Société Générale Société anonyme (GLE) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Societe Generale conference call. Gentlemen, please go ahead.

Hello, everyone, thanks for participating to this conference call. We are delighted to present in the most synthetic way both the Q2 results and our financial targets for 2025. With a very strong performance for the eighth consecutive quarter, the Q2 results commented in the first part of the presentation come through 2 years of strong execution and solid financial performances with the underlying return on tangible equity above 10% for the last 3 semesters. On the back of these strong outcomes, we are highly confident to deliver on the 2025 financial targets that we will present in the second part of the presentation. The objective of the second part does not aim at making a complete review of the strategy or providing with detailed commercial targets. But to put into perspective, the various strategic initiatives presented so far and give a view on the return that this business model can deliver even in a more uncertain context. Before digging into the Q2 figures, I just like also to highlight that we've made again a good progress this quarter on our various strategic projects in line with our objectives. So let's now commence on the Q2 results, with EUR 1.5 billion underlying net result, the group posts once again a double-digit return on tangible equity at 10.5%. It's up 16.3% for the first semester at EUR 3.1 billion for net profits, i.e. a 10.6% return on tangible equity. Both the gross operating income which is up 18.5% in Q2 and the underlying net result significant progress in Q2 and H1 compared to already high levels in 2021. Revenues are up nearly 13% reaching a level above EUR 7 billion as in Q1 and all the businesses contributed to the excellent performance with a record quarter for several of them. The cost of risk is low, we still have a prudent positioning which in terms of quality of our portfolio and leads us to confirm our annual guidance. Let me remind you that we have accounted this quarter the impacts of the disposal of the Russian subsidiaries for an amount of EUR 3.3 billion before tax without any significant impact on the core Tier 1 as expected. Our core Tier 1 remained solid and well above requirements at 12.9%. With this new strong performance in Q2, we have almost absorbed in just 6 months the negative impact of the Russian disposal which is removed from the underlying results. In line with our distribution policy based on 50% of the underlying results for the group, we have thus provisioned at the end of June a distribution provision of EUR 1.44 per share. In addition we can confirm that we will start in a very few coming days the share buyback program which was included in the 2021 distribution and which has been approved by the SSM. I now leave the floor to Claire to enter into more detail.

