UniCredit SpA

MIL:UCG

Earnings Call Transcript 2017-Q4

[Operator]

Good morning. This is the Chorus Call conference operator. Welcome and thank you for joining the UniCredit's Fourth Quarter and Full Year 2017 Group Results Presentation. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Jean Pierre Mustier, UniCredit Group's Chief Executive Officer. Please go ahead, sir.

[Jean-Pierre Mustier, executive]

Thank you very much and good morning to all of you, and welcome to our 2017 full year results conference call. What a year it has been. Looking back, I am very proud of what we have achieved in these last 12 months. And I would like to start by saying thank you to our teams, who have worked tirelessly and with extraordinary commitment for the year, and to you, our investors, who gave us your trust and supported our rights tissue and our Transform 2019 plan. Thanks to you, while we have started to lead the groundwork for the new UniCredit, which we are confident will be a pan-European winner.

Now let's take a quick look at the highlights of the 2017 figures before Mirko take you for the plan. We successfully completed the first full year of Transform 2019. We achieved all our 30 2017 target, demonstrating that our plan is on track and is yielding tangible results. We are satisfied with our financial performance, which for the year, was driven by increasingly strong commercial dynamic across the Group. Our strong underlying performance lead to group net operating profit of EUR 5.7 billion, up 74% financial year on financial year.

The core bank performed very well, adjusted return on tangible equity was 9.1%, 1.9 percentage points higher than the Group return on tangible equity. With the announced fully funding runoff of the non-core, going forward, we will focus more on the Group core and we have started to report core EPS in the annex of this presentation. The gross NPE ratio of core bank is 4.9%, finally below 5%. All divisions are doing well and thanks to our renewed customer focus, we reported an increase in the number of clients of 629,000 and new origination of EUR 21.4 billion of AUM. Transform 2019 is ahead of schedule and already yielding tangible results. Costs are down by 4% to EUR 11.4 billion and we confirm our target for 2018 and '19.

Our 2017 cost of risk came in at 58 basis points. The 2019 target of 55 basis point is confirmed. Adjusted for the pro forma impact of IFRS 9 and FINO, our CET1 ratio, which 13.02% at year end. Mirko will comment later about the details of the IFRS 9 first time adoption and FINO, the final phase of which closed in January.

Let's move to Slide 5 for some highlights on the fourth quarter. This is UniCredit's best fourth quarter in a decade. We reported adjusted net profit of EUR 801 million and an adjusted net profit of EUR 708 million, has increasingly strong commercial dynamic growth performance across all divisions. Revenues in the quarter were up 4.2% quarter-on-quarter, mainly driven by resilient net interest income and fees. Fourth quarter of 2017 costs were down 0.7% quarter-on-quarter supported by higher expense recoveries from workouts.

De-risking continued as further disposal of EUR 1.2 billion, both the gross non-core NPEs to the targeted EUR 11.4 billion. Our first quarter '17 cost of risk came in at 69 basis points as we saw the first impact from model change. We experienced a negative capital impact from regulation, models and procyclicality in the fourth of 24 basis points on our CET1 ratio.

Let's move to Slide 6. As I said earlier, the underlying performance of the bank is strong. Adjusted RoTE is 7.2%, well on track towards our 2019 target of above 9%. Revenues for the full year were up 1.7% in a challenging environment, with commercial dynamic accelerating revenue growth in the fourth quarter. Thanks to the successful execution of Transform '19, operating expenses were down 4% financial year on financial year, taking the cost/income ratio to 57.9%. We're on a good trajectory towards our 2019 target below 52%.

Finally, the risk environment is improving, with the cost of risk for the Group down significantly at 58 basis points for 2017. The underlying cost of risk is even lower, 53 basis points when excluding model impact.

Slide 8 and 9 give you more detail of the progress of Transform 2019. All definitive actions on capital have been successfully completed. In line with the prime objective to further reduce our cost of capital, we continue to de-risk the balance sheet. As I noted yesterday, the second phase of FINO was successfully closed in January. The operating model transformation is ahead of schedule with overall FTEs down by almost 9,000 since December 2015, already at 64% of overall target. We have very carefully calibrated the restructuring activities needed to reduce cost and the need to preserve the commercial dynamics of the network. You can see on the next page that we've got the balance right.

Commercial dynamics for the Groups are strong as outlined on Page 9. We are very satisfactory in terms of AUM in Italy and implemented new service model for SMEs in Germany. CIB retained its European leadership position in bonds and loans and won several prestigious awards for the year. And finally, we have successfully strengthened our corporate governance with the actions taken at the AGM in December last year. We look forward to the AGM in April, when for the first time, the Board of Directors would present its own list of candidates published yesterday to stand up for election for the next term under the leadership of Mr. Saccomanni.

