annual report 2006 - binckbank · annual report. 2006 saw the opening of the bank’s first...
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Annual report 2006
Binck’s 2005 annual report and accounts related to the Retail, Wholesale and Trading businessunits. Since 1 January 2006, the activities of the Wholesale business unit and the servicesprovided for professional clients by the Retail business unit have been transferred to a newbusiness unit, Professional Services. The comparative figures at business unit level for 2005given in this annual report therefore differ from those given in the 2005 annual report.
In 2006 Binck N.V. and BinckBank N.V. merged and the name was changed to BinckBanck N.V.Where reference is made in this annual report to ‘BinckBank’, it refers to BinckBank N.V.
This document is a translation of the Dutch original and is provided as a courtesy only. In the event of any disparity, the Dutch version shall prevail. No rights may be derived fromthe translated document.
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ContentsProfile, mission and strategy ..........................................................................................................................2Results in brief ..................................................................................................................................................4Key figures 2006 ...............................................................................................................................................5Chairman’s letter ..............................................................................................................................................8Shareholder information ...............................................................................................................................10Important events of 2006 .............................................................................................................................13Report of the Management Board ..............................................................................................................16Management Board and Supervisory Board .............................................................................................24Report of the Supervisory Board .................................................................................................................26Corporate Governance ...................................................................................................................................34Risk management ...........................................................................................................................................41In-control statement .....................................................................................................................................45BinckBank’s organisational structure ........................................................................................................48
Financial statements 2006 BinckBank N.V.Consolidated Financial StatementsConsolidated balance sheet...........................................................................................................54Consolidated income statement ...................................................................................................55Consolidated cash flow statement ..............................................................................................56Consolidated statement of changes in equity...........................................................................58Notes to the consolidated financial statements.......................................................................59Notes to the consolidated balance sheet ...................................................................................70Notes to the consolidated income statement ...........................................................................87Financial risk management ...........................................................................................................97
Company Financial Statements Company balance sheet ................................................................................................................101Company income statement........................................................................................................102Company statement of changes in equity ................................................................................103Notes to the company financial statements............................................................................104Notes to the company balance sheet ........................................................................................105
Other information Auditors’ report ..............................................................................................................................116Statutory provisions in respect of priority shares (articles 15 and 21 of the Articles of Association) ....................................................................118Statutory provisions in respect of appropriation of profit (article 32 of the Articles of Association) ..................................................................................118Proposal for appropriation of the result ...................................................................................119
ProfileBinckBank is an online bank for investors. We offerour clients fast, low-cost access to the leadingfinancial markets around the world, accurateadministrative processing of securities and cashtransactions and extensive market information.
BinckBank a listed independent online bank withoffices in the Netherlands and Belgium, and willshortly open an office in France. It employs around250 people (year-end 2006).
BinckBank’s activities are split into three businessunits: Retail, Professional Services and Trading.
Retail Retail provides services for independent privateinvestors via a comprehensive investment website,the functions of which include real-time streamingprices and news, order book depth, research, adviceand analysis. BinckBank was announced ‘bestinternet broker in the Netherlands’ for the secondyear in succession in the ‘Dutch Brokersurvey 2006’.
Professional ServicesProfessional Services provides services forprofessional clients such as asset managers andbanks, including an online product which handlesthe processing of securities and cash transactionsand the entire securities-related administrationprocess. Professional clients of this business unithave the option of entering into a serviceagreement with BinckBank or purchasing thesoftware needed to execute these processesthemselves.
TradingThe Trading business unit trades solely for its ownaccount and risk. Using automated systems andquantitative analysis software, the business unitseeks to maintain an edge over the average player.Trading’s activities are subject to a system ofinternally set limits. We aim to limit the totalinvestment in trading activities to 33% ofBinckBank’s shareholders’ equity.
VisionThe internet provides an opportunity for newplayers to set up businesses with relatively littlecapital and as such compete with existing marketparticipants. The internet also makes it easy forconsumers to find and compare the products andservices offered by new and existing players. Nowthat they can choose products and services viacomparison websites and discuss them innewsgroups, consumers are able to make rationalchoices based on price, quality or a combination ofthe two, rather than relying on a brand name.One conclusion we can draw is that a company’ssuccessful product sales is increasingly beingdetermined by the perception formed by theconsumer via the internet, rather than its ownmarketing campaigns. Customer satisfaction willtherefore increasingly be a factor in the futuregrowth of businesses.
MissionBinckBank seeks to maximise shareholder value bymaximising customer satisfaction.
Business strategyBinckBank’s business strategy is to provideprofessional and institutional investors with fast,low-cost access to all the world’s leading financialmarkets, accurate administrative processing of cashand securities transactions and very comprehensivemarket information.
Our aim is to amaze clients with our combinationof a high quality product, low prices and intensiveclient focus, thus recruiting them as ambassadorsfor our services. We create shareholder value forinvestors in BinckBank by concentrating ongrowing our customer base and maximisingcustomer satisfaction.
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Profile, mission and strategy
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Our business strategy envisages internationalexpansion of all BinckBank’s activities, broadeningour range of services for banks with the addition ofinsourcing of execution of securities orders,securities administration and securities-relatedpayments (BPO, or business processingoutsourcing).
Total net profit rose 78% to € 24.0 million in 2006,from € 13.5 million in 2005. The profit includes anon-recurring tax asset of € 2.9 million in respectof a tax loss in Belgium of approximately € 21million (as at year-end 2006) and non-recurringincome of € 0.2 million released from a provisionfor loss-making contracts and € 0.2 millionreleased from a tax provision which had beenoverestimated in the past. Since the 2005 figuresinclude non-recurring net income of approximately€ 1.3 million, the profit growth adjusted for non-recurring items amounted to 68%.
The Retail business unit contributed the lion’sshare of the result, posting a pre-tax profit of€ 25.4 million (+87%). The pre-tax profit generatedby the Professional Services business unit rosesteeply to € 2.8 million, accounting for 10% of thetotal pre-tax operating result. Trading’s resultdeclined to € 0.8 million in 2006, reflecting thechanging market conditions, which meant that anumber of the trading strategies that had beenprofitable in the past no longer contributed to theresult, and the sale of the activities of HillsIndependent Traders Ltd., which were profitable.
Distribution of pre-tax profit
Total revenues rose to € 55.7 million in 2006, from€ 44.1 million in 2005 (+26%). Total expensesshowed little change, at € 26.8 million comparedwith € 26.3 million in 2005 (+2%). The modestincrease in the expenses reflects our strong focuson cost control and high-level IT. The net effect in2006 was to improve the cost/income ratio to 48%(2005: 60%).
Trading3%
Retail87%
Professional Services
10%
4
Results in brief
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60,000
50,000
40,000
30,000
20,000
10,000
02002 2003 2004 2005 2006
–10,000
ExpensesRevenue
Net profit
Income statement 2006 2005 2004 2003 2002(€ 1,000,-)
Revenue 55,682 44,113 39,965 24,556 27,412Expenses (26,752) (26,322) (35,051) (39,186) (44,072)
Profit before tax 28,930 17,791 4,914 (14,630) (16,660)Tax (5,120) (4,879) (1,606) 5,259 7,793
Profit on continuingoperations 23,810 12,912 3,308 (9,371) (8,867)
Profit on discontinuedoperations 199 616 - - -Minority interests - 81 (500) (906) (566)
Net profit 24,009 13,528 2,808 (10,277) (9,433)
Employees at year end 223 170 187 272 289
When comparing the results for the years 2002–2006, it should be noted that the figures for 2002 and 2003 have not been prepared in accordance with IFRS.
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Key figures 2006Financial information by business unit (x € 1,000)
Retail Professional Trading Discontinued TotalServices activities
2006 2005 2006 2005 2006 2005 2006 2005 2006 2005
Interest 9,074 4,927 1,318 995 393 103 – – 10,785 6,025
Revenues from other investments 0 0 33 7 0 0 – – 33 7
Commission 30,213 18,284 5,588 4,285 0 0 – – 35,801 22,569
Profit on financial transactions 1) 0 190 0 134 8,208 15,188 7,591 6,086 15,799 21,598
Other revenues 2) 0 0 855 0 0 0 – – 855 0
Total revenues 39,287 23,401 7,794 5,421 8,601 15,291 7,591 6,086 63,273 50,199
Staff costs (5,794) (3,949) (3,263) (3,131) (6,135) (9,532) (6,202) (4,062) (21,394) (20,674)
Other administrative expenses (7,057) (4,698) (1,153) (1,267) (1,379) (2,162) (1,044) (1,083) (10,633) (9,210)
Depreciation and amortisation (1,086) (846) (489) (483) (327) (246) (60) (61) (1,962) (1,636)
Impairment of other investments 0 0 (69) 0 0 (8) – – (69) (8)
Total expenses (13,937) (9,492) (4,974) (4,881) (7,841) (11,948) (7,306) (5,206) (34,085) (31,528)
Operating profit before tax 25,350 13,908 2,820 540 760 3,343 285 880 29,215 18,671
Tax 3) (86) (264) (5,206) (5,143)
Profit on continuing operations 24,009 13,528
1) The payment of €580,000 received from the Amsterdam Stock Exchange Association has been allocated as follows over the three business units: Retail 50%, Professional Services 10% and Trading 40%.
2) Other revenues relate to revenue generated by subsidiary Syntel B.V., which was acquired in 2006.
3) A correction was made to the prior-year figures in 2005 for overstatement of tax liabilities.A deferred tax asset was recognised in 2006 in respect of a tax loss of €2.9 million in Binck België N.V. .
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C h a i r m a n’s l e t t e rS h a r e h o l d e r i n fo r m a t i o n
I m p o r t a n t e ve n t s 2 0 0 6
Dear shareholder,
On behalf of the Management Board of BinckBank,I hereby present our report on the 2006 financialyear, which was an interesting year for ourorganisation in many respects.
Many positive results have flowed from the revisedstrategy which we formulated in early 2006,based on our belief in the quality of the serviceswe provide and vindicated by the large number ofinvestors choosing BinckBank every day and ourhigh client satisfaction scores. That hasstrengthened our determination to further expandour online investment services and roll them outinternationally. Our revised strategy is supportedby a new organisation and control model, which isdiscussed at greater length elsewhere in thisannual report.
2006 saw the opening of the bank’s firstinternational office in Belgium and the expansionof our range with the addition of BPO services.These ventures are developing well. BinckBank inBelgium has witnessed explosive growth and thefirst letter of intent has been signed with FrieslandBank for PBO services. We also announced ourplans to enter the French market in the second halfof 2007. We expect our international activities toprovide solid support for the growth of ourorganisation in the coming years.
Since the merger between Effectenbank Binck andAOT in 2004, the organisation has undergone ametamorphosis. All the international tradingactivities of the former AOT have been disposed ofand the last of our operations in London was soldin 2006. As a result of the explosive growth of theRetail and Professional Services businesses and thereorganisation of the Trading business unit inrecent years, the latter now represents only a smallpart of our total operation: the strategic focus isemphatically on our online investment services forprivate and professional investors. In 2007, havingdownsized these activities, we shall investigate thepossibility of hiving-off the Trading business unit.
Our objective is an organisation which operates atmaximum possible efficiency, both to minimise
costs and to ensure that it is well equipped toprovide the best possible support for futuregrowth. For that reason, we decided in mid-year toundertake a merger between Binck N.V. andBinckBank N.V. and change the name to BinckBankN.V. The merger serves to create a stronger capitalbase for the banking activities.
We are delighted to report that the combinedeffect of all these developments in 2006 wasexplosive profit growth, which has convinced usthat our business strategy is achieving results. Weare accordingly looking forward to healthy growthin the coming years in our principal activities in theNetherlands and Belgium and those we areplanning to start up in France.
Recently, BinckBank has unfortunately had to dealwith a possible insider trading issue involvingMr. Langereis, a former Supervisory Board member.We have discovered that, although strict rules havebeen laid down for the management of price-sensitive information, it is not possible to preventtheir infringement at the individual level. Weregret that this incident has threatened tocompromise BinckBank’s reputation for integrity.Looking back on this incident, we can confirm thatthe Management Board acted swiftly to report thepremature disclosure of price-sensitive informationto the Netherlands Authority for the FinancialMarkets (AFM). We should point out thatBinckBank is not the subject of investigation andthat Mr. Langereis has personally taken fullresponsibility for this incident.
We expect 2007 to bring sustained growth. Wehave high hopes of both our home market and ourinternational operations. We shall be faced in 2007with a multitude of new regulations, including theMarkets in Financial Instruments Directive (MiFID)and Basel 2. Although they will demand substantialeffort on our part, we are optimistic about theadvantages and opportunities which the newlegislation will bring.
Our good result in 2006 was due first and foremostto the confidence our clients place in us and in nosmall measure to our employees, whose energyand commitment have been instrumental in
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Chairman’s letter
achieving our high level of customer satisfactionand have thus contributed to BinckBank’s success.The Management Board owes them a sincere debtof gratitude. We would also take this opportunityto thank our shareholders for their confidence inand loyalty to BinckBank.
Kind regards,
Thierry SchaapChairman of the Management Board
Amsterdam, 1 March 2007
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10
BinckBank shares in 2006
Daily share turnover 1,000
Year-end price in €
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Shareholder information
Year-end price 2006 € 14.66
Year-end price 2005 € 9.15
Change % 60%
Share price - high (12-04) € 17.50
Share price - low (10-01) € 8.60
AScI year-end 2006 700.02
AScI year-end 2005 531.40
Change % 32%
Share turnover 94,480,425
Turnover - high (31-01) 2,322,616
Turnover - low (23-11) 40,399
Average daily turnover 370,511
Market capitalisation (€ million) 452
Earnings per share 2006 € 0.79
Earnings per share 2005 € 0.45
EPS growth (%) 76%
Dividend 2006 € 0.40
Dividend 2005 € 0.22
Dividend growth (%) 82%1 January 1 July 31 December
01 January
500
1,000
1,500
2,000
2,500
1 July 31 December
0
2468
1012141618
In October 2006, as a result of the merger betweenBinck N.V. and BinckBank N.V. and subsequentchange of company name, the name of the sharewas changed to BinckBank N.V. and the ISIN codewas changed to in NL0000335578 (Reuters:Binck.AS. Bloomberg: Binck NA).
BinckBank N.V. ordinary shares are listed onEuronext Amsterdam. Since no new shares wereissued in 2006, the number of ordinary shares inissue on 31 December 2006 remained unchanged at30,837,403. The share capital is fully paid. StichtingPrioriteit AOT (‘the priority shareholder’) holds50 priority shares of € 0.10 nominal value, whichare not listed.
Share capitalOn 31 December 2006, BinckBank held 253,145shares in its own capital which had beenrepurchased at an average price of € 3.78. Theseshares will be used inter alia to operate the staffstock option plan. No staff stock options have yetbeen exercised.
Ordinary shares Year-end 2006 Year-end 2005Authorised 100,000,000 100,000,000
Issued 30,837,403 30,837,403
Priority sharesAuthorised 50 50
Issued 50 50
Repurchased 253,145 296,855
The following staff stock options had been issuedon 31 December 2006:
Year of Exercise No. Exercise price until
2003 € 2.24 100,000 October 20072004 € 3.15 25,000 December 2009
Listing BinckBank N.V. shares are traded continuously onEuronext Amsterdam. The active investor relationspolicy adopted by BinckBank in 2006 resulted inmore extensive coverage of its shares by analystsand leading financial institutions. The combinationof good results and better coverage translated intoa sharp increase in turnover in BinckBank shares onEuronext. Average daily turnover increased from214,121 in 2005 to 370,511 in 2006. Due to theincrease in price and turnover, BinckBank N.V.shares will be included in the Amsterdam SmallCapIndex (AscX) as from 2 March 2007.
The performance benchmark for BinckBank’s shareprice is an index composed of a number ofinternational competitors which engage in more orless comparable activities. These are Ameritrade,E-Trade, Comdirect, Swissquote and Boursarama.
DividendUnder the company’s dividend policy, 6% of thenominal value is paid on the priority shares (50 x € 0.10 x 6%). The priority shareholder thendetermines what proportion of the profit is to beretained. This sum is not distributed to theshareholders, but is added to the company’sreserves.
The remainder of the profit is placed at thedisposal of the General Meeting of Shareholders,which means that it can choose whether todistribute the remaining profit, add it to reservesor a combination of the two. Distributions may,according to the provisions of the Articles ofAssociation, be paid in cash or entirely or partiallyin ordinary shares.
The priority shareholder will place the remainder ofthe profit at the disposal of the General Meetingonly if the total net annual profit exceeds 5% ofBinckBank’s shareholders’ equity and only if doingso would not, in the priority shareholder’s view,reduce the company’s liquidity and capitaladequacy to insufficient levels. If, with dueobservance of these conditions, a proportion of theprofit is placed at the disposal of the GeneralMeeting, the priority shareholder will aim inprinciple for a payout ratio of 50% of the netearnings per share.
On the above basis, an interim dividend of € 0.11(net of 15% (2005: 25%) dividend tax) was declaredin 2006 as a charge on that year’s profit. Thisinterim dividend amounted to approximately 30%of the earnings per share for the first half of 2006.The shareholders will be invited to approve a finaldividend of € 0.29.
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20018016014012010080604020
02-1-2006 2-7-2006 30-12-2006
BinckSCAP IndexBinck Peer Group Index
0
50,000
100,000
150,000
200,000
250,000
0
TurnoverShare price BinckBank
2
46
8
10
12
14
16
18
1 January 2006 1 July 2006 31 December 2006
Dividend EPS % of EPS
2006* € 0.40 € 0.79 50.6%
2005 € 0.22 € 0.45 48.9%
2004 € 0.05 € 0.10 50.0%
2003 € 0.00 (€ 0.42) 0.0%
2002 € 0.00 (€ 0.39) 0.0%
* Subject to the approval of the General Meeting of Shareholders.
Major shareholdersSince balance sheet date, three shareholders havedisclosed interests of over 5% pursuant to the Acton the Disclosure of Major Holdings and CapitalInterests in Securities-Issuing Institutions (Wetmelding zeggenschap en kapitaalbelang ineffectenuitgevende instellingen 2006). These areVereniging Friesland Bank (15.09%), BoronInvestments (9.73%) and J. Kluft (6.11%).
As announced in the prospectus of 21 April 2004,the shareholdings of Messrs. Bagijn and Schaap aresubject to lock-up arrangements. Pursuant to theprovisions of the Act on the Disclosure of MajorHoldings and Capital Interests in Securities-IssuingInstitutions as applicable to Management Boardand Supervisory Board members and in accordancewith those arrangements, the personal holdingcompanies of Kalo Bagijn and Thierry Schaap gavenotification of a sales transaction on 8 November2005, relating to all the 650,000 Binck N.V. shareswhich had been released for sale. The sale waseffected after consultation with the company. Theshares were placed directly with a major investor.The remaining holding of the two ManagementBoard members under the lock-up arrangements of21 April 2004 amounts to 1,306,502 shares (4.2%).
Financial calendar 2007
3 April 2007 Publication of 2006annual report
19 April 2007 15:00 General Meeting ofShareholders
19 April 2007 08:00 First-quarter 2007figures
27 July 2007 08:00 First-half 2007figures
24 October 2007 08:00 Third-quarter 2007figures
Investor RelationsTelephone: +31 20 522 0372Fax: + 31 20 320 4176E-mail: [email protected]: www.binck.com
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Figures per share 2006 2005 2004 2003 2002
Earnings in € 1) 4) 0.79 0.45 0.10 (0.42) (0.39)
Dividend in € 0.40 0.22 0.05 - -
Dividend yield in % 2.7 2.4 1.6
Net asset value in € 2) 3) 2.31 1.81 1.50 1.89 2.22
Year-end share price in € 14.66 9.15 3.20 1.37 1.70
Year-end price/earnings ratio 18.6 20.3 29.1 - -
1) Based on the average number of shares in issue during the year
2) Based on the average number of shares in issue at year-end, before proposed dividend
3) The decrease in net asset value in 2004 reflects the purchase of the minority interest in BinckBank
4) The figures for 2002 and 2003 have not been prepared under IFRS
Figures per share
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Important events of 20061 February Pieter Aartsen is appointed to the Management Board, with responsibility for the Professional
Services business unit.
7 March BinckBank’s office in Belgium opens for business, offering services for Belgian investors. TheBelgian operation is based on the Dutch business model and infrastructure, but is fully tailoredto Belgian investors’ needs.
18 April BinckBank publishes dramatically higher quarterly figures and reports that the activities inBelgium are developing well.
21 April In response to reports concerning ABN AMRO’s new tariff structure, BinckBank revises its owntariffs to remain among the lowest in the Netherlands.
April Cash names BinckBank as the best internet broker of 2006, with an average reader rating of 8.8.
25 July BinckBank sells the activities of Hills Independent Traders Ltd.
July BinckBank tops Netprofiler’s 2006 internet broker survey as the best internet broker in theNetherlands; with a rating of 7.9, BinckBank scores significantly higher than the other providers.
1 August BinckBank publishes substantially higher interim figures and announces plans for furtherinternational expansion.
1 October BinckBank introduces a simplified product structure with new lower tariffs. The new structure isthe result of ongoing innovation in BinckBank’s products, partly in response to clients’suggestions and wishes.
12 October The legal merger between BinckBank N.V. and Binck N.V. is approved by the shareholders andBinck N.V. changes its name to BinckBank N.V.
13 October On the basis of its research into international expansion, BinckBank announces that it intends toopen a French office. France is chosen because BinckBank will be able to offer a distinctiveproposition in that country, one of the largest investor markets in Europe.
19 October BinckBank makes a strategic acquisition with the purchase of Syntel Beheer B.V. (Syntel). Syntel isthe market leader in the Netherlands in software for financial institutions for processing andadministration of securities transactions.
27 October BinckBank is named ‘Best internet broker in the Netherlands’ in Beursbulletin’s 2006 survey,achieving the highest scores for all attributes.
1 November BinckBank announces sharply higher third-quarter profit figures, the launch of ProfessionalServices in Belgium and dramatic growth in the Belgian client base.
15 November Friesland Bank and BinckBank sign a letter of intent concerning the outsourcing to BinckBank ofthe execution of securities orders, securities administration and securities-related payments(BPO). The parties confirm that there is a sound basis for long-term cooperation between themand for improved services to Friesland Bank’s clients.
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Re p o r t o f t h e M a n a g e m e n t B o a r d
Review of 20062006 was an exceptionally good year forBinckBank. Despite increased competition,especially on our home market, BinckBank postedexplosive growth in profit, which rose from to€ 24.0 million, compared with € 13.5 million in2005. The increase in the number of clients and thetransactions they generate, combined with thegrowth in client accounts and the related interestmargin, were the main drivers of BinckBank’srevenue growth, to which all the business unitsmade a positive contribution. The profit includes anon-recurring tax asset of € 2.9 million in respectof a tax loss in Belgium (totalling approximately€ 21 million as at year-end 2006) and non-recurring income of € 0.2 million released from aprovision for loss-making contracts and € 0.2million released from a tax provision which hadbeen overestimated in the past. Since the 2005figures included non-recurring net income ofapproximately € 1.3 million, the profit growthadjusted for non-recurring items amounted to68%.
A revised strategy was implemented early in theyear which envisages international expansion ofBinckBank’s total service package and extension ofthe product range to include insourcing of theexecution of securities orders, securitiesadministration and securities-related payments(BPO) for banks. The services for private andprofessional clients were split between twoseparate business units, Retail and ProfessionalServices, under the management responsibility ofKalo Bagijn and Pieter Aartsen, respectively.Consistent with BinckBank’s withdrawal fromtrading activities which started in 2004, theactivities of Hills Independent Traders Ltd.(derivatives trading for own account based inLondon) were sold in July 2006.
BinckBank took its first steps towards internationalexpansion of its services in 2006 with the openingof its office in Belgium and the announcement ofits plans for a new office in France. WhenBinckBank opens a new office in another country,its services will be tailored to the needs of localinvestors, starting with Retail activities and addingProfessional Services activities in the second phase.
This strategy has proved successful in Belgium andwill be adopted when BinckBank starts operatingin France, which is scheduled for the second half of2007.
Consistent with its revised strategy, BinckBankacquired Syntel Beheer B.V. (‘Syntel’) in October2006, at a price of between € 10.5 million and € 12million, depending on Syntel’s gross margin in thenext two years. BinckBank will fund the fullpurchase price from its own resources. Thisstrategic acquisition has greatly strengthenedBinckBank’s position in the market for BPOservices, because it gives BinckBank access to thetechnology which lies at the heart of its servicesand thus helps to assure their continuity. The firstBPO letter of intent was signed with FrieslandBank. BinckBank aims to generate another stablerevenue stream with its BPO service. Because BPO-related securities transactions are processed usingthe same technology platform as the services forother client groups, this will help to reduce theoverall cost per securities transaction. Syntel’srevenue is accounted for in the ProfessionalServices business unit.
To ensure that it is able to respond swiftly andeffectively to changes in the market, BinckBankaims to make its organisation as efficient aspossible. It was therefore decided in October 2006to merge Binck N.V. and BinckBank N.V. and changethe name to BinckBank N.V. As well as bringingefficiency gains, the merger also made it possibleto consolidate the shareholders’ equity of the twoentities within BinckBank N.V., thus strengtheningBinckBank’s capital base. This helped to raiseBinckBank’s solvency ratio from around 15% as atyear-end 2005 to approximately 25% as at year-end2006.
