But it is not just the date that is the same. As most of you have probably noticed, the AGM is

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1 1 Danske Bank s Annual General Meeting 2015 The Board of Directors report on the company s business in 2014 Ole Andersen, Chairman of Board of Directors THE SPOKEN WORD COUNTS INTRODUCTION: Dear shareholders, Another year has passed since the last time I reported on how things are going for Danske Bank. In fact, exactly one year, since our annual general meeting also took place last year on 18 March. But it is not just the date that is the same. As most of you have probably noticed, the AGM is also taking place in the same physical setting as last year, with mostly the same refreshments and the same agenda. Since it s all the same, one could easily assume that not much has happened in the past year but that would be a mistake. Because 2014 was in many ways a year with great events and solid progress for Danske Bank. In a moment, I will review 2014 in detail, but let me first list some of the major headlines for the year: First of all, we delivered financial results that before goodwill impairments were the best since In April we repaid the loan of DKK 24 billion that we raised from Danish state during the financial crisis in Both Standard & Poor s and Moody s upgraded our credit rating, and we passed the European stress test with a solid margin. We also made serious progress in winding-up our Irish business during the year, and we can now put a full stop to that chapter. In 2014, on the basis of our results for 2013, we paid out a

2 2 dividend for the first time since the 2007 financial year. I will return later to our proposal for a dividend based on our 2014 financial results, but I am pleased that this year we are able to propose a dividend that is in line with our target. Overall, 2014 was an eventful year and a year of solid progress in a number of the key areas that we have struggled with since the financial crisis. We also sense increasing confidence in the Bank in several respects, not least as indicated by the share price performance. In many ways, 2014 marks the end of a number of very challenging years in which we have focused on management and used large parts of the organisation s resources to address the more acute and short-term challenges. Today Danske Bank is a solid, well-capitalised bank with more than a good grasp of the fundamentals such as capital, solvency, liquidity and risk management. This is a precondition for our being able to operate a sound, stable and competitive business that creates long-term value for all our stakeholders: our customers, our shareholders and the communities we are a part of. The fact that we have addressed the most urgent short-term challenges also means that we have a better opportunity to lift our gaze and look at the more long-term possibilities. So, although we still have far to go before we meet our own ambitions, I have looked forward to presenting the results we achieved in For as I said last year, other things being equal, it is more fun to be accountable to the general meeting when there is progress to report.

3 3 But before I start on the report, I want to say a few words about language. I think it is worth noting that in 2014 MobilePay was named the Word of the Year by the Language Laboratory radio programme and the Danish Language Council moreover, in competition with other current words such as giraffegate and necessary lie. Few companies are able to launch a product that becomes as popular as quickly as MobilePay, which today has more than 2 million users and more than DKK 1 billion in transfers per month. And there are even fewer individual products that become so integrated in the Danes daily life that they end up being an equally integral part of the language. For a long time, we have googled instead of searching the Internet, made "Nescafe" instead of instant coffee, and now we also mobilepay instead of transferring money with a mobile phone. That MobilePay could be selected as this year s Danish word says something not only about the popularity of the solution but also about language development. Most companies today operate in an international market and therefore speak English to an increasing degree. This also applies to Danske Bank. We are a Nordic universal bank with operations in more than 15 countries; we have employees of at least as many nationalities; we are subject to the supervision of public authorities in several countries; we collaborate with experts from around the world; and we compete globally to attract the most talented people. Therefore like other companies of our size we communicate and work to an increasing degree in English. This also applies to the Board of Directors and the Executive Board, which present the financial statements. That, among other things, is why we have decided, as we have discussed very thoroughly, I daresay to take advantage of the opportunity to let our official annual report be in English.