Now let me handover to Mirko, who will give you more details on our financials. Mirko?

[Mirko Bianchi, executive]

Thank you, Jean Pierre, and good morning to everyone. I will take you through UniCredit's financial performance for the full year and the fourth quarter. In the capital section, I will also comment on the IFRS 9 first time adoption and FINO. Our stated net profit reached EUR 5.5 billion, adjusted for the sales of Pioneer and Pekao, net profit was EUR 3.7 billion. All business lines showed a good underlying performance, CEE even had a record year. Adjusted return on tangible equity was 7.2% in the full year and 5.5% in the fourth quarter.

Let's turn to Page 12. I would like to highlight a couple of points in this page. NII was flat year-on-year as lower funding cost compensated continued spread compression. Fees increased 7.1% year-on-year, mostly driven by investment fees. Costs were down 4% in the year, as a result, gross operating profit was a strong EUR 8.3 billion for the year, up 10.7%. Net operating profit was up materially by 73.7% to EUR 5.7 billion.

Below the line, we had some developments in the fourth quarter. The Group tax rate was low as there were some tax provision releases and the good economic performance in different countries resulted in some DTAs' write-ups mainly in Germany. A further increase of profitability in the next quarters being reflected in our assessment of future profits could potentially lead to additional DTA write-ups in some legal entities.

Integration costs went up due to the renegotiation of long-term contracts in operations and IT, while this is an upfront and non-recurring charge in the fourth quarter, it will drive down cost post 2019. And lastly, there were some other items including a high double-digit contribution to the voluntary scheme in Italy. Overall, the development of the non-operating items broadly canceled each other out.

We also remind you that in the first Q, 2018, we customarily will take more than half of the systemic charges for the full year, which are expected to be around EUR 800 million in 2018.

The next slide covers the core bank. As we announced at our last Capital Markets Day and Jean Pierre just reiterated, we will run off our non-core division by 2025 and therefore going forward, we will increasingly focus on KPIs for the core bank. Adjusted Group core RoTE stood at 9.1% in 2017, well on track to reach our 2019 target of above 10% as communicated at our Capital Markets Day in the last December. The corresponding adjusted net profit came to EUR 4.4 billion. The Group core gross NPE ratio was 4.9% and we find more details on the Group core KPIs in the annex including core EPS on Page 62.

Let's turn to the slide 14. NII was up 3.3% in the quarter and net interest margin increased from 1.35% in Q3 to 1.39% in Q4. The drivers of NII were the following; as far as loans are concerned, average volumes and customer rates were essentially unchanged. There was a high single-digit positive contribution from loan prepayments in Germany. Deposit volumes grew at stable customer rates. Overall, the impact from loans and deposit on NII in the quarter canceled each other out. Lower term funding contributed positively to NII for EUR 41 million. The contribution of the investment portfolio and treasury in the quarter was higher by EUR 36 million, mainly as a result of lower excess liquidity.

Before moving to the next page, I would like to highlight the points. As we had mentioned previously, in our view, short-term interest rates will remain lower for longer and NII pickup will follow a U-shaped instead of V-shaped curve. We expect NII to remain stable in the first half of 2018 at the average 2017 underlying NII run rate on a like-for-like basis and to increase in the second half of 2018, thanks to the combined effect of higher volumes and stabilizing customer rates.

On Slide 15, I will highlight two points. First, in Group core, average loan were up by EUR 1.8 billion or 0.5%. Second, the average customer rate went down 1 basis point versus last quarter, while customer spread started stabilizing. Looking forward, as we have already mentioned, we expect customer rates to stabilize in the second half of 2018.

Let's turn to Slide 16. End of period customer loan volumes for Group core were up EUR 9.6 billion year-on-year, this includes EUR 1 billion loan portfolio reclassification as held for sale in the third Q 2017. End of period deposits volumes for the Group core were up 3.8% versus the quarter and 4.5% versus last year.

Let's turn to Slide 17. Fees in 2017 recovered from a lower level in 2016, and surpassed the level seen in 2015. The main drivers of 2017 performance were investment and transactional fees. Fourth Q 2017 investment fees were up 11.2% quarter-on-quarter and 27% year-on-year. This was possible, thanks to the strong commercial efforts by the networks, especially Commercial Banking Italy where the transformation of client liquidity into AUMs accelerated. It was also supported by the partnership with Amundi and the increased product range.

