Presentation of the 2011 full-year results for the Julius Baer Group
Assets under management unchanged at CHF 170 billion – Net new money CHF 10 billion or 6% – Underlying net profit CHF 452 million (1)
Assets under management (AuM) ended the year at CHF 170 billion, basically unchanged from the end of 2010. Net inflows of CHF 10 billion or 6% were almost completely offset by the market performance and currency impacts. Total client assets (including assets under custody) declined by 3% to CHF 258 billion.
Operating income decreased by 2%, in line with 2% lower average AuM, translating into a stable gross margin of 104.5 basis points (bps).
Adjusted operating expenses increased by 7% mainly due to the one-off tax-related Germany payment of EUR 50 million (CHF 65 million) – or by 2% excluding the Germany payment.
The adjusted cost/income ratio (2) rose from 65.4% to 68.0%, largely the result of the significant strengthening of the Swiss franc.
The adjusted net profit decreased by 21% to CHF 401 million. The underlying net profit (excluding the Germany payment) was down by 10% to CHF 452 million and IFRS net profit by 27% to CHF 258 million.
At year-end, the Group’s BIS total capital ratio stood at 23.9% and its BIS tier 1 ratio at 21.8%.
The Board of Directors will propose to the AGM on 11 April 2012 an ordinary dividend of CHF 0.60 per share and a special dividend of CHF 0.40 per share. Additionally, the Board of Directors is committed to a new share buyback programme with a maximum value of CHF 500 million, to be executed flexibly over the next two years, in order to return excess capital if not used for potential acquisition opportunities.
Julius Baer has taken an early, pro-active and cooperative approach to resolving the US tax situation and will continue to cooperate fully with the US authorities, within the confines of Swiss laws and regulations. Julius Baer is strongly committed to resolving this situation, and is confident that a mutually satisfactory solution will be found.
Boris F.J. Collardi, Chief Executive Officer of Julius Baer Group Ltd., said: “We were able to maintain our Group’s business momentum in most dimensions in 2011 despite a challenging market and business environment. In further adjusting to the shifting patterns of wealth generation and distribution globally, we made first inroads into the local Brazilian market, significantly broadened our presence and product capabilities in Asia, and enhanced the coverage of Eastern Europe, Russia and the Middle East. In addition, we made great progress in transforming our business model offering in European markets. All in all, this again resulted in very healthy net new money inflows from all regions. Despite further investing in growth initiatives, we protected our profitability, thanks to continued cost discipline and strict allocation of resources.”
Total client assets declined by 3% to CHF 258 billion at the end of 2011. Assets under management ended the year at CHF 170 billion, basically unchanged from the end of 2010. This was the result of net new money of CHF 10.2 billion, a negative market performance impact of CHF 8.1 billion and a negative currency impact of CHF 1.4 billion. The net new money rate of 6% was at the top end of the targeted range. While all regions contributed positively, the majority of inflows stemmed from the growth markets – Asia, Russia, Eastern Europe, the Middle East and Latin America. The Group’s local businesses in Switzerland and Germany also delivered significant inflows. AuM levels fluctuated considerably during the year as a result of the significant market and currency volatility experienced in 2011. Consequently, average AuM (calculated on the basis of monthly AuM levels) decreased by 2% to CHF 168 billion. Assets under custody ended the year at CHF 88 billion after CHF 98 billion at the end of 2010.
Operating income declined by just over 2% to CHF 1,753 million, which, together with the aforementioned almost 2% decline in average AuM, translated into a gross margin of 104.5 bps, after 105.1 bps in 2010. Net fee and commission income decreased by 4% to CHF 942 million, impacted by overall lower transaction-based income. Net interest income increased by 17% to CHF 533 million, partly on higher dividend income on trading portfolios, which for accounting reasons is included in net interest income. Excluding the trading portfolios-related dividend income, which increased from CHF 66 million in 2010 to CHF 101 million in 2011, underlying net interest income grew by 11% to CHF 431 million, driven mainly by an increase in loan volumes. Net trading income fell by 19% to CHF 269 million, partly due to the aforementioned dividend reporting impact. When adjusted on the same basis as for net interest income above, the underlying net trading income decreased by 7% to CHF 370 million. In the fourth quarter, clients turned particularly cautious, leading to very subdued client transaction and trading activities. Other ordinary results declined to CHF 9 million, after CHF 26 million in 2010.
Adjusted operating expenses increased by 7% to CHF 1,279 million, mainly as a consequence of an agreement between German authorities and Julius Baer which led to a one-off payment of EUR 50 million (CHF 65 million, or CHF 51 million net of tax) by the latter on 14 April 2011, ending the investigations against Julius Baer and unknown employees regarding tax matters in Germany. Excluding the impact of this payment, the underlying operating expenses increased by 2% to CHF 1,214 million. At year-end, the total number of employees was 3,643, up 2% from a year ago, but down 1% since the end of June 2011, with the latter being the result of cost reduction steps initiated during the year. The number of relationship managers grew by 43 to 795. Despite the increase in overall staff levels, a decrease in performance-related payment accruals and pension fund expenses meant that adjusted personnel expenses were down slightly to CHF 787 million. Adjusted general expenses, including valuation allowances, provisions and losses, increased by 23% to CHF 425 million, mainly due to the one-off Germany payment. Excluding this latter item, the underlying general expenses increased by 4% to CHF 360 million.
The large majority of expenses are in Swiss francs, while operating income – similar to AuM – has a strong foreign currency exposure, especially to the euro and the US dollar. Whereas the value of the euro and the US dollar by year-end was not much different from the value at year-end 2010, the average exchange rates still reflected the significant strengthening of the Swiss franc, with the euro weakening by 10% on that basis compared to the average in 2010, and the US dollar by 15%. This is the main reason the adjusted cost/income ratio increased from 65.4% to 68.0%.