4 4 But as I said last year, we are very much aware that Danske Bank is first and foremost a Danish company. That is why the general meeting takes place in Danish or at least Scandinavian and why the annual report is also issued in a Danish version. From end to end, it is a direct translation of the English version. The only difference between the English and Danish versions is that in the Danish version we have translated only the most central parts of the extensive and technical notes. Both versions are available here in the hall in print, and they can also be found on our website: In a new initiative, we have also produced an annual magazine in Danish in which those who are particularly interested can read about how things are going at Danske Bank, what we think about the market, our role in society and not least the major changes that the financial sector is currently undergoing in an even more interesting and lively manner. If you do not already have a copy, you can get one here today. It is also available in our branches and on our website. ON MACROECONOMICS AND THE FINANCIAL STATEMENTS Banks, as is well known, largely reflect general economic developments. To put Danske Bank s results for 2014 in perspective, it is worth taking a brief look at broader economic developments. The global economy generally improved, but still also saw some headwinds and setbacks. The crisis in Ukraine, among other things, brought considerable uncertainty and contributed to a slowdown of the recovery in the eurozone. The US economy generally fared well, while the situation in the emerging markets was somewhat more mixed. Here at home, there was lethargic

5 5 but still positive growth, primarily because consumer spending rose. We have also seen considerable economic and financial unrest recently. This has led the European Central Bank to announce that in the next 18 months it will purchase a substantial amount of European government bonds in fact up to EUR 1,100 billion in the hope of creating growth in Europe. The announced purchase programme has already weakened the euro against a large number of currencies. This is particularly the case with the Swiss franc, which has risen sharply since it ended the peg to the euro. The combination of a European purchase programme and the Swiss central bank s new policy has turned the financial markets attention to the Danish krone. We fully support the Danish central bank s defence of the peg, although strictly speaking it s not easy to operate a bank when the rate on certificates of deposit has fallen to -0.75%. HIGHLIGHTS FROM THE FINANCIAL STATEMENTS Let me now review the main points from the financial statements. With a profit before goodwill impairments of DKK 12.9 billion an improvement of 82% and a return on equity of 8.5%, we delivered, as I said, the best results since We are thus well on track to meet our targets for return on equity. The goodwill impairments, which we booked back in December and which I will explain in detail a bit later had a positive effect on our return on equity. That is the reason we have adjusted the target return for 2015 from 9% to 9.5%. At the same time, we adjusted our long-term target from 12% to 12.5% an ambitious but also realistic goal that we must reach by

6 Before I continue the review of the accounts, I want to dwell on the goodwill impairments of DKK 9.1 billion, which can distort the picture slightly. The impairment booking took place as part of our regular review of goodwill, and it was owing partly to changing macroeconomic conditions and partly to a dialogue we had with the FSA on the subject. The impairment charges relate to our operations in Finland, Northern Ireland and Estonia, which because of these changing conditions primarily the outlook for a prolonged period of low growth and low interest rates are not likely to create the same value over the long term that we had thought when we acquired them. This is a purely technical accounting exercise that reduces our equity by the same DKK 9.1 billion to DKK billion, but it does not affect our business, strategy, regulatory capital or liquidity. In other words, the impairment charges do not mean much in practical terms. But the charges represent an acknowledgement that, with the knowledge we have today, we can see that at the time the acquisitions were too expensive. Having said that, I would like to stress that in these countries we are running good businesses that make positive contributions to the overall result, and we expect that they will do so in the future as well. If you look at the main lines in the financial accounts, you can see that despite generally low interest rates and low economic growth, we saw a sound trend in our top line. Total income rose 10% to DKK 43.9 billion. The rise was owing partly to one-off income of DKK 1 billion from the sale of Nets and also to increased activity at all of our business units and positive trends at Danske Capital and Danica Pension. Our focus on costs and our work to make the bank simpler and more efficient resulted in a reduction of expenses by 5%.

7 7 At the same time, loan impairment charges fell from DKK 4.1 billion to DKK 2.8 billion in That is the lowest level since 2007, and that tells us that our customers are doing better than they have done in a long time and we have good credit quality. Last but not least, in 2014 we made substantial progress in winding up our activities in Ireland, where the losses were much lower than in Let us look more closely at the individual business units and how they each contributed to the year s earnings. Personal Banking, which services personal customers, delivered a sound profit before tax and goodwill impairments of DKK 4.6 billion. A substantial increase of 60% over the year-earlier level. Net interest income declined slightly, while fee income and trading income both rose. Total income was largely unchanged. Expenses fell 9%, and impairments 25%, which was satisfactory. At Business Banking, which services small and medium-sized enterprises, we saw very solid developments in 2014, when lending grew in several markets. In addition, our customers credit quality was good, and this resulted in a decline in impairments of a full 42%. Altogether, profit before tax and goodwill impairments rose 18% to DKK 5.7 billion. Total income rose 1% despite low interest rates, and expenses were unchanged from the 2013 level. At both Personal Banking and Business Banking, lending provided through Realkredit Danmark