Because cost control and high-level IT are amongBinckBank’s policy priorities, the revenuesgenerated by the increase in the number of clientsand the number of transactions grew faster thanthe related expenses, making a substantialcontribution to the explosive profit growth. Totalrevenues rose to € 55.7 million from € 44.1 millionin 2005. Total expenses were only marginallyhigher, rising to € 26.8 million compared with
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Report of the Management Board
€ 26.3 million in 2005. This improved thecost/income ratio in 2006 to 48% (2005: 60%). The deferred tax asset of € 2.9 million formed inthe third quarter in respect of the tax loss in BinckBelgium N.V. is included in the tax item. To safeguard service continuity, BinckBank investedheavily in 2006 in system availability andscalability. Investments in 2006 totalled € 2.7million, compared with € 1.6 million in 2005.
There was also explosive growth in the totalnumber of clients, which increased from 32,800 in2005 to 54,100 in 2006 (+64.9%). BinckBank’sclients together generated 2.1 million transactions,as against 1.2 million in 2005. Total transactionvolume for Dutch private investors in 2006 isestimated at around 14.5 million, of whichBinckBank’s share was about 14 %.
Total client accounts (in cash and securities)increased to € 2.7 billion in 2006, from € 1.6 billionin 2005 (+68.8%). The sustained growth in clientaccounts translated into an increase in the interestmargin to € 10.8 million, compared with € 6.0million in 2005 (+80%).
The remuneration of the members of BinckBank’sManagement Board is dealt with in greater detailin the discussion of remuneration policy on page28 of this annual report.
Given its exposure to various risks in the course ofits operations, Binck performs an annual riskanalysis to gain a better understanding of theserisks and to monitor their development. Identifyingrisks and implementing and revising relevant riskcontrol measures is a continuous process withinBinckBank. This aspect is discussed in the sectionon risk management on page 41 and the in-controlstatement on page 45.
In accordance with the company’s dividend policy,the forthcoming General Meeting of Shareholderson 19 April 2007 will be invited to approve thedistribution of a final dividend of € 0.29 in cash.Assuming that this proposal is approved by themeeting, the dividend, net of 15% dividend tax, willbe paid to holders of BinckBank N.V. shares onThursday, 3 May 2007. BinckBank N.V. shares will bequoted ex-dividend as from 23 April 2007.
Retail: online brokerage forprivate investorsThe Retail business unit operates under theBinckBank label as an internet broker for privateinvestors.
Retail, which enjoyed explosive growth in 2006,again made the largest contribution to profit. Withmany more investors choosing BinckBank, therewas dramatic growth in the number of clients, thenumber of transactions and in client accounts.
BinckBank’s services are continuously being testedand refined to suit clients’ needs and marketconditions. Having developed the Belgianinvestment website in the first and secondquarters, BinckBank focused in the third quarter onextending the existing product. Among the addedfunctionalities is the option of placing advanceorders, whereby the investor defines conditionsthat are monitored by BinckBank. A new mobileinvestment site has been set up, coverage has beenextended to all the European stock exchanges andtechnical and fundamental analysis is provided onpractically all stocks.
In response to the changing market conditions,BinckBank introduced a revised tariff and productstructure in the fourth quarter. This also madeheavy demands on development time, particularlyin regard to the DayTrader component of the newproduct package. Research having indicated a needin the market for a single, easily understandableproduct with a uniform tariff, BinckBanklaunched a single-tariff product in October underthe name BinckCompleet. This product, which givesclients an extra discount on the standard tariffsdepending on the level of activity, is supplementedwith several additional applications at no extracharge.
BinckBank again came out on top in severalindependent surveys in 2006, with Beursbulletin,Cash and Netprofiler naming it as the best internetbroker in the Netherlands. A surprising finding inthe Netprofiler survey was that a high proportionof online investors who are currently investing viaone of the major banks are considering switchingto another provider. The survey found that, ofthese, 55% would choose BinckBank.
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The survey by TNS NIPO which is commissionedannually by BinckBank showed that its namerecognition score had improved significantlycompared with the year before.1 The annualinternal survey found that 97% of BinckBank’sclients are satisfied to very satisfied withBinckBank’s services. From 2007, BinckBank willmeasure client satisfaction using the net promoterscore method, which asks a single question: wouldyou recommend BinckBank to friends andcolleagues? The difference between the percentageof promoters (satisfied clients) and the percentageof detractors (unsatisfied clients) gives the netpromoter score. If the score is positive, thecompany has more satisfied clients (ambassadors)than unsatisfied clients. This method is consistentwith BinckBank’s objective of a high degree ofcustomer satisfaction.
The launch of BinckBank in Belgium in March 2006was a direct consequence of the revised strategyfor international expansion of BinckBank’s services.To ensure that the services meet the needs of theBelgian investor and comply with the Belgianlegislation and regulations, product developmenteffort was focused, especially in the first quarter of2006, on setting up the Belgian operation. Much ofthe second quarter was spent on fine-tuning theBelgian investment site. With the number of clientsin Belgium growing faster than expected, it is safeto conclude that the BinckBank product is provingpopular on the Belgian market.
In the light of this success in Belgium, it has beendecided to roll out the Retail services in France.Research has shown that French investors seeBinckBank’s proposition as distinctive. In terms ofthe number of transactions and private investors,the French investor market is among the largest inEurope. Although many French investors are stillusing the traditional channels, such as the majorbanks, a growing proportion are switching toinvesting online. Given the nature of itsproposition, the size of the French market and thebehaviour of French investors, BinckBank expectsto secure a good position in the French market. Thetiming of the launch of the French operationdepends to some extent on when permission isgranted by the French regulator, but it is likely to
happen in the second half of 2007. The office inParis will use the Dutch infrastructure, which willkeep the cost base low.
BinckBank stopped offering the Rendement -rekening product, which included investmentadvice, at the end of the year because it did notfully meet the needs of clients and prospects.Clients prefer to outsource the management oftheir portfolios. Since BinckBank does not nowprovide this service itself, clients have been offeredthe option of placing their portfolios with one ofProfessional Services’ asset management clients.As a consequence, the number of Retail clients asat year-end 2006 decreased by around 800 and thenumber of Professional Services clients increasedby app. 600.
ResultsReflecting the explosive growth in the number ofclients and the number of transactions theygenerate, the Retail business unit againcontributed the lion’s share of the result, postingpre-tax profit of € 25.4 million, compared with€ 13.9 million in 2005 (+82.3%).
Total revenues rose to € 39.3 million, from € 23.4million in 2005 (+67.9%), while expenses increasedto € 13.9 million in 2006, compared with € 9.5million in 2005 (+46.8%). Client accounts of theRetail business unit rose in 2006 rose to € 1.9billion, from € 1.1 billion in 2005 (+72.7%). Theinterest margin was € 9.1 million in 2006, asagainst € 4.9 million in 2005, an increase of 85.7%.
The total number of Retail clients grew to 48,700,from 29,200 as at year-end 2005 (+66.8%).Together they generated 1.9 million transactions,compared with 1.0 million in 2005 (+85.8%). As at year-end 2006, BinckBank in Belgium had5,200 clients who together generated 78,200transactions. Client accounts in Belgium as at year-end 2006 amounted to € 141 million.
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1 TNS NIPO, 5 January 2007
Professional Services: services forprofessional clientsProfessional Services provides fully automatedonline banking, securities order execution andcomprehensive securities administration servicesfor asset managers and banks.
As Professional Services’ reputation for quality hasbecome more widely known, the number of clients,the number of transactions and the client accountshave grown. To concentrate more specifically ongrowing the services to professional clients, at thebeginning of 2006 this activity was placed under anew Professional Services business unit, headed byPieter Aartsen, who was appointed to theManagement Board at the same time.
The acquisition of Syntel in October 2006 is to beviewed in the context of expansion of the range ofproducts offered by Professional Services with theaddition of BPO services for banks. CombiningBinckBank’s experience in high-volume processingof securities-related transactions and Syntel’ssoftware makes it possible to develop distinctiveproducts offering high quality at very attractivetariffs, because this acquisition gives BinckBank fullcontrol over broker activities, the operationalprocessing and the software.
Shortly after the acquisition of Syntel, BinckBankand Friesland Bank N.V. signed a letter of intentrelating to BPO services, as the basis for a definitivefive-year outsourcing agreement. BinckBank will befully responsible for the migration of FrieslandBank’s existing securities-related businessprocesses to BinckBank’s multi-bank web-basedenvironment. Once the migration has beencompleted, which is scheduled for October 2007,Friesland Bank’s securities administration will bechannelled via BinckBank. This service is expectedto generate annual revenue of approximately€ 1 million and to make a positive contributionBinckBank’s profit from the start.
In view of the satisfactory results achieved by theProfessional Services pilot project in Belgium,which was announced earlier, Professional Servicesstarted offering services for Belgian assetmanagers in the the second halfyear. Tosupplement the services to asset managers whohave an account with BinckBank, institutional
brokerage services for professional investors whodo not have an account with BinckBank wereintroduced in Belgium in 2006 via the subsidiaryBinck België N.V.
ResultsProfessional Services enjoyed explosive growth inpre-tax profit to € 2.8 million, compared with € 0.5million in 2005 (+422.2%). The 2005 figure includesa negative result of approximately € 1.2 millionbefore tax in respect of the termination of thewholesale activities, compared with approximately€ 0.5 million in 2006. Syntel pre-tax profit in thefourth quarter was approximately € 100,000.
Total revenues rose to € 7.8 million in 2006, from€ 5.4 million in 2005 (+43.8%). Expenses showedlittle change on 2005, at € 4.9 million.
Client accounts (cash and securities) increased in2006 to € 0.8 billion, from € 0.5 billion in 2005(+60%). The interest margin in 2006 amounted to€ 1.3 million, compared with € 1.0 million in 2005.
The total number of private individuals investingwith BinckBank via our professional clients(external asset managers) grew to 5,400, from3,600 as at year-end 2005 (+50%). Together theseclients generated 222,000 transactions, comparedwith 144,700 in 2005 (+53.4%). ProfessionalServices commenced operations in Belgium at theend of the fourth quarter with a small number ofclients. In the fourth quarter 2006, app. 600Rendementrekening clients who were previouslyincluded in Retail were transferred to ProfessionalServices.
Trading: trading for own account inshares and bondsTrading made a modest contribution to profit in2006. Due to changing market conditions, anumber of trading strategies which were highlyprofitable in 2004 and 2005 were no longersuccessful and HIT’s activities, which wereprofitable, were sold in the course of 2006. The saleof HIT’s operations, which reflects the increasingfocus on our brokerage activities in Retail andProfessional Services, has lowered Trading’s riskprofile still further and enabled BinckBank to meetits target of a maximum capital requirement forTrading of 33% of the available capital. A more
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ambitious target of 20% of shareholders’ equityhas been set for 2007 and subsequent years.
As Retail and Professional Services continue togrow, the Trading business unit represents an ever-smaller part of the organisation. Trading hassynergy benefits for the organisation because thesame support services are used and it contributesto the organisation’s combined buying power. Totake maximum advantage of these synergybenefits, trading activities similar to those inAmsterdam have been set up in Belgium in early2007.
Notwithstanding these synergy benefits, BinckBankwill investigate the possibility of hiving off theTrading business unit. In that eventuality,BinckBank will if possible structure the transactionso that some of the synergy benefits are retained.
ResultsTotal revenues decreased from € 15.3 million to€ 8.6 million in 2006 (–44%). Expenses were alsolower, falling from € 11.9 million to € 7.8 million(–34%), mainly reflecting a reduction inperformance-related bonuses. HIT’s contribution of€ 0.2 million to profit in 2006 is accounted for inprofit on discontinued operations.
OutlookDespite intensifying price competition in onlinebrokerage, BinckBank posted exceptionally goodprofit figures in 2006. The Professional Servicesbusiness unit achieved healthy growth and theTrading business unit continued to make a positivecontribution to profit. These encouraging trendsunderpin our confidence in the future, while notingthat our performance will of course depend in parton market developments.
We raise our previously announced target forRetail’s share of Dutch private investor transactionvolume, to be achieved within the next few years,from 15–20% to 20%. Judging by the vigorousgrowth of our operations in Belgium, this targetshould also be achievable on the Belgian market inthe medium term. The Belgian operations areexpected to break even within a few years.
Given the size of the French market, the target forFrance will be less ambitious. It cannot be set,
however, until BinckBank has started operating inFrance, which is scheduled for the second half of2007. The start-up costs and marketing expenditurefor the French activities are expected to amount toaround € 3 million before tax in 2007, withmarketing expenditure falling to some € 2 milliona year in subsequent years.
We expect further positive growth in ourProfessional Services operations in both theNetherlands and Belgium. Syntel’s contribution toprofit is expected to increase to € 0.75 million in2007. The BPO services for Friesland Bank N.V. arescheduled to start in October 2007.
BinckBank lowers its target for Trading’s maximumcapital requirement from 33% of shareholders’equity to 20% for 2007. The possibility of hiving-offthe Trading business unit will be investigated in2007. If it is hived off, it is likely that annualexpenses – which will then be borne by Retail andProfessional Services – will increase by a maximumof € 2.0 million.
At the more general level, BinckBank will have tocope with a multitude of new legislation andregulations in the coming year. The new Basel 2banking directive imposes revised capitalrequirements on banks with the aim of improvingthe management of banking risks. The directivecame into force on 1 January 2007 and will beimplemented by BinckBank in phases, starting on 1January 2008. While the new directive will meanmore onerous requirements for many banks, it willbenefit BinckBank’s solvency ratio: although morecapital will be required to cover operating risk, thecapital requirements for securities-related lendingto BinckBank’s clients (credit risk) will be relaxed.
The new Markets in Financial Instruments Directive(MiFID), which is expected to come into force in theNetherlands in November 2007, requires inter aliagreater transparency in securities transactions,both prospective and retrospective. BinckBanktakes the view that the MiFID regulations on in-house matching could change the marketstructure, one possible effect of which may beincreased international competition.
BinckBank will take steps in 2007 to bring itsorganisation, services and systems into line with
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the new legislation and regulations, which willrequire substantial effort but only limited capitalexpenditure. The capital expenditure on theimplementation of the new legislation is includedin the total investments for 2007.
BinckBank has proved its ability to achieve healthyorganic growth and international expansion basedon its good reputation and high-quality servicesand intends to continue on this course in 2007.Depending on the success of the French venture,BinckBank will consider undertaking furtherinternational expansion.
Reflecting the expected growth in our activities,a net increase of around 20% in the number ofemployees is expected in 2007.
BinckBank seeks constantly to amaze all its clientsby providing the best quality at the lowest cost. Toensure that it can guarantee that quality of servicein the future, BinckBank will continue to makeinvestments in plant and equipment, which areexpected to total around € 3.8 million in 2007.Given BinckBank’s strong financial position, weexpect to be able to fund all developments in 2007from our own resources and will not need to haverecourse to external finance.
Amsterdam, 1 March 2007
Thierry Schaap, Chairman of the Management BoardKalo Bagijn, member of the Management BoardPieter Aartsen, member of the Management Board
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Thierry Schaap, Chairman of the Management Board(1971 – Dutch nationality)Thierry has been Chairman of BinckBank’sManagement Board since 1 January 2006. From2004 to year-end 2005 he served as Chief FinancialOfficer for BinckBank.
Thierry was one of the founders of Binck BrokersN.V. (later BinckBank N.V.) and was its first GeneralManager. He is now Chairman of the ManagementBoard of BinckBank, with responsibility for Finance,Trading, Operations, IT, Risk Management, IAD,Human Resources, Legal and Investor Relations.
Holding of BinckBank N.V. shares as at year-end2006: 659,696
Kalo Bagijn, member of the Management Board(1971 – Dutch nationality)Kalo has been a member of the Management Boardof BinckBank N.V. since 2004.
From 1996 to 2000, he was employed by IMGHolland, ending his career with that company asHead of Private & Institutional Relations. In 2000he was jointly responsible for the formation ofBinck Brokers N.V. (later BinckBank). He is currentlya member of the Management Board of BinckBank,with responsibility for Retail, Communication andPublic Relations.Other posts: member of the Advisory Committee ofAntaurus Capital Management B.V.
Holding of BinckBank N.V. shares as at year-end2006: 659,696
Pieter Aartsen, member of the Management Board(1964 – Dutch nationality)Pieter has been a member of the ManagementBoard of BinckBank N.V. since 2006.
Pieter worked for KAS BANK from 1990 to 2004,in various posts within the Institutional Bankingdivision, and in 1996 was appointed Head ofBenelux Sales & Relationship Management. In 2001he moved to London as Head of Sales &Relationship Management UK, before joiningDeutsche Bank AG in London as Head of EuropeanSecurities Clearing and Vice President withresponsibility for product development and sales.As a member of the Management Board ofBinckBank, Pieter is responsible for ProfessionalServices.
Holding of BinckBank N.V. shares as at year-end2006: 0
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Photo page 22 and 23 from the left to the right: Pieter Aartsen (Member of the Management Board), Kees Scholtes (Chairman of the Supervisory Board), Thierry Schaap (Chairman of the Management Board), Hans Brouwer (Member of the Supervisory Board), Kalo Bagijn (Member of the Management Board),Fons van Westerloo (Member of the Supervisory Board).
Hans Brouwer, member Supervisory Board(1944 - Dutch nationality)Mr. Brouwer was appointed to the Supervisory Boardof BinckBank N.V., for a term of three years, at theGeneral Meeting of Shareholders on 6 May 2004.
Mr. Brouwer represents NPM-Capital on theSupervisory Boards of Keesing InternationalPublishers, Koninklijke JPC and Van MeijelAutomatisering. He is Chairman of the SupervisoryBoard of Koninklijke Hauseman & Hötte and amember of the Supervisory Board of Nobel van Dijk& Partners. Mr. Brouwer is also a member of theExecutive Committees of Stichting LeerstoelEffectenrecht (Chair of Securities Law Foundation)at the University of Groningen and StichtingVereniging voor de Effectenhandel (AmsterdamStock Exchange Association). He is Chairman ofStichting Amindho and Stichting Jazzorchestra ofthe Concertgebouw and a member of the AdvisoryCommittee of Professional Vision. Mr. Brouwer is aformer General Manager of Amsterdam Exchanges(Euronext).
Binck N.V. shares held:0
Kees Scholtes, Chairman(1945 - Dutch nationality)Mr. Scholtes was appointed to the Supervisory Boardof BinckBank N.V., for a term of three years, at theGeneral Meeting of Shareholders on 6 May 2004.The Supervisory Board has appointed Mr. Scholtes asits Chairman.
Mr. Scholtes is currently a member of theSupervisory Board of IBUS Company N.V., a memberof the Executive Board of finance house ColonadeB.V. and Chairman of the Investment Committee ofKunst- en Cultuur Pensioen- en Levensverzekerings -maatschappij. Mr. Scholtes has been a member ofthe Executive Boards of Postbank N.V., NMBPostbank N.V. and ING Bank N.V., a member of theExecutive Committee of ING Asset Managementand a member of the Supervisory Boards of severalPostbank N.V., NMB Postbank N.V. and ING BankN.V. investment funds. Mr. Scholtes has also been amember of the Supervisory Boards of Parcom N.V.,Barings Private Equity Holding, Necigef and NIECCDC Labouchere Securities Services (now RBC Dexia
Investor Services Netherlands N.V.) and a memberof the Executive Committees of the AmsterdamStock Exchange and European Options Exchange(now Euronext). Mr. Scholtes also acted as projectmanager in the formation of the Dutch SecuritiesInstitute.
BinckBank N.V. shares held: 0.
Fons van Westerloo, member Supervisory Board(1946 - Dutch nationality)Mr. Van Westerloo was appointed to the SupervisoryBoard of BinckBank N.V., for a term of three years, atthe General Meeting of Shareholders on 6 May2004.
Mr. Van Westerloo is CEO of RTL Nederland and amember of the Operational ManagementCommittee of RTL Group. He is also a member ofthe Board of Directors of CLT-UFA, Chairman of theBertelsmann Synergy Committee Benelux, amember of the Advisory Council of DDBAmsterdam/Result, Chairman of the BroadcastBusiness Club, a member of the General Council ofthe Netherlands Institute for Classification ofAudiovisual Media, a member of the ExecutiveCommittee of Media Academie, a member of theAdvisory Council of Entertainment StudiesHogeschool in Holland and a member of theExecutive Committee of IP Nederland. Mr. VanWesterloo has been CEO of SBS Broadcasting B.V.,General Manager of RTL 5 and Deputy GeneralManager of AVRO.
Binck N.V. shares held: 0.
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In a highly competitive environment, BinckBankdelivered another good performance last year,sustaining the rising trend which started in 2004.Several surveys have found that BinckBank is stillperceived as having greater client focus and ahigher level of product development than otherplayers.
As a consequence of the merger, the bankinglicence now applies at the highest level within thegroup, which has made the organisation even moreefficient. This organisational change, combinedwith the commitment, involvement and quality ofthe management and staff, creates a sound basisfor the achievement of BinckBank’s objectives.
The good results posted by Retail were notconfined to the Netherlands. Encouraged by thestrong performance of Retail’s office in Belgium,BinckBank is embarking on further internationalexpansion and hopes to open an office in France in2007. Depending on the success of that venture, itwill consider moving into other countries.
In organising the Business Process Outsourcingactivity under the Professional Services businessunit, BinckBank has again demonstrated its abilityto respond swiftly to opportunities as they arise.The acquisition of software house Syntel provides asolid foundation not only for these specific servicesfor professional clients, but also for the platform onwhich much of BinckBank’s own operation is based.Syntel also has a strong market position in theNetherlands in banking and securities IT systemsand related services. Syntel has similar ambitionsto venture into foreign markets.
Another significant event last year was thedisposal by BinckBank of its interest in HIT. Thesetrading activities in the UK no longer fitted withBinckBank’s strategy and HIT was sold at a fairprice. The possibility of hiving-off the tradingactivities in the Netherlands will be investigated.
The Supervisory Board is responsible for overseeingthe policy pursued by the Management Board andthe operations under its direction. It is also theduty of the Supervisory Board to advise theManagement Board, in the best interests of the
company and its stakeholders, in both the shortand long term.
Here we report on the activities of the SupervisoryBoard in the past year and provide the informationprescribed by the Code.
Composition of the ManagementBoard and Supervisory BoardThe members of BinckBank’s Management Boardand Supervisory Board are appointed by theGeneral Meeting of Shareholders on the basis of anon-binding list of candidates drawn up by thepriority shareholder. At the 2006 Annual GeneralMeeting, Mr. P. Aartsen was appointed to theManagement Board. At the 2007 Annual GeneralMeeting, Messrs. C.J.M. Scholtes, A.M. vanWesterloo and J.K. Brouwer will be proposed forreappointment until the date of the AnnualGeneral Meeting in 2008, 2010 and 2011,respectively. In the light of his involvement in aninvestigation into a possible infringement of theinsider trading rules in respect of BinckBank shares,Mr. Ch. J. Langereis decided to relinquish his seat onBinckBank’s Supervisory Board with effect from 25January 2007. The appointment of a newSupervisory Board member to replace Mr. Langereisis currently under consideration.
The Supervisory Board is composed such that themembers are able to act independently, both ofone another and of the Management Board or anyother particular or partial interest, within theframework imposed by the Supervisory Board’sprofile. The Supervisory Board considers that theindependence criteria defined in best-practiceprovision III.2.1 of the Code have been met.
The members of the Supervisory Board againachieved an almost 100% attendance record lastyear, a good habit which is applauded by theChairman, who takes the view that force majeure isthe only acceptable reason for missing a meeting.Access to the members of the Management Boardand Supervisory Board for consultation betweenmeetings was excellent and is indicative of theircommitment to the company.
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Report of the Supervisory Board
Mr. Schaap, who has been Chairman of theManagement Board since 1 January 2006, hasperformed his duties in an exemplary manner. TheManagement Board again consists of threemembers, namely Messrs. Schaap, Bagijn andAartsen, and is currently assisted by two GeneralManagers who, with the Board, form theManagement Committee.
Activities in 2006The Supervisory Board’s close involvement with thecompany’s business is evidenced by the fact that itheld eight regular meetings in 2006 and theChairman and individual members of theSupervisory Board held many informal meetingswith the Chairman of the Management Board. TheAudit Committee also held five meetings. TheSupervisory Board’s schedule in 2007 will beessentially similar. The members of the SupervisoryBoard insist on being kept informed of thecompany’s activities.
The agendas of the Supervisory Board meetingscovered all aspects of the company’s operationsand included strategic, operational andorganisational issues. The company’s strategy andrisk exposure were discussed on several occasions,as were the findings of the Management Board’sevaluation of the structure and operation of theinternal risk management and control systems andany significant changes.
The joint meetings of the Supervisory Board andthe Management Board were conducted in an openand collegial atmosphere, allowing ample scope forconstructive criticism, which was helpful to theSupervisory Board in properly discharging itssupervisory and advisory responsibilities. TheChairman’s conduct of the meetings wasconsidered satisfactory by those attending them.
The joint meetings discussed the strategy for 2007and subsequent years. To sustain its growth,BinckBank will undertake international expansionof Retail’s operations, initially in Belgium andFrance. The Professional Services business unit willfocus on product innovation and expansion of itsactivities initially into Belgium, while developingits new business process outsourcing operation, inwhich the Syntel software will play a significantrole. Syntel will also venture onto the international
market with its banking and securities IT systemsand related services. The possibility of winding-down or hiving-off Trading’s activities, completelyor in phases, will be investigated.
The papers produced for the meetings of theSupervisory Board and its joint meetings with theManagement Board were circulated in good timeand were of a good standard. The papers providedthe basis for efficient, well-informed andsubstantive discussion, which is essential toprudent and reasoned decision-making.
In the absence of the Management Board, theSupervisory Board discussed the functioning of theSupervisory Board itself and of its individualmembers and the conclusions to be drawn. Takingthe above considerations into account andexercising the necessary discretion, thisexamination addressed the profile, compositionand competence of the Supervisory Board and thatof its individual members.
