Credit Agricole Sa

Good afternoon. This is the conference operator. Welcome and thank you for joining the Credit Agricole's fourth quarter and full year 2023 results conference call. As a reminder, all participants are in a listen-only mode. After the presentation, there will be an opportunity to ask questions by pressing star and 1 on your telephone. Should anyone need assistance during the conference call, they may signal an operator by pressing star and 0 on their telephone. At this time, I would like to turn the conference over to Mr. Jérôme Grévé, Deputy Chief Executive Officer of Credit Agricole, SA, in charge of steering and control. Please, go ahead, sir.

Good afternoon. Thank you very much. Thanks for attending this conference. I want to start directly on the presentation on page 4, if you want. And the first message I want to insist on is the fact that we are posting very good results for this year, 2023. And indeed, we are posting for Crédit Agricole SA a record level of net profit. This is leading us to propose to the General Assembly meeting a dividend for 2023 at one euro and five cents per share, which would be up 24% as compared to the 2022 dividend, excluding, of course, the part of this dividend that was linked to 2019. The fourth quarter of the year was marked in the insurance activities by weather-related claims, but nevertheless, it was a good quarter with revenues excluding insurance revenues up more than 9%. The recurring cost base which is completely under control with an increase of 3.7% and of cost of risk, which continues to be in line with what we've posted in the previous quarters. Last point on this page, let me remind you that we've been organizing a dedicated workshop on climate strategy end of last year, and we continue to be dedicated to improve our strategy. policy regarding climate change and to deploy all the trajectories that we've published on different sectors. If I go now to page five with the P&L of Crédit Agricole essay to start with, what you can see is that for the full year, the net profit is at 5.9 billion euros on an underlying basis. It's up 11% as compared to 2022. And for the full year, it is 6.3 billion euros, up close to 20% as compared to the stated net profit for 2022. Revenues are up 9.5% for the full year. Cost base is increasing by 8.9%, so we have a positive dose for this full year, and thus we improve further the cost-income ratio globally. If I go now to the following page with the figures for Credit Agricole Group, again, what you can see is that for the full year, we have a net profit of 8.3 billion euros. on a stated basis plus 3.3% and 7.6 billion euros minus 1.5% on an underlying basis. So again, a very high level of profit for the group globally. Let me now dig a little bit more into the rollout of our strategic plan at the level of CASA. On page eight, you have some reminders of the global strategies that we are following permanently. Again, this is showing the efficiency of our model, which is combining Client capture plus improvement of equipment rates plus permanent enlargement of the scope of products and services that we are proposing to our clients. On the right-hand side of the page, you see that we've been able to achieve different acquisitions and to conclude different partnerships in the last period of time, thus enhancing further the development of our business line. And this is leading, on the right-hand bottom part of the page, this is leading to a steady increase in our top line, which is up around one-third in the last six years, and again close to 10% only on 2023. On page nine, some additional details regarding the net profit of Crédit Agricole SA on 2023. Maybe just two indications on this page. The first indication is that the record profit that we are posting with an improvement of 1 billion euros of net profit on a stated basis and 600 million euros on an underlying basis is spread across all business lines, asset gathering, large customers, specialized financial services, and retail banking activities. On the right-hand side of the page, some indication on the fact that this improvement of the net profit is mainly and almost exclusively driven by the improvement of the gross operating income. The other elements are either negligible or even negative as the increase in the level of taxes and the other elements. On page 10, some elements regarding the profitability. which is and continues to be at a very high level. Again, 12.6% of return on tangible equity at Credit Agricole Essay. It's the third year in a row that we are above 12%. And if I assess the profitability of Credit Agricole Essay in average over the last seven years, we've been around 12% almost permanently. This is leading, again, to this dividend per share of 1.5 cents euro per share, and you can see that it's a multiplication by three of the level of the dividend between 2024 and 2023 over the last nine years. Page 11, a reminder of the 2025 targets that we had set for the medium-term plan, and you can assess that we are perfectly on line with those targets, with a net income group share at 5.9 billion euros per on an underlying basis, so close to the level of 6 billion euro that we are committed to reach by 2025. I just want to insist on the fact that this level of 6 billion euro and above for 2025 is going alongside with a hypothesis of cost of risk of 40 bps, which is a little bit higher than the one we had indeed this year. Return on tangible equity, 12.6%, which is reached in 2023. It's already above the target of 2025. And cost-income ratio, we target to be permanently below 58%. We are at 55.4%, so comfortably below this ceiling that we had set. CEC1 stands end of 2023 at 11.8%. So, clearly comfortably within the target of 11%. And last point, we're committed to distribute 50% in cash of our net profit. This is more than reached with the level of dividend of one euro and five cents for this year. So no issue either on this point. We continue to progress alongside the strategic lines that we had set back in 2022, developing the new business lines we've announced last year, Crédit Agricole Transition et Énergie and Crédit Agricole Santé et Territoire. We continue to develop the activities and to progressively put in place the different