Business Consolidation : Creating Value

Sanjay UppalGroup Chief Financial OfficerEmirates NBD

18 – 22 October 2009Dubai International Convention & Exhibition CenterDubai. UAE

M & A activity is driven by diverse motivations

Synergies : Cost-reduction & revenue enhancement

Diversification

Strategic Focus : Horizontal & vertical integration

Financial purchase

Valuing considerations other than cashValuing considerations other than cash

Market share

1

M&As make significant contributions to relative growth – but most acquisitions tend to destroy relative value

Improvement in share price from T – 2 years to

. . . but most acquisitions fail to create value A strong and well executed M&A strategy can help companies realize growth . . .Explanatory power for differences in Improvement in share price from T – 2 years to

T + 2 years, adjusted for returns on MSCI World Index***, %

Explanatory power for differences in company growth*, R², percent

23%Innovation**

38%Market growth 39% Success

39%

61%Failure

39%Inorganic activity

2

* Based on the time series growth regression of 54 large companies across a broad range of sectors** Remainder including disruptive innovation and noise in regression analysis

*** Based on analysis around 1229 large deals executed before 2005Source: SDC, Hoovers, Company reports, Analyst reports, McKinsey analysis

Key stages of M&A

Pre-transaction Post-transactionExecution Process

TransactionM&AC tTarget Post

C bilitTransaction Execution Process

M&A strategy

Corporate strategy

gidentification

merger mgmt

Launch Capability building

Identify Value Negotiating for Value Delivering Value

3

Success of the Transaction depends on success at every stage, and most importantly on ability to realize the expected value

Realising the vision – Delivering the value

Valuation & synergies Due

diligence

Transaction

Post-transactionPre-transaction

Negotiation

Transaction Execution Process Post

merger mgmt

Launch Capability building

M&A strategy

Corporate strategy

Target identifi-cation g

Identify Value Negotiating for value Delivering Value

Focus shifts to well executed post merger managementFocus shifts to well executed post merger management

Prioritization of high value & high risk areas

Integration of businesses & achieving synergies

4

Integration of businesses & achieving synergies

Delivering the value

Making it work : Delivering shareholder value

Strategygy- Vision- Mission- Values- Synergies target

Communication- Employees

y g g

Employees- Board- Analysts- Regulators- Rating agencies

Technology & Process Integration- Alignment to Strategy- Technology choiceg g

- Customers- Suppliers- Shareholders- General Public

Technology choice- Replacement- Migration- Process Review & Redesign- Integration Planning

Organization & People- Business Model

- MediaIntegration Planning

5

- Organization structure- HR Policies- Team building- Realignment

The Experience

6

We communicated the expected Value Creation potential of the Merger : 12 July 2007

Summary of Synergies (AED m)

% of Smaller Base1

Synergies (2010) Total, AED m Projected Benchmark 2

Revenue 195 10.5% 5–10%Costs 151 22.2% 14– 26%

7

1. As a % of NBD’s Base2. Domestic M&A transactions

Revenue SynergiesSource of Synergies % Total Basis / Rationale

• Greater share wallet and yield enhancement• Cross sell for new product capabilities to increase fee

income• Increased capacity for cross border risk due to larger

balance sheet

34%

• Focus on cross selling amount major product categories• Incremental revenue generated through market share

/pricing advantages and leveraging of the largest distribution network in the UAE

31%

• Greater penetration, particularly regionally. In larger projects and financing deals, by leveraging balance sheet and capital

• Expansion of client base and cross sell of new product capabilities

28%

• Improved cost of funding due to stronger capital base

• Improved sales due to integrated broader offering

4%

3% • Improved sales due to integrated broader offering3%

100%

8

100%

Significant revenue synergies dependent on successful IT & Operations integration

Cost SynergiesSource of Synergies % Total Basis / Rationale

• Branch and ATM network consolidation.• Integration of card acquiring business• Pricing advantages on advertising / marketing spend

34%

• Optimised Head Office and Group Functions

• Reallocation of IT personnel from NBD to EBI IT

26%

25% dedicated centre• Reduced group capex spend

• Improved cost of funding due to stronger capital base

25%

7%

• Improved efficiency from integrated operations and IT platform

4%

100%

3% • Leveraging of existing Emirates Islamic Bank as platform for unified Islamic offering

9Over 50% of cost synergies dependent on successful IT & Operations integration

Effort during Integration followed 4 primary objectives

1 Maintain & improve customer service across networks

2 Derive economies of scale & cost benefits from consolidation

3 Control for / minimize risk during & after transition process

4 Minimize disruption & impact on staff and supporting entities

10

supporting entities

A Phased approach to achieve our objectives

BRANCHES ATM/CDM WEB MOBILE SALES

CALL CENTRE

PRIORITY 1Front end customer facing

Customer

SALES CENTRE channels have maximum visibility & impact on

Customer service

PROCESSES PRIORITY 3Common processes maximised through

common front-end &

• Core Banking• Trade Finance• Treasury

• Brokerage• ERP• IT Security

BACK OFFICE 3RD PARTY / VENDORS

back-end functionality / systems

PRIORITY 2Consolidations of volumes will

PRIORITY 4Vendor services & relationship

11

remove duplication, drive economies of scale

consolidation to achieve better services & cost base

H1 2009 : Achieved Synergies of AED 328m –Ahead of 2009 full year target by 33%

250

AED MillionsRevenue Synergies

60%

65

129

195

104129

100

150

200

151169Cost SynergiesTotal Synergies

372400 33%

0

50

2008 2009 2010

50

100

151

109

50

100

150118%

+124

246235

328

100

200

300

400

90%33%

69%

02008 2009 2010

0

100

2008 2009 2010

Target Actual H1

One-off Synergies

144%76%

121212

Note 1: Base used when computing synergy targets were 2006 financialsNote 2: Actual 2009 synergies represent annualised synergies achieved in H1 2009

144%

Creating Value through consolidation

Focus on achieving expected value

Dedicated team in place before transaction closesDedicated team in place before transaction closes

Plan, Plan, Plan

Timing is critical

Communication

13

Business Consolidation : Creating Value

Sanjay UppalGroup Chief Financial OfficerEmirates NBD

14

18 – 22 October 2009Dubai International Convention & Exhibition CenterDubai. UAE