Likewise in the absence of the Management Board,the Supervisory Board discussed the functioning ofthe Management Board and of its individualmembers, again taking the above considerationsinto account. The Supervisory Board came to theunanimous conclusion that the ManagementBoard as a whole and its individual members hadagain performed well in the past year.
Functioning of the ManagementBoardThe Management Board functioned last year as aclose-knit professional team whose individualmembers performed their tasks to an extremelyhigh standard and were able to focus particularattention on the specific areas allocated to themwhile discharging their broader responsibilities.The exchange of specific information on theseareas between the individual members of theManagement Board and between the ManagementBoard and Supervisory Board was prompt and ofgood quality, enabling those concerned to performtheir tasks satisfactorily. The allocation ofresponsibilities among the members of theManagement Board was found to be balanced andeffective. By exchanging expertise and experienceintensively and proactively, the members of theManagement Board were able, each from the
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perspective of their individual backgrounds, to putthe collegial principle of management intopractice.
Key features of 2006 remunerationpolicy
GeneralIn accordance with the principles of the Codeconcerning the adoption and disclosure ofremuneration policy and the provisions of Section135 of Book 2 of the Netherlands Civil Code, therevised remuneration policy for the ManagementBoard and the related rules on remuneration in theform of shares (hereinafter referred to as the ‘2006remuneration policy’) were adopted and approved,respectively, by the Annual General Meeting on 27March 2006. The 2006 remuneration policy and theremuneration report for the 2006 financial yearhave been posted on the company’s website(www.binck.com).
The 2007 Annual General Meeting of Shareholderswill be invited to adopt a revision of the 2006remuneration policy (the revision hereinafterreferred to as the ‘2007 remuneration policy’).Under the revised policy, in a change to item 12 ofthe 2006 remuneration policy document, membersof the Management Board will join a defined-contribution pension plan into which the companywill pay an annual contribution of 20% of theirbasic annual salary. This will bring their pensionbenefits more closely into line with the market.
The Supervisory Board considers that the growthpercentages stated in the 2006 remunerationpolicy (and to be stated in the 2007 remunerationpolicy) as criteria for qualifying for free shares arestill realistic.
The key features of the 2006 remuneration policyand its implementation in 2006 are outlinedbelow.
2006 remuneration policy
GeneralThe remuneration received by the members ofBinckBank’s Management Board consists of a) acompetitive fixed basic salary which is paidmonthly, b) a variable element, as a reward for
meeting short-term (one year) targets, consistingof an annual bonus paid in cash or at least 25% andat most 50% in ‘optional shares’, and c) a variableelement, as a reward for achieving medium/long-term (three year) targets, in the form of freeBinckBank shares.
Fixed remunerationThe fixed annual remuneration of the members ofthe Management Board is set at a level which isappropriate to the size of the organisation and theresponsibilities associated with managing a listedcompany. The fixed remuneration representsadequate recompense for the effort invested in andresponsibilities assumed by the members of theManagement Board which is appropriate to thelevel of their positions.
Other regular elements such as health insurance donot in principle form part of the remunerationpackage. Members of the Management Board areeligible for a company-car scheme on similar termsto those applying to the company’s commercialstaff. Members of the Management Board are inprinciple eligible for a pension plan which is similarin terms of the cost to the company to thatapplying to the majority of the other staff ofBinckBank and its subsidiaries in the Netherlands.
Variable remunerationGeneralThe purpose of the variable remuneration is toreward the members of the Management Board forexceptional performance and reinforce theircommitment to BinckBank and the achievement ofits short and medium/long-term targets. Thevariable element therefore serves as a significantincentive to grow shareholder value in the shortand medium/long term.
The variable element is calculated as follows. If themembers of the Management Board meet theannual budgets approved by the Supervisory Boardin the light of the short-term targets, they qualifyfor annual variable remuneration approximatelyequal to half of their fixed annual salary.BinckBank’s Supervisory Board has discretionarypowers to vary this amount by 25%. If they achievethe medium/long-term targets, they may alsoqualify for free shares.
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Short-term target and remunerationThe short-term target is to meet the annualbudget set by the Supervisory Board for profit aftertax, expressed as earnings per BinckBank share,a quantifiable and measurable performancecriterion.
The reward for achieving the short-term target isa bonus. The bonus is reduced on a pro rata basis ifthe individual was a member of the ManagementBoard for less than the full year. Qualification forand award and payment of the bonus are alsosubject to any additional restrictions under thecontract of employment.
The Supervisory Board may, at its discretion, applya maximum uplift of 25% to the bonus if justifiedby the results.
If the short-term target is not fully achieved, duefor example to external circumstances beyond theManagement Board’s control, the SupervisoryBoard may, at its discretion, award the ManagementBoard members a bonus of a maximum of 25% oftheir fixed annual salary.
Members of the Management Board may opt toreceive at least 25% and at most 50% of their totalcash bonus in shares (‘optional shares’). Theseshares cannot be sold for three years. The numberof shares they receive depends on the closing priceon the date of award. The date of award is the datewhen the company publishes a press releaseannouncing the results for the previous financialyear.
Additional shares (‘free shares’) may be awarded iflonger-term targets are achieved. The 2005remuneration policy states that, for the period2005–2007 and each three-year period thereafter,one free share will be awarded for every twooptional shares held if earnings per share grow bymore than 50% and one free share will be awardedfor each optional share held if earnings per sharegrow by more than 100%.
The income tax due on the part of the cash bonuspaid in optional shares will be paid by thecompany. If some or all of these shares are soldwithin three years, the income tax paid will be
refunded immediately to the company by theManagement Board member concerned.
Medium/long-term target and remunerationThe medium/long-term target is set by theSupervisory Board in terms of profit after tax,expressed as earnings per share, a quantifiable andmeasurable performance criterion.
The reward for achieving the medium/long-termtarget takes the form of an award of shares for nilconsideration of (‘free shares’).
The medium/long-term target is growth of at least50% in earnings per BinckBank share over a rollingthree-year period, starting from the first financialyear after that in which the individual wasappointed to the Management Board (and wasawarded optional shares).
The growth in earnings per share is initiallycalculated relative to the profit as shown by theadopted financial statements for the first year ofmembership of the Management Board andsubsequently relative to each succeeding financialyear.
Whether the growth in earnings per share for thethird financial year has been achieved and thuswhether free shares are to be awarded is decidedon the basis of the press release announcing theresults for the third financial year.
Free shares are awarded only for the optionalshares awarded three years previously to and stillheld by members of the Management Board. Thedate of award of the free shares is the date whenthe company publishes a press release announcingthe results for the previous financial year.
Pursuant to the foregoing, one free share will beawarded for every two optional shares held ifearnings per share grow by 50% or more and onefree share will be awarded for each optional shareheld if earnings per share grow by 100% or more.Half shares are rounded downwards. Income tax onfree shares thus awarded is for the ManagementBoard member’s account and risk.
Given the company’s present stage of development,the targets can be considered ambitious and
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challenging. The Supervisory Board checks eachyear that the growth percentages required toqualify for an award of free shares are realistic andsubmits any proposed changes which may benecessary to the approval of the Annual GeneralMeeting.
A member of the Management Board only qualifiesfor an award of free shares if he is in post at theend of the third year. The free shares must be heldfor five years or until termination of employment ifearlier, failing which the Management Boardmember is obliged to return the relevant freeshares immediately to the company.
Implementation of 2006 remuneration policyThe remuneration of the members of BinckBank’sManagement Board for the period 1 January –31 December 2006 was determined with referenceto the remuneration policy. The gross annual salaryreceived by the Management Board members wasunchanged at € 210,600. As a reward for meetingthe predetermined annual budget, the variableremuneration was set at € 105,300, to which themaximum 25% uplift was applied by theSupervisory Board in recognition of the goodresults. The members of the Management Boardare members, on a defined-contribution basis, ofthe pension plan in which the majority of the otherBinckBank staff participate. In the case of Mr.Aartsen, however, it was decided to pay 20% of hisbasic annual salary into a defined-contributionpension plan, which was closer to the marketterms. The variable remuneration received byMr. Aartsen was calculated as if he had joinedBinckBank on 1 January 2006.
CommitteesThe Supervisory Board has appointed an AuditCommittee from among its members. In 2006, thecommittee consisted of Messrs. J.K Brouwer(Chairman), Ch.J. Langereis and C.J.M. Scholtes. Mr.Langereis resigned both from the SupervisoryBoard and the Audit Committee on 25 January2007.
The Audit Committee is responsible for overseeingthe implementation and operation of the system ofinternal control and risk management andmonitoring the implementation of the externalauditors’ recommendations and the functioning of
the internal audit department. Supervision of thecompany’s financial reporting is the responsibilityof the Supervisory Board.
The Audit Committee met five times in 2006. Allmeetings are attended by a member of BinckBank’sManagement Board.
The Internal Audit department performed severalinternal audits. The meetings of the AuditCommittee were attended by both members ofstaff of this department, Messrs. R.J.H. Stappersand B.A. Nederlof. At the end of 2006, the teamwas strengthened with the appointment ofMr. B. van Meegeren as Head of Internal Audit.Mr. Meegeren, who is eminently qualified for thepost, has a wealth of relevant auditing experience.
The work of the Internal Audit department is basedon a risk analysis and audit schedule compiled bythe Internal Audit department and approved by theAudit Committee. The audits performed by theInternal Audit department and the findings andrecommendations were discussed at the meetingsof the Audit Committee. The general conclusionwas that the internal control measures and theorganisational safeguards in respect of the riskscovered by the analysis were adequate. Specificcomments and recommendations by the AuditCommittee are discussed in the section entitled‘Risk management’.
The Audit Committee also discussed compliancewith the recommendations made by the externalauditors in their long-form report on the 2005audit.
In conclusion2006 was another successful year for BinckBank.Working in a highly competitive environment, itsustained the positive trend on which it embarkedin 2004. Thanks to the excellent leadershipprovided by the Management Board and the othermanagers and the commitment and expertise of allthe staff, the main commercial targets were met.The year saw the international expansion of itssuccessful existing activities, the launch ofpromising new activities and the disposal ofbusinesses that were no longer conducive to itsstrategy.
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All that remains is for us to thank the ManagementBoard and all the staff for their effort andinvolvement.
Supervisory Board
Amsterdam, 1 March 2007
C.J.M. Scholtes (Chairman)J.K. BrouwerA.M. van Westerloo
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Co r p o ra t e G o ve r n a n c eR i s k m a n a g e m e n t
I n - co n t r o l s t a t e m e n t
IntroductionCorporate governance was a frequent subject ofdebate again last year, on several occasionsstraining relations between the variousstakeholders in listed companies. In many cases,the debate centred on the principles of goodgovernance expounded in the Dutch CorporateGovernance Code (the ‘Code’). The end of theevolving corporate governance story is not yet insight.
The Code has assumed the status of law, in thesense that all listed companies are now required toinclude in their annual reports a statement ofcompliance with the Code’s principles and best-practice provisions as they apply to theirmanagement and supervisory boards. If they havenot complied with those principles or best-practiceprovisions and/or do not intend to do so in thecurrent or next financial year, they are required tostate the reasons in their annual report (the‘comply or explain’ principle).
The way in which Dutch listed companiesimplement an effective and transparent system ofchecks and balances is influenced by evolvingsocial values and developments on the capitalmarket. The Corporate Governance CodeMonitoring Committee has been set up to addressthis issue. Its responsibilities include ensuring thatthe Code is kept up-to-date and operable, therebymaintaining a high standard of corporategovernance. In December 2006, the CorporateGovernance Code Monitoring Committee publisheda report on compliance with the Code and made anumber of recommendations.
According to best-practice provision 1.1 of the Code,the broad outline of the corporate governancestructure of the company must be explained in aseparate chapter of the annual report, partly byreference to the principles set forth in the Code. Inthis chapter, the company must also expressly statethe extent to which it applies the best-practiceprovisions of the Code and, if it does not, why andto what extent it does not apply them. Asmentioned above, the ‘comply or explain’ principlehas been enshrined in law.
Best-practice provision 1.2 of the Code requires thateach substantial change in the company’scorporate governance structure or its compliancewith the Code be submitted to the GeneralMeeting of Shareholders for discussion under aseparate agenda item.
As a modern and innovative company, BinckBankendorses in large measure the principlesexpounded in the Code, which have received broadsupport. The proposed procedure for adoption ofthe Code by BinckBank was discussed at theAnnual General Meeting of Shareholders on21 April 2005 and was implemented in the courseof 2005, inter alia via amendment of the Articles ofAssociation. There has been no substantial changein BinckBank’s corporate governance structureand/or compliance with the Code since then.Best-practice provision 1.2 of the Code is thereforenot applicable.
The main features of BinckBank’s corporategovernance structure are explained below, givingthe reasons for any departure from the Code’sprovisions and in some cases explaining how theCode’s provisions are implemented, adopting thesame classification of the principles and best-practice provisions as that employed in the Code.
A more detailed description of BinckBank’sapplication of the Code is given in a separateannex. This has been posted on the company’swebsite (www.binck.com), to give BinckBank’sshareholders and other stakeholders access toinformation on how the company puts intopractice the standards of good corporategovernance embodied by the Code.
Legal structure
GeneralBinckBank is a public limited liability companywhich is listed on Euronext Amsterdam. BinckBankhas several Dutch subsidiaries and one foreignsubsidiary. BinckBank also has an office in Belgiumand is planning to open an office in France.BinckBank is subject to supervision by both theNederlandsche Bank (‘DNB’) and the Authority forthe Financial Markets (‘AFM’). One subsidiary, Binck
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Corporate Governance
Securities B.V., is licensed as an investmentinstitution. The foreign subsidiary Binck België N.V.is subject to supervision by local securitiesregulators and holds the requisite licence.
At central level, BinckBank has a ComplianceOfficer who is responsible for monitoringcompliance with the applicable codes of conductand related securities legislation and regulations.These codes of conduct reflect the values, such asintegrity and trustworthiness, to which BinckBankattaches great importance.
SharesBinckBank’s authorised capital consists of listedordinary shares and 50 priority shares, each with anominal value of € 0.10. The priority shares, whichare registered, are not listed on the stock exchangeand are held by Stichting Prioriteit AOT (the‘priority shareholder’). Further information on theposition of the priority shareholder is given below.No depositary receipts have been issued forBinckBank shares.
Issue of sharesThe issue of shares requires a resolution of theGeneral Meeting of Shareholders, which mayassign this authority to another corporate body fora maximum of five years. Save as providedotherwise by law, each shareholder will have apre-emptive right to issues of ordinary shares inproportion to the total amount of his shares.
Shareholders have no pre-emptive right to shareswhich are issued a) to employees of the companyor a group company or b) for payment other thanin cash. The pre-emptive right may be restricted orsuspended by a resolution of the General Meeting.Pre-emptive rights can also be restricted orsuspended by the corporate body referred to above,if it has been designated by resolution of theGeneral Meeting, for a maximum of five years, asauthorised to restrict or suspend pre-emptive rights.
If less than half of the issued capital is representedat the General Meeting, a resolution by the GeneralMeeting to restrict or suspend pre-emptive rights,to designate another corporate body as authorisedto do so or to withdraw such designation requires amajority of at least two-thirds of the votes cast.Such resolutions may only be adopted by the
General Meeting on a motion by the priorityshareholder.
Voting rightsEach BinckBank share confers the right to cast onevote. Resolutions are adopted on a simple majorityof the votes cast, except where a larger majority isprescribed by law or the Articles of Association.For example, BinckBank’s Articles of Associationstate that a resolution to amend the Articles ofAssociation requires a majority of at least two-thirds of the votes cast.
Subject to the Supervisory Board’s approval,BinckBank’s Management Board may, pursuant tothe Articles of Association, resolve to set aregistration date when convening meetings ofshareholders. BinckBank sets registration dates andthus complies with best-practice provision IV.1.7 ofthe Code.
Shareholder structureThe shareholders who have given notification oftheir holdings in BinckBank pursuant to the newAct on the Disclosure of Major Holdings andCapital Interests in Securities-Issuing Institutionsare listed on page 12 of this annual report.BinckBank is not aware of any other shareholderwith a holding of 5% or more. No shareholdercontracts exist between BinckBank and the majorshareholders.
A total of 1,303,251 BinckBank shares were issued tothe personal holding companies of Messrs. T.C.V.Schaap and K.J. Bagijn, who are now members ofBinckBank’s Management Board . These shareswere issued in connection with the sale toBinckBank in May 2004 of their shares inBinckBank N.V. and are subject to a phased lock-uparrangement. Under this arrangement Messrs.Schaap and Bagijn, via their personal holdingcompanies, may sell up to a maximum of 25%, 50%and 75% of the shares in the first, second and thirdyears, respectively, after the date of thetransaction. In the fourth year after the date of thetransaction, Messrs. Schaap and Bagijn are allowedto sell, via their personal holding companies, up to100% of the shares they hold. Messrs. Schaap andBagijn have sold, via their personal holdingcompanies, 650,000 BinckBank shares,representing the 50% of the shares issued to them
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in connection with that transaction which werereleased in 2005 and 2006.
Management Board
Two-tier management structureBinckBank has a two-tier management structure,which means that the executive and supervisoryfunctions are assigned to different corporatebodies – the Management Board and theSupervisory Board. BinckBank believes that thisstructure ensures an adequate system of checksand balances, whereby the Management Board isresponsible for the day-to-day running of thecompany and its short-term, medium-term andlong-term strategy, while the Supervisory Boardoversees and advises the Management Board. TheManagement Board is assisted by two GeneralManagers who, with the members of theManagement Board, constitute the ManagementCommittee.
Shared membershipThe Management Boards of BinckBank and themajority of its subsidiaries share a commonmembership, i.e. the majority of the members ofBinckBank’s Management Board are also membersof the Management Boards of BinckBank’ssubsidiaries. This arrangement is conducive toconsistent corporate policy and strategy.
RemunerationPrinciple II.2 and the related best-practice provisionsof the Code recommend that the remunerationreceived by members of the company’s ManagementBoard should be sufficient to enable the company torecruit and retain qualified and expert individuals.This is achieved by developing a system of objectivemeasurement criteria, which are defined in aremuneration policy adopted by the GeneralMeeting.
The remuneration report drawn up and publishedby the Supervisory Board explains how theremuneration policy has been implemented in thepast financial year. This report, or at any event theremuneration policy which it embodies, will for thetime being guide the Supervisory Board whendetermining the various components of the paypackages of individual members.
In accordance with the principles of the Codeconcerning the adoption and disclosure ofremuneration policy and the provisions of Section135 of Book 2 of the Netherlands Civil Code, therevised remuneration policy for the ManagementBoard and the related rules on remuneration in theform of shares (hereinafter referred to as the ‘2006remuneration policy’) were adopted and approved,respectively, by the Annual General Meeting on 27March 2006. The 2006 remuneration policy and theremuneration report for the 2006 financial yearhave been posted on the company’s website(www.binck.com).
The 2007 Annual General Meeting of Shareholderswill be invited to adopt a revision of the 2006remuneration policy (the revision hereinafter beingreferred to as the ‘2007 remuneration policy’).Under the revised policy, in a change to item 12 ofthe 2006 remuneration policy document, membersof the Management Board will join a defined-contribution pension plan into which the companywill pay an annual contribution of 20% of theirbasic annual salary. This will bring their pensionbenefits more closely into line with the market.
By retrospectively evaluating the outcome of theremuneration policy for the individual members ofthe Management Board, the shareholders andother stakeholders in BinckBank are well placed toreach an informed opinion on remuneration, bothcollective and individual. This will ensure a practicaland balanced result, with the shareholders beingable to exert significant influence on theremuneration of Management Board members,without shareholders’ meetings turning intodebates on the pay received by individuals.
Best-practice provision II.2.10 of the Code specifiesthe information to be provided by the SupervisoryBoard in its overview of the remuneration policyplanned for the next financial year and subsequentyears.
BinckBank complies with this best-practiceprovision if and to the extent that it does notrelate to information which relates to thecompany’s competitive position, such as financialand commercial objectives. The Management Boardand Supervisory Board do not consider it to be inthe interests of the company or its stakeholders to
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disclose such information. The same reservationapplies to publication of the main elements ofcontracts between Management Board membersand the company immediately they are signed, asrequired by best-practice provision II.2.11 of theCode, if and to the extent that this relates tomarket-sensitive information.
Stock options/sharesBest-practice provision II.2.3 of the Code treats theallocation of shares for no financial consideration asa form of variable remuneration. According to theCode, the purpose of a variable element should be toreinforce the Management Board members’ long-term commitment to the company and thefurtherance of its interests. According to the Code,this can be achieved by requiring ManagementBoard members who are allocated shares for nofinancial consideration to undertake to retain themfor at least five years or until termination of theiremployment. Since these shares are allocated for nofinancial consideration, the best-practice provisionrequires that allocation be dependent on theachievement of clearly quantifiable and challengingtargets, which have been defined in advance. Theperformance criteria must be stated in theremuneration report.
Under the remuneration policy embodied in theremuneration report, members of the ManagementBoard may opt to receive at least 25% and at most50% of their cash bonus in shares, which must beretained for three years. Depending on theachievement of a specified percentage rate ofgrowth in net earnings per share, additional sharesmay be awarded for no financial consideration, atthe rate of one BinckBank share for every oneBinckBank share or every two BinckBank sharesthus acquired and retained. These shares must beheld for a period of five years or until terminationof employment if earlier.
In the opinion of the Supervisory Board, thismethod of remuneration adequately reinforces theManagement Board members’ long-termcommitment to the company and the furtheranceof its interests. By giving Management Boardmembers the choice of receiving part of their cashbonus in shares, the allocation of shares (for afinancial consideration) is – indirectly – linked tothe achievement of clearly quantifiable and
challenging targets. Because they receive part oftheir cash bonuses in shares, they are effectivelybuying their optional shares out of their bonuses.The targets are not disclosed because they involveinformation which relates to the company’scompetitive position, such as financial andcommercial objectives, and disclosure would not bein the interests of the company or its stakeholders.Shares are awarded for no financial considerationin the event of a specified percentage rate ofgrowth in net earnings per share being achieved.These shares must be retained for at least fiveyears or until termination of employment if earlier.
Regulations embodying rules on the ownership ofand transactions in securities by ManagementBoard members other than those issued by their‘own’ companyOne of the recommendations of best-practiceprovision II.2.6 of the Code is that the SupervisoryBoard should adopt regulations embodying rules onthe ownership of and transactions in securities byManagement Board members other than thoseissued by their ‘own’ company. These regulationsshould be posted on the company’s website.
BinckBank complies with this best-practiceprovision, but for practical reasons has integratedthese regulations into the Management Boardregulations. After approval by the SupervisoryBoard, the latter regulations were adopted by theManagement Board at the end of 2004 and postedon the company’s website (www.binck.com) in2005. The regulations have therefore been adoptedindirectly by the Supervisory Board and therequirements of best-practice provision II.2.6 of theCode have been met. The Management Boardmembers are also bound by the company’s currentregulations, which they have agreed to observe, oninsider trading, price-sensitive information andpersonal investment transactions.
Suspension/dismissalPursuant to BinckBank’s Articles of Association,a resolution of the General Meeting to suspend ordismiss a member of the Management Board orSupervisory Board requires a majority of at leasttwo-thirds of the votes cast, representing morethan half of the issued capital.
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According to best-practice provision IV.1.1 of theCode, it must be possible for a resolution to dismissa member of the Management Board or SupervisoryBoard to be adopted by an absolute majority of thevotes cast, but it may be made a condition that thismajority represents a given proportion of the issuedcapital, which may not exceed one-third.
Best-practice provision IV.1.1 of the Code will beimplemented when the Articles of Association arenext amended. In the interim, as the members ofBinckBank’s Management Board and SupervisoryBoard have adopted this best-practice provisioncompliance is thus assured. The members ofBinckBank’s Management Board and SupervisoryBoard also, on a purely voluntary basis, compliedwith the majority and quorum requirements of thisbest-practice provision in respect of any resolutionof the General Meeting to suspend them.
Supervisory Board
CommitteesPrinciple III.5 of the Code recommends that allSupervisory Boards appoint an audit committee, aremuneration committee and a selection andappointments committee to perform certain taskson behalf of and under the responsibility of theSupervisory Board. If the Supervisory Board is toosmall, the appointment of committees may bedispensed with, in which case the entire SupervisoryBoard is responsible for performing the tasks andfunctions of those committees as referred to in thebest-practice provisions.
Because its Supervisory Board consists of no morethan four members, BinckBank has only appointedan audit committee in accordance with therecommendation in principle III.5 of the Code. Thetasks and functions of the remuneration andselection and appointments committees describedin the best-practice provisions are applicable in full,are performed by the entire Supervisory Board andare included as such in the Supervisory Board’sregulations.
Best-practice provision III.5.4 refers to a number ofareas on which the audit committee should focusin supervising the Management Board. BinckBankapplies this best-practice provision, but some ofthese supervisory tasks have, for practical reasons,
been assigned to the Supervisory Board as a wholeand are thus included in the Supervisory Boardregulations.
IndependencePrinciple III.2 of the Code states that members of theSupervisory Board must be able to act critically andindependently of one another, of the ManagementBoard and its members and of any particular andpartial interests. According to best-practice provisionIII.2.1, the Supervisory Board must not include morethan one member who is not independent withinthe meaning of best-practice provision III.2.2.These independence criteria are satisfied.
Regulations embodying rules on the ownership ofand transactions in securities by Supervisory Boardmembers other than those issued by their ‘own’companyOne of the recommendations of best-practiceprovision III.7.3 of the Code is that the SupervisoryBoard should adopt regulations embodying rules onthe ownership of and transactions in securities bySupervisory Board members other than those issuedby their ‘own’ company. These regulations have beenposted on the company’s website.
