Transcript KBC Group Organisation

KBC Group
Project NEXT
Confirmed long-term strategy, new management structure and capital deployment
16 December 2005
Important information for investors

This presentation is provided for informational purposes only. It does not constitute an offer to sell or the solicitation to buy
any security issued by the KBC Group.

KBC believes that this presentation is reliable, although some information may be condensed or incomplete.

This presentation contains forward-looking statements with respect to the strategy, earnings and capital trends of KBC,
involving numerous assumptions and uncertainties. The risk exists that these statements may not be fulfilled and that future
developments differ materially.

By reading this presentation, each investor is deemed to represent that it possesses sufficient expertise to understand the
risks involved.
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The NEXT project: summary

In H2 2005, KBC undertook a review of its strategic horizons and ‘challenged’ its ambitions for the long term, taking into
account among other things, potential increased competition in a consolidating European financial sector. This strategic review
was called ‘project NEXT’.

The NEXT project clearly re-affirmed KBC’s ability to ensure sound growth and solid value creation post-2007/2008 whilst
maintaining a standalone position. In order to secure this, KBC will take initiatives to strengthen the existing franchises (incl.
selected add-on acquisitions) and enhance cost efficiency and performance management.

The focus remains on retail, SME and wealth-management activities and, geographically, on Belgium and CEE and selected
Western-European countries. KBC will not enter into completely new lines of business or new geographic zones. If necessary,
further opportunistic operational alliances in certain areas may be set up to generate additional scale effects.

The organizational structure of Group management will be brought more in line with the international profile of the Group and
become a catalyst for cross-group initiatives. Additional members have been appointed to the Executive Committee, bringing
the total number to 7 (from 3 initially). The structure of legal entities structure remains untouched.

The NEXT project has identified additional growth options that require extra capital investments, starting in 2006 and spread
over a period of 5-7 years. KBC is fully able to fund the NEXT growth options without having to raise additional capital and by
keeping the minimum solvency targets unchanged at a solid level (a Tier-1 ratio of min. 8% for banking activities and a
solvency margin of min. 200% for insurance activities).

The main 2006 investment relates to the buy-out of third-party interests in CEE subsidiaries. Moreover, in 2006, a share buyback programme of 1 bn euros will be initiated. As a result, the immediately available excess capital will be almost fully used
up.
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KBC Group
Confirmed long-term strategy, new management structure and capital deployment
Strong, attractive franchises today
Strong bancassurance
footprint in home markets
Retail
Belgium
Retail
Czech Rep.
& Slovakia
Retail
Hungary
Retail
Poland
Retail
asset
mgt.
Private
banking
networks
SME/corp.
banking
networks
Leasing
Operations & IT
Selected niche
strategies
Retail
Slovenia
Offshore
private
banking
Onshore
private
banking
W. Eur.
Consumer
finance
Poland
Domestic
corporate
finance
& equity
brokerage
Internat’l
(mid-)corp.
banking
Institut’l
market
activities
Institut’l
asset
mgt
Operations
& IT
Operations
& IT
Operations
& IT
Operations & IT
Capital & risk management
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Over the past few years, KBC has strengthened its bancassurance position in its historic home market in Belgium while building up
an additional franchise in CEE. By merging with Almanij, KBC has added on the option of developing a European private banking
franchise. It also operates in selected other markets, pursuing niche strategies.

In the coming years, Group earnings are expected to grow to 2.7 bn euros in 2008 from 1.6 bn in 2004. This represents an average
annual EPS growth of more than 10 percent and a return on equity of at least 16%. The NEXT project reconfirms this (existing)
financial outlook. 1
1 Financial objectives 2005-2008 as published on 23 June 2005
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Anticipating future challenges
ROE
In %
Europe’s top 50 and Belgium’s top 10
50
40
30
20
10
0
0
200000
-10
400000
600000
800000
1000000
Total assets
In millions of EUR
-20
-30
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Source: McKinsey, 2003 data

The ‘NEXT’ project addressed, among other things, to what extent the upsizing of scale in Europe due to cross-border
consolidation could jeopardize KBC’s competitive position, growth prospects and standalone strategy in the long term.
KBC believes that - if the conditions are correctly anticipated – this will not be life-threatening.

