KBC Groep NV

XBRU:KBC

Earnings Call Transcript 2018-Q3

[Operator]

Good day, and welcome, everyone, to the KBC Group earnings release third quarter 2018 hosted by Kurt De Baenst. And I would like to hand the floor over to Kurt. Please go ahead.

[Kurt De Baenst, General Manager, Investor Relations]

Thank you. A very good morning to all of you from the headquarters of KBC in Brussels, and welcome to the KBC's conference call. Today is Thursday, November 15, 2018, and so we are hosting the conference call on the third quarter results of KBC. Today, we have Johan Thijs, Group CEO with us; as well as Rik Scheerlinck, Group CFO. And they will both elaborate on the results and add some additional insights. As such, it's my pleasure to give the floor to our CEO, Johan Thijs.

[Johan Thijs, Group CEO, MD & Executive Director]

Thank you very much, Kurt. And also from my side, a warm welcome for the announcement of the third quarter results 2018. Despite the fact that this quarter has been characterized with at least 2 holiday months and also with a lot of turbulence both on the financial markets and in the political domain. The results of KBC Group for this quarter were actually excellent. With EUR 701 million, we posted the return on equity of 17%, which, given the circumstances, indeed, that is an understatement, not bad. This is also reflected by our bank-insurance franchises in other countries. They are all performing very well, and that is translated in increasing volume to the lending business, increasing -- significantly increasing volumes in the non-life insurance business that has been also translated in an increase in net interest income, which means that all the underlying elements are in a positive. Also quality-wise, we have seen this quarter as a good quarter that's reflected in good combined ratio impairments and also in acceptable cost evolution. We are going also to announce -- or we are announcing today strong liquidity position, which is not a big surprise and also very strong capital position, with a common equity of Tier 1 ratio of 16%. That is also fully reflecting something, which was preannounced by the good results of the EBA stress test. Now as we already have mentioned this on earlier occasions, we are confirming today that we are going to pay EUR 1 off interim dividend. EUR 1 per share obviously, and that payment will be done on the 16th of November. Now so far, the key takeaways. Let me talk you through the details, and therefore, I'm going to jump first on the exceptional items perhaps. This quarter was not characterized by huge exceptionals. We have summarized this on one slide. And as you can see, this is Slide 5. A good understanding, as you can see, it's about EUR 7 million after tax, which is considerably lower than what you have seen in previous quarters or in the previous years. So let me now go to the split up between the bank and insurance company. While this is perfectly in line with historical average of 85% contribution from the banking side and 15%, 1-5 percent contribution from the insurance side. So because it's on the historical average, let's go into the serious stuff now. The interest income, which is indeed on Page 8 is moving in the right direction, and that's good news. With EUR 1,136,000,000, it's 2% up compared on the quarter and also 2% up compared on the year. So that's actually a good result, and that is due to the different elements. First of all, it has been positively impacted by the strong short- and long-term interest rate increases in Czech Republic. As you know, we also worked particularly hard in that domain. We have posted quite a lot of deposits -- I mean, sorry, we [indiscernible] with the Czech National Bank. The -- we do see also that margins are under pressure, and that's definitely true for the mortgage business. This is true for all the markets, which we are in. And that margin pressure, which is more or less, let's say, a couple of basis points in general. And in particular, in mortgage business, more of that margin pressure is principally offset by the volume growth. If you purely look at the interest income, which is generated through the lending business, then the outcome probably multiplied by margin is positive. So in terms of lending business, it went up. The volume growth is significant. That is also explained on Page 8. You see the year-on-year growth on average, 5%, and then, quarter-on-quarter means 1%, which actually reflect already mentioned strong performance in volumes. You can actually translate that in more or less the same for every country, which means that there is not a peak in one country and then down in another. This is definitely a uniform growth in all the countries. In terms of mortgage business, it's a little bit different. We see very strong growth in Central Europe and a 2% growth year-on-year in Belgium, which is giving the market indeed perfectly acceptable. In terms of the offsetting factors, obviously, it remains true that the low interest rate environment kicks in, and that there is a lower positive -- net positive impact of our [ ALM FX ] swaps but that is clearly not offsetting the full impact. Now in terms of net interest income, because of the heights, we also -- and that's what we did in previous quarters as well, leave you our guidance here, whereas in previous occasions, we said that for the full year results, net interest income, we would guide for EUR 4.5 billion. We actually pushed that a little bit up now after this quarter. And we will bring it to EUR 4,520,000,000. In terms of the other line contributor, that is fee and commission business, we see it standing at EUR 424 million, giving the turbulence, which we have seen and which have characterized the financial markets over the quarter, obviously, because of the political turbulence in certain countries, the looming trade wars that have created some nervousness in the investment community and one -- definitely customers are getting nervous about what is going to happen on the financial front if the investment appetite goes down. This is translated indeed in some lower sales, and this is translated as a consequence as well and lower entry fees. Now the change in the financial or the turbulence in financial market has also some impact on the underlying asset allocation, but not to a great extent. And then that's in respect also the management fees for a quite good performance of the previous quarter. We have a slight decrease, down a couple of million euros, so not really worth mentioning it. So in that respect, things have been moving in the right direction. EUR 424 million is mainly driven by asset management. We saw good performance on the banking services, which is driven by mainly the payment services, which went up and also which is driven by the higher network income, which we have seen. In terms of the year-on-year result, it's more or less the same. And what is clearly true for both quarter-on-quarter results and the year-on-year result is that because of the strong performance of the non-life insurance business, the impact -- we have to pay commissions for that as you know, the more you sell on the life, because it's one-to-one link, the higher the commission fee. The impact of that commission is indeed impacting negatively this line but has nothing to do with the underlying performance of the sales in asset management and in the banking and securities business. So in this respect, fee and commission is, given circumstances, given the fact that there are 2 holidays month, is acceptable. And going forward, we are indeed will depend on the fluctuation on the financial markets, but we are looking forward positively in this respect. In terms of the assets under management, this has been the same as previous quarter to EUR 214 billion, where we did see that the net outflows are fully compensated by the positive price effect in the market. Going forward to the insurance business. The non-life business is, as I already said, is performing extremely well. We see overall an increase of the premiums with the 7%. This is driven by a 5% growth in Belgium and a more than double-digit growth in all the Central European countries. The life insurance premium went down 7% on the quarter, and it was up 4% on the year. This is also driven mainly by interest-guaranteed products, which, rather than unit-linked -- unit-linked is hampered by the financial environment and also goes hand-in-hand with key asset management business who would add these are actually communicated vessels in this respect. In terms of the quality of the underwriting, once again, it's a confirmation that this quality is very good, with a combined ratio of 88%, to be precise, 87.7%. This is indeed a very good number. And this is not only true because of one country doing extremely well, this is true for all the countries in Central Europe. And Belgium stands at 87%, Slovakia, Hungary, Bulgaria hover around 87% and Czech Republic is at 95%. In this respect, still substantially lower internal target, but also doing very well in this respect. Growth numbers are in Czech Republic amongst others, 14%. In -- on the next page, you see the details for the life business, but as I already said, it's mainly due to unit-linked. That number has come down in general. So this is something I already talked about so I suggest to move on to the fair value gains on financial instruments. Also here, we have a positive evolution. It's EUR 25 million up for the quarter, and that is mainly influenced by the ALM derivates, which is positive EUR 25 million and also because of a positive change in the market, credit and the funding value adjustments in the different business entities. This is fully compensating the lower net result on equity instruments where we in previous quarter had a gain of EUR 33 million. We now have in this quarter only a gain of EUR 2 million, so really, this is indeed a big difference. Now in terms of the dealing room income. That was lower on the quarter, and that is mainly true in the Belgian dealing rooms rather than the other dealing rooms. So other income, it's EUR 56 million, perfectly in line with what