BinckBank complies with this best-practiceprovision, but for practical reasons has integratedthese regulations into the Supervisory Boardregulations. These regulations were adopted by theSupervisory Board in 2004 and have been postedon the company’s website (www.binck.com). Apartfrom the fact that the Supervisory Board has notadopted separate regulations, the requirements ofbest-practice provision III.7.3 of the Code have beenmet. The Supervisory Board members are alsobound by the company’s current regulations, whichthey have agreed to observe, on insider trading,price-sensitive information and personalinvestment transactions.
MinutesAccording to best-practice provision IV.3.8 of theCode, the minutes of the General Meeting ofShareholders must be made available on request toshareholders within three months of the meeting,after which the shareholders must be given threemonths to comment on the minutes. The minutesmust then be adopted in the manner prescribed bythe Articles of Association.
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This best-practice provision only applies toBinckBank if the Chairman of the ManagementBoard and/or the Management Board does notdecide to have a notarial record made of themeeting, or at least of the resolutions adopted bythe meeting, in which case BinckBank will complywith the best-practice provision. If it is decided tohave a notarial record made of the meeting, or atleast of the resolutions adopted by the meeting,that record will have absolute evidential force. Inthe absence of evidence to the contrary, it will beaccepted by all as an accurate representation of theproceedings of the meeting. It is permitted in thatcase not to include responses by shareholders inthe record.
External auditorsErnst & Young Accountants were appointed toaudit the 2006 annual accounts by anextraordinary Meeting of Shareholders on 12October 2006. In accordance with best-practiceprovision V.2.3 of the Code, the Management Boardand the Audit Committee make a thoroughassessment of the functioning of the externalauditors at least once every four years. The mainfindings are communicated to the General Meetingto assist in considering the nomination forappointment of the external auditors. To ensurethe independence of the external auditors,BinckBank required in 2004 that one partner berotated, which was duly done.
Anti-takeover defencesStichting Prioriteit AOT (the ‘priority shareholder’)holds 50 priority shares in BinckBank N.V. Underthe Articles of Association, the priority shareholderhas a central role in many important decisions.Management Board and Supervisory Boardmembers, for example, are appointed from a non-binding list of candidates drawn up by the priorityshareholder. A resolution to amend the Articles ofAssociation can only be adopted on a proposal ofthe priority shareholder, and the priorityshareholder determines what part of the(remaining) profits is to be added to reserves.
In essence, the purpose of the priority shareholderis to counter any influence over BinckBank’smanagement or operations which might beprejudicial to the independence of the companyand its related enterprise and to promote good
governance of its affairs. The Executive Committeeof the priority shareholder has three members.Member A is appointed by BinckBank’s SupervisoryBoard, member B by BinckBank’s ManagementBoard and member C by members A and Btogether. The incumbent members A, B and C ofthe priority shareholder’s Executive Committee areMessrs. C.J.M. Scholtes (Chairman of BinckBank’sSupervisory Board), T.C.V Schaap (Chairman ofBinckBank’s Management Board) and J.K. Brouwer(member of BinckBank’s Supervisory Board),respectively.
The question whether it was appropriate for thepriority shareholder to continue to hold the powersvested in it by the Articles of Association wasaddressed by the Management Board andSupervisory Board. They took the view that thedecision on the future position of the priorityshareholder was closely linked with how theprovisions relating to public offers contained in theEC 13th Directive, which was adopted on 21 April2004, is implemented in Netherlands law.
Among other things, the directive requires memberstates to introduce a mandatory public offer rule,which will apply, for example, in situations where anatural person or legal entity acquires securitiesthat, directly or indirectly, confer a givenpercentage of the voting rights in a listed companyand thereby acquires control.
One purpose served by the mandatory public offeris to ensure that the remaining shareholders alsoreceive the additional amount paid for eachsecurity over and above market price, because itobliges the bidder to pay the remainingshareholders the same price as was paid to acquirecontrol.
Another reason for introducing a mandatory offerrule is to protect the remaining shareholdersagainst abuse of power by the controllingshareholder. There are various ways in which theremaining shareholders might be disadvantaged.The controlling shareholder might, for example,oppose the payment of a dividend, against the willof the other shareholders. Control might also beacquired by one of the company’s competitors,which could then close down the company’s
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operations in order to increase its own marketshare.
The Upper House of the Netherlands Parliament isexpected to approve the bill to implement theEuropean directive unchanged in around April2007. According to the bill, the mandatory offer willrelate to 30% of the voting rights in the generalmeeting. The bill originally contained a number ofrestrictions relating to anti-takeover measures, butthis part of the bill was dropped in the face ofopposition from the Lower House. The legislaturehas therefore elected to introduce a mandatoryoffer requirement but still allow anti-takeovermeasures.
BinckBank’s Management Board and SupervisoryBoard see no justification at present for rescindingor restricting the priority shareholder’s powers asmaintaining the priority shareholder’s positionhelps to maintain the continuity of BinckBank N.V.and its short-term and long-term policy byensuring that due consideration is given to theinterests of all stakeholders in the company.
ConclusionThe corporate governance structure and theproposed application of the Code were among theitems on the agenda of the Annual GeneralMeeting of Shareholders on 21 April 2005. Therehas been no substantial change in the company’scorporate governance structure or its application ofthe Code since then, other than the amendmentsto the Articles of Association which were adoptedby the Extraordinary General Meeting on 19October 2005 to bring them into line with theLarge-Company Regime Amendment Act (Wetaanpassing structuurregeling), which came intoeffect on 1 October 2005, and the Code. Theopportunity was also taken to make a number ofeditorial and/or technical amendments to theArticles of Association. BinckBank complies withthe Code’s best-practice provisions, except asexplained in this chapter.
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Given its exposure to various risks in the course ofits operations, BinckBank performs an annual riskanalysis to gain a better understanding of theserisks and to monitor their development. How wellwe monitor and control risk depends on ourorganisational structure and the control measureswe employ. Risk analysis and risk control measuresare subjected to internal audit, the results of whichare discussed in the meetings of the ManagementBoard and the Audit Committee and the meetingswith the Supervisory Board. The risks are describedin broad outline below. Identifying risks andimplementing and modifying relevant risk controlmeasures are ongoing processes within BinckBank.
Credit riskCredit risk is the risk of a counterparty in a trade inand/or an institution issuing a financial instrumentfailing to honour its obligations, as a result ofwhich BinckBank incurs a financial loss.
In its retail operations, BinckBank only lendsagainst readily liquidated collateral, such asfinancial instruments and bank guarantees. Giventhe nature of its lending activities and thecollateral required, the credit risk is limited. Thebulk of BinckBank’s lending is to natural personsand legal entities in the Netherlands. WhereBinckBank lends against the collateral of financialinstruments, the lending limit depends on theliquidity and market value of the financialinstruments concerned. Lending is monitored bythe Risk Management department usingautomated systems, based on real-time prices. Therisk on lending operations can therefore relate tochanges in the value of the collateral (financialinstruments), system malfunctions (operationalrisk) and malfunctions in credit monitoringprocedures (operational risk).
BinckBank also lends to banks and manufacturingindustry as a vehicle for investing client accounts.This lending is subject to internal counterpartylimits on both amount and duration. Credit risk isreviewed periodically.
In its institutional brokerage and trading activities,BinckBank is exposed to credit risk in respect ofcounterparties failing to honour their obligations
in over-the-counter (OTC) transactions, which arechiefly in equities and bonds. This risk is controlledby procedural monitoring of settlements (positionand transaction reconciliation).
Market riskMarket risk is the risk of movements in interestrates and prices of financial instruments.
BinckBank has a trading portfolio and aninvestment portfolio. The trading portfoliocomprises equities, bonds and a very minorposition in derivatives. Movements in interest ratesand prices of financial instruments have a directeffect on its value and hence on BinckBank’sfinancial position and results. To control the marketrisks on the trading portfolio, BinckBank operates asystem of internal limits, which are monitored bythe Risk Management department. The RiskCommittee meets regularly to discuss the limitsystem and the risks relating to the existingpositions and limits and to consider and adoptproposals for new trading strategies. If the setlimits are exceeded, Risk Management takes actionimmediately and reports to the responsibleManagement Board member. In its role as liquidityprovider as part of its trading activities, BinckBankmay be committed in some cases to buy or sellfinancial instruments. The average haircut (a riskmeasure based on a theoretical model and pastevents used to calculate the maximum theoreticalovernight loss) was approximately € 2.8 million forall of Trading’s activities.
BinckBank’s investment portfolio consists of fixed-income securities, which are selected by theManagement Board. The value of the investmentportfolio may fluctuate due to movements ininterest rates and changes in the issuer’screditworthiness. BinckBank invests only in fixed-income securities rated at least single-A byStandard & Poor’s. It is estimated that, as at year-end 2006, the value of the investment portfoliowould fall by approximately € 550,000 for anabsolute rise of one percentage point in therelevant interest rate.
The collateral (margin) required by BinckBank forliabilities in respect of uncovered derivatives
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Risk management
positions affords a reasonable degree of protectionagainst unexpected price movements but providesno guarantee against possible future losses onthese positions. The Risk Management departmentchecks constantly that the margin is consistentwith current market conditions and adjusts themargin requirements where necessary.
Interest-rate riskInterest-rate risk is the risk of movements ininterest rates which might adversely affect futureprofitability.
BinckBank manages this risk, as it relates toBinckBank’s banking operations, by matching thedurations of client accounts and investmentswithin set limits. The investment portfolio isaccordingly spread over a range of durations andincludes floating-rate bonds.
Liquidity riskLiquidity risk is the current and future risk ofBinckBank’s financial position and results not beingsufficient to enable the company to meet its short-term commitments without incurring excessivecosts and/or losses.
BinckBank’s liquidity position as at year-end 2006was satisfactory. BinckBank also has credit facilitieswith other banks. Given the nature of BinckBank’sactivities, there is some risk of liquidity shortage,for example when running maximum tradingpositions or in the event of incorrect settlement oftransactions in financial instruments forprofessional clients, a high volume of lending toRetail and Professional Services clients and adecrease in Retail and Professional Services clientaccounts.
Fluctuations in the volume of client accounts aremanaged by restricting the investment of thesefunds to short-term vehicles (mainly call loans).
Liquidity risk is monitored by computing theliquidity position on a daily basis, covering allactivities.
Currency riskCurrency risk is the risk of movements in the valueof items denominated in foreign currencies due tomovements in exchange rates.
BinckBank is exposed to currency risk in respect ofthe activities of its associate based outside theeurozone. Exchange rate movements affect therevenue in euros reported in the profit and lossaccount and the financial position shown in thebalance sheet. It is BinckBank’s policy not to hedgethese risks. The investment in HIT in the UK as atyear-end 2006 was limited (around GBP 1.1 million)and will be liquidated in the course of 2007.
Currency risks on trading and brokerage activitiesare hedged as soon as possible in accordance withinternal guidelines, unless a currency position istaken as part of a trading strategy approved by theRisk Committee.
The currency position is monitored on a daily basisto ensure that it stays within the set limits.
Operational riskOperational risk is the risk of loss due toinadequate systems, processes and procedures. Theterm covers general operational risks, IT risks, risksrelating to outsourcing of business processes andintegrity risks.
Operational risk is generally the result of:• deficiencies in the daily processing and
settlement of transactions with clients or otherparties or in the procedures and actionsdesigned to ensure prompt detection of defects;
• quantitative or qualitative deficiencies orlimitations in human resources;
• deficient decision-making due to inadequatemanagement information;
• incorrect application of internal controlprocedures.
Operational risk is managed on a structural basisthroughout the organisation, via a series ofinternal monitoring procedures including:• transaction and position reconciliation, including
management reporting;• automated recording and execution of
transactions and related audit trails;• procedures for staff recruitment and mentoring
and functional segregation and job descriptionsfor all employees and departments;
• clear reporting lines, recording of requiredmanagement information and periodic internalconsultation;
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• internal control and internal audit procedures,mandatory application of the four-eyes principleto powers of attorney and authority to enter intobinding contracts on behalf of the company;
• reporting structures.
IT risk is the current and future risk to BinckBank’sfinancial position and results posed by deficienciesin the technology employed.
BinckBank is heavily dependent on IT in generaland deficiencies in this area pose a significantthreat to BinckBank’s financial position and results.The IT organisation is designed to manage that riskand incorporates a series of internal monitoringprocedures covering IT policy, security policy,incident management, change management andavailability and performance management.BinckBank also has a fallback facility which it canuse in emergencies. Each year, BinckBankcommissions external agencies to audit and reporton specific areas of its IT operations.
Risks relating to outsourcing of business processesare current and future risks to the company’sfinancial position and results posed by third-partyprovision on a structural basis of services which arepart of BinckBank’s business processes.
BinckBank has not outsourced any businessprocesses, but various associates take services fromone other, under internal service level agreements.
Integrity riskIntegrity risk is the risk of harm to the company’sreputation and/or its financial position and resultsdue to inadequate compliance with applicablelegislation and regulations and internal standards,rules or codes of conduct.
To control this risk, BinckBank imposes clearinternal standards and codes of conduct which areclearly communicated within the organisation.BinckBank has a compliance officer, for whom clearreporting lines have been defined and a clearescalation procedure has been implemented.Together with the Legal department, thecompliance officer is responsible for notifyingmanagers and the Management Board promptlyand accurately, in order to ensure that BinckBank’sactivities comply with the applicable legislation
and regulations. BinckBank has procedures in placefor whistleblowers and mandatory reporting ofsuspicious transactions and has a security officerand a privacy officer.
Strategic riskStrategic risk is the current and future risk toBinckBank’s financial position and results due tomisjudged business decisions, poor execution ofbusiness decisions or inadequate response tochanges in the business climate in general and themarkets which are relevant to the company inparticular.
International economic conditions affect financialmarkets around the world and hence the results onBinckBank’s operations. Reduced trading volumescan translate into reduced revenue from financialtransactions and interest and commission income.BinckBank operates in a highly competitiveenvironment in which its competitors, often verylarge financial institutions, have well establishedbrands and ample financial resources. Retainingexisting clients and attracting new ones is a highpriority for BinckBank, and one in which it makessubstantial investments.
Against the background of its long-term strategy,BinckBank measures all its business units againstsuch criteria as strategic fit, profitability andsynergy. In a rapidly changing environment, this isan ongoing process.
GeneralBinckBank’s Internal Audit department performsregular risk analyses and internal audits of theimplementation and functioning of the internalcontrol and risk management procedures. TheInternal Audit department reports its findings tothe responsible manager, the Management Board,the Audit Committee and the Supervisory Board.On the basis of the risk analysis, an internal auditplan is prepared and submitted to the AuditCommittee for adoption. The plan provides for allidentified areas of risk in all business units toundergo an internal audit over a two-year period.The plan also provides for follow-up audits by theInternal Audit department to verify thatappropriate action has been taken with regard todeficiencies or areas identified in previous auditsas requiring attention. The Internal Audit
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department updates the risk analysis annually toreflect new activities, procedures and findings.
A number of internal audits were performed in2006 with the broad aim of making an informedjudgment of the internal management proceduresand organisation in the identified areas of riskwithin BinckBank. These audits identified severaldeficiencies, mostly relating to documention ofpolicy, which require attention in the short term.
At a more general level, it should be noted thatkeeping pace with BinckBank’s growth represents asignificant challenge for system support, and thisinvolves some risk. Several major systemmodification projects, designed to facilitate futuregrowth, are currently in hand.
BinckBank has a fall-back facility, at which theappropriate trading systems are installed, for useby Trading in the event of an emergency. Functionaltesting has not yet been performed on all thetrading systems and further fall-back testing isplanned in 2007.
The business processes are audited by the externalauditors. The procedure employed by BinckBank isbased on an internal cascade system, whereby astatement regarding the functioning of the localinternal risk-management procedures andorganisation is issued by the local management.
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Closely monitoring the company’s internal riskmanagement and control systems during 2006 hashelped us to identify significant risks relatingspecifically to BinckBank.
We are provided with periodic internal controlreports, including reports on positions held for ownaccount and risk in relation to internally setmaximum position limits (market risk), lending inrelation to the value of the collateral (credit risk),transaction and position reconciliation (operationalrisk), client complaints and comments (operationalrisk) and availability of IT systems (operationalrisk). We also receive numerous regular reports onthe progress of our business, such as financialreports (including profit and loss accounts, balancesheets, debtors, solvency and liquidity positionsand related analyses) and reports on thedevelopment of our client base. We also receiveannual statements by the local management of ourforeign operations on the functioning of the localinternal risk management and control systems. TheInternal Audit department submits periodic reportspresenting the findings of the internal audits it hasperformed on the basis of the audit plan adoptedby the Audit Committee. One or more specificaudits are also performed by external agencieseach year on specific areas such as the ITenvironment. All these reports are discussed in themeetings of the Management Board, other internalbodies such as the Audit Committee, and theSupervisory Board. The purpose of these meetingsis to monitor the correct functioning of theinternal controls during the financial year, so thataction can be taken where necessary.
These risks and the related control measures aredescribed in the ‘Risk management’ section of thisannual report. We now have a fall-back facility forour trading activities, but there are still a numberof issues to be addressed. We have not yet beenable to carry out an independent risk assessmenton Syntel’s activities and there are several mainlylegal issues which have arisen from the legal duediligence investigation in connection with theacquisition. Action is being taken on these issuesto enhance control of potential risks.
However well our internal risk management andcontrol system is designed, it can never giveabsolute assurance that we shall always be able tomeet our objectives in terms of strategy,operations, reporting and compliance with allapplicable legislation and regulations. The reality isthat human error is always an element in decision-making and the cost always has to be balancedagainst the benefits when accepting risks andimplementing controls. Even minor mistakes due tohuman error may have significant results,employees may conspire to circumvent internalcontrols and responsible managers may ignoreinternal agreements.
Given these limitations, which are inherent in allinternal risk management and control systems, andgiven the areas for improvement which have beenidentified, our assessment is that the internal riskmanagement and control systems provide areasonable degree of assurance that:
• we are able to keep track of our progresstowards BinckBank’s strategic and operationalgoals;
• BinckBank complies with the applicablelegislation and regulations;
and, with regard to financial reporting risks:
• the risk management and control systemsprovide a reasonable degree of assurance thatthe financial statements contain no materialmisstatements;
• the risk management and control systems havefunctioned properly in the past financial year.
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In-control statement
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B i n c k B a n k ’s o r g a n i s a t i o n a l s t r u c t u r e
In early 2006, the services for professional clientswere transferred from the Retail business unit to anew Professional Services business unit. Thisrestructuring was prompted by the rapid growth inBinckBank’s services for both private andprofessional clients. In the new structure,management focus can be directed specifically atgrowing the services for each client group. KaloBagijn is responsible for the Retail activities asbefore, while responsibility for the ProfessionalServices business unit has been assumed by PieterAartsen, who was appointed to the ManagementBoard on 1 February. The former Wholesalebusiness unit has been downsized and integratedinto the Professional Services business unit toprovide supplementary services for professionalclients.
Action was taken in 2006 to further simplify theorganisation. The activities of Hills IndependentTraders Ltd. (HIT) were sold in July and the mergerbetween Binck N.V. and BinckBank N.V. wascompleted in October, accompanied by a change ofname from Binck N.V. to BinckBank N.V.
Also in October, BinckBank made a strategicacquisition with the takeover of Syntel, which gaveit access to the technology which lies at the heartof its services. The acquisition will also mean fasterprogress towards BinckBank’s objective ofinternational expansion and make it easier to addBPO services to the range of services.
Following these organisational changes,BinckBank’s corporate structure and principalsubsidiaries are as shown below. This structureshow BinckBank’s most important subsidiairies.
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BinckBank’s organisational structure
Retail / Professional Services
SyntelBeheer B.V.
BewaarbedrijfBinckBank B.V.
StichtingEffectengiro BinckBinck België N.V. Binck
Securities B.V.
Trading
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Management Board and personnelThe members of the Management Board are:• Thierry Schaap (35), chairman with responsibility
for Trading, IAD, Risk Management, Secretariat,Human Resources, Investor Relations, Legal,Finance, Operations and IT.
• Pieter Aartsen (42), member with responsibilityfor Professional Services (professional clients andBPO services).
• Kalo Bagijn (35), member with responsibility forRetail (Netherlands, Belgium and France) andPublic Relations.
The Management Board was assisted in 2006 bytwo General Managers, Rene Schipper and ReneVeerkamp, who, together with the ManagementBoard, form the Management Committee.
The day-to-day management of BinckBank BelgiëN.V. is the responsibility of a Management
Committee consisting of Messrs. Nick Bortot(Chairman) and Vincent Germijns. The members ofthe Management Board of BinckBank België N.V.are Thierry Schaap, Kalo Bagijn, Nick Bortot andVincent Germyns.
Messrs. Bortot and Germijns are also responsiblefor the day-to-day management of BinckBank’soffice in Belgium, but are accorded no status by theArticles of Association.
General Managers in each country are responsiblefor business unit operations. Responsibility forRetail is split between a Marketing & SalesManager and a Private Clients Manager.Professional Services and Trading are managed byone business unit manager. BinckBank operates amatrix organisation in which staff report to boththe local managers and the responsible functionalmanagers.
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V.L.n.r.: Kalo Bagijn, Thierry Schaap en Pieter Aartsen
Human resources policyBinckBank’s human resources policy is designed toattract and retain enthusiastic, motivated andtalented people, because they can supply theenergy and expertise needed to grow ourorganisation. Customer focus, which is an integralpart of the BinckBank culture at all levels, is one ofthe selection criteria we apply when recruiting newstaff.
BinckBank is growing fast and clarity is essential, inboth organisational structure and reporting lines,to ensure that opportunities and threats areidentified at an early stage. This will ensure thatBinckBank is able to sustain its controlled growthin the coming years.
The number of employees as at year-end increasedto 223 in 2006 (2005: 170). The average number ofemployees last year was 179 (2004: 234) excludingSyntel and 195 including Syntel. The sharp increasewas mainly due to the acquisition of Syntel. TheCustomer Service department in the Retailbusiness unit accounted for the largest share ofnew recruits.
Number of employees at year-end relatively(international)
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BinckBank N.V.
BinckSecurities B.V.
SyntelBeheer B.V. Binck België N.V.
Secretariat Human Resources
Thierry Schaap, ManagementBoard Chairman
Kalo Bagijn, ManagementBoard Member
Pieter Aartsen, ManagementBoard Member
Finance Facilities
Risk Management Legal
PR/IR IT
IAD/Compliance Operations
Retail
Private ClientsNetherlands
Private ClientsBelgium
Professional Services
Professional Services Netherlands
PrivateClients
Professional Services Belgium
Marketing &Sales
Marketing &Sales
Customer Service& Order Desk
Equity Trading enBound Trading
EPDevelopment
InstitutionalBrokerage Trading
Binck Securities13%
BinckBank58%
Binck België4%
Syntel25%
Retail38%
Trading23%
Professional Services39%
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F i n a n c i a l s t a t e m e n t s
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Financial Statements 2006 BinckBank N.V.