Financing fees grew 4.6% quarter-on-quarter, thanks to strong loan fees and capital markets activity with higher fees in ECM and DCM. In addition, transaction fees continued their steady growth with 0.2% in the quarter and 3% in the year.

Let's turn to Slide 18. TFAs reached EUR 824 billion in the quarter, increasing EUR 20.1 billion quarter-on-quarter and almost EUR 33 billion year-on-year. Net AUM sales amounted to EUR 19.1 billion, almost 3x higher than the previous year. This strong performance was driven mainly by Commercial Banking Italy, increased network productivity in combination with network bonds being replaced by AUMs have accelerated the conversion of customers liquidity. Fineco also performed very well, contributing EUR 4.5 billion to the year-on-year increase of EUR 21.4 billion.

Let's turn on Slide 19. Higher client activity in the sector-wise recovery in this fourth Q 2017, resulted in trading income increasing by 39.4% adjusted for normal recurring capital gains. As a result, the client portion of trading income was up by 18.4 percentage points to 71% in the fourth quarter. For the full year, trading income was up 3.5% versus the adjusted 2016 figure, which included a non-recurring income from the VISA share sales.

Let's turn to Slide 20. Our focus on cost efficiency is yielding results. The operating model transformation is ahead of schedule, we have already achieved 72% of the branch closures and 64% of our clients FTE reductions. Operating expenses are down 4% year-on-year, ahead of schedule and down 0.7% in the quarter. There was no fourth Q seasonality in total non-HR expenses as we had some higher expenses recoveries in the workout area. These are not recurring, so we expect non-HR expenses to be up in the first Q 2018 by about EUR 50 million with the following quarters showing a continued reduction. We confirm our cost targets for 2018 at EUR 11 billion and 2019 at EUR 10.6 billion.

Let's turn to Slide 21. Both HR and non-HR cost were down quarter-on-quarter and on a year-on-year basis. HR costs are up versus the fourth quarter '16, as a variable compensation level adjusted to the positive performance of the bank in 2017. Non-HR cost benefited from savings in the real estate and consulting as well as lower depreciation.

Let's turn to Slide 22. The fourth quarter was affected by the first changes to the regulatory credit risk model, which added 15 basis points for the fourth Q cost of risk of 69 basis points. Most of the model impact is due to Italian models.

2017 cost of risk for the Group stands at 58 basis points compared to 93 basis points in 2016. The model impact for the full year was 5 basis points, so the underlying cost of risk was only 53 basis points. The favorable risk environment positively affected all divisions. Commercial Banking Italy show a significant improvement in asset quality with cost of risk of 69 basis points, less than half than in 2016. Commercial Banking Germany, Commercial Banking also in CIB, all benefited from write backs in one or more quarters. Cost of risking fee normalized at 95 basis points, despite higher provision on a single name in the first half of the year.

In summary, our overall asset quality is steadily improving. The Group's gross NPE ratio has come down to 10.2% in the 4Q 2017, while the coverage ratio was stable at 56.2%. We confirm our 2019 cost of risk target of 55 basis points.

Let's turn to Slide 24. In Commercial Banking Italy, net interest income was down 4.6% in the year as pressure of customer rates over weighted high year average volumes. As [indiscernible] tapers off, we expect to see customer rates improve in the second half of 2018.

Fees were up 6.7% year-on-year, mostly thanks to the strong investment fees. AUM net sales reached EUR 11 billion, more than 3x the amount in 2016. Including Fineco, total AUM net sales in Italy were more than EUR 15 billion.

The quality of our portfolio is improving, cost of risk is down to 69 basis points for the full year, even though model changes negatively affected the 4Q 2017 cost of risk by 8 basis points. The risk discipline for new loan origination remained strong as expected loss on new loans was 51 basis points, well below the expected loss on the stock at 68 basis points. 2017 return on allocated capital was 11.9%.

Let's turn to Slide 25. In Commercial Banking Germany, NII was 5.2% higher than last year, excluding the positive one-offs of EUR 90 million in the second Q 2017. Corporates in Germany are very rich at the moment, which increased our deposit volumes and led to loan prepayment. The outlook for loan demand, as a result, remain somewhat subdued. Fees were up 7% over last year as current account repricing growth transaction fees and strong AUM net sales supported investment fees.

Cost of risk as normalized to a lower level of 13 basis points for the full year after benefiting from write backs in the first three quarters. In Q4, Commercial Banking Germany benefited from a capital gain on a disposal of EUR 29 million. Our normalized return on allocated capital was 8.3% for 2017.