we've seen on the historical average. We know that it normally hovers around EUR 50 million. And that run rate is indeed almost fully achieved this quarter but higher now. Leasing business stands at EUR 20 million on a normal rate. The assistance company with EUR 14 million is perfectly on the historical average and also this quarter was not characterized by big one-offs, so in this respect, a perfect normal quarter. In terms of operating expenses. At first glance, when you compare it year-on-year, it looks a bit -- more difficult, 57% increase. That's quite a lot. But there are some box to apps. If you look on the quarter for instance, we have an increase of 1%, which is mainly due to further increase of staff expenses, and there's no big secret about this. Everybody knows that wage inflation definitely in the Central European area is quite significant. Unemployment rates are dropping close to 0. And as a consequence, there is a progression on their salaries. But also the fact that we continue to spend money on the digital transformation, which translates in higher ICT costs and also the fact that we have been actually spending our marketing budgets more uniformly over the year, whereas in previous occasions, previous years, this was more beating at the Q4 quarter rather than uniformly spread over the year. Now what it is also true and that is definitely worth a mention that is we have booked in this quarter EUR 14 million of one off costs. This has to do with early retirement schemes, which we have in a one-off way introduce in Belgium. That has been flagged already before but it has been booked in this quarter. The next that we have, the restructuring charges in Ireland and in Czech Republic. And Ireland is related to the sale of nonperforming loans, which we announced previous quarter. And then Czech Republic is a further continuation of adopting and adapting the organization to the changes in the digital transformation. EUR 14 million in total. This is, if you would start to adjust that, I mean, how the -- the numbers look completely different. The same is true for the year-on-year comparison. So at first glance, the 7% looks rather high, same explanations actually. Growth on expenses on marketing are up, but also there we have of course the EUR 14 million of one-off. If we would make the adjustment, for instance, on a 9-month basis, then the impact of the [ cross rise ] will be only 3%. You have to take in mind also the fact that in -- this year, which is not the case last year, UBB is consolidated and therefore, you have a huge difference. So in terms of cost evolution, the pure nominal increase in the quarter is EUR 19 million, and that is fully translated -- almost fully translated at EUR 14 million of increase in a one-off way. So in terms of banking tax, which is not part -- I mean, we always make an exception for that. Bank taxes are taken out of the cost income ratio if you make the comparisons. Bank taxes were up again. They are now totaling EUR 421 million, which is almost 11% of our OpEx. That is quite a lot for using as understatement. If we don't have these bank taxes, then our cost-to-income ratio would drop from 57% to 50% ratio. Okay. The -- all the positive, which we can announce today is our asset impairment. Again, the impairments are very low. We have an impairment of totaling EUR 8 million. That is -- sorry, minus EUR 8 million obviously. So we have a credit cost ratio now for 9 months, which turned 7 basis points negative. In terms of the impairments, the biggest chunk was a release in Ireland, EUR 50 million, which compares to EUR 39 million in the second quarter of this year. But also in other Central European -- or in some Central European countries, we had releases. We had release in Slovakia, in Hungary and in Bulgaria. We are not talking about great amounts, we are talking about EUR 1 million, EUR 2 million. But nevertheless, also there, we have releases. Also in the Group Centre we had a release, which is a release on the portfolio of Antwerp Diamond Bank. And the other 2 countries, Belgium and Czech Republic, we have booked some further impairments -- and -- some further provisions, sorry, and they are totaling EUR 3 million from Belgium and EUR 12 million for Czech Republic. Czech Republic is mainly due to one big corporate fund. So 7 basis points negative total credit cost ratio, which is indeed a historical low, and it's also reflected in the credit cost ratios for every country. Belgium stands at 6 basis points, very low; Czech Republic, 4 basis points, indeed, very low; and the international market, because of all those releases, at a negative minus 56. Also going forward, we continue to say that this is indeed something which is unsustainable, this low level. The quality of the portfolio is indeed good. It has also been proven by the stress test by EBA. And we stick to our guidance, which we have given in the past as well. Long-term average is 47 basis points, so which will be somewhat between 30, 40 basis points going forward. We will clearly not be there next year. But anyway, it is 57 basis points negative, indeed quite exceptional. Last but not least, the impaireds ratio with regards to quality, it stands now 5.5% of which 3.2% is the loans over 90 days past due. You know that we saw 1.9 -- or we are in the stage of closing the process of EUR 1.9 billion of non-performing loans in Ireland that will be closed in the quarter -- in the current quarter. It is -- we take that into account than the 5.5% drops to 4.5% and 3.2% drops to 2.7%. In the other pages to come, we are talking about the different business profiles. We are talking about Belgium, Czech Republic, Slovakia, Hungary, Bulgaria and so on, all the details are provided in that pack. But I will do you a favor not to go through it in detail. And we'll save some more time for questions if there any on those particular slides. In terms of our return on allocated capital, which is on, let me see, Page 37. It's clear that this is very good, stands at 24% for the group. we can see the split between the different business units, but all of them performing substantially higher than the cost of capital. In terms of the balance sheet, also there you can see the difference in the countries. Let me summarize it as follows. Every country is growing where it needs to grow. And I want to highlight 2 countries, it is Ireland and Bulgaria, because there -- apparently, the numbers are laying a little bit behind, but for good understanding in Bulgaria, business is obviously containing -- the portfolios are containing some legacy, which we are building now in a rapid pace as well as we do in Ireland. And if you would look at your numbers of the new business and in this regard the build-down of the legacy business, then the 4% of loan growth will become 8%. And in Ireland, the minus 1% will become plus 35%. So this is indeed significantly different than when it appears at first glance. In terms of the capital position, already mentioned the 16%, which is perfectly on the back of in the reference capital position, which indeed stands at 16%. It's also substantially higher as for the regulatory minima, and both therefore, I can clearly say that KBC is an indeed solid bank insurance group. In terms of the full capital ratio, which stands at 20.9%., over there, we have further improvement. And also the leverage ratio, which you can see on Page 41 is -- yes, it's indeed Page 41 which stands now 6.1% for the group, also there we see further improvement. The combination of the two leverage ratio and the common equity 1 ratio I think that combination is indeed very important. That combination shows that we are amongst the better capitalized groups in the European domain. Also the insurance company is with 216%, very well capitalized. And also now we start to see that the Solvency II ratio after its introduction becomes a little bit more stable. So it's in this respect the parameter, which indeed allows to better judge the evolution of our capital position at the insurance side. In terms of liquidity, already mentioned that both the long-term and short-term liquidity ratios are good and this is driven by a funding basis, which is fundamentally customer-driven. On Page 42, you can see that 72% of our customer -- sorry, of our funding is driven by our customers. The split up is also provided in detail and it actually makes in this respect KBC is building upon its strength which were shown the financial crisis in 2008, 2009. The liquidity ratio spent more than 35% above the regulatory minima and also the liquid asset buffer, which we have, is exceeding more than 300%, by far the underlying target. So liquidity-wise, very good; capital-wise, very good; profit-wise, very good, I think this is strong quarter. And if you look forward, what this means then indeed we are confident that the European area despite the fact with indeed some uncertainties, will continue to grow. Now we think that the peak has been reached, we are still optimistic for the years to come. The evolution that we saw yesterday evening and in terms of Brexit, is a small step in the right direction. We'll see how it further evolves. But all in all, we think that what we see going forward is positive and is definitely not something which is extremely negative as we have seen for instance in certain areas over the last 10 years. In terms of what that means for the group, solid returns can be obtained for all countries. And also in Ireland, we continue to build our business one thing and further build down our legacy staff in terms of our guidance, which we had given the past EUR 100 million to EUR 150 million. It is clear that the sale of the portfolio of EUR 1.9 billion of nonperforming loans in Ireland has some impact on that guidance, but not in terms of the extremes of EUR 100 billion, EUR 150 billion. We will definitely, for the full year, be in that range, but we will be closer to the lower rather than with the higher end of that EUR 100 billion and EUR 150 billion range. I would love to keep it here and I would love to give the floor back to Kurt, who will then guide us through your questions.