Thank you, Frederic. Slide 5, so as you just pointed out the group published very solid underlying earnings as you illustrate the growth of nearly 22% of the gross operating income. This performance results from [indiscernible] at group level of around 3 percentage points and leads to a 61.8% underlying just income ratio excluding SRF in Q2 significantly lower than last year. Slide 6, the solid performance is the continuity of the first quarter since the beginning of the year, underlying revenues has increased in all businesses compared to last year. They are almost 15% versus H1 last year. In the meantime, costs remain under control with an increase of around 7% to partly explained by the contribution to the SRF, variable compensation items and negative ForEx impact. On that basis and considering an economic slowdown in H1, we adjust downwards our guidance of cost income ratio excluding SRF between 64% and 66% in 2022. Moving to the cost of risk, Slide 7. It's low for all the businesses. On average, it stands at 15 basis points in Q2, and 27 basis points since the beginning of the year. It includes the cost of risk from the Russian exposures on which we have cautiously booked another EUR 114 million overlay this quarter. The NPL ratio is further decreasing to 2.8% and the gross coverage rates slightly increased at 50%. For 2022, we maintain the guidance between 30 and 35 basis points. Looking at the next page, Slide 8. The trend remains similar to past quarter still limited defaults, which leads in to a content level of Stage 3 provisions at EUR 156 million. At the same time, we maintain a prudent provisioning approach by further increasing our stock of Stage 1, Stage 2 provisions to EUR 3.4 billion to factor in a more uncertain context. Let's now turn to liquidity and capital, Slide 9. Thanks to a strong organic capital generation in Q2 by 16 basis points, the core Tier 1 ratio lands at 12.9%. It fully compensate on the one hand the negative impact of minus 7 basis points linked to the disposal of our Russian subsidiaries. And on the other hand, it continues widening of sovereign debt which generated a contained OCI impact of minus 11 basis points. The [indiscernible] to NDA remains very strong at around 360 basis points. Regarding the other ratios, they're also all comfortably above requirements and the funding program is very well attended. I will not comment Slide 10. And let's now look at business performance and start with the French retail activities Slide 12. The momentum remain good this quarter in France, despite more challenging environments. Deposits increased by 4% versus Q2 last year, both in regulated savings and sight deposits. Loan growth continued in Q2 with outstanding up 3% versus Q2 last year, notably thanks to a growth by focusing in home loan outstandings and a good production in mid-long term corporate loan productions, which is up 42% while state guaranteed loan outstanding continues to amortize. On savings, we continue to see growth both in life insurance with a 1% outstanding growth of which are a record high 34% in unit-linked and plus 0.4% in assets under management in private banking, despite market environments. Finally, premia on P&C and personal protection continue to rise by 4% in line with our strategic objectives. Moving on to Boursorama, Slide 13. Client acquisition remain strong in Q2 with almost 360,000 of new clients. This enabled Boursorama to reach 4 million clients as of July thanks to both continued strong organic client onboarding and the first effects of the offer to ING clients. This also is progressing very well in line with expectations with already 50% onboarding rate mostly composed of affluent clients. After July 22, around 250,000 of clients have joined Boursorama from ING and transferred around EUR 7 billion of savings. On client equipment Boursorama continues to make rapid progress and monetization. Loans outstanding up 28% since last year at EUR 15 billion with home loans outstanding being up 27%. Deficit and financial savings are up 19% to EUR 39 billion, a number which increased even more in July with the transfer of savings from ING clients. In terms of P&L, Slide 14, revenues are up 5.9% versus Q2 last year. Net interest margin is up 5% thanks to good commercial momentum and asset revaluation in a favorable environment. And despite the negative impacts of the increase in regulated savings rate, and still negative rates on sight deposits. Fees increased by 7.1% with strong growth in service fees. Underlying sales are up 5.5% notably due to client acquisition costs on Boursorama, of which ING clients, to the SRF and to variable costs related to the product credit carrying scheme. Note that [indiscernible] are at just 3.6% on the French network in Q2. Jaws are positive and the underlying RONE is strong at 14.4% and 18.3% excluding Boursorama. In international retail banking, Slide 15. This is another very rapid performance with an underlying RONE close to 20%. Commercial dynamics continue to be well-oriented with increasing volumes in most regions. In Europe loan outstanding up at 6% and deposits are up 3% at constant perimeter and ForEx rate. In Africa, we observed an improved business dynamics across all regions with growth in both loans outstanding and deposits. On revenues [indiscernible] very well oriented in Europe up 21% at constant perimeter and ForEx rates, still benefiting notably from the favorable rate environment in Eastern Europe. Fees increased by 15% in Africa. European and African retail activities are both posting their record high level of revenues. Specialized consumer finance activity generating a solid performance with a 7% revenue increase. Let's move to Slide 16 now. Insurance and financial services post once again an excellent quarter, with underlying RONE above 33%. On insurance revenues are up 8% at constant perimeter and ForEx rates. Life insurance growth inflow further increased and total outstanding reached EUR 131 billion, of which a sustained high level of unit linked at 35%. P&C premia increased by 7%, driven by very dynamic across regions. Financial services keep on delivering those positive results with a 45% growth in revenues at constant perimeter and ForEx rate. Once again, ALD delivers a spectacular performance with a record semester in terms of NBI and net income. This performance is due to a very strong underlying activity and to a limited extent, slight positive impact linked to the hyperinflation accounting in Turkey, slightly more than EUR 40 million and beyond. Overall, the funding fleet is still growing well with a 5.4% increase in H1 despite the continuing shortage in car delivery and ALD continues to benefit from a very favorable marketing environment with a used car sales result above EUR 3,200 per unit in H1. To sum up, Slide 17. IBFS delivered another strong quarter, excluding the residual contribution of [ World Bank ], revenues increased by 21.4% at constant perimeter and ForEx rate. In addition, thanks to a strict discipline and cost, IBFS delivered robust positive jaws and the gross operating income is up 33.5% at constant perimeter and ForEx rate. Excluding the activities disposed in Russia, the underlying RONE is at 26.4%. Turning to GMIS, Slide 18. Total revenues are up 25% versus Q2 with still a very strong contribution of market activities with revenues above EUR 1.5 billion. Equities continue to be solid, supported by high client demand for Equity Derivatives and Prime Services. NBI increased by 8% versus a high Q2 last year. On fixed income, the rate hike, higher interest for inflation product and volatility on ForEx, the environment was favorable to our business mix, margin towards rates and Europe. Overall, revenues of our fixed income platform are up 50%. Financing and Advisory, Slide 19. Registered in Q2, its highest quarterly performance on revenues, which are up 14% versus Q2 last year. In Global Banking & Advisory, dynamics remained strong in natural resources and infrastructure spurred by our push on ESG products. The activity was good in asset-backed products and resilience in investment banking despite lower volumes in capital markets. In transaction banking, performance continues to be strong with a 29% increase in revenues compared to last year, notably thanks to interest rate increase. Overall, Slide 20. GBIS delivered an excellent quarter with very high positive tools. This is driven by a strong increase in revenues by more than 18%, coupled with a contained evolution of costs. Excluding the contribution to the SRF, costs are up 4.7% on an underlying basis, which illustrates our continued rigorous management of costs. In Q2, [ TBS ] delivers an underlying RONE above 16.3% this quarter and 20.6% excluding SRF. The underlying RONE for this semester is above 18%. On the corporate center, Slide 21. This quarter is marked by the disposal of the Russian activities, which negatively impact the net results. The resulting loss, which is in line with previously disclosed estimate is recorded in net loss from other assets for a total amount of minus EUR 3.3 million before tax. The underlying operating expenses increased by around EUR 110 million mostly due to the Global Employee Share Ownership Programme for EUR 44 million, ForEx impact and a normalization of expenses in line with the return to normal activity at [indiscernible]. The operating expenses include transformation charges for a total amount of EUR 159 million, mainly [indiscernible] tranche. The underlying gross operating income stands at minus EUR 247 million. Frederic, I'll let you continue this first part of the presentation dedicated to the Q2 results.