Including the one-off Germany payment, adjusted profit before taxes declined by 21% to CHF 474 million. The related income taxes fell by 26% to CHF 73 million, representing a tax rate of 15.4%. Adjusted net profit consequently decreased by 21% to CHF 401 million, and adjusted earnings per share came to CHF 1.98, down 19% from CHF 2.45 in 2010.
Excluding the one-off Germany payment, the underlying profit before taxes was down by 11% to CHF 539 million (representing a pre-tax margin of 32.1 bps of average AuM). The related income taxes dropped by 12% to CHF 87 million, representing a tax rate of 16.1%. The underlying net profit thus declined by 10% to CHF 452 million and the underlying earnings per share declined by 9% to CHF 2.23.
As in previous years, in the analysis and discussion of the results in the Media Release and the Business Review, adjusted operating expenses exclude the amortisation of intangible assets related to acquisitions or divestitures as well as integration and restructuring expenses, with the latter in 2011 mainly comprising the CHF 50 million one-off charge related to the restructuring programme announced on 14 November 2011. Including these items, as presented in the IFRS results in the Annual Report, the net profit to shareholders was CHF 258 million in 2011, down 27% from CHF 352 million in 2010.
Updated medium-term targets
Reflecting the reality of the changed market environment, including the continued relative strength of the Swiss franc, the Group’s medium-term financial targets have been amended. The target range for the adjusted cost/income ratio has been increased to 62 - 66%, from 60 - 64% previously. The medium-term target for the adjusted pre-tax profit margin is >35 bps, from >40 bps previously. The net new money target range remains unchanged at 4 - 6%.
Total capital ratio 23.9% – BIS tier 1 ratio 21.8% – Treasury portfolio conservatively positioned
Total assets increased by 14% to CHF 52.9 billion. Client deposits were up by CHF 6.0 billion to CHF 34.8 billion, partly the result of a shift from money market investments to deposits, and to some extent confirming the trend towards increased client cautiousness during the year. The loan book rose by CHF 1.8 billion to CHF 16.4 billion, of which CHF 11.8 billion were Lombard loans and CHF 4.6 billion mortgages, resulting in a year-end loan-to-deposit ratio of 0.47. Mainly as a result of the share buyback, total equity declined by CHF 0.2 billion to CHF 4.3 billion. BIS total capital increased by CHF 0.1 billion to CHF 3.1 billion, helped by the issuance of CHF 250 million of lower tier 2 capital towards year-end, while BIS tier 1 capital decreased by CHF 0.1 billion to CHF 2.8 billion. Helped by a conservative repositioning of the treasury portfolio towards year-end, risk-weighted assets stood at CHF 12.8 billion, barely changed from the level of CHF 12.7 billion at the end of 2010 pro forma for Basel 2.5, which was implemented on 1 January 2011. As a result, at year-end the BIS total capital ratio stood at 23.9% and the BIS tier 1 ratio at 21.8%, well above the Group’s targeted medium-term capital ratio floors of 16% and 12% respectively.
At the end of 2011, Julius Baer had no treasury exposure to Greek, Spanish, Portuguese or Irish issuers, while Italian exposure was reduced to one single position of CHF 9 million. This last position was paid back to Julius Baer in January 2012.
Current share buyback programme close to completion
The previously announced share buyback programme of up to 10,331,537 shares, or 5% of shares outstanding on 31 December 2010, and scheduled to run until the 2012 AGM, was launched on 23 May 2011. By the end of 2011, 7,592,954 own shares had been repurchased at an average price of CHF 33.40 for a total value of CHF 254 million. As at 3 February 2012, 9,077,954 own shares had been bought back at an average price of CHF 34.05. At the AGM, it will be proposed that these shares, together with all further shares repurchased under the current programme, will be cancelled.
Ordinary and special dividends proposed – New share buyback programme planned
The Board of Directors will propose to the AGM on 11 April 2012 an unchanged ordinary dividend of CHF 0.60 per share, amounting to a pay-out of CHF 118 million. Furthermore, in order to return some excess capital directly to shareholders and to take advantage of the current Swiss tax legislation, the Board of Directors will propose to the AGM a special dividend of CHF 0.40 per share, amounting to a pay-out of CHF 79 million. Both dividends are to be paid out of the share premium reserve, and as such the distribution would not be subject to Swiss withholding tax and, for Swiss individual investors holding their shares as private assets, not subject to income tax. Additionally, the Board of Directors is committed to a new share buyback programme with a maximum value of CHF 500 million, to be executed flexibly over the next two years, in order to return excess capital if not used for potential acquisition opportunities.
The results conference will be webcast at 9:30 a.m. (CET). All documents (presentation, Business Review 2011, IFRS Annual Report 2011 and media release) are available as of 7:00 a.m. (CET) at www.juliusbaer.com.
Please note the disclaimer regarding forward-looking statements in the media release PDF attached on the right-hand side.
11 April 2012:
Ordinary Annual General Meeting, Zurich
13 April 2012:
17 April 2012:
18 April 2012:
Dividend payment date
15 May 2012:
Publication of Interim Management Statement
23 July 2012:
Publication of 2012 half-year results, Zurich
(1) The adjusted results as presented and commented in this media release and in the Business Review are derived by excluding from the audited IFRS financial statements the integration and restructuring expenses and the amortisation of intangible assets related to previous acquisitions or divestitures as well as the impact of the cost reduction plan announced on 14 November 2011.
(2) Calculated using adjusted operating expenses, excluding valuation allowances, provisions and losses.