Consolidated Financial StatementsConsolidated balance sheet ..........................................................................................................................54Consolidated income statement ..................................................................................................................55Consolidated cash flow statement..............................................................................................................56Consolidated statement of changes in equity ..........................................................................................58Notes to the consolidated financial statements ......................................................................................59Notes to the consolidated balance sheet ..................................................................................................70Notes to the consolidated income statement...........................................................................................87Financial risk management...........................................................................................................................97
Company Financial Statements Company balance sheet................................................................................................................................101Company income statement .......................................................................................................................102Company statement of changes in equity ...............................................................................................103Notes to the company financial statements ...........................................................................................104Notes to the company balance sheet........................................................................................................105
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Consolidated balance sheet
Note 31 December 2006 31 December 2005x € 1,000 x € 1,000
Assets
Cash 8 5,672 7,685
Banks 9 164,617 171,113
Loans and receivables 10 216,332 124,764
Interest-bearing securities 11 67,828 42,427
Shares and other variable-income securities 12 100,613 120,656
Other investments 13 29 88
Intangible assets 14 11,511 1,051
Property, plant and equipment 15 2,613 1,829
Tax 16 5,443 4,870
Deferred tax assets 16 2,963 -
Other assets 17 38,020 21,010
Prepayments and accrued income 18 4,969 3,184
Total assets 620,610 498,677
Equity and liabilities
Funds entrusted 19 383,543 235,836
Liabilities in respect of securities 20 60,494 111,353
Deferred tax liabilities 16 109 -
Other liabilities 21 96,737 84,031
Accruals and deferred income 22 7,993 11,699
Provisions 23 445 512
549,321 443,431
Shareholders’ equity 25 71,289 55,246
Total equity and liabilities 620,610 498,677
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Consolidated income statement
Note 2006 2005x € 1,000 x € 1,000
Revenue
Interest income 26 15,837 8,269Interest expense 26 (5,052) (2,244)
Interest 26 10,785 6,025
Income from other investments 27 33 7
Commission income 28 54,492 34,090Commission expense 28 (18,691) (11,521)
Commission 28 35,801 22,569Results on financial transactions 29 8,208 15,512
Other income 30 855 -
Total revenue 55,682 44,113
Expenses
Staff costs 31 (15,192) (16,612)
Other operating expenses 32 (9,589) (8,127)
Depreciation and amortisation 33 (1,902) (1,575)
Impairment of other investments 13 (69) (8)
Total expenses (26,752) (26,322)
Operating profit before tax 28,930 17,791
Tax 16 (5,120) (4,879)
Profit on continuing operations 23,810 12,912
Profit on discontinued operations 7 199 616
Profit for the year 24,009 13,528
Attributable toBinckBank N.V. shareholders 24,009 13,609Minority interests - (81)
Earnings per share (in €) 24,009 13,528
EPS on continuing operations 34 0.78 0.43EPS on discontinued operations 0.01 0.02
Earnings per share 0.79 0.45
Diluted EPS on continuing operations 35 0.78 0.43
Diluted EPS on discontinued operations 0.01 0.02
Diluted earnings per share 0.79 0.45
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Consolidated cash flow statement
Note 2006 2005x € 1,000 x € 1,000
Cash flow from operating activities
Profit for the year attributable to BinckBank N.V. shareholders 24,009 13,609
Adjustments:
Amortisation of intangible assets 14 732 414Depreciation of property, plant and equipment 15 1,170 1,223Provisions (313) (588)Non-cash items included in profit 935 263
Movements in:Banks (balances not available on demand) 18,722 (14,221)Loans and receivables (62,689) (41,173)Interest-bearing securities (25,556) (1,502)Shares and variable-income securities 40,727 2,558Other assets, prepayments and accrued income (21,426) (7,951)Funds entrusted 147,707 108,301Liabilities in respect of securities (62,238) 10,946Other liabilities, accruals and deferred income (16,241) 5,168
Net cash flow from operating activities 45,539 77,047
Cash flow from investing activities
Investments in subsidiaries adjusted for acquired cash 6 (6,707) (1,446)Investments in other investments 13 (14) -Disposals of other investments 13 4 14Investments in intangible assets 14 (956) (822)Investments in property, plant and equipment 15 (1,668) (756)
Net cash flow from financing activities (9,341) (3,010)
Cash flow from financing activities
Profit-sharing bond loan 21 (235) 1,555Dividends paid -Final dividend for preceding year 36 (4,889) (1,527)-Interim dividend for the year 36 (3,361) (1,832)
Net cash flow from financing activities (8,485) (1,804)
Net cash flow 27,713 72,233
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Consolidated cash flow statement (continued)
Note 2006 2005x € 1,000 x € 1,000
Opening balance of cash and cash equivalents 146,705 74,472Closing balance of cash and cash equivalents 174,418 146,705
Movement 27,713 72,233
The cash and cash equivalents presented in theconsolidated cash flow statement are included inthe consolidated balance sheet under the followingheadings at the amounts stated below:Cash 8 5,672 7,685Banks (excluding balances not available on demand) 9 126,746 114,520Loans and receivables (call money) 10 42,000 24,500
Total 174,418 146,705
Cash flow from operating activities includes thefollowing items:
Tax paid 5,693 8,021Interest received 14,895 7,523Interest paid 3,946 2,048Dividend received 33 7Commission received 54,154 33,911Commission paid 18,695 11,302
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Consolidated statement of changes in equity(amounts in € x 1,000)
Note Issued Share Treasury Unappro- Other Sub- Minority Totalshare premium shares priated reserves total interests equity
capital profit andretainedearnings
1 January 2005 3,084 20,855 (1,121) 2,808 20,086 45,712 942 46,654
Impairment of available-for-sale financial assets 11 - - - - (475) (475) - (475)Gains and losses on exchange 25 - - - - 196 196 - 196
Results recognised directly in equity - - - - (279) (279) - (279)Profit for the year - - - 13,609 - 13,609 (81) 13,528
Total income and expense - - - 13,609 (279) 13,330 (81) 13,249
Payment of final dividend 36 - - - - (1,527) (1,527) - (1,527)Payment of interim dividend 36 - - - - (1,832) (1,832) - (1,832)
Rights to shares granted 25 - - - - 263 263 - 263
Acquisition of minority interest 25 - - - - (700) (700) (861) (1,561)
Retained earnings trans-ferred to other reserves - - - (2,808) 2,808 - - -
31 December 2005 3,084 20,855 (1,121) 13,609 18,819 55,246 - 55,246
Impairment of available-for-sale financial assets 11 - - - - (155) (155) - (155)Gains and losses on exchange 25 - - - - 97 97 - 97
Results recognised directly in equity - - - - (58) (58) - (58)Profit for the year - - - 24,009 - 24,009 - 24,009
Total income and expense - - - 24,009 (58) 23,951 - 23,951
Payment of final dividend 36 - - - - (4,889) (4,889) - (4,889)Payment of interim dividend 36 - - - - (3,361) (3,361) - (3,361)
Rights to shares granted 25 - - - - 342 342 - 342
Payment of stock option shares 25 - - 49 - (49) - - - Payment of bonus shares 25 116 - (116) - - -
Retained earnings trans -ferred to other reserves - - - (13,609) 13,609 - - -
31 December 2006 3,084 20,855 (956) 24,009 24,297 71,289 - 71,289
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Notes to the consolidated financial statements
1. General
Company informationThe General Meeting of Shareholders passed aresolution on 12 October 2006 approving a mergerof Binck N.V. and BinckBank N.V., with BinckBankN.V. being absorbed into Binck N.V. On the samedate, the shareholders passed a resolution changingthe name of Binck N.V. to BinckBank N.V. The mergerdoes not affect the consolidated figures in any way.BinckBank N.V. is a company established and theNetherlands with its domicile in Amsterdam, whoseshares are publicly traded. BinckBank N.V. providesconventional and internet broking services insecurities and derivative transactions for privateand professional investors. Through its subsidiaryBinck Securities B.V., the company also trades inshares and bonds on a proprietary basis. Thesubsidiary Syntel Beheer B.V. specialises indeveloping software for financial institutions forprocessing and keeping account of securitiestransactions. In the following pages, the name‘BinckBank’ will be used to refer to BinckBank N.V.and its various subsidiaries.
BinckBank’s consolidated financial statements forthe year ended 31 December 2006 have beenprepared by the company’s Management Board andapproved for publication pursuant to a formaldecision taken by the Management Board and theSupervisory Board on 1 March 2007. The financialstatements for 2006 will be adopted at the GeneralMeeting of Shareholders to be held on 19 April2007.
Management Board: Supervisory Board:T.C.V. Schaap C.J.M. ScholtesK.J. Bagijn J.K. BrouwerP. Aartsen A.M. van Westerloo
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Presentation of the financial statementsThe consolidated financial statements have beenprepared in accordance with the InternationalFinancial Reporting Standards (IFRS) adopted by theInternational Accounting Standards Board andendorsed by the European Commission.
The financial statements have been compiledapplying the historical cost convention, with theexception of financial assets and liabilities held fortrading purposes and available-for-sale financialassets, which are recognised at fair value.
Unless otherwise stated, the financial statementsare in euros, with all amounts rounded to thenearest thousand.
Significant accounting judgements and estimatesThe preparation of the financial statements involvesmaking assumptions and estimates on therecognition and valuation of assets and liabilities,contingent rights and liabilities and income andexpense items. The most significant assumptionsfor the future and other key sources of estimationuncertainty at the balance sheet date that have asignificant risk of causing a material adjustment tothe carrying amount of assets and liabilities are theestimates made in respect of impairment losses onloans and receivables, other investments and otherassets and the measurement of the fair value ofcertain assets and liabilities and the provisions.
Impairment of goodwillAt least once a year BinckBank performs animpairment test on the carrying amount ofgoodwill. This involves estimating the value in useof the cash-generating units to which the goodwillis attributed. In order to estimate the value in use,BinckBank makes an estimate of the expectedfuture cash flows from the cash-generating unitand also determines a suitable discount rate forcalculating the present value of those cash flows.
2. Basis of consolidation
The consolidated financial statements include theassets and liabilities and the income and expenseitems of the company and its subsidiaries.Subsidiaries are entities over which BinckBank hascontrol. Control is deemed to exist if BinckBank isable, either directly or indirectly, to govern thefinancial and operating policies of the company soas to obtain benefits from its activities.
Subsidiaries are consolidated as soon as BinckBankobtains control. If BinckBank ceases at any point tocontrol a subsidiary, the subsidiary will beimmediately deconsolidated.
The accounting policies of the subsidiaries and theirreporting periods are the same as those ofBinckBank.
3. Related party disclosures
In addition to the subsidiaries and associates,BinckBank considers the members of theManagement Board and the Supervisory Board tobe related parties. During the year there were notransactions between BinckBank and these relatedparties other than those arising out of theircontracts of employment.
4. Recognition and measurement ofassets, equity and liabilities
Foreign currency translationThe consolidated financial statements are in euros,this also being the presentation currency. Itemsrecognised in the financial statements of eachentity are measured on the basis of the relevantentity’s functional currency. Transactions in foreigncurrencies are converted on initial recognition atthe functional currency’s exchange rate on thetransaction date. Assets and liabilities denominatedin foreign currencies are converted at the exchangerates prevailing on the balance sheet date.
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Differences relating to movements in exchangerates are recognised in the income statement.
At the reporting date, the assets and liabilities offoreign entities are translated into BinckBank’spresentation currency (the euro) at the exchangerate prevailing on the balance sheet date while theincome statement is translated at the weightedaverage exchange rate for the year. Translationdifferences are recognised directly in a separatecomponent of equity. If a non-eurozone entity issold, the deferred cumulative amount included inequity for the relevant company is recognised in theincome statement. In the income statement, theresults on financial transactions and costs areconverted into euros at the exchange rate prevailingon the transaction date.
Financial instrumentsIn accordance with IAS 39, financial instruments aredesignated as financial assets or financial liabilitiesat fair value through profit or loss, as held-to-maturity investments, as loans and receivables or asavailable-for-sale financial assets or other liabilities.BinckBank determines the designation of itsfinancial assets on initial recognition.
Financial assets or financial liabilities at fair valuethrough profit or lossFinancial assets and financial liabilities are regardedas being held for trading purposes if they areacquired with the aim of being sold or repurchasedin the short term. On initial recognition a financialasset or a financial liability is recognised at fairvalue with subsequent fair value gains and lossesrecognised in the income statement. Derivatives notheld on behalf of clients are designated as held fortrading purposes. Derivatives are financialinstruments requiring only a limited net initialinvestment or none at all, with future settlementdependent on the underlying notional amount ofthe contract and movements in certain rates orprices (e.g. an interest rate or the price of a financialinstrument). Gains and losses on investments held
for trading purposes are recognised in the incomestatement.
The derivatives not held on behalf of clients andfinancial assets at fair value through profit or lossare also covered by the term trading portfolio.
Held-to-maturity investmentsFinancial assets with fixed or determinablepayments and a fixed maturity date are designatedas investments to be held to maturity if BinckBankspecifically intends to hold them until maturity andis in a position to do so. Held-to-maturityinvestments are recognised at amortised cost,measured using the effective interest method, lessany impairment losses.
Loans and receivablesLoans and receivables are financial assets with fixedor determinable payments that are not quoted inan active market. They are recognised at amortisedcost, using the effective interest method. Gains andlosses are recognised in the income statementwhen the loans and receivables are derecognised orimpaired.
Available-for-sale financial assetsAvailable-for-sale financial assets are thosefinancial assets that are designated as beingavailable for sale or are not included in one of theabove categories. After initial recognition, available-for-sale financial assets are measured at fair value.Any gain or loss is shown as a separate componentof equity until the investment is derecognised ordetermined to be impaired. At such time, thecumulative gain or loss previously shown in equityis recognised in the income statement.
Recognition of financial assets in the balance sheetFinancial assets bought and sold in accordance withstandard market conventions are recognised at thetransaction date of the relevant purchase or sale.Held-to-maturity assets and loans and receivablesare recognised in the balance sheet uponacquisition. On initial recognition, financial
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instruments are assigned to a specific category andthis determines the way in which they arerecognised in the financial statements at the time.Initial recognition of all other financial assets andliabilities is at cost, including directly attributabletransaction costs.
A financial asset (or a component of a financialasset or part of a group of similar financial assets)is no longer shown in the balance sheet if:∑ BinckBank ceases to have a right to the cashflows from the asset;• BinckBank retains the right to receive the cash
flows from the asset but has entered into anobligation to pay them to a third party in theirentirety and without significant delay under theterms of a specific contract; or
• BinckBank has transferred its rights to receive thecash flows from the asset and has either(a) largely transferred all risks and rewards ofownership of the asset or (b) not largelytransferred all risks and rewards of ownership ofthe asset, i.e. retains them, but has transferredcontrol of the asset.
If BinckBank has transferred its rights to receive thecash flows from an asset but has not largelytransferred all risks and rewards of ownership ofthe asset, i.e. retains them, and has not transferredcontrol of the asset, that asset continues to berecognised for as long as BinckBank remainsinvolved with the asset. Financial liabilities cease tobe shown in the balance sheet as soon as theperformance relating to the obligation has beencompleted or the obligation has been removed orhas expired.
Determination of fair valueThe fair value of a financial instrument is based onthe market price if there is an active market for thatinstrument. Financial assets are carried at the bidprice, financial liabilities are carried at the offerprice and ‘risk off-setting’ positions are carried atthe mid-price, excluding transaction costs. If nomarket price is available, the fair value of the
financial instrument is estimated on the basis ofthe most recent commercial transactions in themarket or the current market value of another,essentially similar, instrument or by using pricingmodels or by determining the present value of thecash flows.
Offsetting of financial instrumentsFinancial assets and liabilities are set off againsteach other and the net amount is presented in thebalance sheet when there is a legally enforceableright to set off the amounts and an intention tosettle on a net basis, or realise the asset and settlethe liability simultaneously.
Impairment of financial assets At each balance sheet date, BinckBank assesseswhether there is objective evidence of impairmentof financial assets individually or groups of financialassets collectively. If impairment is indicated, theamount of any impairment loss is determined asfollows for held-to-maturity investments, loans andreceivables and available-for-sale assets.
Held-to-maturity investments / loans and receivablesIf there is objective evidence that an impairmentloss on loans and receivables or held-to-maturityinvestments carried at amortised cost has beenincurred, the amount of the loss is measured as thedifference between the asset’s carrying amount andthe present value of estimated future cash flows(excluding future credit losses that have not beenincurred) discounted at the financial asset’s originaleffective interest rate (i.e. the effective interest ratecomputed at initial recognition). The amount of theloss is recognised in the income statement. If theamount of an impairment loss subsequentlydecreases and the decrease can be objectivelyrelated to an event occurring after the impairmentwas recognised, the previously recognisedimpairment loss is reversed, providing the carryingamount of the asset does not exceed the amortisedcost at the reversal date.
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Available-for-sale financial assets If an available-for-sale financial asset is impaired,an amount equal to the difference between itsacquisition cost (net of any repayments of principaland any amortisation) and current fair value lessany impairment losses previously recognised inprofit or loss is transferred from equity to theincome statement. Reversals of impairment lossesrelating to equity instruments classified as availablefor sale are not recognised through profit or loss.Reversals of impairment losses relating to debtinstruments are reversed through the incomestatement if the increase in the fair value of theinstrument can be objectively related to an eventoccurring after the previous impairment loss wasrecognised in the income statement.
Clients’ derivativesBinckBank executes derivatives transactions onbehalf of its clients and holds the resultantpositions for the client’s account and at the client’srisk. Financial settlement with the clients concernedin respect of such transactions and positions iseffected immediately. The clients have lodgedadequate collateral with BinckBank to cover thepositions held.
Other investments Other investments are carried at fair value. If thefair value cannot be measured reliably, the assetsare carried at the lower of cost and market value. Ifreliable fair value measurement cannot be achieved,the reason is disclosed, where possible along withthe bandwidth within which estimates of the fairvalue probably lie.
Intangible assets Intangible assets acquired separately are measuredon initial recognition at cost. The cost of intangibleassets acquired in a business combination is theirfair value at the date of acquisition. Subsequently,intangible assets are carried at cost less cumulativeamortisation and any cumulative impairmentlosses. Intangible assets are determined as havingeither a definite or an indefinite useful life.
Intangible assets with a definite useful life areamortised over the useful life and tested forimpairment if there are indications that an assetmay be impaired. Amortisation of intangible assetswith a definite useful life is presented in the incomestatement in the cost category appropriate to thefunction of the asset concerned. Intangible assetswith an indefinite useful life are subjected to anannual impairment test, either individually or at thelevel of the cash-generating unit. These intangibleassets are not amortised. The useful life of anintangible asset with an indefinite useful life isreassessed annually.
Costs of research and development Research costs are recognised as incurred. Anintangible asset which results from developmentcosts incurred on an individual project is onlyrecognised if BinckBank can show that completionof this intangible asset is technically feasible, that itwill bring future economic benefits and that it ispossible to measure the costs incurred duringdevelopment reliably.
After initial recognition of the development costs,the asset is carried at cost less any cumulativeamortisation and cumulative impairment losses.Any such capitalised costs are amortised over theperiod in which the expected future sales from theproject concerned are to be realised. The carryingamount of the development costs is tested forimpairment annually if the asset is not yet in use ormore frequently if there are indications ofimpairment during the year.
GoodwillGoodwill acquired in a business combination iscarried at cost on initial recognition, measured asthe excess of the cost of the business combinationover BinckBank’s interest in the net fair value of theacquiree’s identifiable assets, liabilities andcontingent liabilities. Subsequently, goodwill iscarried at cost less any cumulative impairmentlosses.
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Goodwill is tested for impairment annually, or morefrequently if events or changes in circumstancesindicate that the asset might be impaired. For thisimpairment test, goodwill acquired in a businesscombination is allocated to BinckBank’s cash-generating units or groups of cash-generating unitsthat are expected to benefit from the synergy ofthe business combination.
An impairment loss is measured by assessing therecoverable amount of the cash-generating unit towhich the goodwill relates. If the recoverableamount is lower than the carrying amount, animpairment losses is recognised.
Property, plant and equipment This item comprises assets intended to be used inthe performance of BinckBank’s activities in thelong term. It includes fixtures, fittings andequipment in the company’s premises andcomputer hardware. These assets are carried at costless cumulative depreciation and any cumulativeimpairment losses. Depreciation is based on costand calculated on a straight-line basis over theuseful life of the asset. Both the useful life and theresidual value of assets are reviewed annually. Theannual depreciation percentages are 14.3% (fixturesand fittings), 20% (equipment) and 33.3% (computerhardware).
TaxTax assets and liabilitiesTax assets and liabilities for current and prior yearsare carried at the amount expected to be claimedfrom or paid to the tax authorities. The tax amountis computed on the basis of enacted tax rates andapplicable tax law.
Deferred tax A provision is recognised for deferred tax liabilities,based on the temporary differences at the balancesheet date between the tax base of assets andliabilities and their carrying amount in thesefinancial statements. Deferred tax liabilities are
recognised for all taxable temporary differencesexcept:• where the deferred tax liability arises on the
initial recognition of goodwill or the initialrecognition of an asset or a liability in atransaction that is not a business combinationand does not affect the operating profit beforetax or the taxable profit;
• in the case of taxable temporary differencesconnected with investments in subsidiaries andassociates, where BinckBank is able to control thetiming of the reversal of the temporary differenceand it is probable that the temporary differencewill not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductibletemporary differences, unused tax facilities andunused tax loss carry-forwards when it is probablethat taxable profits will be available against whichthe deferred tax asset can be utilised, enabling thedeductible temporary differences, unused taxfacilities and unused tax loss carry-forwards to beused.
The carrying amount of the deferred tax assets isassessed at the balance sheet date and reduced if itis not probable that sufficient taxable profits willbe available against which some or all of thedeferred tax asset can be utilised. Unrecogniseddeferred tax assets are reassessed at the balancesheet date and recognised to the extent that it isprobable that taxable profits will be available in thefuture against which the deferred tax asset can beutilised. Deferred tax assets and liabilities arecarried at the tax rates expected to be applicable tothe period in which the asset is realised or theliability is settled, based on enacted tax rates andapplicable tax law. The tax on items recogniseddirectly in equity is accounted for directly in equityinstead of in the income statement. Deferred taxassets and liabilities are presented as a net amountif there is a legally enforceable right to set offdeferred tax assets against deferred tax liabilitiesand the deferred tax is related to the same taxableentity and the same tax authority.
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Other assets The receivables included in this item are carried atface value less any impairment losses.
Cash and cash equivalentsThe item under the heading of cash in the balancesheet comprise cash at banks and in hand andshort-term deposits (call money) with originalmaturities of three months or less.
Impairment of assetsThe carrying amount of BinckBank’s assets is testedat each balance sheet date in order to determinewhether there are indications of impairment. If so,the recoverable amount of the asset is estimated.An impairment loss is recognised if the carryingamount of an asset or cash-generating unit exceedsthe recoverable amount.
Repurchase of own shares Equity instruments which are reacquired (treasuryshares) are deducted from equity. Gains or losses onthe purchase, sale, issue or withdrawal ofBinckBank’s own equity instruments are notrecognised in the income statement.
Other liabilities All loans are carried on initial recognition at the fairvalue of the consideration received less directlyattributable transaction costs. After initialrecognition, interest-bearing loans are subsequentlycarried at amortised cost calculated using theeffective interest method.
Provisions A provision is recognised if (i) BinckBank has apresent obligation (legal or constructive) as a resultof a past event; (ii) it is probable that an outflow ofresources embodying economic benefits will berequired to settle the obligation and (iii) a reliableestimate can be made of the amount of theobligation. If BinckBank expects some or all of aprovision to be reimbursed, the reimbursement isrecognised as a separate asset only whenreimbursement is virtually certain. The expense
relating to any provision is presented in the incomestatement net of any reimbursement. If the effectof the time value of money is material, provisionsare discounted at a rate, before tax, that reflects,where appropriate, the risks specific to the liability.Where discounting is used, the increase in theprovision due to the passage of time is recognisedas a borrowing cost.
PensionsBinckBank has pension arrangements for membersof its Management Board and staff based on adefined contribution plan and a defined benefitplan. Under the defined contribution plan, apercentage of employees’ fixed salary is paid to apension insurer. The percentage payable is age-related. The pension contributions are recognised inthe year to which they relate.
Through its subsidiary Syntel Beheer B.V., BinckBankhas a defined benefit pension plan which is alsoinsured with a pension provider. The costs of thedefined benefit plan are individually determined onan actuarial basis using the projected unit creditmethod. Actuarial gains and losses are recognisedas income or expense if the net cumulativeunrecognised actuarial gains and losses at the endof the preceding year for each plan separatelyamount to more than 10% of the greater of thedefined benefit obligation and the fair value of theplan assets at that date. These gains or losses aredivided over the expected average remainingworking lives the employees participating in theseparate plans. If the benefits under a pension planare amended, that portion of the cost of theamended benefit obligation which relates to pastservice is recognised as an expense in the incomestatement on a straight-line basis over the averageperiod until the benefits become vested. To theextent that the benefits are already vested, the pastservice cost is expensed immediately.
The net obligation under the defined benefit plan isthe total of the present value of the defined benefitobligation and the unrecognised actuarial gains and
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losses less the as yet unrecognised amendedbenefits and the fair value of the plan assets out ofwhich the obligations have to be directly settled.
Share-based payments Members of BinckBank’s Management Board and agroup of BinckBank staff receive remuneration inthe form of share-based payments. These paymentsare settled either by issuing equity instruments ofthe company or by cash payment.
The cost of equity-settled transactions withemployees is measured by reference to the fairvalue at the date on which they are granted. Thecost of equity-settled transactions is recognised,together with a corresponding increase in equity,over the period in which the performance and/orservice conditions are fulfilled, ending on the dateon which the relevant employees become fullyentitled to the award (i.e. the date on which theserights become unconditional). The cumulativeexpense recognised for equity-settled transactionsat each reporting date reflects the extent to whichthe vesting period has expired and BinckBank’s bestestimate of the number of equity instruments thatwill ultimately be vested. The expense charged tothe income statement for a period reflects themovement in cumulative expense recognised at thebeginning and end of that period.
LeasingIn the case of operating leases where BinckBank islessee, the lease payments are charged to theincome statement on a straight-line basis over thelease period.
5. Recognition and measurement ofincome and expenses
General Income and expense items are recognised in theperiod to which they relate, having due regard tothe above accounting policies for the recognitionand measurement of assets, equity and liabilities.Revenues are recognised if it is probable that their
economic benefits will flow to BinckBank and therevenue can be reliably measured.
Interest income and expenseInterest income and expense are recognised in theyear to which they relate. Interest income ismeasured using the effective interest method.
Income from other investmentsIncome from other investments is attributed to theyear to which it relates. Dividends received fromother investments are recognised upon entitlementto receive the dividend. Any realised fair value gainsand losses on the other investments are accountedfor under the heading of impairment of otherinvestments.
Commission income and expenseThis item comprises commission, excluding interest,received or receivable from third parties and paid orpayable to third parties, respectively, whether on anon-recurring or more regular basis, in respect ofservices provided.
Results on financial transactions Financial instruments held for trading purposes arecarried at fair value. Any fair value gains and lossesare recognised in the result on financialtransactions in the income statement. The itemincludes gains and losses resulting from pricemovements, exchange rate movements and interestrate movements, together with transaction costsand stock exchange and clearing costs directlyattributable to trading activities.
Other income Other income comprises amounts charged to thirdparties during the year in respect of goods andservices supplied relating to hardware andsoftware.
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6. Business combination
Acquisition of Syntel Beheer B.V.
On 18 October 2006, BinckBank acquired 100% ofthe voting stock of Syntel Beheer B.V. (Syntel). Thiscompany (which is not a listed company) is based inthe Netherlands and specialises in developingsoftware for financial institutions for processingand keeping account of securities transactions. Thefair value of the identifiable assets and liabilities ofSyntel as at the acquisition date was as follows:
Recognised on Syntelacquisition carrying
amountCash and cash equivalents 1,595 1,595
Intangible assets 1,355 425
Property, plant and equipment 286 286
Deferred tax assets 63 -
Trade receivables 1,269 1,269
4,568 3,575
Trade payables (1,637) (1,637)
Pension provision (246) -
Tax and social security contributions (235) (235)
(2,118) (1,872)
Total net assets 2,450 1,703
Goodwill on acquisition 8,881
Purchase price 11,331
The purchase price is made up of an initial sum andan additional amount depending on Syntel’s grossmargin for the years 2007 and 2008.