[Kurt De Baenst, General Manager, Investor Relations]

Now the floor is open for questions. [Operator Instructions]

[Operator]

[Operator Instructions] First question comes from Pawel Dziedzic of Goldman Sachs.

[Pawel Dziedzic, Equity Analyst]

Quick questions from my side. The first one is just a follow-up on your forward-looking statements. In your economic outlook, you mentioned that the cycle is past its peak. And you're a little bit more cautious on geopolitical risk. So it reads a little bit more of conservative. Can you clarify and you did some of that already in your opening remarks quarter, but can you be more explicit? How does this impact your business in 2019, if at all? And if it's -- being a little bit more cautious means anything for your dividend policy going forward. So that would be the first question. And the second question will be on costs. So costs are up 7% year-on-year. And I know this including restructuring charges, and if we include UBB, could you give us a sense what will be clean run rate that it could extrapolate to 2019 going forward. Is 3%, 4%, 5% increase reasonable given the wage pressure that you see in the region? And I guess, going back to your target that you gave in Dublin, you mentioned I think 54 cost-to-income ratio by 2020. You are now after at 57, 58. Is the target still achievable?

[Johan Thijs, Group CEO, MD & Executive Director]

Thank you, Pawel, for your questions. Let me start with the first one about the evolution of the economy and our statements about the economic growth and fact that we think it's -- the cycle is just behind the peak in Europe. So what it actually means is that, first of all, we continue to see growth in the European domain. And as you know, some of that, clearly for us is Central Europe, the growth is substantially higher than what we see in the European average. So we still forecast also to '19 '20 '21 growth numbers, which are more than 3%. In terms of what we see in our local markets, in Ireland, it is -- that they forecasted for this year, 7%. We think that for next year, it will be more or less in the range of 3.5%. And for Belgium, we think that the growth will be more or less in line with the 1.5%, which had been forecasted for this year. Now those assumptions take into account the statement we are positive about the economic growth, but we think are behind the peak. So this is the full reflection. Now you have it in all detail what it means. The -- we take into account in this respect a Brexit, which happens, but that the Brexit will be on a transitional scenario. So we heard last evening that it is confirmed overtime that it would fully go for a pre-clash and that would have no deal. So huge uncertainty on both the transfer of goods and transfer of service side. Then, I don't know precisely what impact it would get. I know the numbers, which are out there. I mean, for instance, Ireland is going be -- being forecasted for somewhat impacted to be 2% to 4%, but actually nobody really knows what the effect will be. So what is that detail I gave is taking into account a Brexit with -- in line with what we've said the other day, so let me translate it differently. That common sense takes a little bit in. In terms of impact from our dividend. This has no impact on our dividend. Our dividend policy remains the same. That is we are going to pay out at least 50%, including the H1 coupon. And every capital which is surpassing the 60% target is considered to be surplus capital. And the surplus capital which we already said in the past, in principle, we are going to dispute in general. So this is not changing at all. Also including the statement I just gave on economic growth. Then in terms of your question on cost, [indiscernible] what my colleague comment on requirements principle. What we said in Dublin that we have long-term target of 54% by 2020, that remains intact. So what we have now is indeed the -- we can give you the detail where the 7% comes from but indeed exclude the one-offs if you exclude Diamond's principle is only 3%. And also the increase on the quarter is actually fully translated into the one-off cost, which we have actually put in this quarter. The longer-term view, the 54% starts from two things. First of all, the fact that interest rates increases are foreseen in -- at the end of 2019. So that the ECB changes its policy that's one thing. The second thing is, that we continue to invest in our digital transformation, which we will do. And that is, obviously, having double effects. First of all, we see in that kind of processes is normal debt, the costs go ahead of the benefit and so it actually, the benefits are back loaded in that respect and that is translated in the evolution which you see right now. But we speak to our guidance of the 54% in 2020.