Thank you very much, Claire. So Slide 23, just to remind you that we have had, again, 2 years of intense transformation, simplification of the business model. We launched a certain strategic projects that you have on this slide. I will be, again, very short. And next slide, Slide 24, to illustrate that we've had 2 years of strong performances illustrated on this slide, in particular, with for 6 quarters in a row, a high return on tangible equity. I will turn now to Slide 26, to comment first and to enter into the second part of the presentation on our financial targets and comment on the central economic scenario that we have taken into account. And of course, I know some of you might have different views, but we have taken central macroeconomic scenario based on the soft lending assumption over the forecast horizon. With inflation progress it'd be back to a more normal level as we consider that major disruptions to energy supply is temporary and the sharp to global confidence should be contained. In detail, we expect a sharp decrease in annual economic growth as soon as 2023. Annual growth rates are expected in our view, to remain positive in the coming years within a range of around 1% to 2% max, both in Europe and the U.S. from 2023 to 2025. Note that in the event of a shock to the energy supply in the winter, the short-term growth assumptions would probably be revised downwards between 0.7% and 1%. Regarding inflation, we expect the commodity prices to remain at the high level, at least in 2023 and then progressively decrease. In our scenario, the oil price should remain at $95 a barrel in 2023 and move to $65 a barrel in 2025. In that context, we expect inflation to significantly decrease in 2023 after peak in 2022 and come back below 2% as soon as 2024. Accordingly, we are forecasting a gradual decline in government long-term bond yields from 2023 to return to below 1% in 2025 for France and around 2.5% for the United States. Similarly, we expect short-term rates to stabilize around 0.5% to 0.7% in 2023 for 3 months Euribor and 6-month Euribor before returning to 0 by 2025. Compared to the market and ECB expectations, we can consider these assumptions as prudent, in particular, on the level of the 3-month rates that the ECB project at 1.6% in 2024. In light of this context, it's essential for the group to continue the efforts to complete this business model in order to take full advantage of it when conditions improve. If I turn to Slide 27, I will be very quick. Just to remind you our corporate purpose and Slide 28 to highlight that we want to work on 3 levers where we want to differentiate, meet client needs and priorities, embed ESG in all our activities and processes, accelerate our tech-enabled journey. If I turn to Slide 29, let me highlight that we have launched in our different activities, specific projects. And I must say that from the most significant of them, we have key milestones in the coming 6 to 9 months in particular, regarding the merger of our 2 French networks, the acquisition of LeasePlan by ALD. And we remain entirely focused on reaching our targets. Slide 30, the key group financial targets. As you can see, we aim to deliver return on tangible equity above 10% based on the core Tier 1 target ratio of 12% post Basel IV fully loaded implementation. In terms of long-term distribution policy, we intend to stick to our present guidance based on a 50% at ratio on the underlying net result of the group. And with now up to 40% in the form of share buy-backs, we think it makes sense to have an increased level of flexibility in terms of share buy-back like due to the current valuation of European Bank shares. I will be very quick on Slide 31, 32, but it's a very important thing, of course, for us, ESG transformation. We had commented previously on the 4 priorities that we have and that you see on this slide, which means in practice, reallocate resources and shift businesses, we have this EUR 300 billion sustainable finance objective between 2022 and 2025. Educate and engage all our staff. It's a very important element. Foster innovation and cooperation, including with industrial players, and of course, implement the right operational framework and in particular, regarding data. Slide 32, you have more detail on what it can mean for each business. I will not comment in detail. Happy to answer your question. But of course, it concerns retail activities, wholesale where we want to maintain an absolutely clear leadership position in energy transition and take advantage of the need for financing in this area in the coming years, and of course, in the mobility sector. I will now leave the floor to our management team to comment on the different building blocks and to start with, with Gaelle Olivier to present you the IT and business priorities for the coming years. Gaelle, the floor is yours.

Thank you, Frederic. So indeed, regarding IT and digital, we are sharpening our levers to become a tech-enabled company throughout the value chain. That means starting from building a secured resilient and modern infrastructure, leveraging cloud-based solutions and continuously reinforcing on cybersecurity. We develop solutions with [ equity SIM ] of partners. We accelerate the usage of data to generate tangible value, and we gain agility and embrace digitalization to better serve and be relevant to our clients. We are making good progress, and we aim to accelerate further, aiming to decrease our IT intensity ratio around 14%, 15% range in 2025, targeting more than 45% of our sales to be digital in 2025. Moving to Slide 34. I want to remind you that one of our specificities in Société Générale as an established and mature player is to nurture innovation within our businesses, capitalizing on our expertise and leveraging new technologies. We continuously embrace innovation in a meaningful and relevant manner for our clients. We have mentioned here a few examples fully integrated within our retail, wholesale and mobility pillars. Take the example of Boursorama, a well-established success. We are also developing Shine, which already serves more than 100,000 small to midsized companies. We are building leadership with Forge, with the usage of blockchain towards the issuance of stablecoins. And we are building a digital solution, ALD move, providing digital access to corporate mobility services. These are only a few examples of how we are building innovation from within with good progress and well in line with our strategic business priorities, which we are going to develop now starting with French retail with Sebastien Proto.