Cost:Purchase price 11,181
Transaction costs 150
Total 11,331
Cash outflow on acquisition:Net cash and cash equivalents acquired with the subsidiary 1,595
Cash paid (8,302)
Net cash outflow (6,707)
From the acquisition date onwards, Syntelcontributed € 95,000 to BinckBank’s net profits,with total revenue over the same period amountingto € 855,000. If the business combination had takenplace at the beginning of the year, BinckBank’sprofit after tax would have amounted to € 24.2million and the profit after tax on the continuingoperations would have been € 24.0 million.BinckBank’s total revenue from continuingoperations would have been € 60.8 million.
The acquisition of Syntel has been accounted forusing the purchase method described in IFRS 3. Theamount recognised as intangible assets resultingfrom the acquisition of Syntel represents thecompany’s existing revenue-generating contracts.The fair value of these contracts had been taken asthe net present value of the reliable estimates ofthe revenues concerned. This amount will beamortised via the income statement over a periodof not more than five years. The goodwill has beenmeasured on the basis of the difference betweenthe cost of the acquisition and the fair value of theidentifiable assets and liabilities of Syntel as at theacquisition date. The recognised goodwill reflectsthe expected synergies of the acquisition as regardsincome and expenses and the value of Syntel’ssoftware and staff for which there is no recognitionoutside of goodwill.
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7. Discontinued operations
On 25 July 2006, BinckBank announced thepreviously taken decision of the Management Boardto dispose of the activities of Hills IndependentTraders Ltd (HIT). HIT engaged in proprietary tradingin equity derivatives and underlying securities,chiefly on the London Stock Exchange. HIT’sactivities were included in the trading businesssegment. The business was sold at book value. Thedisposal of HIT was prompted by the increasedfocus on BinckBank’s core activities, viz. online retailbrokerage and professional services. There were nosynergistic gains to be had for BinckBank from theway in which HIT operated either. The disposal ofthe HIT activities was completed on 13 October2006.
HIT’s results, which have been presented as resultfrom discontinued operations, were as follows:
2006 2005Revenue 7,591 6,086
Expenses (7,306) (5,206)
Profit before tax on discontinued operations 285 880
Tax (86) (264)
Profit on discontinued operations 199 616
Included in the total expenses is an impairmentloss of approximately € 1.8 million, which wasapproximately € 1.3 million after tax.
HIT’s net cash flows were as follows:
Cash flow from operating activities (27,712) 29,056
Total net cash (outflow)/inflow (27,712) 29,056
Earnings per share: Ordinary earnings per share on discontinued operations 0.01 0.02
Diluted earnings per share on discontinued operations 0.01 0.02
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Notes to the consolidated balance sheet
31 December 2006 31 December 2005x € 1,000 x € 1,000
Assets
8. Cash 5,672 7,685
This item includes all cash in legal tender, including bank notes andcoins in foreign currency, and any credit balances available ondemand from the central banks in countries where BinckBank hasoffices.
9. Banks 164,617 171,113
This item includes all cash and cash equivalents relating to thebusiness activities held in accounts with credit institutionssupervised by the bank regulators.
The item comprises:Credit balances available on demand 13,575 4,036Call money 113,171 110,484Credit balances not available on demand 37,871 56,593
164,617 171,113
The call money receivables have original maturities of less thanthree months. Credit balances not available on demand serve partlyas collateral for the delivery risk on securities. Interest is received onthese balances at a variable rate based on Euribor.
10. Loans and receivables 216,332 124,764
This item comprises receivables from private sector clients,including overnight loans and overdrafts that are collateralised bysecurities and bank guarantees.
The analysis is as follows:Cash equivalents:Private sector call money 42,000 24,500
Other loans and receivables:Public sector loan 5,000 -Receivables collateralised by securities 132,641 78,132Receivables collateralised by bank guarantees 3,952 772Receivables from clients in respect of short option positions 32,739 21,360
174,332 100,264
216,332 124,764
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31 December 2006 31 December 2005x € 1,000 x € 1,000
The receivables relating to cash equivalents have original maturitiesof less than 3 months. The public sector loan concerns a loan to aDutch municipal authority maturing in 2008. The other receivableshave unspecified maturities. The interest rate applying toreceivables under loans and receivables is based on Euribor.
Movements during the year were as follows:Position as at 1 January 124,764 62,386Movement in call money 17,500 12,250Movement in public sector loan 5,000 -Movement in receivables collateralised by securities 54,509 41,409Movement in receivables collateralised by bank guarantees 3,180 (236)Movement in short option positions held by clients 11,379 8,955
Balance as at 31 December 216,332 124,764
As at 31 December 2006, bad debt provisions of € 16,000 (2005: € 17,500) were charged against this item. Actual bad debts writtenoff in 2006, as in 2005, amounted to less than one thousand euros.
11. Interest-bearing securities 67,828 42,427
This item comprises:- Held to maturity
- Government bonds 48,445 21,333- Available for sale:
- Other bonds with indefinite maturity 7,710 8,141- Other bonds with definite maturity 1,337 -
- Trading portfolio 10,336 12,953
67,828 42,427
All the above securities are listed and used in part to cover marginrequirements. The held-to-maturity portfolio is carried at amortisedcost measured using the effective interest method.
In the available-to-sale portfolio, the interest rate on the bonds withindefinite maturity is revised every three months on the basis of theprevailing 10-year interest rate on government bonds. The bondswith definite maturity in this portfolio are due for redemption in2012. In 2006, fair value losses on the available-to-sale assetsamounting to € 155,000 were recognised directly in equity (2005: € 475,000). The calculation of the amount charged to equity takesaccount of the tax effect of this impairment. As in 2005, none of theassets was sold in 2006.
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31 December 2006 31 December 2005x € 1,000 x € 1,000
12. Shares and other variable-income securities 100,613 120,656
This item comprises:Securities trading portfolio 24,833 59,583Derivatives trading portfolio 104 6,081Long option positions held for clients 75,676 54,992
100,613 120,656
The positions held in the trading portfolio are in listed securitiesand are used in part to cover margin requirements and securitieslending. Long option positions held for clients are held inBinckBank’s name for the account and risk of the relevant clients.
13. Other investments 29 88
Other investments as at 1 January 88 102Impairment (69) -Sale (4) (14)Purchase 14 -
Other investments as at 31 December 29 88
The other investments concern investments in the share capital ofInmaxxa B.V. (formerly Triple Assets B.V.) and LPE Capital (acquired in2006) representing interests of less than 5%. These investments arecarried at the lower of cost and market value since no reliablemeasure of fair value is available. The advent of new shareholdershas resulted in dilution of the interests of the existing shareholdersof Inmaxxa B.V., leading to the recognition of an impairment loss of€ 69,000 in respect of Inmaxxa.
In 2005, the 6.25% interest in Trader Team Ltd was sold. Theremaining 15% interest in D&O Vermogensbeheer B.V. was sold in2006
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31 December 2006 31 December 2005x € 1,000 x € 1,000
14. Intangible assets 11,511 1,051
BinckBank’s intangible assets comprise software, development costs, goodwill and other intangible assets. Theannual rate of amortisation for software bought externally is 33.3%, for software developed in-house 25% andfor other intangible assets 20%. An impairment test is performed on goodwill annually or more frequently ifevents or changes in circumstances indicate that the carrying amount may be impaired.
The movements in intangible assets in 2006 were as follows:
Software Develop- Other Goodwill Totalment costs intangible
assetsCarrying amount as at 1 January 1,051 - - - 1,051
Investments 927 29 - - 956
Acquisition of Syntel - 425 930 8,881 10,236
Disposals - - - - -
Amortisation (705) (27) - - (732)
Carrying amount as at 31 December 1,273 427 930 8,881 11,511
31 December 2006Cost 3,927 454 930 8,881 14,192
Cumulative amortisation and impairment (2,654) (27) - - (2,681)
Carrying amount as at 31 December 1,273 427 930 8,881 11,511
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The movements in intangible assets in 2005 were as follows:
Software Develop- Other Goodwill Totalment costs intangible
assetsCarrying amount as at 1 January 643 - - - 643
Investments 822 - - - 822
Amortisation (414) - - - (414)
Carrying amount as at 31 December 1,051 - - - 1,051
31 December 2005Cost 3,000 - - - 3,000
Cumulative amortisation and impairment (1,949) - - - (1,949)
Carrying amount 1,051 - - - 1,051
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On 18 October 2006, the entire share capital of thesoftware house Syntel was acquired. Thisorganisation develops proprietary software for saleto customers. The costs of developing the softwarethat is available for sale are capitalised andamortised over four years. There were no otherresearch and development expenses besides theamortisation of the capitalised softwaredevelopment costs.
Goodwill relates to the excess of the fair value ofSyntel’s identifiable net assets over the acquisitioncost of Syntel.
Goodwill impairment testThe goodwill has been allocated to the followingindividual cash-generating units:• Syntel and• BinckBank N.V. with respect to Business Process
Outsourcing (BPO) activities.
The cash-generating unit SyntelThe recoverable amount of Syntel has beenmeasured on the basis of a value in use calculatedon the basis of cash flow projections based on thebudgets approved by senior management for aperiod of five years. The discount rate applied to thecash flow projections was 9.68% and the cash flowsbeyond the five-year horizon have beenextrapolated at a growth rate of 2%.
The cash-generating unit BPOThe recoverable amount of the BPO activities hasbeen measured on the basis of a value in usecalculated on the basis of cash flow projectionsbased on the budgets approved by seniormanagement for a period of five years. The discountrate applied to the cash flow projections was10.64% and the cash flows beyond the five-yearhorizon have been extrapolated at a growth rateof 0%.
Carrying amount of goodwill allocated to eachcash-generating unit:
Syntel BPO TotalCarrying amount of goodwill 6,848 2,033 8,881
Principal assumptions used in calculating the valuein use of Syntel and the BPO activities as at 31 December 2006The principal assumptions used by management inarriving at the cash flow projections for thepurposes of the goodwill impairment test were:
• Estimated sales based on sales for the yearimmediately preceding the budget year, applyingan annual growth rate of 2%.
• Management has estimated the sales for the BPOactivities.
• Costs based on standardised costs for the yearimmediately preceding the budget year, applyingan annual rate of increase of 3%.
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31 December 2006 31 December 2005x € 1,000 x € 1,000
15. Property, plant and equipment 2,613 1,829
The movements in 2006 were as follows:
Fixtures and Computer Other Totalequipment hardware
Carrying amount as at 1 January 896 933 - 1,829Additions 263 1,441 18 1,722Disposals (2,101) - - (2,101)Acquisition of Syntel 190 96 - 286Depreciation (510) (659) (1) (1,170)Cumulative depreciation and disposals 2,047 - - 2,047Currency adjustments - - - -
Carrying amount as at 31 December 785 1,811 17 2,613
31 December 2006Cost 5,086 4,537 18 9,641Cumulative depreciation and impairment (4,301) (2,726) (1) (7,028)
Carrying amount as at 31 December 785 1,811 17 2,613
The movements in 2005 were as follows:
Fixtures and Computer Other Totalequipment hardware
Carrying amount as at 1 January 1,357 939 - 2,296Additions 219 534 - 753Depreciation (621) (540) - (1,161)Cumulative depreciation and disposals (62) - - (62)Currency adjustments 3 - - 3
Carrying amount as at 31 December 896 933 - 1,829
31 December 2005Cost 6,734 3,000 - 9,734Cumulative depreciation and impairment (5,838) (2,067) - (7,905)
Carrying amount as at 31 December 896 933 - 1,829
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31 December 2006 31 December 2005x € 1,000 x € 1,000
16. Tax 5,443 4,870
The reconciliation of the effective tax rate with the tax rate applicable to the consolidated financial statementsis as follows:
2006 2006 2005 2005Amount Percentage Amount Percentage
Standard tax rate 8,564 29.6% 5,604 31.5%Effect of different tax rates (in other countries) 53 0.2% (13) (0.1%)Prior year tax adjustments (220) (0.8%) (723) (4.1%)Non-deductible losses - - 196 1.1%Deferred tax liabilities 109 0.4% - -Effect of tax loss carryforwards not previously recognised (2,900) (10.0%) - -Tax-exempt profit components (43) (0.2%) (185) (1.0%)Effect of tax loss carryforwards utilised (443) (1.5%) - -
Total tax burden 5,120 17.7% 4,879 27.4%
For the tax expense on the activities not being continued on a permanent basis, see note 7.
The total amount of tax recognised directly in equity was € 286,000 (2005: nil).
The deferred tax assets and liabilities recognised in the consolidated balance sheet and in the consolidatedincome statement can be analysed as follows:
Balance sheet Income statement
2006 2005 2006 2005Deferred tax liabilities:Temporary difference relating to bonus shares for Syntel staff (109) - - -Taxable temporary differences (109) - - -
Deferred tax assets:Pension liabilities 63 -Available tax loss carryforwards 2,900 - 2,900 -
Total deferred tax assets 2,963 - 2,900 -
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The movements in the deferred tax assets and liabilities were as follows:
Deferred Deferredtax tax
laibilities assetsCarrying amount as at 1 January 2006 - -Added - 2,900Acquisition of Syntel 109 63
Carrying amount as at 31 December 2006 109 2,963
Of which:Due in < 1 year 27 531Due in 1–5 years 82 2,369Due after - 63
The return to profitability of the associate Binck België N.V. in 2006 meant that it was possible to recognise taxloss carryforwards amounting to € 2.9 million in the deferred tax assets (2005: nil), corresponding to an amount oftax losses of € 8.5 million. The total tax losses as at year-end 2006 amounted to € 21.1 million (2005: € 22.4 million).
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31 December 2006 31 December 2005x € 1,000 x € 1.000
17. Other assets 38,020 21,010
Other assets have maturities of less than one year and comprise:
Loans and receivablesLicences and permits - 146Receivables relating to securities sold, but not yet delivered 36,805 20,313Trade receivables 1,051 100Other receivables 164 451
38,020 21,010
The licences and permits relate to the F-permits received as a resultof the stock exchange merger in 1997. These permits provide a ten-year exemption from registration charges or reimbursement oftransaction charges up to a certain amount for each permit. Thefinal reimbursement was made in respect of 2006.
18. Prepayments and accrued income 4,969 3,184
This item comprises:Interest receivable 2,872 1,541Commission receivable 698 360Prepaid expenses 1,399 1,283
4,969 3,184
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31 December 2006 31 December 2005x € 1,000 x € 1,000
Equity and liabilities
19. Funds entrusted 383,543 235,836
This item comprises clients’ credit balances on cash or margin accounts.
20. Liabilities in respect of securities 60,494 111,353
This item comprises the short positions in securities. All thesecurities are listed. The item can be analysed as follows:
Trading portfolio- Fixed-income securities 4,084 3,842- Shares and variable-income securities 23,671 86,151Movement in short derivative positions held by clients 32,739 21,360
60,494 111,353
21. Other liabilities 96,737 84,031
Liabilities relating to financial instrumentsLiabilities in respect of securities bought but not yet delivered 12,737 21,493Liabilities to clients for long derivative positions held 75,676 54,992Profit-sharing bond 1,320 1,555Loan notes - 1,194
89,733 79,234Other liabilitiesTax and social security contributions 1,261 182Part of the purchase price for Syntel still payable 3,029 -Other 2,714 4,615
7,004 4,797
96,737 84,031
The profit-sharing bond is a loan provided by a group of employees.It has a maturity of three years and three months from 1 October2005 to 31 December 2008. Repayment of the loan may be madeand demanded without notice and without penalty. If repayment ofthe loan is demanded during the calendar year, the lenders are notentitled to receive interest in respect of that year. Interest is paidonly in respect of the amount lent and at BinckBank’s disposal forthe full calendar year. A schedule for interest payments has beenagreed, with the interest rate payable being dependent onBinckBank’s net profit and varying between 0% and 15%. Theinterest payable is calculated at the end of each year and recognisedin the result for that year. The interest for 2006 amounts to 15%,
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31 December 2006 31 December 2005x € 1,000 x € 1,000
and will be payable after adoption of the financial statements bythe General Meeting of Shareholders.
The amount presented in 2005 under loan notes refers toBinckBank’s share in loan notes issued by third parties. These notes,on which the interest payable is at Libor, are in principle repayableon demand.
Part of the purchase price relating to the acquisition of the sharecapital of Syntel depends on Syntel’s gross margin over the years2007 and 2008. For further details, see note 6 Businesscombination.
22. Accruals and deferred income 7,993 11,699
This item comprises:Staff costs 3,783 8,252Accrued stock exchange and transaction costs 447 640Accrued interest 1,896 401Other 1,867 2,406
Total 7,993 11,699
Staff costs under this heading largely comprise staff bonusespayable.
23. Provisions 445 512
Onerous contracts 199 512Pensions 246 -
445 512
The movements in the provision for onerous contracts during theyear were as follows:
Balance as at 1 January 512 614Released to income (210) -Utilised (103) (102)
Balance as at 31 December 199 512
The provision for onerous contracts has been formed in respect ofrented office space, where the costs of the lease are higher than theeconomic benefits expected to be generated by the contract. Theperiod for which the provision has been formed is equal to theduration of the lease, which expires on 1 October 2010, but will bereduced as and when the economic benefits are deemed likely toexceed the costs. An amount was accordingly released to income in
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31 December 2006 31 December 2005x € 1,000 x € 1,000
2006. The discount rate applied to this provision is equal to theexpected future rate of increase in the rent.
The movements in the pension provision were as follows:
Balance as at 1 January -Acquisition of Syntel 246
Balance as at 31 December 246
24. Pension liabilities
The following provision has been recognised in the consolidatedbalance sheet in respect of the defined benefit plan:
Pension liabilities:Present value of defined benefit obligation 1,822Fair value of plan assets (1,576)Unrecognised actuarial gains and losses -Unattributed past service cost -
Total pension liabilities 246
The movements in the pension liabilities were as follows:
Benefit obligation:Position as at 1 January -Acquisition of Syntel 1,822
Position as at 31 December 1,822
Plan assets:Position as at 1 January -Acquisition of Syntel 1,576
Position as at 31 December 1,576
None of the plan assets are held or used by BinckBank.
The actuarial assumptions used in measuring the above items were as follows:
Life expectancy GBM/V mortality table 1995–2000 with age reduction of 2 years formen and 1 year for women, before and after retirement age
Incapacity risk GMD table 1994 multiplied by 30%Discount rate 4.5%Expected return on plan assets 3.85%Expected pay rises 1.5%Retirement age 65
There are no other material actuarial assumptions. Indexation of the benefits is not discretionary.
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31 December 2006 31 December 2005x € 1,000 x € 1,000
25. Equity 71,289 55,246
Issued share capital 3,084 3,084
A total of 30,837,403 ordinary shares were in issue, each with anominal value of € 0.10. The share capital is fully paid up. Therewere no movements in share capital during the year.
Stichting Prioriteit AOT owns 50 priority shares, each with a nominalvalue of € 0.10.
Share premium 20,855 20,855
The share premium is exempt from tax and in principle freelydistributable.
Treasury shares (956) (1.121)
Number Amount Number amount1 January 2006 296,855 (1,121) 296,855 (1,121)Issued to management 12,890 49 - -Issued to Syntel staff 30,820 116 - -
31 December 2006 253,145 (956) 296,855 (1,121)
As at 1 January 2006, the number of treasury shares held was296,855, acquired at an average purchase price of € 3.78. In 2006,43,710 treasury shares were issued. The issued shares were chargedto other reserves at the average purchase price. The carryingamount of the 253,145 treasury shares (as at year-end 2006) wasmeasured at the average purchase price of approximately € 3.78.The movement in equity in respect of treasury shares reflects theamounts bought and sold. The quoted share price as at year-end2006 was € 14.66 (2005: € 9.15).
On 3 March 2006, a total of 12,890 shares was granted to membersof the Management Board as a variable remuneration element inrespect of performance in 2005. The expense was recognised in2005.
A bonus in the form of BinckBank shares was conditionally awardedto a group of staff of the subsidiary Syntel acquired in 2006. Theperiod in which the conditions attached to this award are to befulfilled runs from 2007 to 2010. The cost of the arrangement willbe charged to income over this period. In total, 30,820 shares wereissued on 29 December 2006.
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31 December 2006 31 December 2005x € 1,000 x € 1,000
Retained earnings reserve 24,009 13,609
Opening balance 13,609 2,808Added to other reserves (13,609) (2,808)Profit for the year 24,009 13,609
Closing balance 24,009 13,609
The retained earnings reserve comprise the unappropriated profit in 2006.
Other reserves 24,297 18,819
These comprise:(i) Foreign currency translation reserve 334 237(ii) Reserve for unrealised results (649) (494)(iii) Other reserves 24,612 19,076
24,297 18,819
(i) Foreign currency translation reserve
Opening balance 237 41Movement 97 196
Closing balance 334 237
The foreign currency translation reserve comprises exchangedifferences arising on translation of the financial statements offoreign subsidiaries.
(ii) Reserve for unrealised results
Opening balance (494) (19)Result on available-for-sale financial assets (441) (475)Tax on result on available-for-sale financial assets 286 -
Closing balance (649) (494)
The reserve comprises the fair value gains and losses, after tax, onavailable-for-sale financial assets. There were no sales in 2005 or2006.
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31 December 2006 31 December 2005x € 1,000 x € 1,000
(iii) Other reserves
Opening balance 19,076 20,064 Acquisition of minority interest - (700)Rights to shares 342 263Issue of shares to management (49) -Issue of shares to Syntel staff (116) -Payment of final dividend (4,889) (1,527)Payment of interim dividend (3,361) (1,832)Appropriation of profit for previous year 13,609 2,808
Closing balance 24,612 19,076
The other reserves are in principle freely distributable.
The acquisition of a minority interest refers to the acquisition in2005 of the remaining shares of Binck België N.V. and is recognisedin other reserves because of being a transaction betweenshareholders within a group.
Share optionsAs at 31 December 2006, the following options to acquire shares ofthe company granted to members of the Management Board and/oremployees were outstanding:100,000 shares at € 2.24, expiry date 10 October 2007;25,000 shares at € 3.15, expiry date 21 December 2009.These options were granted in 2004, when they had a total value of€ 98,000. This valuation is based on the Black & Scholes formula forvaluing options, which uses the share prices on the previous 150trading days to calculate volatility, and an interest rate of 3%. Therelated expense is included in staff costs. No options were exercisedin 2005 or 2006. No options were granted or expired in 2006.
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Rights to sharesAs part of the variable element of remuneration, stock optionshares amounting to € 285,000 (2005: € 131,625) have been grantedto the members of the management committee. The price at whichthe shares concerned are issued is determined with reference to theclosing price on the day on which BinckBank’s annual results arepublished. In the case of the 2006 results, that date was 26 January2007, when the closing price of BinckBank shares was € 14.62. Onthat basis, 19,508 shares were issued to the managementcommittee on 29 January 2007. The shares issued to themanagement committee have been deducted from the treasuryshares reserve.In addition to the above amount in respect of stock option shares,an amount of € 57,000 (2005: € 132,000) was added to otherreserves in respect of the rights to ‘free shares’ that have beengranted. The related expense is included in staff costs. The totalreserves in respect of these free shares now amount to € 188,000,making the total amount for rights to shares € 342,000 in 2006(2005: € 263,000).
Bonus scheme for Syntel staffOn acquisition of Syntel, a bonus scheme was agreed with a groupof 28 Syntel employees. At the time of acceptance of this bonusarrangement, each employee opted to be paid either in BinckBankshares (equity settlement) or in cash at an amount based on theBinckBank share price (cash settlement). This bonus will berecognised as an expense provided the recipient remains anemployee of Syntel for a period of four years, with 25% of theamount made available to each employee being released for eachyear in continued service. A total of 30,820 shares was issued toSyntel staff under the equity-settled programme on 29 December2006.
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Notes to the consolidated income statement
2006 2005x € 1,000 x € 1,000
26. Interest 10,785 6,025
This includes all income and expense items relating to the lendingand borrowing of money, providing they are of a similar nature tointerest, as well as interest income on credit balances or interestexpense on overdrafts unless such borrowing is used to fund thetrading portfolio.
This item comprises the following:
Interest income
Interest on clients’ overdrafts 7,885 3,919Interest on call money 5,679 2,158Interest on held-to-maturity financial assets 1,472 661Interest on available-for-sale financial assets 358 311Interest on trading portfolio bonds 339 644Other interest income 493 576
16,226 8,269
Other interest income relates to credit balances on accounts withcredit institutions.
Interest expense
Interest on funds entrusted 4,347 1,163Interest on call money 524 112Interest on profit-sharing bond loan 198 57Other interest expense 372 912
5,441 2,244
Other interest expense relates to debit balances on accounts withcredit institutions.
27. Income from other investments 33 7
Included in this item are the dividends received from the otherinvestments.
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2006 2005x € 1,000 x € 1,000
28. Commission 35,801 22,569
Commission comprises fees for services performed for and by thirdparties in respect of securities transactions and related services. Theitem can be analysed as follows:
Commission incomeRetail 41,757 25,395Professional services 12,735 8,695
54,492 34,090
Commission expenseProfessional services 5,818 3,692Stock exchange and clearing costs – retail 11,543 6,598Stock exchange and clearing costs – professional 1,330 1,231
18,691 11,521
29. Results on financial transactions 8,208 15,512
This item comprises the following:
Trading portfolio transaction results 8,208 14,931Distribution from Amsterdam Stock Exchange Association - 581
8,208 15,512
Included under this heading is the overall result achieved onfinancial assets and financial liabilities carried at fair valueincluding recognition of fair value gains and losses in the incomestatement. The result on trading portfolio transactions comprisesresults achieved on transactions in securities, derivatives andforeign currencies as well as funding costs, dividends and stockexchange and clearing costs.The distribution from the Amsterdam Stock Exchange Association isthe liquidation payment received from the Association in 2005.