[Pawel Dziedzic, Equity Analyst]

Maybe just a very quick follow-up on the costs, this restructuring charges. Are you able to give us any cost savings associated with them?

[Johan Thijs, Group CEO, MD & Executive Director]

So we have restructuring costs in one of...

[Pawel Dziedzic, Equity Analyst]

EUR 40 million. I mean, you have it in I think in Belgium, you have and Czech Republic this is -- why do you treat it as one off and are there any cost saving associated to them going forward.

[Johan Thijs, Group CEO, MD & Executive Director]

So the split of the EUR 6 million in the onset that is for a PE retention scheme. And about 300 FTEs are involved that scheme that's one thing. We have a restructuring cost in Czech Republic. And that is purely and entirely due to the releasable staff and, we're talking about substantial number. I'm a little bit doubtful because quarters has been already announced publicly, is I think about 400 people. I don't know the precise number, its 450 people. And then, we have a restructuring cost. It's just related to the sale of the portfolio of the nonperforming loans in Ireland and that restructuring cost is also taken in this quarter. All of those things obviously, one-off.

[Operator]

The next question comes from Flora Benhakoun of Deutsche Bank.

[Flora A. Benhakoun, Research Analyst]

My first question is regarding the commission fee and commission outlook. Obviously, October has been a very tough month, especially for equities. So just wondering whether you could elaborate on the quarter-to-date performance and what we should expect for Q4. And also, linked to that, whether you could give us the current asset allocation of the CPPI product, please. And the second question is regarding capital. So obviously, you've reached your 16% and crossed one target this quarter. Just wanted to ask you how we stand regarding potential M&A plans and any kind of regulatory risk that we need to deal with off?

[Hendrik Scheerlinck, CFO & Director]

Thank you for your questions, Flora. And a warm welcome to everybody for my side as well. On the net fee and commission outlook to start with the second part of your question, the asset allocation of the CPPI at the end of the third quarter because we do not disclose what it would be now. But in the third quarter, we were actually in line with what we saw in the second quarter about 40% on fixed income, 42% on equity and 16% to 17% on cash. That was actually fully in line with the second quarter. For the outlook of net fee and commission income, we guide -- we expected it will be in line with the third quarter. As you know, in the third quarter, you always have the vacation period. So there's lower sales and the turbulence in the market started in the month of September. But, we traditionally have saving month in October and so we have different campaigns on the savings and we have seen that the inflow in France and I look at growth sales is actually, as we always say it's in the fourth quarter it's about 1/3 higher than what we see in the third quarter and that trend is continuing. On the -- so that is positive for the entry fees. On the management fees indeed, the asset mix changes the -- reflecting the turbulence on the market will definitely have an impact on the management fees. And then, you should not forget that indeed, we have been transitioning investors from the CPPI product, which through the cycle has an average margin on management fee of under 60 basis points, mostly to the Easy invest, which has a 2-day cycle and more stable management fee of under 25 basis points and that, of course, has also an impact on the management fees. So again, overall, we expect now that on the fourth quarter, the net fee and commission income is going to be broadly in line with the number you've seen in the third quarter.

[Johan Thijs, Group CEO, MD & Executive Director]

Thank you, Flora. I'm going to take your second question. Indeed, we have achieved or breached the outlook of say, the 16% target, which means indeed, we are perfectly on track in terms of our capital evolution. And that we are now on our own capital position. In terms of 2 things you mentioned, what about acquisitions and what about the regulatory impact. I'm going to start first with the acquisitions. So our policy remains the same for the next coming years. We are not going to look in new adventures, which means that we are going to stick to our current core countries. If we are able to strengthen our position in those countries in terms of banking and insurance business, we'll definitely do so. And that means that we are going to restrict ourselves to do potential acquisitions, which are cold and bolt-on acquisitions. In this respect, we are having indeed some looks at certain markets and already mentioned in the past that we would be interested in the Hungarian assets if any come to the market and the same is true for all the other core markets, which we are in. In terms of the regulatory impact, yes, 2 studies there. Obviously, the regulatory impact isn't ongoing given there is continuum. Constantly all the banks are scrutinizing, I almost use that word. I'll look into in terms of that processes and so on and so forth, and we are constantly and people of the ECB and so that's an ongoing process. We have the TRIM, which we don't have a conclusion yet and discussions are still ongoing. That is one impact so that's given for going forward. I don't expect too big of difference there compared to what we have seen over the last couple of years and that will be the same trend. And then you have the most of the time the one-offs that is a yearly review or for instance, your attractive position. It's too early days as you know the letters on the confirmation of what the SREP targets will be, will be early next year so that will be the first quarter. It's a bit later this year because of the SREP is going to be taking into account the EBA stress test results. And as a consequence, because KBC came out extremely well out of those stress tests. I mean, I will not expect big changes on the contrary, I would actually say, it should be flattish. Now because it's early days, and because, obviously, we are not allowed to talk about it, I refrain from any other comment in this respect.

[Operator]

Your next question comes from Robin van den Broek of Mediobanca.

[Robin van den Broek, Research Analyst]

My first question is on the 16%. I mean, your introductory remarks you said that the 16% stays where it is but I think your framework is based on a 12 bank internal peer group. I mean just wondering whether that goal post could move again with Q4, or just sticking to the 16%? And based on the Q3 printed numbers of your peers, do you see that 16% potentially go up a lot at year-end. That's the first question. And the second question is on the capital build in Q4. I think you said earlier in the year that your insurance subsidiary will upstream capital in the fourth quarter, which will make that capital build seasonally strong. And I think the NPL fill should also add something to the capital build in the fourth quarter. Can you confirm that? And in relation to that, you mentioned that this whole situation now has stabilized. It's well above 200%. It's on standard formula, you don't have lot of hybrid debt in there. And so could we expect maybe some scope for further capital optimization with respect to that?