Good morning, everybody. Our ambition is to create a new bank of reference on the French market. We adapted to the evolving needs of our retail and corporate clients. And as you know, the new bank is based under the merger between our 2 networks. The merger is progressing well as planned, notably on the IT and HR phones. And everything is on track to ensure proper legal and IT merger in early 2023, and we disclosed 2 weeks ago, the precise timing of the IT merger in March and May 2023. Once merged, our first priority would be to extract all the synergies coming from the merger we will benefit from this new bank to await the client journey with both fully automated solution for basic needs and tailor-made solutions offered in our branches. And we also intend to improve efficiency, thanks to the cost reductions that will be activated with one IT system, one network and 50% less of back office sites. But we also intend to further strengthen our strong positioning with high value-added clients and deploy a more phase oriented model by enhancing product differentiation and diversification. We are enforcing the bank insurance, ESG and mobility [indiscernible]. And last but not least, investing in our private bank platform and deploying our strong expertise to mass-appeal clients. So these priorities aim at positioning our brands in the top 3 in terms of client satisfaction with -- for our core client base and generating RONE and a Basel IV of 10% on the back of a cost-income ratio between 67% and 69%. And I give the floor to Philippe Aymerich.

Yes. Good morning, everybody. Let me turn to Boursorama. As you know, Boursorama is by far the leader in online banking in France, with the highest net promoter score and a low churn rate. Boursorama is a powerful, highly scalable business model, but the last quarters have more than confirmed. Indeed, the momentum of client acquisition has accelerated with more than 1.5 million new clients acquired since end 2020, allowing to reach the 4 million mark 1 year ahead of plan. At the same time, and that's very important, the acquisition cost per client and the cost to serve per client have continued to significantly decrease, and they are now 40% and 50% lower than 2016. In addition, Boursorama is a real bank that equips its clients with credit, savings and insurance products. Thanks to a fully-fledged product offer. 2 key metrics to keep in mind, 85% of clients are active and 50% of them use Boursorama as the primary bank. On Slide 37. In terms of priorities, we aim to bring Boursorama to full maturity and establish it as the definitive leader of online banks in France. While continuing as the initial plan the proactive acquisition policy, we resolutely intend to demonstrate the increasing value of the business model and generate as previously mentioned. A net income of around 20 -- sorry, EUR 200 million in 2025, equivalent to a return on equity above 25%. On Slide 38, let's turn to International Retail Banking. We intend to further invest in our core profitable markets and leverage or strength, notably with corporate in order to reinforce our leading position in promising geographies and to maintain a high level of profitability. Digitalization and mutualization will remain key active of our development, and we want to accelerate them for even better client experience, higher digital sales and improved efficiency. For the latter, we have for intent, but it plays an important plan of operation and IT neutralization in Africa. Another important priority for us is to increase the synergies between our consumer finance platforms and the rest of the group, notably within the open banking model approach and the mobility value chain in full partnership with ALD. Overall, we aim to achieve in 2025, a cost-income ratio between 50% and 52% and a solid return on equity above 16%, even after the implantation of Basel IV, which weighs on RWA, mostly on operational risk due to the new formula, which is used to allocate capital. And now I leave the floor to Diony Lebot.

Thank you. Good morning to all. So moving to Slide 39. Our objective is to further strengthen the Boursorama model within the group and extract even more value from this high value-added model. To do so we intend to rely on our intrinsic strengths, in particular, in terms of life insurance, savings and retirement with a comprehensive product range and a clear focus on ESG. We also want to further strengthen the synergies within the group, in particular, the mobility sector and with French retail activities to further increase the penetration rate in P&C and protection through an even more integrated approach. Strengthening our external partnerships will also be a key focus to continue to diversify and accelerate our growth drivers. Overall, we expect a cost income ratio around 40% in 2025 under IFRS 4 and below 20% under IFRS 17 and the return on equity above 25%. Moving to ALD, Slide 40. Mobility is intended to become the third pillar of the group as commented also by Frederic and represents a strong area of development with the creation of the leading global player thanks to the acquisition of LeasePlan. The process is well on track. The integration program is well established and progress is in line with initial expectations. We have submitted the file to all key relevant authorities, and we are discussing with them. We have an ambitious target of year-end closing and working along this objective, acknowledging the timing of decision-making of regulatory bodies is not fully predictable. As presented last January, the mobility landscape is one of the most attractive and exciting growth industries globally. Some powerful and secular trends are indeed shifting the mobility paradigm such as the data-driven digital transformation and the development of innovative mobility solutions or the shift from ownership to usership and towards accelerated electrification. With this combination, ALD will drive and lead the fundamental trends and benefit from unrivaled investment capacity, client reach and technical expertise to address them. We also intend to increase the revenue synergies with the group, for instance, by creating fully integrated solutions with our consumer finance activities for our clients, as commented by Philippe or by reinforcing cross-selling with our retail and insurance businesses. In terms of targets, we still expect fleet growth above 6% post integration, a cost income ratio around 45% in 2025, leading to a return on equity above 20% at that date, representing a strong decrease of more than 80 basis points of ESG return on equity in 2025. I now leave the floor to [indiscernible] for GBIS.