8 8 and secured on real property constitutes a good portion of their activities. In 2014, Realkredit Danmark delivered a satisfactory net profit of DKK 3.1 billion, which represents an increase of 17%. We saw increased activity in the housing market particularly because of lower interest rates on mortgage loans and that of course had a positive effect on Realkredit Danmark s earnings. Realkredit Danmark also strengthened its market position because of an increasing proportion of net new lending. In comparison with 2013, 2014 was a better year for Corporates & Institutions, which serves the largest companies and institutional customers, although the year still presented challenges. The focus was mainly on increasing customer-driven income in order to ensure more stable earnings that are less dependent on developments in the financial markets. Customer-driven income increased 17%; impairment charges fell 21%; and expenses rose 1%. Overall, Corporates & Institutions delivered profit before tax of DKK 4.1 billion, which was an improvement of 23% compared with the year before. But we are very much aware that the trading area in particular is challenged on earnings because of higher capital requirements, among other things. Danske Capital once again delivered good earnings. Profit before tax increased 24% to DKK 1.4 billion, primarily because of an increase in total income of 11% and an increase in assets under management of 9%. Danske Capital also continued to generate good returns for customers in 2014, with 58% of investment products outperforming their benchmarks. Over a three-year period, 73% of Danske Capital s investment products delivered an above-average return.

9 9 Let s finish our tour of the business with Danica Pension, whose earnings rose 117% to DKK 2.4 billion. An increase of 117% sounds like a fantastic result. The story, however, is that Danica s earnings are very much dependent on developments in the financial markets and that they can therefore fluctuate considerably from year to year. In 2014, it was possible to book DKK 611 million from the special shadow account. The most important thing for us is that we can see that the underlying insurance activities and premiums are at the same level as the year before. In addition, sales of insurance and pension products through Danske Bank rose 17% to DKK 4.2 billion a development that we are very pleased with because it was a focus area in Overall, there is good reason to be pleased with the financial results and developments at the individual business units. ON CAPITAL, THE DIVIDEND PROPOSAL AND SHARE BUY-BACK As I mentioned briefly in the introduction, one of the major events in 2014 was our repayment in April of the loan of DKK 24 billion that we raised from the Danish state in It was a happy event, both because it helped cement the end of a difficult period for Danske Bank and also because it helped reduce our funding costs significantly. That we were able to repay the loan shows clearly that Danske Bank is a strong, solid and well-capitalised bank. This was also confirmed by the European stress test conducted in October. In it, Danske Bank came through the most severe scenario with capital that was more than twice as high as the requirement set by the European Banking Authority.

10 10 Our strong capital position is the reason we believe that it is a sound and reasonable decision to pay out a dividend to our shareholders for the second time since Last year, as you know, we paid a dividend of DKK 2 per share, which represented 28% of net profit. At the general meeting last year I said that we expected to be able to increase the dividend this year and that our long-term goal was to pay out about 40% the net profit. I am therefore pleased that this year we can meet both of these targets. The board is proposing a dividend of DKK 5.5 per share, or 43% of net profit before goodwill impairments. Going forward, our objective is to pay out 40% to 50% of the profit to our shareholders. As regards the use of the net profit, moreover, I refer you to the proposal under agenda item (c). Our strong capital position also makes it possible for us launch a share buy-back programme as announced in the annual report. We expect to begin the buy-back programme very soon and expect it will run throughout the year or until we have repurchased shares for a total of DKK 5 billion. The share buy-back is intended to adjust and optimise our capital structure. Danske Bank s shareholders have paid a high price in the difficult years we have been through and have had to put up with a share price decline, lack of dividends and capital increases. We are therefore pleased that we can now return capital to our shareholders. ON OUR RATINGS That we made significant progress in 2014 can be seen by the fact that our credit ratings improved over the course of the year: In April, Standard & Poor s raised our rating from A- to A, and in November, Moody s raised our long-term rating from Baa1 to A3. This reflects growing