When looking at the key success factors in retail financial services, the company’s scale is not necessarily relevant (as illustrated
in the above graph). KBC believes that it is vital to hold significant market share in the relevant individual markets, and, at the
same time, maintaining excellence in the implementation of distribution and operating models.

The NEXT project has therefore focused on designing initiatives to further strengthen the current franchises and to ensure
‘distribution excellence’ and ‘lean processing’. KBC will not enter into completely new lines of business or geographic zones.
If necessary, further opportunistic operational alliances may be set up in certain areas to generate additional scale effects.
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NEXT initiatives - overview
Management objective
Examples
Strengthening the CEE franchise:
- Buy-out of third parties
- Acquisitions
- Accelerated organic growth
- e.g., 40% of K&H (Hungary), 7% of CSOB Bank (CR)…
- e.g., Poland, Romania, the Balkans
- e.g., SME, HNWI & consumer finance development
Strengthening the Belgian
franchise
Required
mgt. attention
2006-07
Additional
capital
2006-07

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- Strengthening of non-life distribution channels, launch
of innovative ‘longevity’ life products, etc.
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Strengthening the Private Banking
franchise
Setting up of cost-saving central back-office functions
(potentially, small add-on acquisitions)
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Distribution excellence
- Integration of distribution channel management per
local market, setting up of a distribution competence
centre to leverage distribution experience throughout
the Group, etc.
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Lean operations
- Setting up of Group-wide product factories and shared
services, co-sourcing of selected activities, etc.



High

Low
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The NEXT project has identified some 25 ‘business cases’ - illustrated in the above table - in order to strengthen the current
franchises (in terms of improved market penetration, product offering, distribution channels, management control, etc.) and to
ensure ‘distribution excellence’ and ‘lean processing’.

The implementation of the ‘business cases’ will be spread over a 3-to-5-year period and will enable KBC to safeguard its
competitive position and growth prospects in the long term. In the 2006-07 period, both management attention and additional
capital allocation will be focused on the buy-out of third-party interests in CEE (since these are expected to be immediately
value-enhancing) and on the implementation of the new organizationional structure (for further details, see subsequent slides).
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NEXT initiatives in CEE - overview
Russia
Organic growth:
Estonia
• Accelerating business development (e.g., bancassurance,
Latvia
SME, HNWI and consumer finance business, branch openings,
etc.)
Lithuania
• Buying out third-party interests
Belarus
Poland
Ukraine
Czech
Rep.
Slovakia
Slovenia
Hungary
Moldova
Geographic add-ons (depending on opportunities):
• Romania, e.g., via greenfield
• Croatia and the Balkans
• Poland (banking) and Hungary (insurance) to increase
existing foothold (expected to occur post-2007)
Romania
Croatia
Bosnia
Bulgaria
Serbia
Albania
Macedonia
Turkey

The strategy in CEE is focused on accelerating the organic growth (incl. buying out third-party interests) and making selected
geographic add-on investments.

The additional allocation of capital for third-party buy-outs and add-on acquisitions will be assessed on the basis of a set of
conservative parameters, both strategic and financial, in line with our past track record in this respect.
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The new Group management structure
Group Executive Committee
& Group Centre functions
1
Belgium
Retail &
Private
Bancassurance
Belgium:
• ± 10 000 FTE
• ±44% of Group profit
• 3.9 bn allocated equity
2
Czech Rep.
Bancassurance
Slovakia
Bancassurance
CEE
Poland
Bancassurance
Hungary
Bancassurance
Slovenia
Bancassurance
No majority
control
CEE:
• ± 26 000 FTE
• ± 23% of Group profit
• 1.5 bn allocated equity
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Private
Banking
Merchant
Banking
3
4
Merchant Banking:
• ±2 000 FTE
• ± 32% of Group profit
• 3.1 bn allocated equity
Private Banking:
• ± 4 000 FTE
• ± 7% of Group profit
• 1.1 bn allocated equity
Group-wide Product Factories
& Shared Services
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A new Group management structure has been drawn up, based on the following 4 principles:
• Focus on ‘distribution’ as the lever of future competitive advantage and the integration of Retail Banking, network-driven
Private Banking and Insurance in local geographical areas into single business units to serve as the backbone of this
competitive advantage
• Strengthening of the international dimension of the Group and the explicit separation of ‘Belgian activities ’from ‘Head
Office functions’ to ensure this principle
• Delegation of clear accountability for performance to the Business Units, whilst ensuring strict compliance at the same
time with Group standards and effective Group steering,
• Further movement towards ‘lean processing’, taking advantage of Group scale by combining manufacturing activities in
product factories and support operations into shared services