Good morning. In May 21, we presented our 2023 road map for Global Banking and Investor Solutions. And a year later, our strong and consistent performance has proven the soundness of our strategy based on a more balanced and resilient business model and an increased capital allocation to our SNA business. So at the GBIS level for 2025, we confirm our financial targets, and we do want to point to the embedded potential upside in our trajectory should market conditions be as supportive as they have been recently. So at the GBIS level, we target a cost-to-income ratio between 65% and 68% and 2025. And the RONE of GBIS should range between 12% and 14% on the base of 4 in line with the new revenue range that we set for our market activities. So more specifically on Global Markets, our strategic priorities for 25 remain unchanged. We want to continue to leverage our strengths and consolidate our position through innovation, but keeping a diversified business and risk profile. We want to continue to deliver resilience in terms of revenues with a stable risk appetite and strong execution. And we will continue to improve our operating leverage while supporting our business franchises. And as a result of the repositioning and the strategic adjustments we carried out and thanks to our strong execution, we now expect the annual revenues of our market platform to range between EUR 4.7 billion and EUR 5.3 billion depending on market conditions and opportunities. And finally, on securities services, we aim at enhancing profitability by further optimizing the operating model while developing our offer on fast-growing segments in the alternative asset management in particular. If we turn to Financing & Advisory now, as presented in May 21, it is a core area of focus and growth for GBIS in which we intend to further invest and to extract sustained value from, thanks to the meaningful long-term growth trends, which we capture because they are well matched with our franchises and strengths. We have largely exceeded our growth targets since last May, and our priorities remain unchanged in SNA. While maintaining the diversified business mix, we will continue to selectively allocate more capital to remote dynamic sectors and client segments, namely in TMT, health care, renewable energy, alternative asset management. We also intend to further accelerate ESG and to strengthen our leading position there. In the many global awards we received as Bank of the Year for sustainability in 2021 are, in our view, mostly linked to the way we are embedding ESG in every business' DNA and as we shift our strategy at a granular level to capture this opportunity. In Global Transaction Banking, which revenues have significantly increased over the last quarters, we will continue to invest to capture volume growth, thanks to sustained investment in technology in a more integrated modular and open platform. And overall, after several quarters of significant growth, financing and advisory still target a 3% growth per year between 22% and 25%. Over to you, Claire.

Thanks, [indiscernible]. Let's now turn to capital allocation, Slide 43. Overall, we intend to continue to support the growth of our businesses by allocating additional organic capital in order to deliver a sustained and profitable growth. We aim to be selective in the allocation policy in line with the business road map and strategic priorities we have just detailed. We will allocate more capital to fast-growing and promising businesses such as ALD and Boursorama, which should deliver a very high level of profitability. We also intend to support the growth of established and profitable franchises with important growth prospects. We will allocate additional capital to private banking activities in France to finance an advisory and notably to finance the energy transition as [indiscernible], but also to core markets in international retail activities, notably in Europe. Incremental organic capital will also be allocated to our French retail activities, which are core to the group and highly synergetic to numerous other businesses. Note that we intend to maintain overall stable in relative terms the percentage of capital allocated to global markets and investor solutions, cost effectively. The selective allocation policy towards promising, profitable and strategic businesses should allow to deliver a 3% CAGR on revenue over the period and to maintain our NDI on capital ratio stable while observing Basel IV. Regarding the operating levarage at Slide 44, we target an underlying cost-income ratio below 62% in 2025, down by 5 percentage points compared to 2021, despite some inflationary [indiscernible]. The strong improvement in operating leverage is the result of 3 main factors. First, the revenue growth of our businesses. Second, a continued cost tax discipline decision across the group and the benefit of efficiency plan related to the various ongoing strategic initiative [indiscernible] will be essentially accounted in 2022 and 2023. Third, the end of the contribution to the SRF. These 3 factors are expected to more than offset the impact of higher inflation and of the investment costs in our businesses and our [ conversion ] project. Now let's turn to cost of risk, Slide 45. Based on the economic assumptions and on our [ recently product ] mix, the cost of risk of the group should normalize to around 30 basis points by 2025. This target, that [indiscernible] in significant buybacks as we intend to maintain a product provisioning approach over the period and keep [ high stuff ] of Stage 1 and Stage 2 provisions. With regard to NPL, we expect the NPL ratio to remain contained, notably thanks to the quality of our assets and to continue dynamic management of our NPL portfolio. Moving on to capital, Slide 46. Going forward we aim to monitor the group with a core Tier 1 ratio target of 12% in 2025. This target is totally consistent with the different moving parts which are affected in our capital trajectory. And with the distribution policy based on 50% of underlying net income of which up to 40% of the distribution in the form of share buybacks. Regarding Basel IV, we now expect the fully loaded impact to be around 120 basis points and a saving impact of around 100 basis points in 2025. Now I would leave the floor to Frederic for the conclusion.