30. Other income 855 -
Other income comprises amounts charged to third parties duringthe year in respect of goods and services supplied relating tohardware and software. This income was generated by thesubsidiary Syntel acquired in 2006 and therefore relates to theperiod 18 October 2006 to 31 December 2006.
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2006 2005x € 1,000 x € 1,000
31. Staff costs 15,192 16,612
Wages and salaries 8,865 7,881Profit sharing and bonuses 3,170 6,451Pension contributions 555 436Social security charges 1,036 639Rights to shares 343 263Other staff costs 1,223 942
15,192 16,612
Average number of employeesThe average number of employees in 2006, including members of the Management Board, was 195 (2005: 167).The number at year-end 2006 was 223 (year-end 2005: 170).
Remuneration of Management Board and Supervisory Board DirectorsDetails of the remuneration paid to Management Board and Supervisory Board Directors in 2006 and theirownership of shares in the company as at 31 December 2006 are as follows:
Fixed Variable Pension Social BinckBankelement element contribution Security shares
T.C.V.Schaap 211 232 22 6 659.696K.J. Bagijn 211 232 22 6 659.696P. Aartsen 193 203 39 6 -A.E. Teeuw (former Man-agement Board member) 180 75 - 6 -
795 742 83 24 1,319,392
C.J.M. Scholtes 32 - - - -J.K. Brouwer 27 - - - -Ch.J. Langereis (former Supervisory Board member) 24 - - - 393,392A.M. van Westerloo 20 - - - -
103 - - - 393,392
Details of the remuneration paid to Management Board and Supervisory Board Directors in 2005 and theirownership of shares in the company as at 31 December 2005 are as follows:
Fixed Variable Pension Social BinckBankelement element contribution Security shares
A.E. Teeuw 300 337 - 4 -T.C.V.Schaap 211 269 22 4 978,251K.J. Bagijn 211 269 22 4 978,251
722 787 44 12 1,956,502
C.J.M. Scholtes 31 - - - -J.K. Brouwer 27 - - - -Ch.J. Langereis 24 - - - 651,013A.M. van Westerloo 20 - - - -
102 - - - 651,013
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In addition to the above, Mr Teeuw has beengranted options on 100,000 BinckBank shares in2004 at an exercise price of € 2.24 expiring on10 October 2007.
Mr Teeuw retired from the company’s ManagementBoard at the end of 2005. Mr Teeuw has, however,agreed to place his experience and knowledge atthe company’s disposal, continuing in the capacityof adviser to the Management Board and theSupervisory Board until May 1 2007. The contractswith Messrs Schaap and Bagijn expire in May 2008.Mr Aartsen was appointed member of theBinckBank Management Board in the GeneralMeeting of Shareholders held on 27 March 2006 fora period of four years. Mr Langereis retired from theBinckBank Supervisory Board on 25 January 2007.
2006 remuneration policyUnder the 2006 remuneration policy, theremuneration received by the members ofBinckBank’s Management Board consists of a fixedelement and a variable element, the latter being areward for their short-term and medium/long-termperformance and consisting of a bonus and anumber of BinckBank shares. The remuneration isthe same for all members of the ManagementBoard.
Other periodically paid benefits, such as medicalexpenses insurance, do not form a fundamentalpart of the remuneration package according to the2006 remuneration policy. The same applies tosecondary conditions of employment. In principle,Management Board members are covered by thesame defined benefit pension scheme as applies tothe majority of the other employees.
The principle in respect of the variable element ofthe remuneration is that, if the members of theManagement Board meet the annual budgetsapproved by the Supervisory Board, they qualify fora bonus equivalent to approximately one year’sfixed salary spread over two years.
Under the 2006 remuneration policy, theSupervisory Board may, at its discretion, apply amaximum uplift of 25% to the bonus if justified bythe results. If the target is not fully achieved, duefor example to external circumstances beyond theManagement Board’s control, the Supervisory Boardmay, at its discretion, award the Management Boardmembers a cash bonus amounting to a maximumof 25% of basic salary.
Members of the Management Board who areexpected to stay with the company for an extendedperiod may opt to receive part of their cash bonusin BinckBank shares (stock option shares). Theseshares must be held for at least three years.Additional shares free of financial consideration(free shares) may be awarded if longer-term targetsare achieved.
According to the remuneration policy, for the period2005–2007 and each three-year period thereafter,one free share will be awarded for every twoBinckBank stock option shares duly held if earningsper share rise by more than 50% and one free sharewill be awarded for each BinckBank stock optionshare duly held if earnings per stock option sharerise by more than 100%.
Under the 2006 remuneration policy, the membersof the Management Board can have a minimum of25% and a maximum of 100% of their cash bonuspaid in the form of stock option shares. The numberof shares awarded on this basis will be determinedby the closing price on the date of publication ofthe results for the year. The income tax due on thepart of the bonus paid in BinckBank shares will bepaid by the company. If some or all of these sharesare sold within three years, the company willrequire the Management Board member concernedto refund the income tax paid. The free shares mustbe held for five years or until termination of serviceif this occurs within five years.
Implementation of 2006 remuneration policyThe remuneration of the Management Board for2006 has been finalised in accordance with the
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remuneration policy, except that, given the natureof their duties, Messrs Bagijn and Aartsen have theuse of a company car under arrangements similar tothose applying to the company’s commercial staff.This means that part of their remuneration is paidin the form of a car allowance.
Each member of the Management Board received agross annual salary of € 211,000. The variableremuneration was € 132,000. In consultation withthe Supervisory Board, each of the ManagementBoard members opted to take 50% of their variableremuneration award in the form of shares (€ 66,000). The income tax due on thisremuneration, amounting to € 71,000, will be paidby the company. This variable remuneration hasbeen based on the achievement of the previouslyadopted annual budget, on the basis of which theSupervisory Board decided to award the maximumuplift of 25% in recognition of the good results. ForMessrs Schaap and Bagijn, an amount of € 29,000per person was charged to the income statement in2006 (2005: € 66,000) in respect of reservesrecognised for free shares payable in the future forthe achievement of long-term objectives. TheManagement Board members are covered by thesame defined benefit pension scheme as applies tothe majority of the other employees. In the case ofMr Aartsen, however, it has been decided to make apayment of 20% of his annual basic salary aspension contribution to a defined contributionscheme, that being more normal practice.Mr Aartsen also received variable remuneration asif he had been in service with effect from 1 January2006.
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2006 2005x € 1,000 x € 1,000
32. Other operating expenses 9,589 8,127
This item comprises the following:Marketing 3,953 2,392Premises 1,136 1,338Provision of information 1,342 1,371ICT 458 462Membership fees 315 381Services contracted out to third parties 1,301 1,192Miscellaneous overheads 1,084 991
Total 9,589 8,127
Apart from the costs of advertising involving radio and TVcommercials, the marketing expenses also include other costsdirectly associated with the promotion of BinckBank products.
33. Depreciation and amortisation 1,902 1,575
This item comprises amortisation and depreciation on:- intangible assets (14) 732 414- property, plant and equipment (15) 1,170 1,161
Total 1,902 1,575
34. Earnings per share 0.79 0.45
The basic earnings per share are calculated by dividing the resultattributable to ordinary shareholders of the parent company by theweighted average number of ordinary shares in issue during theyear.
The diluted earnings per share are calculated by dividing the resultattributable to ordinary shareholders of the parent company by thesum of the weighted average number of ordinary shares in issueduring the year and the weighted average number of ordinaryshares that would have been in issue if all the ordinary shareoptions that could dilute earnings had been converted into ordinaryshares.
The calculation of the earnings per share is based on the following:
Profit on continuing operations 23,810 12,912Profit on discontinued operations 199 616
Average number of shares in issue (number) 30,837,403 30,837,403Less: repurchased shares (number) 296,855 296,855
30,540,548 30,540.548
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2006 2005x € 1,000 x € 1,000
Weighted average number of shares relating to (*):Stock option shares issued to management (number) 10,730 -
30,551,278 30,540,548
(*) For full details, see note 25. The above numbers are based on the total numbers disclosedin note 25, taking account of the date of distribution
Earnings per share on continuing operations 0.78 0.43Earnings per share on discontinued operations 0.01 0.02
0.79 0.45
35. Diluted earnings per share 0.79 0.44
Average number of ordinary shares in issue 30,551,278 30,540,548Number of options granted, but not yet exercised 125,000 125,000Average exercise price 2.42 2.42Average fair value 12.75 5.89Number of shares potentially issued at fair value (23,745) (51,358)
Number of shares used for calculation of diluted earnings per share 30,652,533 30,614,190
Diluted earnings per share on continuing operations 0.78 0.42Diluted earnings per share on discontinued operations 0.01 0.02
No other transactions in ordinary shares or potential ordinaryshares were conducted between the reporting date and the date ofcompletion of these financial statements.
As a reward for the results achieved in 2006, 19,508 stock optionshares were issued on 29 January 2007 at a price of € 14.62 pershare. The stock option shares were issued at fair value and so donot dilute the earnings per share.
36. Paid and proposed dividend
Declared and paid during the yearDividend on ordinary shares:
Final dividend for 2005: € 0.16 (2004: € 0.05) 4,889 1,527Interim dividend for 2006: € 0.11 (2005: € 0.06) 3,361 1,832
8,250 3,359
Proposed for approval by the General Meeting of Shareholders(not recognised as a liability as at 31 December)Dividend on ordinary shares:
Final dividend for 2006: € 0.29 (2005: € 0.16) 8,875 4,889
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37. Related party disclosures
The consolidated financial statements include the following BinckBank subsidiaries:
Interest InterestName Country 2006 2005Binck Securities B.V. Netherlands 100% 100%
Syntel Netherlands 100% -
AOT Facilities B.V Netherlands - 100%
Bewaarbedrijf BinckBank B.V. Netherlands 100% 100%
Stichting Effectengiro Binck Netherlands 100% 100%
Hounds Island Long Term Leasing CV Netherlands - 100%
Binck België N.V. Belgium 100% 100%
Hills Independent Traders Ltd. United Kingdom 100% 100%
The subsidiaries AOT Facilities B.V. and Hounds Island Long Term Leasing CV were wound up in the course of2006. The activities of Hills Independent Traders Ltd. were sold off in 2006. The company is expected to be woundup in 2007. Syntel was purchased on 18 October 2006. The consolidated financial statements include the entireresults for the period from the date of acquisition onwards.
The group of related parties includes associates where the BinckBank Management Board and Supervisory Boardhave significant influence
Terms and conditions of transactions with related partiesTransactions with related parties are conducted on commercial terms and conditions and at market prices. As atyear-end 2006, BinckBank did not recognise any bad debt provisions for receivables from associated parties(2005: nil). The judgement concerning the need for such provisions is made each year on the basis of anassessment of the financial position of the individual related parties and the markets in which they operate.
38. Contingent liabilities
The company has leases on office premises in the Netherlands, Belgium and France. It has also entered intooperating lease contracts for the vehicle fleet for periods of less than five years. The combined expense relatingto office rents and operating lease payments for the vehicles in 2006 was approximately € 1.3 million.
The aged analysis of the outstanding liabilities is as follows:
Less than one year 2,299One to five years 5,998Longer than five years 594
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39. Other information
Disclosure pursuant to Appendix X of the Listing and Issuing RulesIn the opinion of both BinckBank N.V. and the Board members of Stichting Prioriteit AOT, the company complieswith the requirements of Article 10 in Appendix X of the Listing and Issuing Rules of Euronext N.V., Amsterdam.
Capital adequacyThe Dutch Central Bank (DNB) lays down minimum capital standards. BinckBank’s capital is compared withassets on the face of the balance sheet and off-balance-sheet items. The assets are weighted according to risk.The ratio based on total actual own funds (BIS ratio) for the banking industry generally is 8%.Partly owing to the effect of the merger within the group of Binck N.V. and BinckBank N.V., BinckBank’squalifying actual own funds for 2006 have increased significantly compared with 2005.
BinckBank capital adequacy information:2006 2005
Actual own funds 62,841 20,933Tear 1 capital 62,841 20,933BIS ratio 24.6% 15.5%
40. Segment information
A segment is a part of BinckBank that either supplies specific products or services (i.e. a business segment) orsupplies products or services in a specific economic area (i.e. a geographical segment) and is exposed todifferent risks and generates different revenues from other segments. The primary system of segmentationapplied is based on activity and the following business segments are identified: Retail, Professional Services andTrading. With effect from 1 January 2006, the former business segment of Wholesale and the services toprofessional clients formerly grouped under Retail have been merged into a new business segment known asProfessional Services. The comparative figures in the segment information analyses have restated accordingly.The Retail business unit is a broker for private clients (mainly online brokerage). The Professional Servicesbusiness unit provides professional services in securities and derivatives transactions for professional investorsin and outside The Netherlands, including much of the administrative effort. The activities of the newlyacquired subsidiary Syntel are also reported as part of its business unit. The Trading business unit engages inproprietary trading in equities and bonds. The balance sheet items are only disclosed separately for Trading.Segmentation of balance sheet items between Retail and Professional Services is not performed becauseBinckBank does not use this information directly in the management of its activities.The secondary system of segmentation is geographical, with a distinction being made between activities in theNetherlands and those in other countries. No transactions take place between the separate segments.The segmentation is shown in the following tables.
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Business segmentation
Continued Activities Discontinued TotalActivities
Retail Professional Trading TotalServices
Note 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005
Interest 26 9,074 4,927 1,318 995 393 103 10,785 6,025 - - 10,785 6,025
Income from other investments 27 - - 33 7 - - 33 7 - - 33 7
Commission 28 30,213 18,284 5,588 4,285 - - 35,801 22,569 - - 35,801 22,569
Results on financial transactions 29 - 190 - 134 8,208 15,188 8,208 15,512 7,591 6,086 15,799 21,598
Other income 30 - - 855 - - - 855 - - - 855 -
Total revenue 39,287 23,401 7,794 5,421 8,601 15,291 55,682 44,113 7,591 6,086 63,273 50,199
Staff costs 31 (5,794) (3,949) (3,263) (3,131) (6,135) (9,532) (15,192) (16,612) (6,202) (4,062) (21,394) (20,674)
Other operating expenses 32 (7,057) (4,698) (1,153) (1,267) (1,379) (2,162) (9,589) (8,127) (1,044) (1,083) (10,633) (9,210)
Depreciation and amortisation 33 (1,086) (846) (489) (483) (327) (246) (1,902) (1,575) (60) (61) (1,962) (1,636)
Impairment of other investments 13 - - (69) - - (8) (69) (8) - (69) (8)
Total expenses (13,937) (9,493) (4,974) (4,881) (7,841) (11,948) (26,752) (26,322) (7,306) (5,206) (34,058) (31,528)
Operating profit before tax 16 25,350 13,908 2,820 540 760 3,343 28,930 17,791 285 880 29,215 18,671
(5,120) (4,879) (86) (264) (5,206) (5,143)
Results on continuing operations 23,810 12,912 199 616 24,009 13,528
Carrying amount of assets 555,617 346,605 63,184 91,771 618,801 438,376 1,809 60,301 620,610 498,677
Liabilities 498,558 325,672 50,441 62,202 548,999 387,874 322 55,557 549,321 443,431
Investment assets 2,678 1,318 - 257 2,678 1,575 - - 2,678 1.575
Geographical segmentation
Netherlands Other countries Total2006 2005 2006 2005 2006 2005
Total revenue 53,072 44,042 2,610 71 55,682 44,113
Carrying amount of assets 578,111 436,659 40,690 1,717 618,801 438,376
Investment assets 2,618 1,447 60 128 2,678 1,575
Depreciation and amortisation 1,866 1,571 36 4 1,902 1,575
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Financial risk management
Credit riskCredit risk is the risk that a party trading a financialinstrument and/or the issuer of the instrument willfail to discharge an obligation relating to theinstrument and consequently cause BinckBank toincur a financial loss. This credit risk is relevant tothe items in the balance sheet included under theheadings of banks, loans and receivables and otherassets.
Maximum credit riskIn onderstaande tabel is het maximale kredietrisicoweergegeven:
2006 2005Banks 164,617 171,113
Loans and receivables 216,332 124,764
Other assets 38,020 21,010
418,969 316,887
BinckBank’s retail activities involve it in providingloans and receivables. These credits are providedonly if secured by readily marketable collateral suchas securities and bank guarantees. Given the natureof the loans and the collateral provided, the creditrisk is limited. Most of these loans are provided tonatural and legal persons in the Netherlands. In thecase of loans collateralised by securities, theamounts lent depend on the liquidity and marketprice of the relevant securities. BinckBank’s RiskManagement department is responsible formonitoring lending. This department performsautomated monitoring of loans on the basis of real-time prices. The risks in this form of lending are therisk of a change in the market price of the securitiesprovided as collateral, the risk of computermalfunctioning (operating risk) and the risk ofcredit monitoring procedures functioningincorrectly (operating risk).
In addition, BinckBank uses deposits and balanceson customer accounts to fund loans to banks andclients in industry, subject to internal limits thathave been set for both the level and duration ofsuch lending to approved counterparties. The credit
risk resulting from such lending is monitored in theform of periodic credit reviews.
In the case of its trading activities, BinckBank isexposed to a credit risk if counterparties fail todischarge their obligations in over-the-counter(OTC) transactions. Limits have been set forcounterparties. Most of these transactions are inshares and bonds. The risk in this respect ismanaged by monitoring settlements (i.e. byreconciling positions and transactions).
Market riskMarket risk• Currency risk• Interest rate risk• Price risk
Currency riskCurrency risk is the risk that the value of an itemdenominated in a foreign currency will fluctuatebecause of changes in foreign exchange rates. Thefollowing items in the balance sheet are exposed tocurrency risks: banks, interest-bearing securities,shares and other variable-income securities, otherliabilities and funds entrusted.
Currency risks relating to the company’s trading andbroking activities are hedged as soon as possible inaccordance with internal guidelines, unless acurrency position is taken as part of a tradingstrategy that has been approved by the RiskCommittee. The currency position is monitored dailyin order to ensure that it remains within the setlimits. As at year-end 2006, positions were hedgedinternally in such a way that the company was notexposed to any significant currency risk.
Interest rate riskInterest rate risk is the risk that future profitabilitywill be affected by fluctuations in interest rates.This risk applies to items in the balance sheetincluded under the headings of banks, loans andreceivables, interest-bearing securities, shares andother variable-income securities, other liabilitiesand funds entrusted.
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BinckBank manages this risk to the extent that itaffects its banking activities by ensuring thatinterest periods on amounts placed with and by thecompany are aligned and maintained within certainset limits. The portfolio also contains a balancedspread of differing maturities and includes bondson which the interest coupons are adjustedperiodically.
Summary of interest and repayment maturitiesThe carrying amount as at 31 December 2006 ofBinckBank’s financial instruments exposed to aninterest rate risk upon maturity are shown in thefollowing table.
The interest on financial instruments classified ashaving fixed interest is fixed until the instrumentmatures. The carrying amount at the maturity dateof the fixed-interest bonds held to maturityincludes the share premium still to be amortised asat 31 December 2006. The bonds in the portfolioavailable for sale classified as having variableinterest have indefinite maturities, with the interestcoupon being reset every three months on the basisof the prevailing 10-year interest rates ongovernment bonds. The bonds in the tradingportfolio are listed, fixed-interest bonds that are
normally held for periods of less than one month inBinckBank’s trading portfolio. Since these bonds arenot held as investments, no calculation of theeffective interest rate is given. The profit-sharingbonds pay variable interest of 0–15%, as detailed innote 21. Other interest-bearing financialinstruments all have maturities shorter than threemonths.
Price riskPrice risk is the risk that the value of a financialinstrument will fluctuate as a result of changes ininterest rates and the market prices of securitiesand derivatives. This risk relates to items in thebalance sheet included under the headings ofinterest-bearing securities, shares and othervariable-income securities and other liabilities.
BinckBank’s trading activities mean it has a tradingportfolio of shares, bonds and derivatives.Fluctuations in interest rates and prices of securitiesand derivatives have a direct effect on the value ofthe trading portfolio and, therefore, on the equityand results of BinckBank. In order to manage theprice risks in its trading portfolio, BinckBank has setup an internal system of limits, which aremonitored by the Risk Management department.
Within 1-2 2-3 3-4 4-5 More Total1 year years years years years than
Asset 5 yearsFixed interestBonds held to maturity 31,306 4,258 4,122 4,433 4,326 - 48,445
Effective interest rate 3.13% 2.85% 3.35% 3.26% 3.72% - 3.17%
Bonds available for sale - - - - - 1,337 1,337
Effective interest rate - - - - - 4.09% 4.09%
Bonds in trading portfolio 1,356 713 962 1,126 804 5,375 10,336
Variable interestBonds available for sale - - - - - 7,710 7,710
Interest-bearing securities 32,662 4,971 5,084 5,559 5,130 14,422 67,828
LiabilitiesProfit-sharing bonds - (1,320) - - - - (1,320)
Bonds in trading portfolio - (96) (693) (1,202) - (2,093) (4,084)
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The Risk Committee meets periodically to discussand approve the system of limits, the risks inexisting positions and limits and proposals for newtrading strategies. Risk Management takes actionimmediately if any limits are exceeded. This alsoincludes compulsory reporting on all occasions tothe responsible member of the Management Board.BinckBank’s trading activities sometimes alsorequire it, as a market maker, to purchase or sellsecurities.
BinckBank has a portfolio of fixed-interest securities(some of which are held as investments to maturity,while others are investments available for sale). Theholdings in this portfolio are determined by theManagement Board. The value of the portfolio canfluctuate as a result of changes in interest rates andthe creditworthiness of the issuers of bonds.BinckBank invests only in fixed-interest securitiessatisfying internally set limits. The forecast possiblefluctuation in the value of the portfolio as at year-end 2006 was a negative amount of approximately€ 550,000 for each absolute increase by onepercentage point in the relevant interest rate.
Delta position of the derivatives portfolio (part ofthe trading portfolio) in thousands of euros:
Gross position 1,191
Net position (385)
The gross position indicates the extent of theportfolio’s sensitivity to a percentage increase inthe underlying instrument, without taking anyaccount of mutual correlation between funds andlong and short positions. Positions that are risk-neutral are not included in the gross position. Thenet position indicates the extent of the portfolio’ssensitivity to a percentage change in the underlyinginstrument, while taking full account of correlationbetween funds and long and short positions. Theeffect on BinckBank’s results is then one per cent ofthe presented delta position.
Liquidity riskLiquidity risk is the risk of a current and futurethreat to BinckBank’s equity and results if thecompany were unable at any time to meet its short-term payment commitments without incurringdisproportionate costs and/or losses. This riskapplies in principle to all assets and liabilities in thebalance sheet.
BinckBank’s liquidity position as at year-end 2006was ample. It also has a credit facility available atbanks outside the group. Its activities mean there isa risk of a liquidity deficit in the event, for example,of maximum trading positions, incorrect settlementof securities transactions for institutional clients,high amounts of lending to retail clients and areduction in deposits and credit balances on retailclients’ accounts.
The periods for which deposits and credit balancesplaced with BinckBank are lent out to other partiesare limited and are mainly intraday or overnight.This enables the company to absorb fluctuations inthe levels of funds placed with it.
The company determines its liquidity position daily,with all activities being taken into account, so as toensure that its liquidity risk is monitored andmanaged.
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Financial instruments
Fair valueThe carrying amount and fair value of all financialinstruments recognised in BinckBank’s financial
statements, including assets and liabilities classifiedas available for sale, are compared in the followingtable:
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Carrying amount Fair value2006 2005 2006 2005
Financial assetsCash 5,672 7,685 5,672 7,685Banks 164,617 171,113 164,617 171,113Loans and receivables 216,332 124,764 216,332 124,764Interest-bearing securities 67,828 42,427 67,692 42,438Shares and other variable-income securities 100,613 120,656 100,613 120,656Other investments 29 88 29 88Other assets 38,020 21,010 38,020 21,010
Totaal 593,111 487,743 592,975 487,754
Financial liabilitiesFunds entrusted 383,543 235,836 383,543 235,836Liabilities in respect of securities 60,494 111,353 60,494 111,353Other liabilities 89,733 79,234 89.973 79,555
533,770 426,423 534,010 426,744
Carrying amount Fair value2006 2005 2006 2005
Financial assets at fair value through profit or loss 35,273 78,617 35,273 78,617Held-to-maturity investments 48,445 21,133 48,309 21,144Loans and receivables 9,047 8,141 9,047 8,141Available-for-sale financial assets 500,346 379,852 500,346 379,852
593,111 487,743 592,975 487,754
In accordance with IAS 39, financial instruments aredesignated as financial assets or financial liabilitiesat fair value through profit or loss, as held-to-maturity investments, as loans and receivables or asavailable-for-sale financial assets. This classificationgives the following analysis of financial assets:
The fair value of listed available-for-sale financialassets is based on market prices. The fair value ofloans is determined by calculating the present valueof the expected future cash flows at the prevailinginterest rates. The fair value of loans to otherparties and other financial assets is calculated onthe basis of market interest rates.