The structure of legal entities remains untouched.
The Share in Group profit and allocated equity relate to 9M 2005 and 30-Sep-2005 figures, respectively.
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Group Executive Committee
New structure as of May 2006
Group CEO
Chairs the Executive Comittee, responsible for overall
strategy and performance, heads various Centre
Functions
On the occasion of the retirement of
Willy Duron, Group CEO, Andre Bergen will be
nominated Group CEO. From May to August
2006, Mr. Bergen - as Deputy Group CEO –
will be in charge of the implementation of the
new management structure.
CEO,
Belgium
CEO,
CEE
CEO,
European Private Banking
Implements integrated domestic retail & private
bancassurance strategy
Responsible for CEE performance,
manages country CEOs, develops regional strategy
and heads CEE support staff office
Focuses on developing, integrating and
leading strategy for cost-advantaged local pure-play
private banks
Frans Florquin
(currently Senior Manager
of KBC Bank
CEO,
Merchant Banking
Develops and implements strategies for Merchant
Banking
Guido Segers
(currently Senior Manager
of KBC Bank)
Jan Vanhevel
(currently Senior Manager
of KBC Bank)
Etienne Verwilghen (currently
Member of Group ExCo, heading
KBL European Private Banking)
Group COO
Group CFO/CRO
Develops Shared Service & Product Factory
Infrastructure and is responsible for Organization and
Lean Processing
Manages Group’s Value & Risk policies
and heads Finance/IR and Legal/Fiscal
Chris Defrancq
(currently Senior Manager
of KBC Insurance)
Herman Agneessens
(current Group CFO/CRO)

The new structure includes the appointment of 5 additional Members to the Group Executive Committee alongside the various
business lines (effective as of 1 May 2006). A new position of ‘Group Chief Operations Officer’ has also been created.

Willy Duron, the Group CEO, is due to retire on 1 September 2006, on which date Andre Bergen will become the Group CEO.
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Capital situation as at 31 December 2005 (forecast)
Available
capital
Required
capital
Immediately
available excess
Banking & private banking (Tier-1)
11.3 bn
9.4 bn
1.9 bn
Insurance (explicite solvency)
2.0 bn
1.6 bn
0.4 bn
Gevaert (excl. Agfa Gevaert)
0.3 bn
0.1 bn
0.2 bn
13.5 bn
11.1 bn
2.5 bn
Total, Group
Existing leverage at holding-company level
-1.3 bn
Core excess capital (= net of leverage at holding-company level)
1.2 bn

The ‘total’ and ‘excess’ capital is expected to be 13.5 bn and 2.5 bn euros, respectively, as at 31 December 2005. 1

The capital planning takes into account the new Belgian regulation on Banking Capital Adequacy (in order to comply
with European IFRS) which will be introduced by KBC Group as of 31 December 2005. The available capital (i.e. Tier1, banking) is negatively impacted by 0.5 bn.

Of the excess capital of 2.5 bn euros, 1.3 bn euros is funded by the existing leverage at holding-company level. The
gearing ratio – the sum of the equity of the subsidiaries divided by the Group consolidated equity – amounts to 108%.
1 A net profit forecast for 2005 of 2.2 bn euros has been taken into account
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Planned capital deployment in 2006-07
Available
Capital
Capital as at 31-Dec-2005
Capital generation 2006-07, current business
13.5 bn
Required
Capital
11.1 bn
1
+1.4 bn
+1.0 bn
+0.1 bn
-0.5 bn
Subtotal
Share buy-back, 2006
2.5 bn
+1.9 bn
‘NEXT’ capital investments:
- Buy-out of third parties, CEE
- Acquisitions, mainly in CEE
- Accelerated organic development
Further de-leveraging of Holding Company
Immediately
available excess
-1.4 bn
-1.0 bn
-0.1 bn
-0.5 bn
1.4 bn
-1.0 bn
Immediately available excess capital as at 31-Dec-2007 (estimate)
-1.0 bn
0.4 bn
Remaining leverage at Holding-Company level as at 31-Dec-2007
-0.8 bn
Core excess capital as at 31-Dec-2007 (estimate)
-0.4 bn

The excess capital will be almost fully used up via the NEXT capital investments planned, the further deleveraging of the Holding Company (reducing the gearing ratio to ca. 104%) and the 2006 share buy-back.