Thanks, Claire. A few words of conclusion. Again, this slide that was just presented aims to put into perspective the strategic initiatives we launched over the last few years and gives another view with the 2025 financial targets of the level of profitability that this business model can deliver. For several quarters now the group has generated sustained growth in revenues and profitability, making us confident in our ability that we are on target. Several milestones have already impacted fully release. The coming months will be key complete the journey and implement in returns all these ambitions in each entity. We are all fully focused on their execution. That's it for the presentation, and now we are ready for your questions. [Operator Instructions] The floor is yours.

[Operator Instructions] And we have our first question from Delphine Lee from JPMorgan.

So my first question -- I've got questions. My first question was on [indiscernible]. I mean you've presented the plan a while ago, but just wondering on the revenue side of it on a revenue assumption for this plan, what are you assuming? Has anything changed? And also kind of what rates and increase in rates impact do you have in the plan? And the second question is on Global Markets. The range for the revenue target is somewhat a little bit large. So just wondering what's the thinking behind this? What did it depend on this -- give us a little bit of color because the cost-income ratio is also somewhat large. So if you could help on these 2 issues, that would be great.

I will leave the floor to Sebastien for the first part and then [indiscernible] for the second one. Sebastien?

Yes. So in terms of [indiscernible], I mean our forecast is based on macroeconomic scenario Frederic has described. So it could be seen as potentially a little bit conservative. So it should mark all the I would say better and somewhat scenario, obviously our revenues would be stronger to both in terms of fees or in terms of net interest margin as clearly a link between GDP growth, interest rates and our revenue.

So on the first part of your second question on the revenue gain, the thinking is rather simple review. We have been delivering a performance with that goal as 5, as you remember. And we have been delivering in H1 in 2022, much, much higher. I mean, you understand that the risen here is completely and above this range, right? So what we're trying to say here is in normal market conditions or normalized market conditions because 2022 H1 was exceptionally favorable to us, I think we captured help of our fair share of what was to be captured with our business mix. But we have to recognize that it was particularly favorable to our business mix, which we have discussed in the past, the mix with rates and levels of volatility without dislocation, et cetera. I'm not coming back to this. So what we're trying to say is in normalized market conditions, with commercial activity, which is normalized and ability to retain the commercial margin in book value normalized. We believe that we will be within that range. But we want to recognize that there is an upside depending on market conditions and market opportunities. And so that's the thinking behind the revenues. It's probably a fair description of how this works today. The second part of your question, the cost comes very simple, is just mechanical, right? So there's nothing specific there. Mechanically, depending on where you take the -- where you put the revenues, you will end up between the 60 and the range that we gave, 65% to 68%.

Yes. I was going to just clarify, Sebastien if you could follow up. On interest rate increases, I mean, given you have your rival coming down and rates coming down, does that mean in your plan, you have conservative assumption on rates? Just kind of wondering what we should be assuming here?

Yes, correct. Correct. Again, it can be seen as a little bit conservative. But I mean, there is potentially an upside both in terms of return on equity and cost-income ratio. We have factored all the rates I've just been describing in the trajectory, which means that fundamentally we are on that basis don't plan for a sustainable support from rates because we are 0 for short-term rates in 2025 and long-term rates at 0.8%. So if you wish, it's a conservative assumption versus perhaps of the scenarios, of course.

So we have another question from Giulia Aurora Miotto from Morgan Stanley.

Giulia from Morgan Stanley. I wanted to ask a question first on Boursorama. I believe in the prior year plan presented in 2020, basically, the bank was expected to turn profitable in 2024. And given that you are now 1-year ahead of plans in terms of customer acquisition, can we expect also profitability to come through more quickly? And if not, why? And then my second question is on the scenario of Russian gas cut off. I hear you when you say the 1% GDP impact. But in terms of provisions, have you, I don't know, try to estimate what that could mean to your cost of risk or NPL assumptions in that scenario?

Giulia, I will let Philippe answer on Boursorama. No, we don't think it will change dramatically the evolution of the provisioning in particular, because we consider it would be relatively a short-term impact, if you wish. And so we have not -- we don't think it will deviate fundamentally, the cost of risk trajectory. And knowing as we said for the current year, let's say [ S3 ] is very low. I think personal will remain low, which will enable us probably within the guidance we've maintained to further build on S1 S2. So I think we are fine and I don't think it will deflect as long as it remains within the range that we've said, which is our economic assumptions. I mean, again, it can depend on the weather, et cetera, at this stage, that's what we think. And we see all countries in Europe trying to build their reserves as much as possible ahead of the winter. So I think they should be relatively successful in doing that. Philippe on Boursorama.