[Johan Thijs, Group CEO, MD & Executive Director]

So thank you, Robin, for your questions. I mean, both questions saw on the peer group and then also on the insurance side. I think that your analysis is fully correct. Let me give you some answers to those -- to that analysis. First of all, indeed, our capital position saw the 14% and then the 2% off the buffer remains the same. And the 14% is indeed linked to a peer group. Now your question was can it only grow up? Or is the trends that it grows up? I wouldn't dare to say that we do an adjustment once a year and that's always on the back of the quarter 4 results. So you can expect that in the first part of next year. I mean, in principle, we don't give any guidance on the evolution, the intermediate evolution but let me do you a favor, just also take away the -- they mentioned the standard only can go up if we would do it on a half year basis then it will slightly go down. So the 14% is based on the average of peers that average -- sorry, not average, the median of the peers. That median has slightly gone down over the first half of this year. So then indeed, it's not necessary that it always goes up. So what it's going to be would be disclosed in the first part of next year on the back of -- full year 2018 results. And then, in terms of your other question, I'll continue Rick, or you want to take it over? Yes. So let's do it combined effort. So indeed, insurance companies are performing very well. And also, there, we see indeed that the solvency 2 ratio is stabilizing. It's now 216% and you're right, there's not a lot of hybrid in there. So in that respect, it's indeed a sound ratio. The dividend policy of insurance company is still 100% upstreaming so that is also unchanged. In terms of your NPL, you're right as well. There is some NPL because of the sale of the NPLs in Ireland, we are going to indeed generate some free fall of capital that is amongst others. That will be more or less 7 basis points. So that will be indeed included in the quarter 4 update. And what about optimization of the insurance company? There are no times in this respect, in the short term. So with this respect, we are fine with the 216. We don't feel any needs to optimize further, at this instance, to optimize for any capital. And I'm looking at out the regular hadn't been complete. Indeed, the dividend that is being paid by the insurance company, which helps on our CET1, as you know typically in the fourth quarter, we pay an interim dividend and that is roughly responsible for about 20 basis points on CET1. So again, as we pay the insurance pays that dividend to the group, the CET1 will go up with roughly 20 basis points.

[Operator]

Your next question comes from Stefan Nedialkov of Citigroup.

[Stefan Rosenov Nedialkov, Director]

It's Stefan from Citi. I'm not sure if I missed your discussion on the 16% capital target. But when are you going to make a decision as to whether that is being paid out or not? Are we talking 2019 or more like 2020? And I'm still not sure that I heard a more specific time frame. My second question is on the Czech Post if you can give us an update in terms of what costs have been incurred this year for the agreement and what's the potential upside. If you don't want to disclose numbers, at least coincidentally please describe where you see potential upside coming in the next couple of years? And how meaningful that is? Additionally, could you see such agreements being signed for their entities in Central and Eastern Europe potentially?

[Johan Thijs, Group CEO, MD & Executive Director]

So thank you, Stefan, for your questions. Just on the capital position, so indeed, we are going to update the -- as I said on the previous question, are going to update it on the back of the quarter 4 results. So early, the first phase of next year that means that also for dividend payout that is decided, obviously, by our Annual General Meeting. And we are only doing that on the back of quarter 4 results. So payouts, for instance, distribution of capital beyond 16% will be decided by our board and by our AGM on the back of Q4 numbers 2018 and that decision will be taken, AGM is in May 2019.

[Hendrik Scheerlinck, CFO & Director]

And Stefan, and then on the Czech Post, we are happy with the evolutions that we see. As you know from this year on, we are also selling insurance policies through the Czech Post. We have developed Easy products that is it can be sold by people in the Czech Post, and we are happy with what we see in terms of volumes. We also have actually manufactured or still manufactured 2 asset management products. We source quite simple products and there also, we have seen actually good sales. And if you look at what is the impact of the Czech Post that we pay in OpEx for the third quarter that was EUR 5 million.

[Operator]

Next question comes from Benoit Petrarque of Kepler.

[Benoit Petrarque, Head of Benelux Equity Research]

Two questions on my side. So the first one was on the NII in Czech Republic. I think your guidance subject to slight increase in Q4 and so still an improvement of NII in Czech Republic in the fourth quarter. Could you talk a little bit about 2019? What is your outlook in terms of net interest income development in Czech Republic? And I think some of the peers in Czech Republic are little bit cautious on NII development. We have seen a very strong improvement in '18, but '19, I mean, this is a year with margin learning pressure and also a year where you could see deposit rates paid to clients are going up. So what is your view in terms of NII growth in Czech Republic because there are lot of moving parts? And also, on Czech Republic, I wanted to clarify, how much cash flow you actually put at the Czech Central Bank and do you have any intra-group flow may be from Belgium into Czech Republic to get a benefit from IRR rates in Czech Republic? And then, the second question was lagged around Belgium NII, and we see a small trend down. It's something which you talk about quarters and nothing surprising but also, again here, what do you expect from next year on the direction, please?

[Johan Thijs, Group CEO, MD & Executive Director]

Thank you very much, Benoit, for your question. Let me go start first with the NII in Czech Republic. No, let me start first, with total guidance. So we give indeed guidance for the year '18. We did that because of the changes, which were happening on and on again in Czech Republic. In principle, we don't give guidance explicitly like we do about 2018 where we guided 4-5-2-0, so EUR 4,520,000,000. But we don't give that explicit -- an explicit guidance for 2019 going forward. Now in terms of -- the comment around Czech Republic, yes, you're right. We have seen 5 rate hikes in 2018 already. We have 2 in '17 so in total, 7 rate hikes so far. I think we have had it for the year. We expect next year -- I don't know precisely when, of course, but we expect early next year -- no, probably, in the first quarter another rate hike and that will be more or less. It all depends on, of course, on how political domain in Europe is going to roll out. There's a huge impact since on the Brexit, then that could hamper the economic evolution, and then potentially, we see some changes here, but we do expect that the Czech government -- sorry, sorry, the Czech National Bank not the government, of course, not. The Czech National Bank is going to increase its, probably, rates in the course of 2019 to 2%. And the further guidance on NII, obviously, when an interest rate hike occurs then you benefit big time from that. As a bank, it all depends on how much is pass-through to customers. What we've seen until now is that it's very limited pass-through to customers. We're talking about a couple of basis points, even over the whole period. And that is true for -- definitely, for the deposit side. But I would be naive if I would say that is going to happen precisely same way, in 2019. We will not be the first one just after that, but I can imagine that some smaller players will be tempted to pass more through to customers going forward. So if there would be a further rate hike, then I think part of that will be indeed used to pass it through to customers. And on further note this -- we're talking about a couple of basis points. And, how much did we post at the Czech National Bank, EUR 27 billion which is done under the full guidance of the Czech National Bank, not a single krona is placed at the Czech National Bank without their knowledge or without their pre-approval. How much we are floating from -- and the dealing [indiscernible] which Czech Republic is internal information. So we don't provide. In terms of the Belgium NII, very clearly see that the -- that is clearly pressure on the mortgage margin and that mortgage margin has come down further because of strong competition in the market. That we -- we give the detail that is provided in the pack and there you can see indeed the downward trends on the mortgage business. Also, the Belgium net interest income, not the net interest margin but the net interest income has been influenced by previous trades which we did on the spread between the euro and the dollar, and the euro and the pound. And that spread has gone down significantly so there, the income, which was generated the previous quarter has almost dropped away. So this is the guidance, which we provide and I think you can do a little bit of homework now to see what will bring to precise number.

