Societe Generale : 2020 STRATEGIC AND FINANCIAL PLAN "TRANSFORM TO GROW"
2020 STRATEGIC AND FINANCIAL PLAN
"TRANSFORM TO GROW"
Paris, 27 November 2017
Societe Generale will present tomorrow its 2020 Strategic and Financial Plan at an Investor Day in Paris. Commenting on the plan, Societe Generale Chief Executive Officer, Frédéric Oudéa said:
"Our 2020 strategic plan, Transform to Grow, is based on a long-term vision of the Societe Generale Group as a trusted partner for our clients, committed to the positive transformations of our societies and economies. Our ambition is therefore to generate superior, profitable and sustainable growth. In a European banking sector undergoing radical industrial change, the Group is ready to enter into a new phase of its development and transformation.
We will rely, first and foremost, on our capacity to anticipate market trends and to innovate, in order to make client experience a competitive advantage. Our business model, centered on Europe and connected to the rest of the world, is made up of synergetic, high value-added activities, serving high potential franchises, with leading positions. Building on the coherence and the openness of our different activities, our ambition translates into five strategic and operational priorities: grow; accelerate the transformation of our businesses, particularly in digital; maintain strict cost discipline; complete the refocusing of the Group; and foster a culture of responsibility at every level of the company.
The Societe Generale Group will develop a differentiated business model, delivering dynamic growth along with an attractive dividend policy. The trust of our clients, the exceptional commitment of our staff and the total alignment of management teams with the expectations of our shareholders and stakeholders, make me very confident in our capacity to meet our targets. On that basis, Societe Generale will be in a position of strength to participate in the completion of the construction of a more integrated European banking sector."
Note : CAGR 2016-2020 based on 2016 underlying data (cf. page 23 of press release of 2016 financial results)
the group is ready for the next phase of development and transformation
Societe Generale successfully delivered many of the objectives of its 2014-2016 strategic plan, despite a less favorable environment than expected, notably because of low or even negative interest rates, as well as the Russian crisis.
The Group is now:
- More focused, after 45 disposals across business lines since 2014 and selective investments in growing and synergetic franchises
- More robust, with a strong capital position, an improved risk profile and enhanced independent control functions
- More resilient, with less volatile earnings and economic recovery in key countries such as Russia and Romania
- More responsible, thanks to the deployment of a Culture & Conduct programme across the entire company
The Group is thus ready to capitalize on its integrated and diversified business model to contribute positively to transformations of societies and economies in a more promising economic environment, notably in Europe.
deliver SUPERIOR, PROFITABLE AND SUSTAINABLE GROWTH
The Group has set five strategic and operational priorities for the next three years, which will enable it to deliver superior, profitable and sustainable growth:
- Grow: the Group targets EUR 3.6bn of additional revenues by 2020 (>+3% annual revenue growth 2016-2020). This growth will be generated by a series of ambitious initiatives across the whole spectrum of our high potential clients, through the development of greater segmentation and services adapted to their changing needs. This growth will be achieved while maintaining strict discipline in risk management. The structural improvement of the Group's risk profile and risk management will lead to a cost of risk of 35-40bps in 2020, while market risk will continue to be strictly managed.
- Transform: accelerate transformation of all businesses and services, especially with respect to digital and with a particular emphasis on French retail banking.
- Deliver on costs: target a cost base less than or equal to EUR 17.8bn by 2020, notably thanks to the industrialisation of processes and the implementation of a new EUR 1.1bn savings plan by 2020, while still making the investments needed to grow the Group's businesses. The annual increase in operating expenses will be +1.2% on average between 2016 and 2020. The Group cost/income ratio will decrease by more than one point a year on average between 2016 and 2020 to reach 63% by the end of the period, with positive jaws effects in revenues and costs for each of the three pillars of the Group.
- Further refocus: optimise capital allocation through the sale or closure of sub-scale and/or non-synergetic businesses. The impact of this refocusing is estimated to be equivalent to approximately 5% of current Group risk weighted assets and has not been incorporated into financial targets. The capital freed up through this refocusing will be either profitably reallocated to businesses or returned to shareholders.
