Understanding our annual results 2018

Dear shareholder, 

After this first year in the execution of our 3-year plan, we have confirmed our long-term strategic ambition: delivering profitable and responsible growth thanks to a robust, diversified, more compact banking Group resolutely focused on its customers, in order to assist them in their positive transformation projects.

We successfully achieved several major milestones in our transformation during 2018. The digital transformation process continued with success and there was considerable progress in the growth initiatives in French and International Retail Banking, as well as Financing & Advisory. However, market activities experienced a more mixed performance, below our expectations.

In an economic, financial and regulatory environment that looks set to be less favourable and even more complex over the next few years than anticipated a year ago, we have decided to adapt the execution of our plan and our financial trajectory.

The creation of value for shareholders remains at the heart of our strategy. We have reaffirmed our target of a 50% payout  ratio with a dividend floor of €2.20. At the same time, we will continue to strengthen our capital and have confirmed our CET1 ratio target of 12% for 2020.

We will be even more selective in our capital allocation, prioritising the Group’s areas of excellence. Moreover, in a more uncertain economic environment, we will continue to work on our operating efficiency with an additional plan to reduce costs by around €500 million in Global Banking & Investor Solutions and we are further prioritising cost control. All these measures and the Group’s transformation will enable us to improve our operational profile and pursue the improvement in the structural profitability of our businesses.

Once again, I would like to thank you for your loyalty and the trust you have placed in our Group.

Frédéric Oudéa,
Chief Executive Officer

Adaptation in the execution of the 2020 strategic and financial plan “Transform to Grow”

Given a geopolitical environment marked by substantial uncertainty, a still low interest rate environment in the eurozone, the relative performance of its businesses and improved visibility on regulatory constraints, the Group has adapted the execution and targets of its Transform to Grow strategic plan.

The Group’s financial targets for 2020 are as follows:

• Group ROTE * of between 9%-10%
• RONE*  for French Retail Banking revised to 11.5%-12.5%
• RONE* for International Retail Banking & Financial Services increased to 17.0%-18.0%
• RONE* for Global Banking & Investor Solutions ranging from 11.5% to 12.5%
• CET1 ratio of 12%
• 50% payout ratio, with a dividend per share of at least €2.20

2018 results in brief

In 2018, revenues (+0.6%*) were driven by the good performance of International Retail Banking & Financial Services, resilient French Retail Banking activities and the strong momentum in Financing & Advisory

The excellent commercial momentum of International Retail Banking & Financial Services in all regions and businesses resulted in revenues rising 6.6%** in 2018 to €8.3 billion.

International Retail Banking revenues were 9.1%** higher in 2018, the result of growth in all regions (Western Europe, Czech Republic, Romania, Russia, Africa, etc.).
The growth in outstandings for life insurance savings and Personal Protection led to Net Banking Income increasing 4.9%** for the Insurance business in 2018. Financial Services to Corporates maintained a good commercial momentum in 2018.

French Retail Banking enjoyed a solid commercial momentum. In a low interest rate environment, revenues totalled €7.8 billion, -1.8% *** vs. 2017, in line with the Group’s expectations.

The Group’s three brands (Societe Generale, Crédit du Nord and Boursorama) pursued their commercial expansion, particularly for their growth drivers. With nearly 1.7 million clients, Boursorama confirmed its position as the leading online bank. French Retail Banking continued to develop its growth drivers: increase its mass affluent and wealthy client base, open of “Pro Corners” dedicated to professionals and create new regional business centres.
The banking network transformation plan continued, with the move towards a model combining digital and human expertise.

Despite the strong growth in Financing & Advisory, Global Banking & Investor Solutions’ revenues fell -3.6% in 2018 to €8.8 billion, due to the decline in revenues for Global Markets & Investor Services.

In an unfavourable market environment, impacted by political tensions in Europe and the trade war between the United States and China, Global Markets & Investor Services saw its revenues fall -8.3% in 2018.
Financing & Advisory enjoyed a record year, with revenues climbing 7.1% in 2018 and 19.1% in Q4 2018.

Good control of operating expenses (+2%*) and risks

The increase in operating expenses is in line with the full-year target in French Retail Banking and reflects cost control in Global Banking & Investor Solutions. Efforts to support growth in International Retail Banking & Financial Services resulted in a positive jaws effect between revenue growth and the increase in costs.
The Group continued to strengthen its risk profile with a commercial cost of risk that remained low at 21 basis points (19 basis points in 2017), towards the bottom end of the expected range. This low cost of risk reflects both our strict discipline in loan origination and the quality of our loan portfolio.

The Group is continuing with the refocusing of its businesses

Over the last few weeks, we announced the disposal of Societe Generale Serbia, Mobiasbanca Societe Generale in Moldavia and our stake in La Banque Postale Financement. These will help strengthen our capital.

Group book net income totalled €3.9 billion in 2018 (+37.7%) and underlying net income €4.5 billion (-0.5%)

In 2018, the Group’s profitability was 9.7% (underlying ROTE), slightly higher than in 2017 (9.6%).

On this basis, the Board of Directors has decided to propose the payment of a dividend of €2.20 per share to the General Meeting of Shareholders, with the possibility of opting for the payment of the dividend in shares. This represents a payout ratio of 51.8%. The dividend will be detached on 27 May, 2019 and paid on 14 June, 2019.

(*) Underlying data
(**) data adjusted for changes in Group structure and at constant exchange rates
(***) Excluding PEL/CEL provision