[Operator]

Your next question comes from Kiri Vijayarajah of HSBC.

[Kirishanthan Vijayarajah, Analyst]

I just like to sort of drill down a little bit on the outflows you had in mutual funds. So you said it was small but I wonder if you could firstly, just quantify the number for us just to give us some reassurance there. And then in terms of trying to recapture those outflows on the mutual fund into the insurance side, just reading the text, am I right to understand you weren't able to really try and recapture it into other product areas. And then, lastly, when you mentioned the outflows coming mainly from investment advice, am I right to assume that's more the lower-margin product area. So it's not coming from the discretionary management side?

[Hendrik Scheerlinck, CFO & Director]

Yes. Kiri, on the outflows, if you look at the third quarter, so we had negative net sales of EUR 210 million. You may remember last quarter, we had negative sales in the second quarter of -- EUR 209 million. Year-to-date, we have net sales of EUR 414 million. If you then look at where is the outflows or the net outflow coming from, as you know, we have maturities of first capital protected funds from the past so they mature now. And we -- as I said, we are very happy with what we see on the evolution of the growth sales, so especially in the months of October and so far in November as well, but the volumes that are flowing off the book are actually quite substantial. On the insurance side, when you have products coming to maturity, given the fact that they're not guaranteed interest, we only pay 50 basis and the client has to pay 2% tax up front. What we see at this stage, as clients are unsure about the investment horizon they tend to leave the money on their current or on their savings accounts waiting for a better opportunity to step into the market.

[Operator]

Our next question comes from Bruce Hamilton of Morgan Stanley.

[Bruce Allan Hamilton, Equity Analyst]

First one, just going back to asset quality, and you made some comments around thinking about that you know the path to normalizations, so '19 still well below the cost side and then, obviously, moving up towards it. Could you give us a little bit more color about any areas where or how that normalization happens? Are you sort of more nervous in any of the corporate areas in Belgium for example where corporates take some quite level of leverage or any geography or sectors that you'd be slightly more worried about looking outside in the next 12 months, as we think about cost of risk? And then secondly, just going back to the capital question and the CAGR you use, presumably if you have any Nordic banks in there, obviously, they're going to see a drop in that core Tier 1 at the end of the year is the pillar 2 add on and mortgages moves into pillar 1. So are there any sort of Swedish Banks in your peer group and would you look through any sort of big reduction in capital that might come through from them, or would it simply flow into the peer group average?

[Hendrik Scheerlinck, CFO & Director]

Thank you, Bruce, for your questions on the normalization of credit cost. You know we have said that the truth cycle normalize credit cost for us would be in the range of 30 to 40 basis points. Are there any signs that we see happening right now, I mean, what are we watching very carefully. You asked specifically a question on Belgium cooperates for the entire sector, the answer is, no. We don't see any specific movement there. But given the size of the portfolio, you can always have a few names that because of strategic reasons, because of markets falling away, come under stress and this quarter -- I mean, third quarter that happened in the Czech Republic. Even that can happen anywhere and everywhere. We carefully watch the different sectors that are the first indicators to stress happening on the credit side. And in order of importance that would be the leasing business. We don't see any major uptick in NPLs or impairments on the leasing. The story in the Czech Republic. There we have seen some movements, but that is mostly related to a specific product of short-term operating leases, but otherwise, we don't see major evolutions on the leasing side. And consumer finance, balances on overdrafts and customer finance is another indicator. They are on the higher level, but in terms of NPL formation, it is very demanding even in the markets, where we have a somewhat higher concentration in customer finance, like Bulgaria, it remains very benign. Micro SMEs and other segment that typically gives you an indication how credit costs are evolving. You see still good demand. There we see very, very low NPL formation with the books but the guesses that we are putting on the book right now, so nothing special there. And then, last but not least, mortgages, there also you've seen the NPL formation in all of our countries remains very, very low. So that is what we see now.

[Operator]

Next question comes from Alicia Chung of Exane.

[Alicia Marianne Chung, Analyst on the Pan]

Just a few quick questions from me. First of all, on your costs, and if I can just get back to you that how do you see the cost outlook for 2019 versus 2018, particularly, when we think costs, the digital investments that you're already making with here. Do you expect the same level of investment next year versus this year? And is it fair to assume that 2020 would be another year of costs going up faster than your target cost CAGR of 1.6% between 2016 and 2020? And then how would that shape up for 2020 itself? Can we expect that cost's rose to be lower than your cost CAGR? Or is it better just to think about your costs purely in terms of your cost income ratio at the moment? And that's my first question. Then, on my second question, I just wanted to go back on your insurance revenue. Obviously, you're combined ratio has been very good again this quarter. And it's now been in the 80s for the last 4 quarters at least. Is it fair to say that this is broadly sustainable? You have a cost to combined ratio target of 95%. Is it now time to change that? Does that not seem a little bit high versus how your -- I guess, your -- the quality of your insurance businesses is shaping up?

[Hendrik Scheerlinck, CFO & Director]

Thank you for your question. But I would ask a little bit of patience here because something -- because of a technical problem went wrong answering Bruce Hamilton second question. So if you allow me to first answer Bruce's second question and I will come back to your question. Is that okay?

[Alicia Marianne Chung, Analyst on the Pan]

No problem at all.