- Foster responsibility: implement across the Group the highest industry standards in compliance and control functions and complete the deployment of the Culture & Conduct programme, sponsored by the CEO, at every level of the company.
enhance shareholder value
- Improved profitability: Group ROTE of ~11.5% in 2020 (corresponding to a 10% ROE)
- Solid balance sheet: fully-loaded CET1 to be superior or equal to 12% in 2020, annual organic capital generation of ~25bps (RWA growth ~+3% a year on average), proactive management of TLAC and leverage ratio (between 4% and 4.5%)
- EPS growth: increase to approximately EUR 6.50 per share in 2020
- Competitive dividend policy: progressive growth of the dividend, with a 50% payout ratio and a floor at EUR 2.20 per share, which will apply from 2017
accelerate digital and innovation strategy
Societe Generale will accelerate the digital transformation of its model in order to improve client experience, operating efficiency and security. The Group is convinced that the success of the digital transformation is based on the capacity of all businesses and functions to use new technologies alongside clients, in order to offer them new services that improve their experience. The Group has adopted a strategy focused on three aims:
- Promote innovation by favoring business autonomy and bring about cultural change by encouraging experimentation and favoring greater proximity between operational staff and IT teams. Strengthen interaction and cooperation with startups (acquisitions, direct and indirect equity investments and commercial and technical partnerships)
- Invest in new operating models, adopt new software development methods and transform information systems, while leveraging big data, open innovation and more open and flexible infrastructure
- Reinforce state of the art expertise in data management, artificial intelligence and cybersecurity by recruiting the necessary talents
In addition to the initiatives already in place, the Group will dedicate EUR 150m to disruptive innovation projects, through equity investments.
transform french retail banking
The Group is the third(1) largest retail bank in France, primarily through its two traditional networks, Societe Generale and Crédit du Nord, which are increasingly focused on sophisticated and value-added services for corporate, professional, mass affluent and wealthy clients. Its third brand, Boursorama is the online banking leader in France. The 2020 strategic plan marks a decisive step in the adaptation of the traditional retail banking model:
- Further rationalisation of the branch network: from 2000 to 1700 branches (2017-2020)
- Fewer back office centres: from 20 to 14 (2017-2020)
- Automation of 80% of front-to-back processes by 2020
While fully taking into consideration the need for proper social dialogue, this plan could lead to an additional headcount reduction of up to 900 employees, in additional to the 2,550 already announced at the beginning of 2016, taking the total number to 3,450 by 2020. In 2020, the bank will be in a position to prepare the next phase of the transformation of its model.
key Revenue growth initiatives with French Retail clients:
- Leverage on private banking expertise to serve mass affluent and wealthy clients in French retail networks: more than EUR 200m of additional revenues by 2020
- Develop the proven growth model of the online banking leader in France, Boursorama: more than 2 million customers by 2020
- Capture the full potential of the integrated bancassurance model by anticipating market changes in savings life insurance and capturing the strong potential to equip clients with protection insurance: ~+6% annual cross-selling revenue growth 2016-2020
- Develop our business with corporates and professionals, as a provider of strategic advice and global solutions: +~ EUR 400m of additional revenues by 2020
French Retail 2020(1) targets:
- Annual revenue growth of >+1% (2016-2020)
- Annual growth in operating expenses of <1% (2016-2020)
- A cost/income ratio of <65%
- Cost of risk of 35-40bps
- Return on Normative Equity of ~14.5%
(1) Global Transaction and Payment Services has been transferred from French retail to Global Banking and Investor Solutions. It represented ~ EUR 5.8bn of RWA as of end 2016 and ~ EUR 300m revenues in 2016
capture growth in International retail banking and financial services
In International Retail Banking, the Group is present in selected neighboring markets, with leading positions in Czech Republic, Central Europe and the Eurozone, as well as in Africa and Russia. In insurance, the Group benefits from a successful integrated bancassurance model. In financial services the Group is a European and global leader in mobility services and equipment finance. The ambition in Europe is to consolidate leading market positions and to maintain high profitability, while capturing growth in emerging markets and the dynamic mobility sector.