businesses that are going to fuel those two new businesses. And we continue also to progress in terms of customer satisfaction, in terms of digitization of our services and products, thus leading to a good level of customer capture with close to 600,000 new customers net captured since the beginning of the medium-term plan. Last page on this slide. regarding the medium-term plan, we continue to develop our climate strategy. We've committed end of last year for net zero trajectories for five additional sectors, so that we now cover 10 sectors. And the global strategy relies first and foremost on the accelerated development of the financing of low-carbon and renewable energy sources. with some very ambitious figures that are on this page, amongst which the multiplication by three of the financing that are put in place by Crédit Agricole transition and energy, and an increase by 80% between 2020 and 2025 of the exposure of Crédit Agricole CIB on low-carbon energy financing. And at the same time, we accelerate our disengagement from fossil fuels with a sharp reduction that we forecast by 75% of the emissions that we finance through the oil and gas financing that we have in place by 2023. The previous target was only a reduction by 30%. This is completely embedded in our offers. in our internal processes amongst which the budget processing and in our reporting. Of course, we are induced to do so by the strengthening of the regulation regarding reporting and disclosure. Let me now dig a little bit more into the figures. Starting on page 15 with some elements regarding the activity that we've had in 2023 and especially in the last quarter of 2023. Again, a very good level of customer capture. You see the figures here, close to 2 million new customers and net an increase of the customer base by close to 200,000 new customers. We continue to improve the equipment of those customers with our different products and services, especially PNC insurance policies. Of course, this year and also in the last quarter of the year, the production of new loans has slowed down as compared to what it was in 2022. This is, of course, linked to the increase in the level of rates. But nevertheless, loans' outstandings continue to grow. And the rest of our activities had a very good momentum both for the full year and especially for the last quarter. And I can give some examples regarding the CIB activities where we've posted a very high level of activity in the last quarter, very close to the one we had back in 2022, which was a record year. In asset management, we have had strong inflows for the full year and especially for the fourth quarter, bringing assets under management back over 2,000 billion euros. The level of activity in the insurance business has been very good also for the full year with, for life insurance activities, a record level of unit-linked products inside the new inflows. and a very buoyant activity both in P&C and protection businesses with premium income sharply up. And we also provide some data regarding Crédit Agricole Italia where we have seen a sharp increase in the production of new loans. Let me now dig a little bit into the evolution of the revenues. Starting with the full year, revenues are up 12% on a stated basis and 9.5% on an underlying basis, which is a sharp increase. And on the quarter we have, of course, to spread the evolution of the revenues between the insurance activities and the other activities. When it comes to the other activities, revenues are up 9% on the quarter, and it's the case for the large customers division, for the specialized financial services division, and also for the retail banking activities. When it comes to asset gathering activities, revenues at Amundi were at a good level, and the impact that we have had this quarter is concentrated on the insurance activities. On the insurance activities, we have a significant decrease in the level of revenues compared to a fourth quarter of 2022 that we have restated under IFRS 17. And this decrease in the level of revenues is significant. explained by three main elements. The first one and the most important one is the fact that we have had in the fourth quarter of 2023, a very high level of claims regarding weather events that took place during this fourth quarter as compared to a fourth quarter of 2022, which had a low level of claims regarding weather events. And you know that under IFRS 17, there is no longer the possibility of smoothing the impact of those weather events by using or building some specific provisions. So we've said it several times in the past, but this is an illustration of that. We have to take one off the impact of those events. Nevertheless, all in all for the full year, revenues in the insurance business division are at a very good level. The other two elements that explain this decrease in the level of revenues this quarter coming from the insurance business is first, the restatement of Q4 22 under IFRS 17, which increased, I would say the level of revenues as compared to what it was under IFRS 4 by around 100 million euros. And the second element is the fact that we've taken some specific one offs this quarter that represented also around 100 million euros this quarter, which are not replicable. So all in all, in terms of revenues, a good level of activity and a sharp increase in the level of revenues for the full year and a momentum that continues to go at the same pace in the fourth quarter. If I go now to page 17 regarding the evolution of the cost basis, Again, some specific elements I want to comment on the fourth quarter. On the fourth quarter, there is apparently a significant increase in the cost base by close to 500 million euros on an underlying basis, excuse me, on a stated basis, and even at 500 million euros on an underlying basis. But actually, the biggest part of this evolution is explained first by scope effects, We have now in our perimeter Crédit Agricole Autobank and we have also the European activities of RBCs, which were not in our perimeter back one year ago. This represents close to 200 million euros of cost basis. We have also some non-recruiting items. both base effects in 2022, close to 100 million euros, and some specific one-offs in this quarter, last quarter of 