Presentation of the 2013 full-year results for the Julius Baer Group
Assets under management up 34% to CHF 254 billion, including CHF 53 billion from IWM – Adjusted net profit CHF 480 million (1)
Assets under management (AuM) grew to CHF 254 billion, an increase of CHF 65 billion, or 34%. This included CHF 53 billion from Merrill Lynch’s International Wealth Management (IWM) business, which Julius Baer is in the process of acquiring. Net new money was CHF 7.6 billion. Total client assets (including assets under custody) increased by 26% to CHF 348 billion.
Operating income rose by 26% to CHF 2,195 million, and the gross margin remained at 96 basis points (bps). Adjusted operating expenses went up by 29% (2) to CHF 1,611 million. The adjusted cost/income ratio improved (2) to 71%.
Adjusted net profit, reflecting the underlying operating performance, went up by 19% (2) to CHF 480 million and adjusted earnings per share (EPS) by 12% (2) to CHF 2.24.
IFRS net profit declined by 30% (2) to CHF 188 million, as the improvement in operating results was more than offset by the impact (as planned) of the IWM-related integration and restructuring expenses, the ongoing amortisation of acquisition-related intangible assets, and a provision in relation to the withholding tax treaty between Switzerland and the UK.
The Group’s capital position remained solid, with a year-end BIS total capital ratio of 22.4% and a BIS tier 1 capital ratio at 20.9%.
The Board of Directors will propose to the AGM on 9 April 2014 an unchanged ordinary dividend of CHF 0.60 per share, to be paid out of the share premium reserve.
The IWM integration developed successfully during 2013. Based on current expectations, it is envisaged that by the end of the integration process in early 2015 the Group will achieve the asset transfer target, towards the lower end of the CHF 57bn to CHF 72bn range, which would thereby also reduce the maximum total transaction price.
Boris F.J. Collardi, Chief Executive Officer of Julius Baer Group Ltd., said: “After a period of intense preparations, the implementation of the IWM integration process paid off in 2013, resulting in an impressive transfer of clients, assets and highly-rated IWM professionals to Julius Baer. In 2014, our focus will shift to improving the cost efficiency of the rapidly grown business, while not losing sight of our ambition to continuously deliver top-quality advice and services to our growing international base of sophisticated clients.”
Total client assets amounted to CHF 348 billion, an increase of 26% since the end of 2012. Assets under management grew by 34%, or CHF 65 billion, to CHF 254 billion. This included CHF 53 billion of AuM reported from IWM, of which CHF 40 billion were booked on the Julius Baer platforms and paid for. Outside the contribution from IWM, the increase in AuM was mainly the result of net new money of CHF 7.6 billion or 4% and a positive market performance of CHF 7 billion, partly offset by a negative currency impact of CHF 3 billion. Net new money was driven by continued net inflows from the growth markets and from the local business in Germany, while the inflows in the cross-border European business were more than offset by tax regularisations of legacy assets. Assets under custody came to CHF 93 billion, up by 6% from the CHF 88 billion at the end of 2012.
Operating income rose to CHF 2,195 million, an increase of 26%, in line with the growth in monthly average AuM (to CHF 229 billion). The full-year gross margin for the Group (including the IWM businesses acquired during the year) therefore remained at 96 bps.
Net commission and fee income contributed CHF 1,277 million, up by 30%, slightly above the increase in average AuM. Net interest and dividend income declined by 1% to CHF 552 million. Net trading income increased by 82% to CHF 315 million. Other ordinary results doubled to CHF 51 million.
In 2013, adjusted operating expenses went up by 29% to CHF 1,611 million. The increase in expenses was substantially attributable to the transfer of the IWM businesses in 2013. The total number of employees grew by 1,669 full-time equivalents (FTEs) to 5,390 FTEs, a rise of 45%, including a net 1,220 FTEs from IWM. The number of relationship managers grew by 391 FTEs to 1,197 FTEs, of which 365 FTEs from IWM. As a result, the adjusted personnel expenses went up by 20% to CHF 984 million. Adjusted general expenses rose by 54% to CHF 536 million. This increase was significantly driven by a shift from a CHF 17 million net release to a CHF 46 million net charge for valuation allowances, provisions and losses. Adjusted general expenses included CHF 35 million of costs related to the US tax situation (2012: CHF 38 million), of which CHF 15 million was a provision for expected future legal fees.
As a result, the adjusted cost/income ratio (3) improved to 71% (2012 restated: 73%). Excluding the expenses related to the US tax situation, the adjusted cost/income ratio was 70% (2012 restated: 71%).
Adjusted profit before taxes went up by 19% to CHF 583 million. The related income taxes increased to CHF 103 million, representing a tax rate of 17.7%. Adjusted net profit – reflecting the underlying operating performance which allows a meaningful comparison of underlying results over time – improved by 19% to CHF 480 million, and, following the higher share count after the IWM-related capital increase, adjusted earnings per share by 12% to CHF 2.24.