Yes, thanks for the question. No, we stick to the breakeven in 2024, plus the target I mentioned of EUR 200 million in 2025. In fact, we consider that there is still a significant potential in the French market for Boursorama. And we want to take full advantage of it in that kind of winner takes it all approach. We are comfortable with our capacity to equip the clients. We see -- we are comfortable with intrinsic profitability of the model. So that's why we want to keep a quite robust acquisition policy in the coming months. And that's why we remain with the target of breakeven in 2024.

Next question.

So we have another question from Jon Peace from Crédit Suisse.

So my first question is your 10% return on tangible equity goal is slightly on the lower end of peers. And do you feel that's more because you've got conservative assumptions like 0 rates rather than reflective of your business mix? And so could you just remind us in that context, what's your NII sensitivity to higher rates, if it is indeed better than 0? And then my second question, please, is on the distribution mix, the 60-40 between dividend and buy-back. What's your thought process annually on where to land that? Would you prefer more buy-backs when the price to tangible book is low like today? Or do you prefer to manage the stability of the dividend, so it could move around a little bit?

Jon, I will leave Claire answering your question on the sensitivity. It's difficult to answer your first question. There is certainly a degree of conservatism based on the assumption. After that, we can have different markets, different activities, which can deliver different return. Maybe you are better in a better position and myself to perhaps comment. But again, we think at least it's something which is a reasonable assumption based on what we are currently building. In terms of just dividend policy, the idea, of course, is to take advantage of the low valuation. And at the same time, I would say, at least that's what I would propose to the Board is to avoid having the dividend going down. So it's really a cocktail. Let me just highlight that we -- what we did in 2021, having a dividend of EUR 165 and a share buy-back of the equivalent of EUR 1.1. So it was 60-40. Let's see how the end of the year goes. But again, we would try to find the best balance, I would say. But of course, we've changed we are adjusting and saying up to 40% as a policy for the coming years because we can think that there are opportunities to make share buy-backs. So in the balance and the increase of dividend would factor certainly where we will stand at year-end entering 2023. Claire, can you remind us the figures for sensitivity to net interest margin.

Yes. For the group the net interest margin sensitivity at constant balance sheet for year 2 is between EUR 80 million and EUR 100 million. But we have to be very cautious regarding these figures. I had already the opportunity to tell that I will repeat for this call. Of course, this net interest margin sensitivity is at constant balance sheet. And depending on the way rates increase, I mean, the sensitivity is for a 10 basis point translation in the interest rate curve. Should interest rates increase very sharply or more slowly, this sensitivity may be really different depending on the behavior of the clients, of course, and of the new phase or profile of the balance sheet. So just keep in mind that at medium, long term, of course, rate increase is very good for retail business and for retail revenues. We have a positive sensitivity for year 2. In the very short term, it may put pressure on, for example, credit margins. We have also a lag effect in our capability to materialize the positive effects on the deposits, of course. And once again, the data has to be considered in a very cautious way regarding the fact that we are at constant balance sheet, and you may have, depending on the way interest rates increase, some huge impacts on client behaviors and on the profile of balance sheet.

Next question.

So we have another question from Jacques-Henri Gaulard from Kepler Cheuvreux.

Just one question on the French retail, 2 things. First of all, do you intend to report Boursorama separately at some stage? Because you're really making now a big segregation between the networks on the one hand and Boursorama on the other and we still have one P&L for both. And the second question, I must join in the, I would say, interrogation of my colleague, Delphine from JP because if I assume that you're going to have EUR 450 million cost reduction in absolute turn by 2025. Indeed, the overall cost income ratio looks high at 67:69 you're already there, in a way. So you would really have to assume the situation to deteriorate markedly or at least not to improve at all. So just a clarification on those 2 things.

Jacques-Henri, first question Boursorama, and we have some point. We will see, but it might be at some point relevant effectively as the dynamic, of course, are different. It's a different business models. On your second question, is it just on French retail more globally? I'm not sure that I've understood...

Yes. That's on French retail and the impact of the merger, yes.

Okay. Let me clarify one point. Again, on revenues, we assume it may or might be seen as a little bit conservative for all the reasons I have explained. In terms of cost, I confirm that all the synergies obtained thanks to the merger, will be there, i.e. only 1 IT system, 1 network and minus 25% in terms of number of branches and a sharp reduction sharp decrease in a number of back-office sites. Having said that, you have to take into account the impact of inflation in the coming years. And so we have on one side, on the one hand, synergies for the amount you have in mind on the other hand, the impact of inflation as when we announced the target end of 2020. The forecast in terms of inflation was clearly different from the figures we have now in mind for the coming years. So that's why it's not purely mechanic between the EUR 450 million and the cost income ratio of 1 perimeter, which is key, has changed as inflation.

Next question.

We have another question from Omar Fall from Barclays.

