With clear increases in new business and positive earnings growth, the Hamelin-based home finance and provisioning specialist has had a successful start to 2003. According to information provided by the Chairman of the Management Board, Reinhard Wagner at the BHW Group balance sheet press conference in Frankfurt, the last financial year was affected by special factors, in particular the considerable financial measures required to strengthen the earnings power of the subsidiary AHBR in the long term. The necessary nonrecurring charges of approx. € 280 million incurred in this process will also impact on the dividend payment by BHW Holding AG. In a concerted effort, BHW has wiped the AHBR slate clean of past debts, driving forward the strategic new direction to turn the bank around and increase the Group’s chances of improved earnings in the future.

Wagner stressed: “In addition to a consistent risk policy, the key factors behind BHW’s successful financial year – especially in view of the difficult economic situation – are the consistent and impressive operating results of the BHW Bauspar institutions compared with the sector. Strong new business and positive results in the first quarter of 2003 confirm the Group’s growth in terms of private asset accumulation and retirement provisioning.”

Net of special charges, in particular the expenditure on AHBR, the BHW Group has achieved operating profit before specific provisions of approx. € 182 million.

The measures to strengthen the earnings power of AHBR and the temporary write-downs on own shares, which are determined by the share price, led to Group net loss for the year of € 359.9 million. To balance this figure, other profit reserves of approx. € 220 million and temporary losses on own shares to the value of € 151 million were offset against the reserve for own shares so that there was no impact on the balance sheet.

At the Annual General Meeting of BHW Holding AG, a dividend of € 0.22 per share (previous year € 0.60) will be proposed. “We are therefore sending out a message to our shareholders that BHW will adhere to the expected dividend as far as is reasonable, even when earnings are hard to achieve and despite non-recurring special charges,” emphasised Wagner.

Satisfactory growth in the original BHW divisions

The original BHW segments have seen satisfactory growth overall. This is primarily attributable to the stability and strong growth of both BHW Bauspar institutions, whose activities focus on private home finance. With their respectable results – all the more noteworthy given the difficult market environment – they form the backbone of the Group. Net interest income for the segment remained virtually unchanged, with interest income increasing by € 110 million. The segment result amounted to € 107 million compared with € 122 million in the previous year.

Influenced by the activities of BHW Lebensversicherung and BHW Bank, the Private Asset Accumulation division exceeded the result for the previous year, achieving € 21.6 million (previous year € 21.5 million). This is despite the still recent division, which was established with the aim of achieving long-term profitable growth, being initially affected by investment expenditure.

Public Sector Loans and Commercial Property Finance subject to decrease in earnings

With € - 61.4 million, the segment result for the Commercial Property Finance division already reflects the necessary restructuring measures. In the Public Sector Loans division managed exclusively by AHBR, the negative operating profit of € - 205.9 million is primarily due to the required provisions for possible losses from inadequate interest rate margins as well as a perceptible decrease in the loan portfolio.

Group key figures at a glance

In light of the turbulent conditions on property and financial markets, the Group pursued a consistent risk management policy. The focus was on sustained stability within the Group.

Net interest income was down by 12% to € 841 million. This was mainly attributable to the reduced public sector loan portfolio and low interest rate level.

Net commission income was marked by strong growth in new business in the Bauspar and home finance segments, representing a foundation for secure future earnings. The new business initially impacted on net commission income, which was slightly down by € 3.4 million due to the associated commission payments.

Gross profit amounted to € 852.9 million, a decline of 12.8%. Despite increased IT expenditure and one-off depreciation and write-offs on property, land and buildings, administrative expenditure rose by just 3.8%, thanks to consistent cost management.

Group partial operating profit stood at around € 260 million (previous year € 407 million).

Provisions/income from securities amounted to € - 191.4 million (previous year € - 146.7 million). Loan loss provisions declined slightly. Income from securities was down on the previous year.

Group operating profit (before specific provisions as per § 340 f HGB), which is so decisive for the original Group result, amounted to € 182 million, compared with € 284 million in the previous year.

Figures in the annual financial statements of AHBR were shown as gross figures. An adequate assessment of the specific provisions, whereby € 730.8 million was allocated to the provisioning reserve, is therefore only possible if the contributions of the other AHBR shareholders of € 372.2 million in total are also taken into account. These are shown as Extraordinary earnings.

Taking account of special charges, Group net income for the year of € - 359.9 million is reported.

After being offset with profit reserves, retained earnings stood at € 37 million and total assets at approx. € 113.5 billion.

Double-digit growth in new business means a good start in 2003

BHW has got off to a good start in 2003 with marked growth in new business. New Bauspar business, for example, rose by approx. 17% in the first quarter. BHW was also able to buck the trend in the home finance sector and achieve growth in mortgage business of around 9%.
In the Private Asset Accumulation division, fund business in particular displayed evidence of change, with growth of around 45%. In the life assurance sector, sales of traditional insurance products like whole life insurance and pension plans were up by more than 25%.
The BHW sales force was therefore able to increase total sales by 12%.

Growth in earnings in the first quarter

Group earnings were also positive in the first quarter, with the result for the Bauspar institutions around 25% above that of the previous year.

Outlook

Reinhard Wagner is confident of achieving a satisfactory result for the rest of 2003 despite adverse economic conditions and a volatile market and interest rate environment. In addition to the Group’s provisioning companies in Hamelin, which impact on results, AHBR is also likely to achieve positive results as early as this year. It will, however, be generating lower income levels in the next few years, in keeping with the targeted risk minimisation programme.

Merger of Group Bauspar institutions

In order to leverage synergies, particularly in lending and IT, preparations are currently under way to merge the two Group Bauspar institutions. At the same time, BHW intends to drive forward its cooperation partnerships, which to date have been between BHW Allgemeine Bausparkasse and renowned partners from the banking, insurance and property brokerage sectors. BHW aims to reinforce its strong market position in private home finance with this move. Loans processing in the sense of a “credit factory” will also be increasingly offered as a service to third parties.

To round off its range of services in the occupational pension provision sector, the Group has established its own pension fund.