11 11 confidence in the Bank. Not only is it significant for our funding costs and thus our competitiveness; it is also crucial in determining which customers want to do business with us and what type of business they want to do with us. Our ambition is to improve our credit ratings further. STATUS OF OUR STRATEGY The improved performance doesn t happen by itself, of course. It is the result of a clear strategy, a strong focus on implementation and not least the hard work of our more than 18,000 talented and dedicated employees every single day. Our focus on making the Bank more customeroriented, simple and efficient seems to be bearing fruit, and although we are still a long way from delivering on our long-term ambitions, it is encouraging that the strategy we have laid out is actually producing results. Our vision of being recognised as the most trusted financial partner remains our guiding star. And we still measure our progress according to two parameters: our relationship with our customers and our ability to deliver returns to our shareholders. Specifically, the objectives are that we want to be first or second when it comes to customers perception of the Bank and that we want our return on equity to be in the top half of the six major Nordic banks. The two objectives are obviously closely related. The prerequisite for creating value for customers is that we are competitive and operate a sound, solid and stable bank that focuses on developing and offering relevant products and services. This encourages customers to do more business with us, which in turn is a prerequisite for being able to create value for shareholders. We have taken big

12 12 steps in the right direction towards both objectives, but there is still some way to go. When it comes to our financial targets, in the past year we were already close to achieving a return of 9.5%, which is the goal for this year. And we are confident that the plan we have for reaching a return above 12.5% by 2018 is robust. The plan assumes that we operate in markets with continuing macroeconomic challenges and that we therefore should not expect much tailwind. We therefore include only very modest volume growth as the basis for our plan, but we will of course continue to work vigorously to strengthen our income, by developing innovative products; by increasing our activity with personal, business and institutional customers; and by continuing to work to make it attractive for customers to gather a larger portion of their business with us. Expenses are another cornerstone of the plan. In recent years we have shown that it is possible both to invest in the development of new products and talented staff and at the same time to reduce costs. We will continue to focus on this in the coming years. In addition, we expect that our funding costs will continue to decline as a result of an optimised capital structure and the support of improved ratings. We are convinced that the plan is realistic. But it is also ambitious, and so we have a lot of work ahead of us. When it comes to our second objective, namely customers perception of the Bank, we must acknowledge that it is a long, hard journey. The entire organisation is working hard every day to improve customer satisfaction, and we do see progress. Our Corporates & Institutions business unit was named the best in the Nordics several times in 2014, and business customers assessment of the Bank also showed a positive trend in all our markets. In Sweden, we were

13 13 named Business Bank of the Year in This is good news, and it shows that we are on the right track. In the personal customer market, there was also good progress, particularly in Finland and Denmark, but it is no secret that this is where we have the biggest job to do. When it comes to our relations with customers, the results show that the strategy is working but also that we must do even more to reach our goal. We must also recognise that our ambition to be in the top two in customer satisfaction in 2015 is not a realistic goal, but we are sticking to the target and will continue to work hard to achieve it as soon as possible. We believe that with a continuing focus on implementing the strategy, we can fulfil the Bank s full potential for the benefit of both customers and shareholders. The strategy concerns mainly three focus areas: - Competencies: Danske Bank has a unique combination of experience and competencies. It has always been and will always be the backbone of our business that we have the expertise needed to help our customers realise their ambitions regardless of whether they are families, small and medium-sized enterprises or some of the largest multinational companies. We must do this through a thorough knowledge and understanding of their challenges and by making our expertise available through relevant and helpful advice. In the past year, we have undertaken a number of specific initiatives to help strengthen our capabilities in this area. - Digitalisation and innovation: Technology is advancing at great speed these days. This makes great demands on our ability to develop products and solutions as customers expectations and needs change. For many years, Danske Bank has been a leader when it comes to transforming technological opportunities into new products, efficient solutions

14 14 and better customer experiences, and this is certainly something we should continue to do. Technology also makes it possible for us to automate and streamline our processes, and this in turn helps to reduce our costs. - Trust: In the difficult years of the crisis, customers, shareholders and the surrounding community lost confidence in the financial sector and not least Danske Bank. We are working to restore that trust, for it is the prerequisite for our continuing progress. We have come a long way in the right direction, but we will continue to focus strongly on continuing this development. In other words, the strategy is set. But the world is changing, as we know, and therefore we put our entire business under the microscope on an ongoing basis to see if there is a need for adjustments to ensure that we use our resources and capital where we can create the most value for our customers and shareholders. ON THE BUSINESS REVIEW It was this review of the business that in 2014 gave us an opportunity to reaffirm that we are and will continue to be a Nordic universal bank. We believe that we can offer something unique and thus create value in all the Nordic markets. This means that we consider Denmark, Sweden, Norway and Finland to be our absolute core markets and that in these markets we will service personal, business and institutional customers and thus take advantage of the synergies across borders. On this basis, we have launched initiatives to strengthen our market positions in Sweden and Norway. These are two distinct markets, but what they have in common is that we have solid