key Revenue growth initiatives:
- Achieve profitable growth in Africa thanks to the Group's differentiating presence and a dynamic banking market with strong potential: >+8% annual revenue growth 2016-2020, 2020 RONE Target >15%
- Complete the turnaround in Russia, thanks to an improved economic environment and banking sector, with the ambition to become the leading foreign bank: >+11% annual revenue growth 2016-2020, 2020 RONE Target >16%
- Make ALD the undisputed global leader in mobility services, at the forefront of innovation and capturing the growing private lease opportunity: +7% annual growth in contribution to Group net income at constant perimeter 2016-2019
International Retail Banking and Financial Services 2020 targets:
- Annual revenue growth of >+5.5% (2016-2020)
- Annual growth in operating expenses of <4% (2016-2020)
- A cost/income ratio of <53%
- Cost of risk of ~70bps
- Return on Normative Equity of ~17%
strengthen LEADING franchises in WHOLESALE
In Market Activities, the Group is a world leader in derivatives, with a dominant market position in equity derivatives and structured products, as well as strong positions on flow products. In Financing and Advisory, the Group benefits from global franchises and extensive expertise in structured finance and asset backed products, as well as leadership positions in investment banking and corporate lending in Europe. In Wealth and Asset Management, the Group will leverage an open architecture strategy, benefiting from the expertise of Lyxor (the second largest ETF provider in Europe) and the development of passive asset management.
key Revenue growth initiatives with wholesale clients:
- In Market Activities, fully capitalise on a world leading position in derivatives; grow our prime brokerage activity, building on our leading position in Europe; remain a leader in Europe in securities services: ~+2.5% annual revenue growth 2016-2020
- In Financing & Advisory, expand the existing client base and extend reach in advisory through sector expertise: ~+3% annual revenue growth 2016-2020
- In Global Transaction Banking, maintain leadership in France and expand the footprint, notably in Western Europe: +~ EUR 350m of additional revenues by 2020
- In Asset & Wealth Management, leverage on an open architecture strategy and add value for High Net Worth Individuals and our retail distribution networks: ~+3% annual revenue growth 2016-2020
Global Banking and Investor Solutions 2020 targets:
- Annual revenue growth of >+2.5% (2016-2020)
- Stable costs(1) 2016-2020
- A cost/income ratio of ~68%
- Cost of risk of ~20bps
- Return on Normative Equity of ~14%
Foster a culture of responsibility
The Group will further reinforce its internal control setup, notably by strengthening its compliance function, in line with the highest standards of the industry. Societe Generale continues to deploy its firm-wide Culture & Conduct programme, which aims to both enforce a more stringent code of conduct and share strong common values among all staff worldwide.
In line with its ambition to be a trusted partner committed to positive transformations, the Group has decided to fully integrate its Corporate Social Responsibility commitments into its business development. Based on stakeholder feedback and integrating ESG risks, the Group will focus on six main areas of action with a view to having a positive impact:
In business development goals:
- Contribute positively to the energy transition
- Develop impact-based offers in line with social trends, e.g. SMEs, mobility, smart cities
- Contribute to the sustainable development of Africa
And in the way business is conducted:
- Pay even closer attention to client satisfaction and protection
- Reinforce Group culture, conduct and governance
(1) Excluding EURIBOR fine refund and RMBS settlement in 2016
Societe Generale is one of the largest European financial services groups. Based on a diversified and integrated banking model, the Group combines financial solidity with a strategy of sustainable growth, and aims to be the reference for relationship banking, recognised on its markets, close to clients, chosen for the quality and commitment of its teams.
Societe Generale has been playing a vital role in the economy for 150 years. With more than 145,000 employees, based in 66 countries, we serve on a daily basis 31 million clients throughout the world. Societe Generale's teams offer advice and services to individual, corporate and institutional customers in three core businesses:
- Retail banking in France with the Societe Generale branch network, Credit du Nord and Boursorama, offering a comprehensive range of multi-channel financial services at the leading edge of digital innovation;
- International retail banking, insurance and financial services to corporates with a presence in developing economies and leading specialised businesses;
- Corporate and investment banking, private banking, asset management and securities services, with recognised expertise, top international rankings and integrated solutions.
Societe Generale is currently included in the main sustainability indices: DJSI (World and Europe), FSTE4Good (World and Europe), Euronext Vigeo (World, Europe and Eurozone), Ethibel Sustainability Index (ESI) Excellence Europe, 4 of the STOXX ESG Leaders Indices, MSCI Low Carbon Leaders Index.
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