What kind of year was 2008?

The facts tell us that 2008 was the most difficult year in the history of the KD Group's operations; a year in which we faced our biggest challenges to date.

The global economic crisis only deepened further in 2008. All major global stock indices lost a significant portion of their value. Large banks and insurance companies, which just a few years ago were strong and practically invincible, found themselves on the brink of collapse. Some did actually collapse. In South Eastern Europe where KD Group companies operate, developments were characterised by even more negative signs. The stock indices in these countries lost between 65% and 80% of their value. Slovenia was no exception, with the crisis initially affecting our financial industry.

How do we operate in such conditions?

The operating results of the KD Group are a reflection of the global developments. The Group's performance deteriorated compared to 2007, with a net loss in the amount of EUR 77 million recorded in 2008. The profoundly negative developments resulted in the impairment and write-down of financial investments and a decrease in sales in the second half of the year. Total operating revenue amounted to EUR 391.6 million in 2008, a decrease of 2% compared to 2007. Total assets stood at EUR 795 million at the end of 2008, down 17% from 2007, while equity amounted to slightly less than EUR 194 million at the end of 2008, down 43% from the end of 2007.

The optimisation and rationalisation of operations is therefore urgent, but not at the cost of development. Our mission remains a satisfied customer with a comprehensive range of financial services. We therefore attract and create satisfied and loyal customers, who will find the answers to all of their financial questions and wishes in one location: the KD Group.

Customers become even more demanding than usual in a crisis. Continuous development is therefore a priority.

The key factors to success are committed and motivated employees. The overall drive of people derives from the values with the strongest motivational effect on the individual. The Company's values are the core of the corporate culture and the most important factor for success. Last year, the KD Group carried out an extensive project to define common values. The majority of employees participated in the project and together we discovered that our operations are founded on growth, respect, trust, excellence and support.

Without a doubt, the most important project of 2008 was the establishment of KD Banka. A team of experienced banking experts developed the range of products and services and the organisation of the bank. At the end of last year, the Group received all the requisite authorisations from the Bank of Slovenia. KD Banka enters the private banking sector through the KD Privilege brand and is synonymous for the range of products and services the KD Group offers its most demanding customers. By the end of 2009, the bank will expand its offer with a comprehensive selection of commercial and electronic banking services. It will continue to provide the services formerly offered by KD BPD, namely investment banking, including stockbroking, private wealth management and corporate financial services.

With the establishment of the bank, the KD Group is striving to achieve one of its key strategic objectives – to offer customers a comprehensive selection of financial services: investments in mutual funds, private wealth management services, stockbroking, life and property insurance, investment and tax advisory services and corporate financial and banking services.

We have therefore reorganised the Group to create a division-based structure. The Company thus operates in the following divisions: Banking and investment fund management, Insurance and Capital investments.

Last year, tightened conditions had the most significant impact on the Banking and investment fund management division. The strategy in investment fund management remains the same: to offer investors, primarily from South Eastern Europe, the widest possible selection of investment opportunities from around the world. We therefore expanded the range of investment funds last year; in Slovenia we offer the widest selection of opportunities for investors, who can choose between 17 sub-funds from the KD Umbrella Fund and the investment company KD ID. The Group currently manages 33 investment funds throughout the region. We have thus responded to the tightened conditions by expanding our range of products and services and with an intensive focus on long-term investments. For this reason, the decrease in the number of investors was relatively moderate. For the most part, investors left their assets in the Group's funds. However, some more active investors sough out new investment opportunities towards the end of 2008. We improved our customer relationship management in the area of private wealth management and stockbroking. Special attention was given to disseminating information, as customers can only make prudent decisions with the appropriate information and quality advice.

Last year in the Insurance division, we comprehensively expanded and enriched our offer and developed new, specialised products for individual target groups. We reached a significant milestone, as KD Življenje ranked second among Slovenian life insurers with 21% growth and a 13.7% market share. Adriatic Slovenica holds a 17.5% share of the property insurance market and a 24.5% share of the health insurance market. This means that we have succeeded in consolidating second position on the Slovenian insurance market for the third consecutive year, despite fierce competition. We have also expanded our range of insurance products abroad. We have begun marketing life insurance in Croatia and Ukraine and property insurance in Serbia.

In the Capital investments division, we actively and effectively manage various portfolio investments.

We still place the expectations and satisfaction of the customer at the fore. We follow this strategy in the development of products and services, which we supplement with the best sales channels. Last year, we accelerated development of KD Finančna točka. The Company's primary objective is the sales of all financial products of the KD Group in one location and to offer complete financial advisory services of the highest standard. Last year, KD Finančna točka already offered customers the possibility of underwriting life, health and property insurance, access to investment funds, the purchase and sale of securities and private wealth management services. By the end of the year, we will also begin offering them banking services through the new KD Banka.

And what do we foresee for 2009?

The main challenge will undoubtedly be to successfully survive the economic crisis, recover and emerge stronger than ever. I strongly believe that the crisis will not hinder the development of the KD Group.



Matjaž Gantar
President of the Management Board of KD Group d. d.