15 15 skills, good products and strong relationships with our customers. And particularly in business banking, we have attracted new customers and run a sound business. That positive development we would like to follow up on in the personal customer market partly by leveraging our strong IT platform and strengthening our digital product offerings and advisory competencies. The conditions for Corporates & Institutions activities have changed significantly in recent years. We have therefore, as part of the business review, changed the organisation of our C&I unit in order to create a more diversified, capital-efficient and customer-driven business model in which customer-driven income is more important than trading activities, which are very volatile. We have done so on the basis of both regulatory and market changes, and in the future we expect more stable and rising earnings from this area. Another area we have had under the microscope is our activities in the Baltics. Today we service both personal and business customers in the three Baltic countries, but we must recognise that we do not have the necessary size in the Baltics in the personal customer market to create a sound business. We have therefore decided to exit this part of the business over the coming years. We will instead focus on the business market and strengthen our offering for business customers. We will invest in a shared IT platform for the Baltic banks and launch leading solutions in areas such as cash management, among other things. I have no doubt that these changes will help ensure that we fulfil our ambitions. ON OUR ROLE IN SOCIETY AND REGULATION

16 16 As I said in my introduction, Danske Bank plays a large and important role in the Nordic region and especially in Denmark. With this role comes a large responsibility to operate a sound, stable and competitive blank that creates value for the entire society by contributing to growth and employment. In 2014 we were one of seven Danish financial institutions designated as a systemically important financial institution or SIFI which because of their importance for the Danish economy are subject to especially strict capital requirements. And as the largest of the seven, we are subject to even stricter requirements. It is therefore natural and we are satisfied that the capital requirements will be reviewed by 2017 to ensure that the Danish requirements are in line with the rules in other countries. We generally support the political and regulatory efforts that have been made in recent years and that are intended to restore confidence in the financial sector and minimise the risk of new financial crises. It is important, however, that the regulations do not unnecessarily hinder the financial sector s ability to contribute to increased activity and growth. Europe and Denmark need very much to get their economies moving. Consistent competitive conditions and greater financial stability are also two reasons that we generally have a positive opinion of the banking union as a logical development of the EU s single market for financial services. The union is mandatory for all countries in the eurozone, while countries outside it, including Denmark, can choose whether or not to join. The banking union will therefore become a reality regardless of whether or not Denmark participates. It is our opinion that the banking union will

17 17 increase financial stability in Europe and that harmonised rules will create more consistent competitive conditions across borders. Together with increased competition, this will promote growth, our competitiveness and our customers competitiveness. Not all the elements of the banking union are fully settled, however. The ECB s quality test of the largest European banks was a step in the right direction, but there are still some issues regarding Danish mortgage bonds, Danish influence in the banking union and the risk of double supervisory costs. If these matters are managed properly, it is our opinion that it could be beneficial for Denmark and the Danish economy for the country to take part in the banking union. We therefore look forward to the clarification of these issues so that there is a basis for a political decision about Denmark s participation. ON THE STATUS OF THE BOARD OF DIRECTORS AND MANAGEMENT CHANGES Financial business is closely regulated. This also applies to the Board of Directors duties and obligations, and reflecting this, ever-increasing demands are made on the Board s performance. There was therefore also substantial meeting activity in Since the last annual general meeting, the Board has held 16 meetings. In addition, the Board s four committees have held 21 meetings. The Board has taken on an entirely new composition since Since we believe that the Board members generally possess the necessary competencies to manage the Bank, all the current members are standing for re-election and there are no new candidates for election. I will return to