[Hendrik Scheerlinck, CFO & Director]

So sorry, Bruce, something went wrong. Your second question was about peer group and about the composition of that. Amongst others, are there any Nordics included in that peer group? So we don't give the detail of peer group. But also let's not forget that if you -- there would be any Nordics in, which is not a confirmation there are Nordics in -- but assume there would be in, the capital ratio, the CET1 ratio is indeed very high. So if the impact would be because of the reshuffling there in the regulation, then the impact must be very, very, very impactful before they drop below the median, and let's not forget, it's not about the average we are talking about, we are talking about the median. So I will not expect too much of difference there if there would be. So -- then coming back -- sorry, to your questions, in terms of -- let me go to the insurance question perhaps, first. So the combined ratio is indeed 88% and that is now been 88% for a while. The target is 95%. So in that respect, the target, indeed, looks a little bit, bit on the high side. But this target is a target and what is far more important that is the stability in our combined ratio. Now until further note -- no, no, not until further notice. With a certainty, I can say that what we have in our underwriting policy because of the group-wide-driven underwriting policy is that's almost a guarantee for sustainable combined ratio. The only thing which can influence that they can't is obviously, natural catastrophes, which are reinsured but obviously, they can incur on a more than regular basis. So in that respect, the target of 95% remains to be on the high side. We will review that anyway going forward. But the combined ratio underlying and that's a good news is sustainably low and for good understanding, is considerably lower than the average of markets and this is not only true for Belgium, where we have the biggest life activity but also for our Central European countries. And then on your first question, Alicia, on the OpEx, as you know, we do not give guidance on that. What we said is our target is to reach 54% cost income ratio by 2020. When you look at the year-to-year underlying increase in expenses, which were above 3%, we have explained that part of that is the wage inflation specifically, in Central Europe. Johan has already mentioned that we are taking measures for instance, in Czech Republic, where we have made no provision for restripping charges of severance and a reduction in headcount with about 400 people. We had higher ICT expenses, but that is fully in line with what we announced at our Investor Day in Dublin, where we said, we are embarking on this EUR 1.5 billion program, which is going to be about EUR 250 million going to be announced. So that is continuing and the benefits of digitalization are always back loaded, so you first make the expenses and then you starting the benefits. Another element that has to do also with digitalization is the shift in timing in your marketing expenses. As you launch a new product, of course, it goes together with a marketing campaign and that's why you see some certain -- some shifts in marketing expenses where traditionally we were heavier in the fourth quarter. Now it is better split given what is happening. Again, we do not guide on the operating expenses, the target to reach 54% cost income ratio by 2020 still stands.

[Alicia Marianne Chung, Analyst on the Pan]

Okay. And then, just clarify, given that your marketing expenses this year has been broadly equal across quarters whereas previously, a chunk of it fell more in Q4. We would expect mechanically that Q4 costs should be lower year-on-year.

[Johan Thijs, Group CEO, MD & Executive Director]

Definitely, for the marketing expenses.

[Operator]

Next question comes from Nick Davey of Redburn.

[Nick Davey, Research Analyst]

Just one question for my side. Could you talk a bit about the trends you're seeing in the Belgian SME division or sorry, loan book or segment? And seems like loan growth is up to about 8% year-on-year there. But if I look on Slide 21, and you have the sort of longer-term pressure on the new spread. And that is the mad math working with the sort of new spread of 120 basis points, think about your cost income ratio, expected loss on that segment, the tax rates, and the likely risk rate of that segment. I struggle to make it a particularly attractive return on allocated capital product on it -- sorry, I suppose, you might talk to me about the profitability of the broader relationship but I'd just -- just watching you accelerate in that segment again, falling spreads I'm struggling with the profitability. Could just give us some more detail and assurances on the profitability of that kind of relation?

[Hendrik Scheerlinck, CFO & Director]

Yes. Thanks for your question, Nick. Indeed, if you are on Slide 21 and you look at top line, the product spreads on the book, you -- we see a slight uptick and that has to do actually with the changing product mix if you look at business unit Belgium, and we look over the last 12 months or year-over-year, the total loan book grew by EUR 5.4 billion. Of that, there were about EUR 720 million and then there's some other consumer finance, so it's fair to say that corporate and SMEs have been growing by about EUR 4 billion. That is basically on the back of good demand also, on the investment files. We have seen a number of Belgium companies, SMEs and mid-caps investing in production capacity, investing in size and scale, also making investments outside of Belgium manufacturing capacity. In terms of RWA density, it does not -- it may change a little bit but it's not very dramatic and in terms of credit also because I said, the impairment levels and the NPL levels remain very benign.

[Nick Davey, Research Analyst]

And then just on the bottom half of Slide 21, the new product spread just on those SME loans is 1.2% Is it -- do you think the business being written today is, is it a return on allocated capital in line with the group or the group's aspiration?

[Hendrik Scheerlinck, CFO & Director]

Yes, yes, it is. But again, you have to be careful with these numbers. They're very sensible or sensitive. If you have quarters, where you have some structured deals I was mentioning already acquisition finance and if you do the prefinancing of the private acquisition finance loan, the completed pricing on that is somewhat better. And then, if you then revert to one normal plain vanilla quarter, it goes down a little bit, but we carefully watch on any product we underwrite on the credit side that we make at least a long-term cost of capital.

[Operator]

Your next question comes from line of Marcell Houben of Crédit Suisse.

[Marcell Houben, Research Analyst]

I have one if I may. On the fee side at the group level, if I pick sort of normalized level in the fourth quarter your growth into '18 is negative 2%. Consensus, however, is expecting sort of a rebound for '19, '20 of cost 3% roughly. Is there a fair assumption of the market? Or can you explain to us the moving parts regarding the fee growth? I understand it's quite a follow-up though also we're going to capital markets and the consumer conference there. But the underlying growth level expectation for fees, can you explain that a little bit for us?

[Hendrik Scheerlinck, CFO & Director]

So thank you, Marcell, for your question. So I would stick to the guidance, which have been given earlier in this call. So we consider this for the fourth quarter to be not marginally in line with what you seen in the third quarter. And then, if you make the December parts then your calculation gives you that minus 2%. And that be aware 2017 was indeed the year where we launched expertise and that peaked indeed, in the launch obviously. That's a low hanging fruit and therefore, you have a little bit of distortion there. But what it precisely is going to be going forward in 2019 as I said earlier, we don’t get the precise guidance in the trends which I have explained for 2019 -- for 2018 and which then have been anticipated for 2019 are the only guidance which we give in this respect.

[Operator]

Your next question comes from José Coll of Santander.