As in previous years, in the analysis and discussion of the results in the Media Release and the Business Review, adjusted operating expenses exclude integration and restructuring expenses (CHF 199 million, almost entirely related to IWM, up from CHF 57 million in 2012) as well as the amortisation of intangible assets related to acquisitions (CHF 101 million, up from CHF 90 million in 2012). IFRS net profit declined by 30% to CHF 188 million, as the improvement in operating results was more than offset by the impact (as planned) of the IWM-related integration and restructuring expenses, the ongoing amortisation of acquisition-related intangible assets, and a provision of CHF 29 million in relation to the withholding tax treaty between Switzerland and the UK. On the same basis, and following the higher share count after the capital increases in October 2012 and January 2013, EPS decreased by 34% to CHF 0.88, from the restated CHF 1.33 a year ago.
Balance sheet and capital developments
Total assets increased by 32%, to CHF 72.5 billion. Mainly as a result of the business transferred from IWM, client deposits went up 32%, to CHF 51.6 billion, and the total loan book by 39%, to CHF 27.5 billion (comprising CHF 20.4 billion of collateralised Lombard loans and CHF 7.1 billion of mortgages), resulting in a continued conservative loan-to-deposit ratio of 0.53. At the end of 2013, total equity increased by CHF 0.3 billion to CHF 5.0 billion. Total capital amounted to CHF 3.6 billion, of which tier 1 capital CHF 3.3 billion. With risk-weighted assets at CHF 15.9 billion, this resulted in a BIS total capital ratio of 22.4% and a BIS tier 1 capital ratio of 20.9%. Over approximately the next 12 months, as the final IWM client assets are transferred and paid for in stages and as most of the remaining projected IWM-related transaction, integration and restructuring costs are expensed, the Group’s total and tier 1 capital ratios are expected to decrease closer to the medium-term target levels.
Unchanged ordinary dividend proposed
The Board of Directors will propose to the AGM on 9 April 2014 an unchanged ordinary dividend of CHF 0.60 per share. As was the case in 2011, 2012 and 2013, it is proposed that the dividend will be paid out of the share premium reserve. The distribution would therefore not be subject to Swiss withholding tax and, for Swiss individual investors who hold their shares as private assets, not be subject to income taxes.
In the first half of 2013, CHF 24 billion of IWM AuM were transferred to Julius Baer, of which CHF 12 billion booked on the Julius Baer platforms and paid for. In the second half of 2013, over CHF 28 billion of IWM AuM were additionally transferred to Julius Baer, taking total IWM AuM reported to CHF 53 billion by the end of 2013, of which CHF 40 billion were booked on the Julius Baer platforms and paid for. Since the start of the IWM integration process on 1 February 2013, a total of 15 IWM locations have now entered the transfer process. The total number of IWM staff at Julius Baer has increased to 1,220 FTEs, of which 365 FTEs are relationship managers. As a result of the successful transfer rate in 2013 and based on the current expectations for the remainder of the integration process, it is envisaged that by the end of the integration process in early 2015 the Group will achieve the asset transfer target, however towards the lower end of the CHF 57 billion to CHF 72 billion range, which would thereby also reduce the maximum total transaction price.
Before the end of 2013, the Group started sequentially implementing the required restructuring and rightsizing measures with an objective to achieve the previously stated profitability improvement targets for 2014 and 2015. The estimate for the total IWM-related transaction, restructuring and integration costs to be borne by Julius Baer remains at approx. CHF 455 million, of which CHF 244 million was booked in 2012 and 2013.
Please refer to the Business Review page 4 for the full description of the results.
The results conference will be webcast at 9:30 a.m. (CET). All documents (presentation, Business Review 2013, Consolidated Financial Statements 2013 and this media release) will be available as of 7:00 a.m. (CET) at www.juliusbaer.com.
3 March 2014:
Publication of the Annual Report 2013
9 April 2014:
Annual General Meeting 2014, Zurich
11 April 2014:
15 April 2014:
16 April 2014:
Dividend payment date
14 May 2014:
Publication of four-month Interim Management Statement
22 July 2014:
Publication and presentation of 2014 half-year results, Zurich
Please note the disclaimer regarding forward-looking statements in the media release PDF attached on the right-hand side.
(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, the amortisation of intangible assets related to acquisitions or divestments and charge in 2013 in relation to the withholding tax treaty between Switzerland and the UK.
(2) Revised IFRS accounting standards related to the Group’s pension plan that became effective on 1 January 2013 and are described in the Group’s Consolidated Financial Statements 2013 resulted in a restatement of personnel and tax expenses and certain balance sheet items for the 2012 reporting period. The final restated figures differ from the preliminary 2012 restatement initially communicated on the occasion of the presentation of the 2013 half-year results on 22 July 2013. The 2012 adjusted operating expenses were restated to CHF 1,247 million, the adjusted cost/income ratio to 73%, adjusted net profit to CHF 404 million, adjusted earnings per share to CHF 2.00, and IFRS net profit to CHF 269 million.
(3) Calculated using adjusted operating expenses, excluding valuation allowances, provisions and losses.