18 18 this regarding item (d) on the agenda. The Board is aware, however, of the need for a continual and gradual renewal of its composition. On 1 April of this year, Gilbert Kohnke will join the Executive Board as the new chief risk officer, who is responsible for credit and risk management. Gilbert, who is Canadian, has extensive experience in credit and risk management from major international financial companies. Gilbert replaces Robert Endersby, who resigned in November ON THE COMPENSATION OF THE EXECUTIVE BOARD AND THE NEW INCENTIVE PROGRAMME Last year, the Board of Directors kept the Executive Board s fixed salaries unchanged, but at the same time allowed for larger bonuses if the Bank posted a profit that exceeded expectations. The Bank has done this, and the total remuneration for 2014 reflects this. I refer you to note 33 of the annual report, where the Executive Board s remuneration is shown in detail. We have decided to adjust the structure of remuneration so that going forward we improve the alignment between remuneration and value creation for shareholders. The Board has generally sought to achieve a better balance between fixed and variable remuneration and between shortterm and long-term incentives. Let me explain the main elements of the adjusted structure that will apply beginning this year.

19 19 Since 2012 we have kept the Executive Board s fixed salaries unchanged. We have chosen to continue this line. We have found it prudent to raise the remuneration of some key board members, however, while others remuneration either remains at the current levels or is even reduced slightly. The adjustments range from +5% to -5%. At the same time, we have decided to pay 10% of the fixed salary in shares. The shares are distributed on an ongoing basis along with the payment of the fixed salary. Remuneration in the form of shares has the advantage that it promotes a closer alignment of interest with shareholders. Overall, the change means that the cash portion of the fixed salary will decrease for all board members. We are continuing the current short-term incentive programme but are reducing its maximum value. While the Executive Board could reach a maximum of 40% of the fixed salary in 2014, in future the maximum will be 30%. As before, the actual payment under the short-term incentive is measured and distributed annually on the basis of the Executive Board s fulfilment of a number of bonus criteria. For 2015, there are 6-10 criteria for each Executive Board member. At the same time, we are introducing something new, a long-term incentive programme in which the result depends the trend in what we call "total shareholder return" over a three-year period in comparison with the corresponding trend in a group of seven other Danish and Nordic banks. "Total shareholder return" expresses the total value that the Bank creates for shareholders. Under this programme, the Executive Board may receive a payment of a maximum of 20% of the fixed salary, depending on the relative value creation in comparison with the other banks. Generally, for both programmes, there is a clear and direct correlation between the size of the

20 20 Executive Board s variable remuneration and the results in both the short term and long term. The programmes are also structured so that they do not encourage short-sighted and irresponsible risk taking. By far most of the Executive Board s variable compensation will be paid in shares. The shortterm programme pays 40%, while 60% is awarded in shares that are released after 4.5 years. Variable compensation under the long-term programme is paid only in shares, and 60% is deferred for 4.5 years. This ensures that the Executive Board members at any given time have a significant amount tied up in Danske Bank shares so that their interests are more strongly aligned with the shareholders. For the sake of good order, I should state that the adjustment of the remuneration structure has taken place within the framework of the remuneration policy that the general meeting approved last year. OUTLOOK FOR 2015 In the coming year we will continue working to implement the strategy and achieve the objectives for customer satisfaction and return on equity. After some years of a necessarily relatively short-term focus, in 2015 we will lift our gaze and look further ahead, even beyond We will look at how the Bank can best manage threats and challenges and also how it can best exploit the opportunities that present themselves. All of this will of course be based on the Bank s strengths.

21 21 As is customary, I will conclude with our outlook for the financial results for As I mentioned earlier, we do not expect much tailwind from the economy. On the contrary, we base our expectations for 2015 on a continuation of fragile growth and low interest rates. In 2014, the sale of Nets, among other things, had a positive effect on income, but even though we unfortunately cannot repeat that in 2015, we expect that income as a result of lower funding costs and increased customer activity will land at about the same level as in We also expect that expenses will fall below DKK 22 billion and that impairment charges will remain low. Overall, we expect a net profit for 2015 of more than DKK 14 billion. CONCLUSION As I said in the beginning, 2014 was an eventful year for Danske Bank. The Bank delivered its best performance since 2007, and we made progress on many fronts. I would like to thank both the Executive Board and all the employees for this. The good results do not mean that we can afford to rest on our laurels, however. There is still much to do before we reach our goals. We have embarked on a long, hard journey, but I am convinced that we are on the right track. We can now therefore also begin to lift our gaze and look at how we prepare the Bank for the future. Thank you for your attention.