2023, for, again, close to 200 million euros. So net-net, the underlying cost base, recurring cost base, is up this quarter only 3.7%. This is... perfectly in line with the level of inflation that we are having now in France and Europe, which where the biggest part of our cost base is taking place. And for the full year, we have a level of cost base evolution, which is in the region of 8%. And again, we have a significant scope effect and some non-recurring items. And if I restate The evolution of the cost base for the full year from these scope effects and from these non-recurring items, the evolution is closer to 4%. Nevertheless, even if I take the 8.1% or 8.9% of evolution of the cost base, I compare it to the evolution of the top line, definitely we have a positive Jaws effect. If I go now to page 18 regarding the gross operating income, what we can see is that on the fourth quarter, if I leave alone the asset gathering business division because of the specific elements regarding the insurance activities, there is a further improvement of all business divisions in terms of gross operating income, and this is also very much the case for the full year, where all business divisions, including the asset-gathering business division, are significantly improving their levels of gross operating income this quarter. On the right-hand side of the page, we continue to have a decrease in the cost-income ratio at CASA, BET, with or without the effect of the single resolution fund, and we continue to be in the best part of the sample of European peers that we follow on this point of view. If I go now to page 19, starting with the cost of risk, what you can see is that in the fourth quarter of this year, we have a certain stability of the cost of risk, both vis-a-vis the fourth quarter of 2022 and also vis-a-vis the third quarter of 2023. So, all in all, there is a very moderate evolution of the cost of risk for the full year, around 9% for Crédit Agricole SA and 6% for the group, despite the increase in loans outstanding. deterioration in the credit quality neither for the full year nor for the fourth quarter. You can see that this is very much the case on most business divisions on page 20. I want to stress the fact that on the financing activities of CASIB, we continue to have a very, very low cost of risk. Actually, it's close to zero this quarter and it's very moderate for the full year. At the level of the consumer finance entity, We have now a level of cost of risk which is more or less stabilized at a higher level than back in 2022, but no further deterioration and a level that is, in absolute terms, far below the sharp levels that we could have had in the past. At LCL, as well as the regional banks of Credit Agricole, we have a cost of risk which is in the region of 18 bits, and it's concentrated on certain segments of small businesses or self-employed professionals that are weakened either by the increase in the cost of energy or by some specific difficulties in the real estate building business in France due to the, amongst other elements, to the increase in interest rates. If I go to page 21, the same figures and the same trends, a high level of loan loss reserves, close to 10 billion euros for Crédit Agricole SA and above 20 billion euros for the group globally. a level of non-performing loans overall low, 2.6% for Crédit Agricole SA, 2.1% for the group, and a coverage ratio which continues to be high, above 70% for Crédit Agricole SA and far above 80% for the group globally. This is illustrated on page 22, where you can see that both the group and Crédit Agricole SA are comparing very well vis-a-vis most of their European peers. And the diversification of the loan books that we have both for the group and for Federico's essay explain very well the reasons why this level of cost of risk is low and this level of asset quality is very good. Let me go now to the solvency on page 23 at CASA, the CET1 ratio is stable between end of Q3 and end of Q4, despite the top-up that we've decided to propose on the level of dividend. The normal level of dividend applying strictly our 50% payout policy would have represented an impact of 16 bps on our CET1 ratio. The top-up that we've decided to propose to the General Assembly meeting represents an increase of six BIPs. So all in all, nevertheless, we retained around 10 BIPs of solvency this quarter thanks to the high level of profits. The organic growth of our business line represents only eight BIPs, and as the other elements mentioned, are quite marginal, actually. This explains the stability of the CT1 ratio at CASA, far above this target that we have of 11%. At group level, we have more or less the same trend with a level of solvency which continues to be at the forefront of all European GSIBs, far above the second-best capitalized capitalized the GCB in Europe, and with an absolute level, which is stable over the quarter at 17.5%, a distance to SREP at 820 bps. Regarding liquidity, starting with the customer deposits, it increased close to 3% over the quarter, at a very high level above 1,100 billion euros. And we continue to have a very good level of diversification of this customer deposit, ensuring the stability and the dynamics of our customer deposit basis. This is generating liquidity indicators which continue to be very well oriented with liquidity reserves increasing further this quarter, close to €450 billion, to LCR ratios above 140%, be it for Crédit Agricole SA and for the group, and be it end of the period or over the whole period. And last point, we still have €27 billion of TLTRO to repay, but of course we have a far than enough reserves to face these repayments which are due this year in March and June mainly. I will stop now with this presentation. I simply summarize it stating that we have had a very, very good year, a momentum and a dynamic that is still very active over the last quarter of the year. And thus we confirm very comfortably our targets for 2025. And as always, we'll try as much as we can to beat those targets. Thanks and I'm ready now to take your questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on each touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Giulia Aurora Miotto of Morgan Stanley. Please go ahead.