[Josema Coll, Equity Analyst]

So my first question would be on the AT1, you currently have 2.6%. I'm wondering what target level would be there and what would be the run rate either yearly or quarterly of after-tax cost for those coupons. And the second question is on your capital target. Could you please explain why you think it's better to use the median of 11 peers. For a capital target, rather than just look at your own capital needs in terms of which liquid assets -- which liquid asset grow which will have B2G management buffer, Basel IV impacts. [indiscernible] I was trying to say that it would be a little more manageable and let's go with that so you can just make your capital needs rather than just look over your shoulder to your peers. So if you could just give us some color there. It will be very appreciated.

[Hendrik Scheerlinck, CFO & Director]

Thank you for your questions. I don't know you if we understood rightly your first part of your question about the AT1 but for good understanding, this currently stands at EUR 2.4 billion, which is the 2% of the total capital. But this in -- still includes fact that we are going to call our AT1 in the course of the next -- first quarter next year so normally EUR 1.4 billion drops out, and we are going to issue over EUR 0.5 billion in the next quarters. So in principle, this remains the same as what this originally -- was originally the case. So we have more or less 1.4%, 1.5% AT1 capital and in fact, that's now a bit more as -- that we grasp the opportunity to issue AT1 at a very competitive price. And the call is only due in 2019, early 2019. So this will normalize going forward. Then in terms of the targets -- by the way, for good understanding we do take in consideration our own capital needs, and we do take into consideration our own position in this respect. That's what we do anyway, but in that analysis of capital needs, we also use an ambition level. And the ambition level is to be amongst the better capitalized financial institution in Europe. And as a consequence of that ambition level because we want to be rock solid in this respect and then this group as you know is bearing the 2008, 2009 big difficulties. We never want to go back in that domain. As the consequence of that ambition being amongst the better capitalized financial institution we are looking into, of course, some of our peers. And that's then the logical consequence which is translated into the 14% of rational capital position plus 2% management buffering.

[Josema Coll, Equity Analyst]

So -- sorry, just a follow-up. I might understand that those peers better capitalized that you're taking into account. You should have similar Basel IV impact as you would or even less impact than that?

[Hendrik Scheerlinck, CFO & Director]

How it works is straightforward and how it works is, we look into our own capital needs as you rightfully pointed out. So we look into what is the impact of Basel IV. What's the impact of regulatory intermediate action for the impact of blah, blah, blah, the whole range. We position ourselves to be a sound group and then the ambition level is what's the capital position of our peers in the European domain. And taking into account their capital position, which is straightforward, how much is their CET1, we will look at the median, and we will be better than the median, so we will be amongst the better capitalized groups in this respect.

[Operator]

Next question comes from Stefan Nedialkov of Citigroup.

[Stefan Rosenov Nedialkov, Director]

Just 2 kind of I guess more strategic questions. When I look at your geographies in CEE and Belgium, obviously, in Belgium, you have a closed manufacturing and distribution system, so I'd say while with the Czech Post you're obviously, saying we can't necessarily build up scale in insurance and asset management. Shall we go out to third parties? Looking out a couple of years, do you see KBC as a combination of a closed Belgian system. And more I guess, contribution from third parties. So are we going to be looking at a combination of closed and opened systems? Obviously, they're not that many M&A targets out there that will meet your criteria to -- for insurance or for asset management. Our third-party partnerships, the way of the future in CEE is digital going to accelerate that basically, just trying to get a feel for how you are thinking changing on that topic. And I guess, related to that topic, when you think about capital and keeping a 200 basis points capital buffer, keeping that is kind of expensive because it could theoretically pay that back as a dividend. And whenever you need to raise capital you can raise that at 1.5x, which is not many European banks can actually go out and raise capital at a very higher multiple in that. How should we think about the interaction of these 2 trends?

[Hendrik Scheerlinck, CFO & Director]

Thank you, Stefan, for this question. And it's a very interesting question. And honestly, I think this is one of those questions which definitely need to be answered going forward. The problem is, we probably need half an hour to explain all the details or all the views, which I can have on your question. So let me try to summarize it, which will mean it is not fully and not complete. Let me try to summarize it in 2 minutes. First of all, I think you pointed out rightfully so that the digital transformation is going to change the way how we are dealing with our business going forward. What is going forward, I don't have a clue. Are we talking about 1 year, 2 years, 5 years, within 5 years, we can certainly say, it will be different. In 1 or 2 years, we are currently already experimenting with third parties. We are working together with amongst others. The different banks we are working on different domains. We haven't experimented in the recent past and for instance, following the third-party distribution, so we are aware of what can be done and what are the possibilities the positives and the negatives. Are we going to go forward with the close distribution? And we don't exclude and that's true, always. We don't exclude changes in this respect because that will be extremely stupid. Giving the changes, which are happening today, the business the way, how we develop business could change, indeed, in the next years to come. So we are open in this respect to any kind of observation first of all, and we are experimenting in this respect in -- seeing that in all countries. Let me give you one example, currently, we are experimenting in -- it's more than experiment even in the Czech Republic, where we are very working together, and we're working closely on what we call an open banking insurance platform and that is indeed something which is more what has been qualified by the market as a platform banking environment. So yes, we are considering options. How far does it bring us to give you the full picture that will take me a little bit more time? But yes, we are experimenting. And then, coming back on your question on the capital buffer the 2%, that's indeed a few, which we could follow, but we explicitly stated that we keep the 2% capital buffer there with our return on equity of 17%. I think we are using this capital taking into account a good profit -- good profit generation even though, there's a buffer to that in itself is not too bad. You're right that indeed it is very painful to go into the market and strength capital with a 1.5x book value position. But we prefer to have our position now as we have it because indeed, we consider for the next coming years I suppose to time horizon by 2021, we already considered that position some things could move. And as we did in Bulgaria, where we are acquired UBB, all the possibilities may arise, and therefore, that's the reason why I was very pleased with our outcome in the EBA stress test. And I was looking into other possibilities which could be generated on the back of that EBA stress test, but that's something, which we'll crystallize going forward.

[Kurt De Baenst, General Manager, Investor Relations]

Okay, if no further questions, this sums it up for this call. I would like to thank you for your attendance and hope to see many of you at the sell-side equity analyst meeting in London, tomorrow morning at our offices in the city, Old Broad Street 111. This meeting starts at 8:00 a.m. local time. So instead of 8:30 a.m. as usual, and we will be pleased to welcome you there. In the meantime, enjoy the rest of the day. And see you tomorrow. Bye-bye.