Firstly, thank you for the longer-term targets. But could you give some more idea on the near-term outlook for French retail revenues? Because there's a lot of challenges now. It looks like clean NII is down 6% this quarter actually the other line. There's EUR 80 million impact from [indiscernible] to come in the second half. Loan growth should slow, I guess, and you've got this with [indiscernible] issue on mortgage rates. So do you think that fees can stay strong enough to offset all of that? Then secondly, just in GBIS, just your financing and advisory business continues to have revenue trends that are nothing like your peers, including your closest peer, you had plus 14%. So could you explain what's happening there revenue-wise? And should we be comfortable that you're not deploying balance sheet into attend the macro environment as opposed to everyone else pulling out? Because I see the balances have gone up quite a bit in the quarter, the loan balances.

Yes, Omar hello. Sebastien and then [indiscernible]. Sebastien?

Yes. So the performance in 2022, what we can expect for H2 compared with H1, as I told you at the end of the first quarter we expect H2 will be different from H1. H1 was really strong in terms of revenues with a very good commercial momentum, favorable economic context both for commission and fees. H2 could be more under pressure for different reasons, including the following, first, the impact, as mentioned, of the rate increase in for our regulated savings product. Again, in 2022, the Livret increase in interest rates represent EUR 150 million in terms of impact on our revenues, and it will be mainly on H2. Second point, there is a margin pressure on credit and especially on home loans due to the lag effect between the increase in interest rate and what we can pass on to clients. And as you say, that was to [indiscernible], which is something purely French. And it puts a limit on the way we can pass on to clients the increase in interest rates. And again, it will be mainly in H2 that the impact will materialize. And on top of that, we will have the grant acquisition of Boursorama, which will remain strong and potentially lower economic growth due to inflation. So factoring all of this, I think it's fair to say that we don't -- I mean, we don't see H2's performance as strong as H1 performance.

And just on the Livret, just to be clear, the guidance is for around EUR 45 million, EUR 50 million for every 25 bps, is that right? Just to clarify that.

Yes, that's correct.

On your SMA question. So the answer is very clearly no. You shouldn't be worried about us deploying capital counter-cyclically. We have been allocating more resources to this business as we stated this in May. We have been doing this very successfully for 2 reasons. And we explained this plans last year because we chose to invest on sectors that have strong, strong long-term growth trends in which we are particularly good at, right? I mean trends that are perfectly matched with our expertise and our long-term sector knowledge and ability to work in them. And so what you see is the effect of this extra capital allocation, which mostly happened last year at this stage, which was very well executed with a lot of focus from everyone. And so we are, because of that, because the cycle has continued to be strong for us, we are delivering. And you have to remember when you're comparing us to peers. And I do agree with you that we are doing better than some of our closer peers. But if you compare to the entire industry, you have to remember that our pure investment banking business, M&A, ECM, et cetera, is much smaller. So when you compare year-on-year, our performance is obviously held actually right now by us being very small in this segment of the market, which is crashing somewhat for some of our peers. And so the answer in terms of risk management or risk profile is that we have absolutely maintained the same criteria in terms of origination or risk management that you have seen us doing or opting for the last decades, and you see the performance in terms of risk management of this business in the last decades. And we absolutely intent on keeping it that way. 2 more fast comments, quick comments. One, in terms of transaction banking, which is part of SMA, we have also a very, very dynamic business there, which has been a focus of investments, et cetera, for years, accelerated recently. And so we are capturing the growth of the market there. And there is a positive impact of interest rates there, which we see immediately. It's very responsive, very sensitive to this positively. And so you have some of that upside there. And lastly, in terms of -- and Frederic mentioned this, in terms of S3, we don't have anything brewing and we have a very, let's say, at this stage, very comfortable position from that perspective.

Next question.

So we have another question from Pierre Chedeville from CIC.

Yes. I have a question regarding the insurance business. You mentioned in your business plan that you want to develop external partnerships. And I wanted to know what your factories in insurance can do, but you could find externally what type of products do you have in mind for your customers? And my second question, I would like to have a clarification regarding the level of your prudent provisioning. I understand that you want to keep a prudent approach. But I wanted to know if you think that at the horizon of 2025, you will maintain the high level of EUR 3.4 billion of S1 and S2 provision.

Yes. Pierre, I will turn to Diony and then Claire for the second question.

Yes. Thank you, Pierre, for the question. Well, we already have quite strong partnerships in terms of distribution of our life insurance product, in particular, towards wealth and retail clients. So it's under already the [ RV ]. And it's already profitable and fast-growing activity, which we will continue to develop.

So if I may, you're not talking about acquiring capacity. It's more about distribution when you talk about partnership?

Absolutely. It's distributing our life insurance products through these networks, yes.

Okay. It was not clear. Okay. Thank you.

Claire?

Yes. Regarding provisioning, we keep, as you said, quite conservative assumption, and we will be above the EUR 3 billion regarding Stage 1 Stage 2 to provision in our 2025 target.

And changed?

Yes, no, material change, as you said above EUR 3 billion...

No significant change.