The buy-out of third-parties includes the announced buy-out of ABN Amro’s stake in K&H Bank (Hungary). This
will require 0.5 bn euro capital.

The planned external growth is highly dependent on market opportunities. Therefore, the timing may differ from
the above plan or some opportunities may not even occur. Moreover, the timing of the debt reduction at holdingcompany level may be adjusted should acquisition opportunities arise.

Since the timing of the disposal of Agfa-Gevaert is uncertain, the resulting proceeds are not yet included in the
above plan. If and when the Agfa stake is sold, the plan will be updated accordingly.

The unrealized gains on AFS shares are not deemed to be immediately available excess capital. It should be
noted that the value could fluctuate heavily over time, that the realization of gains would entail dividend
implications and, last but not least, that these unrealized gains hedge the tail-duration of the life activity
exposure of the Group.
1 It is not our intention to provide any guidance on 2006-07 earnings and assets growth. Therefore, the earnings and assets growth assumptions
used in the above capital model (e.g., 2006 and 2007 net profits equal to expected 2005 net profit of 2.2 bn) should be viewed as purely hypothetical.
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Share buy-back programme - 2006

In 2006, a share buy-back programme will be realized via open market purchases in the amount of 1 bn euros.
The buy-back is, amongst others, technically limited to the amount of ‘available reserves’ on the balance sheet
(expected to be ca. 1.2 bn euros in the course of 2006). The April 2005 AGM provided authorization for such a
transaction (valid untill Oct-2006) to take place within a price range of plus/minus 10% vs. the last Euronext closing price.

A share buy-back is preferable to a ‘super dividend’ since the fiscal treatment of the former is more shareholder friendly.

At a hypothetical average share price of 80 euro:
•
12.5 million shares would be bought and deleted, representing 3.4% of the shares outstanding
•
As a result, the earnings per share would increase by ca. 3.5%.
•
The free float may be reduced somewhat (maximum by ca. 1.8% in case the syndicated shareholders do not
participate in the buy-back). This should not be a burden for share-trading liquidity (year-to-date average daily trading
volume has been 45 m and velocity 47% p.a.).
1 No withholding tax is due if the share buy-backs are conducted via the stock exchange.
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Increased transparency towards investors

In 2006, KBC will be further enhancing its efforts to improve its communication with the markets. The IR staff will be enlarged,
the transparency of segment reporting will be improved and we plan to extend the ‘notes’ to the accounts in certain fields.
Moreover, quarterly earnings updates will be published before trading hours.

As of 1Q 2006, the following segment breakdown will be provided (including a time serie of 2005 quarterlies for comparison
purposes) : Belgium - CEE - European Private Banking - Merchant Banking - Group Centre. The segment reporting will be
simplified and, consequently, will become more transparant (better reconciliation with Group accounts, less restatements of
previous periods, more transparant allocation to Group Centre, etc.).

The management will be available for follow-up discussions with the market regarding the decisions taken in the NEXT project.
Face-to-face investor meetings will be scheduled on 13 January 2006 (London).

The 2006 Investor Day will focus on the CEE Business Unit, to be held in Prague, 15 June 2006.
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KBC Group
16 December 2006
Annex 1 : the new management organization

Belgium
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Central & Eastern
Europe
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
European Private
Banking
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Merchant Banking
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Combines Belgian Retail Insurance and Retail & Private Banking activities into one business, with one CEO, a combined
P&L and having shared goals, strategy and incentives
Excludes corporate banking, includes ‘network’ private banking branches in Belgium
Model effective as of 2007, with progression towards this model starting early 2006
Distinctive distribution strategies are maintained for the various brands (KBC, CBC, Centea, Fidea, etc.). However, coordination takes place with shared product factories, HR and Facilities
In each country, a single management team is set up for all banking and insurance companies, headed by a single
country CEO (without creating a new holding company in each country).
We consider to recognize Slovakia as a separate business unit (currently, highly integrated in the Czech Rep.).
All country CEOs report to CEO of CEE.
The CEE division Includes local corporate and HNWI banking activities.
The new structure will be implemented as soon as possible, but timing will vary according to market.
Includes the pure-play private banks (‘European private banking network’) and a central ‘hub’ for operations, back-office,
IT and intermediation
‘Network’ private banking activities remain within the Bancassurance Units, with distinct strategies (co-ordination at Group
level)
The dealing-room activities will continue to be managed within the Private Banking Unit, with the setting of limits,
monitoring of positions and, if necessary, intervention by the Merchant Banking Unit
Merges markets and corporate services activities into one business unit, with one CEO, a combined P&L and having
shared goals, strategy and incentives.
Trade finance and leasing operations become Group-wide product factories
Corporate banking operations in CEE continue to report to the local CEE countries.
Product Factories