Let's turn to Slide 26. In Commercial Banking Austria, revenues were down 5.4% versus last year, mainly driven by net interest in trading. Excluding the one-off gain of the sale of VISA in 2016, revenues would have been flat. On the commercial side, customer loan rates have stopped falling, while volumes were essentially flat. We expect customer rates to increase already in the first half of 2018 due to a shift towards retail, where there is less pressure on rates.

In retail, we have increased new business volumes, mainly thanks to the residential mortgage loans where we grew back towards our natural market share. We have very conservative underwriting standards, but still grow faster than the market, thanks to the success of our new advisory model.

The streamlining of the organization is almost completed. Costs are down 12.2% versus last year. We expect further reduction in cost in 2018 as there will be carryover effect on the HR side and the headquarters office relocation will lower real estate cost. Normalized return on allocated capital was 16.7% for 2017.

Let's turn to Slide 27. CEE has the highest 2017 net operating profits of all the divisions, mainly driven by lower cost of risk. Revenues were resilient and above target, lower funding costs and good transactional fees compensated flat volume and pressures on customer rates. CEE continues to be the growth engine of the Group. As the number of client grew by over 650,000, we also saw a sharp increase in mobile user penetration. Considering this strong growth, it is satisfactory that the cost base grew well below inflation. The cost of risk normalized to 95 basis points, even though we had a higher provision in the first half of the year on a single name. CEE continues to be an active NPE management and have concluded numbers of disposals during the year.

Asset quality continued to improve with the gross net NPE ratio improving to 7.9%, already below the original Transform 2019 target of 8%. Return on allocated capital for the year was 14%.

Let's go to Slide 28. In a very competitive European environment, CIB commercial performance was resilient, revenues rebounded in the fourth quarter, up 11.8% from the seasonally weaker third quarter. Fees were up 2% for the year driven by strong client activity in structured finance and capital markets. Client driven revenues amounted to 75% of the total revenues, up 2 percentage points from last year. The 2017 cost to income ratio at 40% is one of the lowest in the industry and already at the 2019 target. Normalized return on allocated capital stood at 14.4%.

Let's turn to Slide 29. As most of you will have listened to the Fineco results on the 6th of February, I will leave in my comments on this slide. We are very satisfied with the financial performance of Fineco, revenues were up 4.9% fiscal year on fiscal year and net profit stood at EUR 76 million.

Let's go to Slide 30. The performance of the Corporate Center was driven by the disposals of Pioneer and Pekao in the item discounted operation for EUR 1.9 billion. Costs are down 8% versus last year when adjusting for the non-recurring item related to Transform 2019. FTEs are down 10.1% versus last year. As a result, the Group Corporate Center cost to total cost has further improved to 4.1%. We are progressing very well towards our 2019 target of 3.5%.

Let's turn to Slide 31. Non-core reached its target of EUR 11.4 billion net NPEs, mainly thanks to disposals. Gross NPEs are down 15.9% to EUR 26 billion. We are fully focused on the execution of the self-funded rundown of the division that we take gross NPE to EUR 17.2 billion in 2019 and 0 in 2025. Both the revenue and the expense line were positively affected following the FINO transaction.

Let's turn to Slide 33. We continue to de-risk the balance sheet and lower our cost of capital. As a matter of fact, the Group disposed EUR 4.4 billion of NPEs during the year. De-risking is not only driven by the rundown of the non-core, but also by decisive actions on Group core. As such, our core gross NPE ratio has fallen below 5% in the fourth Q 2017, mostly driven by disposals. The coverage ratio remained stable at 55.4%.

Let's turn to Slide 34. The fourth quarter inflows showed the usual seasonality and was also affected by some single names. Year-on-year, the default rate is down as the migration rate.

On the next slide, I will go into more detail on the largest loan portfolio in Group core, which is Commercial Banking Italy, let's go to Slide 5. NPEs in Commercial Banking Italy were stable for the first time since the carve-out of non-core, despite the usual fourth Q seasonality. The gross NPE ratio declined to 6.6% while the loan volume increased. In 2019, gross NPE ratio target is 5.4%. However, the reduction of non-performing exposure will not always be linear, particularly considering the ongoing proactive management of legacy files. UTPs saw a slight increase due to the seasonal effect, however, the coverage ratio increased to 41.2% in Q4.

Let's turn to Slide 36. While inflows to NPEs in Commercial Banking Italy were up quarter-on-quarter on a normal seasonality, they were down 25.5% year-on-year. We see the overall risk environment in Italy improving as evidenced by default rates and migration rates, both down year-on-year. Recoveries are also up both Q-on-Q and year-on-year. As a result, we expect an overall continuous trend of improvement in 2018.

