the creation of a specialised European operator which combines the skills and expertise developed by HVB, BA-CA and UniCredit in this sector.
The purpose of setting up global competence centres was to improve the quality of our products and services throughout the Group. We have therefore centralised both transnational services and correspondent banking, and all leasing business within our Corporate Division, while the international development of Clarima, our consumer finance arm, has been started in our Retail Division.
But in addition to our reorganisation and integration efforts, the past year was also marked by significant value creation: operating profit increased by 27.8% and net profit by 61.3%, while ROE rose to 16.7%, from 10.7% in 2005 proforma. EVA for 2006 was up by €1,500 million on the previous year.
Group revenue rose by 12.5% thanks to the growth seen in all Divisions, especially in the CEE countries (more than 20%). Cost rationalisation initiatives and synergies deriving from the increased size of the Group determined an improvement in the cost/income ratio of all Divisions. For the Group as a whole, this ratio fell from 61.7% to 56.5%.
The excellent operating results were accompanied by an improvement of asset quality and a strengthening of our capital ratios.
Needless to say, we are extremely proud of our results, both in terms of operations and profit. But, in a dynamic and rapidly consolidating sector like ours, there is no room for complacency and we must keep driving forward.
Our success is also due to our proven ability to anticipate changes in the market and to be ‘first movers’. This is precisely the mindset that we want to continue to cultivate.
Our future strategy is already mapped out.
In the coming months, we will be focusing primarily on the final implementation of our organisational model. The aim is to provide our customers with superior service, thanks to our understanding of their needs at the local level and the economies of scale, scope and experience that only a global network such as ours can provide.
We will also be concentrating on optimising our capital management. Our goal, beyond maximising resource efficiency, is to ensure that we have the necessary financial flexibility to seize any opportunities presented by the market.
Last, but by no means least, I want to address what I believe is a key objective. The creation of a strong and shared new Group identity and corporate culture, aimed at unleashing the power of diversity must be regarded as a priority to make sustainable and profitable in the long-term the integration already achieved in business terms.
In order to retain our position as one of the leading banking groups in Europe, we need to have effective governance and compliance systems, but we must also empower all our employees to enhance their entrepreneurial and innovation capabilities.
Only by providing a clear values framework we can grant our people the proper degree of freedom and instil a broad acknowledgment of the operational and behavioural models which help reduce the reputational risk of our actions. This is a long and demanding process, but the first significant moves have already been made. Our Integrity Charter, enshrining the body of shared values which underpin the Group’s identity, has been discussed in working sessions by all Group employees to understand how to put into practice such values in their everyday working life.
To all of our people I would like to say a sincere thank you for their commitment, professionalism, and for the determination they have shown in managing the many changes that were asked of them as part of the integration process. It is to their ability that we owe our good 2006 results and it is their skill that is the Group’s greatest asset.
Alessandro Profumo
CEO