Four key factories: Asset Management (already in place), Payments, Leasing and Trade Finance
Primarily serving internal customers, supplying requisite product standards at lowest possible cost and reporting to Group
COO
Shared Services

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Two shared services: ICT (central) and Facilities (country level)
ICT at Group-wide level to take advantage of Group scale and ensure optimal allocation of ICT costs. Facilities conducted
via national departments

Sets policies and standards that must be complied with Group-wide, supports Group ExCo and Business Units in
governance activities and provides services that are purely associated with Group needs
6 Centre functions report to the Group CEO: HR, Communications & Media Relations, Audit & Compliance, Strategy,
Central Investment Function and Distribution-Excellence Competence Centre
3 Centre functions report to the Group CFO/CRO: Finance & IR, Legal & Fiscal and Value & Risk
1 Centre function reports to the Group COO: Organization & Lean-Processing Competence Centre
Group Centre
and Functions



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Annex 2 : senior management – photo gallery
Willy Duron
Group CEO (till Aug-06)
André Bergen
Group CEO (as of Sep-06)
Etienne Verwilghen
CEO Private Banking
Frans Florquin
CEO Belgium
Herman Agneessens
CFO / CRO
Jan Vanhevel
CEO CEE
Christian Defrancq
COO
Guido Segers
CEO Merchant banking
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Annex 3 : capital planning - methodology
Banking - Available Capital
KBC Bank Tier-1 Capital
KBL epb Tier-1 Capital
Insurance - Available Capital
KBC Insurance, implicit Solvency Capital
Gevaert Equity (excl. Agfa-Gevaert)
Net asset value, Gevaert (excl. Agfa-Gevaert)
AVAILABLE CAPITAL
Banking - Required Capital
KBC Bank, min. Tier-1 Capital (8% of risk-weighted assets)
KBL epb, min. Tier-1 Capital (8% of risk-weighted assets)
Insurance - Required Capital
KBC Insurance, min. Solvency Capital (200% of legally required capital)
Gevaert - Required Capital (excl. Agfa-Gevaert)
Gevaert operational required equity (8% of net asset value)
REQUIRED CAPITAL
Excess Capital with current Holding Co. gearing
IMMEDIATELY AVAILABLE EXCESS CAPITAL
Elimination of Holding Company’s net debt position
(Third-party funding minus cash position)
Existing leverage at Holding Co. level
CORE EXCESS CAPITAL
Excess Capital with 0% Holding-company gearing
Sources of future generation of (excess) capital
Future profits
Retained earnings (+)
Organic growth capital consumption (-)
Revaluation reserve, AFS shares
Proceeds of the sale of Agfa-Gevaert
Organic (Excess) Capital generation
(Excess) Capital via (realization, net of dividend payout, of)
gains on AFS shares
(Excess) Capital via sale of Agfa-Gevaert
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Annex 4 : shareholder return
Total shareholder return
(31 December 2004 = 100%)
KBC
DJ EURO STOXX banks
DJ EURO STOXX
133%
128%
123%
118%
113%
108%
103%
(daily closing prices)
Source: Bloomberg – data ending Nov. 2005

The increased share visibility, the reinforced risk management and the consecutive earnings upgrades have been beneficial for the
Group’s market value. Capital markets have begun to recognize the attractiveness of KBC’s strategy.

Today again, the question remains whether valuation multiples fully incorporate KBC’s strenghtened long-term growth.
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Contact information

Investors: contact Luc Cool or Nele Kindt - [email protected]

Media: contact Viviane Huybrecht or Stef Leunens – [email protected]
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