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Company balance sheet(before appropriation of profit)
Note 31 December 2006 31 December 2005
x € 1,000 x € 1,000
Assets
Cash c 5,672 7,685
Banks d 154,652 129,265
Loans and receivables e 216,332 124,764
Interest-bearing securities f 57,492 29,274
Shares and other variable-income securities g 75,676 54,992
Other investments h 29 88
Investments in subsidiaries i 22,639 19,460
Intangible assets j 10,141 1,048
Property, plant and equipment k 2,228 1,664
Tax l 4,786 4,870
Other assets m 20,415 5,350
Prepayments and accrued income n 4,143 3,011
Total assets 574,205 381,471
Equity and liabilities
Funds entrusted o 383,543 235,837
Liabilities in respect of securities p 32,739 21,360
Other liabilities q 81,732 64,915
Accruals and deferred income r 4,703 3,601
Provisions s 199 512
502,916 326,225Equity: tShare capital 3,084 3,084Share premium 20,855 20,855Treasury shares (956) (1,121)Unappropriated profit 24,009 13,609Other reserves 24,297 18,819
71,289 55,246
Total equity and liabilities 574,205 381,471
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Company income statement
2006 2005
x € 1,000 x € 1,000
Results of subsidiaries (after tax) 5,202 3,203Other results (after tax) 18,807 10,406
Profit for the year 24,009 13,609
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Company statement of changes in equity
Note Issued Share Treasury Unappro- Other Total
share premium shares priated reserves equity
capital profit and
retained
earnings
1 January 2005 3,084 20,855 (1,121) 2,808 20,086 45,712
Impairment of available-for-sale financial assets 11 - - - - (475) (475)Gains and losses on exchange 25 - - - - 196 196
Results recognised directly in equity - - - - (279) (279)Profit for the year - - - 13,609 - 13,609
Total income and expense - - - 13,609 (279) 13,330
Payment of final dividend 36 - - - - (1,527) (1,527)Payment of interim dividend 36 - - - - (1,832) (1,832)
Rights to shares granted 25 - - - - 263 263
Acquisition of minority interest 25 - - - - (700) (700)
Retained earnings transferred to other reserves - - - (2,808) 2,808 -
31 December 2005 3,084 20,855 (1,121) 13,609 18,819 55,246
Impairment of available-for-sale financial assets 11 - - - - (155) (155)Gains and losses on exchange 25 - - - - 97 97
Results recognised directly in equity - - - - (58) (58)Profit for the year - - - 24,009 - 24,009
Total income and expense - - - 24,009 (58) 23,951
Payment of final dividend 36 - - - - (4,889) (4,889)Payment of interim dividend 36 - - - - (3,361) (3,361)
Rights to shares granted 25 - - - - 342 342
Payment of stock option shares 25 - - 49 - (49) - Payment of bonus shares 25 116 - (116) -
Retained earnings transferred to other reserves - - - (13,609) 13,609 -
31 December 2006 3,084 20,855 (956) 24,009 24,297 71,289
Notes to the company financial statements
a. General
Company informationThe General Meeting of Shareholders passed aresolution on 12 October 2006 approving a mergerof Binck N.V. and BinckBank N.V., with BinckBankN.V. being absorbed into Binck N.V. On the samedate, the shareholders passed a resolution changingthe name of Binck N.V. to BinckBank N.V. Thefinancial information of the amalgamated companyhas been included in the financial statements ofBinckBank N.V. with effect from 1 January 2006.
As a consequence of the merger, the comparativefigures for 2005 have been restated. The 2005company figures for the former company Binck N.V.(present name BinckBank N.V.) and theamalgamated company BinckBank N.V. have beencombined into a new set of company figures forBinckBank N.V. The merger does not affect theassets, equity and liabilities and results in thefigures for 2005.
BinckBank N.V. is a company established and theNetherlands with its domicile in Amsterdam, whoseshares are publicly traded. BinckBank N.V. providesconventional and internet broking services insecurities and derivative transactions for privateand professional investors. Through its subsidiaryBinck Securities B.V., the company also trades inshares and bonds on a proprietary basis. Thesubsidiary Syntel Beheer B.V. specialises indeveloping software for financial institutions forprocessing and keeping account of securitiestransactions. In the following pages, the name‘BinckBank’ will be used to refer to BinckBank N.V.and its various subsidiaries.
BinckBank’s company financial statements for theyear ended 31 December 2006 have been preparedby the company’s Management Board and approvedfor publication pursuant to a formal decision takenby the Management Board and the SupervisoryBoard on 1 March 2007. The financial statements for2006 will be adopted at the General Meeting ofShareholders to be held on 19 April 2007.
Amsterdam,
Management Board: Supervisory Board:T.C.V. Schaap C.J.M. ScholtesK.J. Bagijn J.K. BrouwerP. Aartsen A.M. van Westerloo
Presentation of the financial statementsThe company financial statements have beenprepared on the basis of the requirements includedin Part 9 of Book 2 of the Netherlands Civil Codeand application of the accounting policies (IFRS)applied in the consolidated financial statements.The balance sheet is presented in accordance withFormat K for financial institutions. In accordancewith the provisions of Article 2:402 of theNetherlands Civil Code, the company incomestatement shows only the share in results ofassociates after tax and other profit after tax.
b. Accounting policies
GeneralDetails of the accounting policies can be found inthe notes to the consolidated financial statementsand, unless otherwise stated, apply equally to thecompany financial statements.
Investments in associatesThe investments in group companies are recognisedat net asset value. The reporting dates of thesecompanies are the same and the accountingpolicies applied to their financial reporting are inaccordance with those applied by BinckBank forsimilar transactions and events in similarcircumstances.
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31 December 2006 31 December 2005
x € 1,000 x € 1,000
Assets
c. Cash 5,672 7,685
This item includes all cash in legal tender, including bank notes andcoins in foreign currency, and any credit balances available ondemand from the central banks in countries where BinckBank hasoffices.
d. Banks 154,652 129,265
This item includes all cash and cash equivalents relating to thebusiness activities held in accounts with credit institutionssupervised by the bank regulators
The item comprises:Credit balances available on demand 45,652 9,465Call money 109,000 119,800
154,652 129,265
The call money receivables have original maturities of less thanthree months. Interest is received on these balances at a variable rate based onEuribor.
e. Loans and receivables 216,332 124,764
This item comprises receivables from private sector clients,including overnight loans and overdrafts that are collateralised bysecurities and bank guarantees.
The analysis is as follows:Cash equivalents:Private sector call money 42,000 24,500
Other loans and receivables:Public sector loan 5,000 -Receivables collateralised by securities 132,641 78,132Receivables collateralised by bank guarantees 3,952 772Receivables from clients in respect of short option positions 32,739 21,360
174,332 100,264
216,332 124,764
The receivables relating to cash equivalents have original maturitiesof less than 3 months. The public sector loan concerns a loan to aDutch municipal authority maturing in 2008. The other receivables
Notes to the company balance sheet
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31 December 2006 31 December 2005
x € 1,000 x € 1,000
have unspecified maturities. The interest rate applying toreceivables under loans and receivables is based on Euribor.
Movements during the year were as follows:Position as at 1 January 124,764 62,386Movement in call money 17,500 12,250Movement in public sector loan 5,000 -Movement in receivables collateralised by securities 54,509 41,409Movement in receivables collateralised by bank guarantees 3,180 (236)Movement in short option positions held by clients 11,379 8,955
216,332 124,764
As at 31 December 2006, bad debt provisions of € 16,000 (2005: € 17,500) were charged against this item. Actual bad debts writtenoff in 2006, as in 2005, amounted to less than one thousand euros.
f. Interest-bearing securities 57,492 29,274
This item comprises:Held to maturityGovernment bonds 48,445 21,133Available for saleOther bonds with unspecified maturity 7,710 8,141Other bonds with specified maturity 1,337 -
57,492 29,274
All the above securities are listed and used in part to cover marginrequirements. The held-to-maturity portfolio is carried at amortisedcost measured using the effective interest method.
In the available-to-sale portfolio, the interest rate on the bonds withunspecified maturity is revised every three months on the basis ofthe prevailing 10-year interest rate on government bonds. The bondswith specified maturity in this portfolio are due for redemption in2012. In 2006, fair value losses on the available-to-sale assetsamounting to € 155,000 were recognised directly in equity (2005: € 475,000). The calculation of the amount charged to equity takesaccount of the tax effect of this impairment. As in 2005, none of theassets was sold in 2006.
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31 December 2006 31 December 2005
x € 1,000 x € 1,000
g. Shares and other variable-income securities 75,676 54,992
This item concerns long option positions held for clients, which areheld in BinckBank’s name for the account and risk of the relevantclients.
h. Other investments 29 88
Other investments as at 1 January 88 102Impairment (69) -Sale (4) (14)Purchase 14 -
Other investments as at 31 December 29 88
The other investments concern investments in the share capital ofInmaxxa B.V. (formerly Triple Assets B.V.) and LPE Capital (acquired in2006) representing interests of less than 5%. These investments arecarried at the lower of cost and market value since no reliablemeasure of fair value is available. The advent of new shareholdershas resulted in dilution of the interests of the existing shareholdersof Inmaxxa B.V., leading to the recognition of an impairment loss of€ 69,000 in respect of Inmaxxa B.V.
In 2005, the 6.25% interest in Trader Team Ltd was sold. Theremaining 15% interest in D&O Vermogensbeheer B.V. was sold in2006.
i. Investments in subsidiaries 22,639 19,460
Movements during the year were as follows:
Position as at 1 January 19,460 19,220Capital increases and acquisitions 2,450 1,643Disposals and dissolutions (1,029) (1,569)Dividends and capital refunds (3,541) (2,740)Distribution to minority shareholders - (700)Results for the year 5,202 3,203Exchange differences and other movements 97 403
Position as at 31 December 22,639 19,460
The majority interest in Binck België N.V. was increased in 2005 toan interest of 100%. In 2006, a 100% interest was acquired in Synteland the activities of the subsidiary Hills Independent Traders Ltd.were discontinued. The subsidiaries AOT Facilities B.V. and PoundsIsland Long Term Leasing CV were wound up in the course of 2006.
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31 December 2006 31 December 2005
x € 1,000 x € 1,000
j. Intangible assets 10,141 1,048
The movements in 2006 were as follows:
Software Goodwill Total
Carrying amount as at 1 January 1,048 - 1,048Investments 915 8,881 9,796Amortisation (703) - (703)
Carrying amount as at 31 December 1,260 8,881 10,141
31 December 2006Cost 3,904 8,881 12,785Cumulative amortisation (2,644) - (2,644)
Carrying amount as at 31 December 1,260 8,881 10,141
The movements in 2005 were as follows:
Software Assets from Softwareacquisition
Carrying amount as at 1 January 642 - 642
Investments 819 - 819
Amortisation (413) - (413)
Carrying amount as at 31 December 1,048 - 1,048
31 December 2005 Cost 2,967 - 2,967
Cumulative amortisation (1,919) - (1,919)
Carrying amount as at 31 December 1,048 - 1,048
Goodwill relates to the excess of the fair value of Syntel’sidentifiable net assets over the acquisition cost of Syntel.
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31 December 2006 31 December 2005
x € 1,000 x € 1,000
k. Property, plant and equipment 2,228 1,664
The movements in 2006 were as follows:Fixtures and Computer Other Total
equipment hardware
Carrying amount as at 1 January 742 922 - 1,664
Additions 232 1,429 18 1,679
Depreciation (472) (642) (1) (1,115)
Carrying amount as at 31 December 502 1,709 17 2,228
31 December 2006Cost 4,720 4,300 18 9,038
Cumulative depreciation and impairment (4,218) (2,591) (1) (6,810)
Carrying amount as at 31 December 502 1,709 17 2,228
The movements in 2005 were as follows:Fixtures and Computer Other Total
equipment hardware
Carrying amount as at 1 January 1,200 925 - 2,125
Additions 214 522 - 736
Depreciation (672) (525) - (1,197)
Carrying amount as at 31 December 742 922 - 1,664
31 December 2005Cost 4,512 2,871 - 7,383
Cumulative depreciation and impairment (3,770) (1,949) - (5,719)
Carrying amount as at 31 December 742 922 - 1,664
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31 December 2006 31 December 2005
x € 1,000 x € 1,000
l. Tax 4,786 4,870
The tax asset relates to the carryback of the tax loss for 2004.Provisional corporation tax assessments have been received for2005 and 2006 and the assessed amounts have been paid althoughthey are expected to be higher than the amount of tax actually due.
m. Other assets 20,415 5,350
Other assets have maturities of less than one year and comprise:
Loans and receivables 1,136 1,490Licences and permits - 146Receivables relating to securities sold, but not yet deliveredTrade receivables 19,094 3,506Other receivables 185 208
20,415 5,350
n. Prepayments and accrued income 4,143 3,011
This item comprises:Interest receivable 2,872 1,741Commission receivable 699 360Prepaid expenses 572 910
4,143 3,011
Equity and liabilities
o. Funds entrusted 383,543 235,837
This item comprises clients’ credit balances on cash or marginaccounts
p. Liabilities in respect of securities 32,739 21,360
This item comprises the short derivative positions held by clients.
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31 December 2006 31 December 2005
x € 1,000 x € 1,000
q. Other liabilities 81,732 64,915
Liabilities relating to financial instruments:Liabilities in respect of securities bought but not yet delivered - 5,337Liabilities to clients for long derivative positions held 75,676 54,992
75,676 60,329Other liabilities (due in < 1 year):Tax and social security contributions 431 180Part of the purchase price for Syntel still payable 3,029 -Other 1,276 1,657
Total due in < 1 year 4,736 1,837
Due after > 1 year:Profit-sharing bond 1,320 1,555Loan notes - 1,194
Total due after > 1 year 1,320 2,749
81,732 64,915
The profit-sharing bond is a loan provided by a group of employees.It has a maturity of three years and three months from 1 October2005 to 31 December 2008. Repayment of the loan may be madeand demanded without notice and without penalty. If repayment ofthe loan is demanded during the calendar year, the lenders are notentitled to receive interest in respect of that year. Interest is paidonly in respect of the amount lent and at BinckBank’s disposal forthe full calendar year. A schedule for interest payments has beenagreed, with the interest rate payable being dependent onBinckBank’s net profit and varying between 0% and 15%. Theinterest payable is calculated at the end of each year and recognisedin the result for that year. The interest for 2006 amounts to 15% (Q4 ’05: 3.75%), and will be payable after adoption of the financialstatements by the General Meeting of Shareholders.
The amount presented in 2005 under loan notes refers toBinckBank’s share in loan notes issued by third parties. These notes,on which the interest payable is at Libor, are in principle repayableon demand.
Part of the purchase price relating to the acquisition of the sharecapital of Syntel depends on Syntel’s gross margin over the years2007 and 2008.
31 December 2006 31 December 2005
x € 1,000 x € 1,000
r. Accruals and deferred income 4,703 3,601
This item comprises:Staff costs 1,440 1,378Accrued stock exchange and transaction costs 310 184Accrued interest 1,896 428Commission 460 864Other 597 747
Total 4,703 3,601
s. Provisions 199 512
The movements in the provision for onerous contracts during theyear were as follows:
Balance as at 1 January 512 614Released to income (210) -Utilised (103) (102)
Balance as at 31 December 199 512
The provision for onerous contracts has been formed in respect ofrented office space, where the costs of the lease are higher than theeconomic benefits expected to be generated by the contract. Theperiod for which the provision has been formed is equal to theduration of the lease, which expires on 1 October 2010, but will bereduced as and when the economic benefits are deemed likely toexceed the costs. The discount rate applied to this provision is equalto the expected future rate of increase in the rent.
t. Equity 71,289 55,246
Issued share capital 3,084 3,084
A total of 30,837,403 ordinary shares were in issue, each with anominal value of € 0.10. The share capital is fully paid up. Therewere no movements in share capital during the year.
Stichting Prioriteit AOT owns 50 priority shares, each with a nominalvalue of € 0.10.
Share premium 20,855 20,855
The share premium is exempt from tax and in principle freelydistributable.
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31 December 2006 31 December 2005
x € 1,000 x € 1,000
Treasury shares (956) (1,121)
2006 2006 2005 2005Number Amount Numver Amount
Opening balance 296,855 (1,121) 296,855 (1,121)Issued to management 12,890 49 - -Issued to Syntel staff 30,820 116 - -
Closing balance 253,145 (956) 296,855 (1,121)
As at 1 January 2006, the number of treasury shares held was296,855, acquired at an average purchase price of € 3.78. In 2006,43,710 treasury shares were issued. The issued shares were chargedto other reserves at the average purchase price. The carryingamount of the 253,145 treasury shares (as at year-end 2006) wasmeasured at the average purchase price of approximately € 3.78.The movement in equity in respect of treasury shares reflects theamounts bought and sold. The quoted share price as at year-end2006 was € 14.66 (2005: € 9.15).
On 3 March 2006, a total of 12,890 shares was granted to membersof the Management Board as a variable remuneration element inrespect of performance in 2005. The expense was recognised in2005. A bonus in the form of BinckBank shares was conditionallyawarded to a group of staff of the subsidiary Syntel acquired in2006. The period in which the conditions attached to this award areto be fulfilled runs from 2007 to 2010. The cost of the arrangementwill be charged to income over this period. In total, 30,820 shareswere issued on 29 December 2006.
Retained earnings reserve 24,009 13,609
Opening balance 13,609 2,808Added to other reserves (13,609) (2,808)Profit for the year 24,009 13,609
Closing balance 24,009 13,609
The retained earnings reserve comprises the unappropriated profit in 2006
31 December 2006 31 December 2005
x € 1,000 x € 1,000
Other reserves 24,297 18,819
These comprise:(i) Foreign currency translation reserve 334 237(ii) Reserve for unrealised results (649) (494)(iii) Other reserves 24,612 19,076
24,297 18,819
(i) Foreign currency translation reserve
Opening balance 237 41Movement 97 196
Closing balance 334 237
The foreign currency translation reserve comprises exchangedifferences arising on translation of the financial statements offoreign subsidiaries.
(ii) Reserve for unrealised results
Opening balance (494) (19)Result on available-for-sale financial assets (441) (475)Tax on result on available-for-sale financial assets 286 -
Closing balance (649) (494)
The reserve comprises the fair value gains and losses, after tax, onavailable-for-sale financial assets. The net loss is tax-deductible.There were no sales in 2005 or 2006.
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The acquisition of a minority interest refers to theacquisition in 2005 of the remaining shares of BinckBelgië N.V. and is recognised in other reservesbecause of being a transaction betweenshareholders within a group.For details of the option rights, rights to shares andthe bonus scheme for Syntel staff, see note 25 to theconsolidated financial statements.
31 December 2006 31 December 2005
x € 1,000 x € 1,000
(iii) Other reserves
Opening balance 19,076 20,064 Acquisition of minority interest - (700)Rights to shares 342 263Issue of shares to management (49) -Issue of shares to Syntel staff (116) -Payment of final dividend (4,889) (1,527)Payment of interim dividend (3,361) (1,832)Appropriation of profit for previous year 13,609 2,808
Closing balance 24,612 19,076
The other reserves are in principle freely distributable.
To: The General Meeting of Shareholders ofBinckBank N.V.
Auditors’ Report
Report on the financial statementsWe have audited the financial statements ofBinckBank N.V., Amsterdam, for the year 2006 (asset out on pages 54 to 115). The financial statementsconsist of the consolidated financial statementsand the company financial statements. Theconsolidated financial statements comprise theconsolidated balance sheet as at 31 December 2006,income statement, statement of changes in equityand cash flow statement for the year then ended,and a summary of significant accounting policiesand other explanatory notes. The company financialstatements comprise the company balance sheet asat 31 December 2006, the company incomestatement for the year then ended and the notes.
Management’s responsibilityManagement is responsible for the preparation andfair presentation of the financial statements inaccordance with International Financial ReportingStandards as adopted by the European Union andwith Part 9 of Book 2 of the Netherlands Civil Code,and for the preparation of the management boardreport in accordance with Part 9 of Book 2 of theNetherlands Civil Code. This responsibility includes:designing, implementing and maintaining internalcontrol relevant to the preparation and fairpresentation of the financial statements that arefree from material misstatement, whether due tofraud or error; selecting and applying appropriateaccounting policies; and making accountingestimates that are reasonable in the circumstances.
Auditor’s responsibilityOur responsibility is to express an opinion on thefinancial statements based on our audit. Weconducted our audit in accordance with Dutch law.This law requires that we comply with ethicalrequirements and plan and perform the audit toobtain reasonable assurance whether the financialstatements are free from material misstatement.
An audit involves performing procedures to obtainaudit evidence about the amounts and disclosuresin the financial statements. The procedures selecteddepend on the auditor’s judgment, including theassessment of the risks of material misstatement ofthe financial statements, whether due to fraud orerror. In making those risk assessments, the auditorconsiders internal control relevant to the entity’spreparation and fair presentation of the financialstatements in order to design audit procedures thatare appropriate in the circumstances, but not forthe purpose of expressing an opinion on theeffectiveness of the entity’s internal control. Anaudit also includes evaluating the appropriatenessof accounting policies used and the reasonablenessof accounting estimates made by management, aswell as evaluating the overall presentation of thefinancial statements.
We believe that the audit evidence we haveobtained is sufficient and appropriate to provide abasis for our audit opinion.
Opinion with respect to the consolidated financialstatementsIn our opinion, the consolidated financialstatements give a true and fair view of the financialposition of BinckBank N.V. as at 31 December 2006,and of its result and its cash flows for the year thenended in accordance with International FinancialReporting Standards as adopted by the EuropeanUnion and with Part 9 of Book 2 of the NetherlandsCivil Code.
Opinion with respect to the company financialstatementsIn our opinion, the company financial statementsgive a true and fair view of the financial position ofBinckBank N.V. as at 31 December 2006, and of itsresult for the year then ended in accordance withPart 9 of Book 2 of the Netherlands Civil Code.
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Other information
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Report on other legal and regulatory requirementsPursuant to the legal requirement under 2:393 sub 5part e of the Netherlands Civil Code, we report, tothe extent of our competence, that themanagement board report is consistent with thefinancial statements as required by 2:391 sub 4 ofthe Netherlands Civil Code.
Amsterdam, 1 March 2007
for Ernst & Young Accountants
signed by N.G.D. Warmer
Provisions of the Articles of Associationin respect of priority shares (Articles 15and 21)
The rights attached to the priority shares includethe right to make non-binding nominations forappointment to the company’s Supervisory Boardand Management Board, and to take various otheractions. The priority shares are held by StichtingPrioriteit AOT, Amsterdam. This foundation’s Board,which consists of three members, is appointed bythe Supervisory Board and Management Board ofthe company.
The Board members of Stichting Prioriteit AOT are:C.J.M. ScholtesJ.K. BrouwerT.C.V. Schaap
Provisions of the Articles ofAssociation in respect of appropriationof profit (Article 32)
1. The company may only make distributions tothe shareholders if the company’s equityexceeds its issued and paid-up share capitalplus the reserves required to be held by law orby the Articles of Association.
2. Firstly – and only insofar as profits allow – anamount equal to 6% (six per cent) of thenominal value of the priority shares will bedistributed on these shares.
3. The foundation will determine the extent towhich the remaining profits will be transferredto reserves. Profits remaining after applicationof subsection 2 and the first sentence of thissubsection will be at the disposal of theGeneral Meeting of Shareholders. Any amountsnot distributed will be transferred to thecompany’s reserves.
4. Withdrawals from distributable reserves maybe made pursuant to a resolution by theGeneral Meeting of Shareholders, subject to theprior consent of the foundation.
5. The Management Board may resolve to allowthe company to make interim distributions,
providing it demonstrates in the form of aninterim statement of assets and liabilities asreferred to Section 105, subsection 4, Book 2, ofthe Netherlands Civil Code that it complies withsubsection 1 above and subject to the priorconsent of the foundation. The distributionsreferred to in this subsection may be made incash, in shares in the company’s equity or inmarketable rights thereto.
6. The General Meeting of Shareholders mayresolve to declare that distributions on sharesother than interim distributions as referred insubsection 5 of this Article (whether at theshareholders’ discretion or otherwise) may,instead of being made in cash, be made fully orpartly (whether at the shareholders’ discretionor otherwise) in:a. ordinary shares (which will, if desired and
possible, be charged to the share premiumreserve) or marketable rights to ordinaryshares, or
b. equity instruments of the company ormarketable rights.
A resolution as referred to in the previoussentence may only be passed after beingproposed by the Management Board andapproved by the Supervisory Board. A proposalto pass a resolution as referred to in b will besubmitted only after consultation withEuronext Amsterdam N.V.
7. No distribution will be made to the company inrespect of shares it holds in its own capital oron shares for which the company holdsdepositary receipts.
8. The calculation of the profit distributable onshares will disregard shares that are noteligible, pursuant to subsection 7, for suchdistribution.
9. Once a resolution to make a distribution hasbeen passed, the amount will be declaredpayable within fourteen days. An entitlement toreceive a distribution will lapse five years afterthe date on which the amount is declaredpayable, and the said amount will then revertto the company.
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Proposal for appropriation of theresult
Stichting Prioriteit AOT has proposed transferringan amount of € 11,773,000 to reserves. An interimdividend of € 0.11 per share has already been paid inrespect of 2006. The remainder is at the disposal ofthe General Meeting of Shareholders. It is proposedto distribute this in the form of a final dividend of € 0.29 per ordinary share. The profit appropriation will then be as follows:
Profit in 2006 24,009
Less: Transferred to other reserves 11,773
Less: Interim dividend paid for 2006 3,361
At shareholders’ disposal 8,875
This proposal is not reflected in the balance sheet.
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BinckBank N.V.Vijzelstraat 201017 HK AmsterdamThe Netherlands
Correspondence addressP.O. Box 155361001 NA AmsterdamThe Netherlands
Tel: +31 (0)20 606 26 66Fax: +31 (0)20 320 41 76
Internet: www.binck.com
BinckBank N.V., established in Amsterdam and entered in the Trade Register of the AmsterdamChamber of Commerce under no. 33 16 22 23.
Investor RelationsTel: +31 (0)20 522 03 72Email: [email protected]
Colophon
Coordination and productionImprima (Nederland) bv
PhotographyEveline Renaud, Amsterdam
BinckBank N.V.Vijzelstraat 201017 HK AmsterdamThe Netherlands
P.O. Box 155361001 NA AmsterdamThe Netherlands
T +31 (0)20 606 26 66F +31 (0)20 320 41 76E [email protected] www.binck.com