Let's turn to Slide 37. Our non-core credit portfolio further decreased in the quarter by about EUR 2.7 billion to EUR 29.8 billion. Disposals accelerated in the fourth quarter contributing half of the 2017 non-core disposals of EUR 2.4 billion. By the end of 2018, all performing exposure in non-core will have been reduced to 0 and the division would essentially become a closed NPE book. You can see the main drivers of the non-core rundown listed on the left side of this slide.

And finally, a quick remark on FINO. As you know, the first phase of FINO was closed in July last year, the second phase of FINO to sell down our stake to below 20% was announced just before our Capital Markets Day. As around yesterday, we closed this transaction in January 2018 with the settlement of the GACS and the junior notes.

Let's turn to Slide 38. Non-core loan dynamics further improved, thanks to our decisive actions. Net NPEs were down to EUR to 11.4 billion meeting the 2017 target. 2017 gross NPEs were down by EUR 5 billion to EUR 26.5 billion, well on track to meet our 2019 EUR 17.2 billion target. Furthermore, NPE coverage remains stable at the high level of 56.9%, which is very encouraging, given the rapid pace of disposals.

Let's turn on Slide 40. The Group's fully loaded CET1 ratio closed at 13.6%, the key drivers of this change were Q4 earnings generation of 23 basis points and regulation, models, and procyclicality negative impacting for 24 basis points. The new accounting standard, IFRS 9 became effective on January 1, 2018. The immediate first-time adoption negative impact for UniCredit is estimated at 75 basis points of core Tier 1 ratio, most of which due to increase in loan loss provisions. Slightly more than half of the loan loss provision effect comes from Stage 3 assets.

Over the course of 2018, we will have a compensating effect from taxes and shortfall, which will take the expected net negative impact for the full year to circa 40 basis points. Following the completion of FINO, with the recognition of the significant risk transfer at the end of the first Q 2018, we will also get a capital benefit of 17 basis points.

Including both IFRS 9 FTA impact and FINO benefit, our pro forma 2017 core Tier 1 ratio equals to 13.02%. During the course of 2018, we expect EBA guidelines and models, regulation, and procyclicality to mostly impact the third and the fourth quarter. As a result, we expect our core Tier 1 ratio at year end 2018 to be between 12.2% and 12.7% as we have communicated at our Capital Markets Day. For 2019 and beyond, we reiterate our core Tier 1 ratio target above 12.5%.

Let's turn to Slide 41. Risk-weighted assets increased by EUR 6.1 billion to EUR 356.1billion. The biggest driver was regulation, procyclicality and models with an overall impact of EUR 6 billion.

I want to remind you that the FINO portfolio risk-weighted assets are still into the fourth Q numbers until we recognize the significant risk transfer at the end of Q1 2018.

Let's turn to Slide 42. As we have communicated at the Capital Markets Day, we target a core Tier 1 MDA buffer of about 250 basis points from 2019 onwards. On a transitional basis, the MDA buffer today is almost 500 basis points.

On Slide 43, our fully loaded leverage ratio stood at 5.55% in the fourth Q 2017, increasing by 89 basis points year-on-year, thanks to our capital generation during 2017.

Jean Pierre, back to you for the conclusions.

[Jean-Pierre Mustier, executive]

Thank you very much, Mirko. Before we move to Q&A, let me briefly recap our first full year of Transform 2019. Adjusted net profit reached EUR 3.7 billion, stated net profit up EUR 5.5 billion. Strong commercial dynamics supported revenue growth of 1.7%.

We confirm our 2018 revenue target of EUR 20.1 billion. For NII, we expect it to remain stable in the first half of 2018 at the average 2017 underlying NII run rate and to increase in the second half, thanks to the combined effects of higher volume and stabilizing customer rate.

The operating model transformation is ahead of schedule. We confirmed the 2018 and 2019 cost target of EUR 11 billion and EUR 10.6 billion. Balance sheet de-risking is on clock, we sold EUR 4.4 billion of gross NPEs in the year and met our net NPE target for non-core of EUR 11.4 billion. And we are now focusing on the orderly execution of the fully self-funded complete rundown of non-core until 2025. The cost of risk for the Group stands at 58 basis points, including the first impact from our model change changes. That said, we maintain our cost of risk target at 68 basis points for 2018.

Our CET1 ratio fully loaded is 13.02% at year end, pro forma of IFRS 9 and FINO. As already I lectured at the Capital Market Day, we expect the CET1 ratio for the full year 2018 to be between 12.2% and 12.7% due to the phasing of the regulatory headwinds.

Summing up, this allows us to resume our cash dividend payment and the Board will propose a cash dividend of EUR 0.32 per ordinary share, in line with our dividend policy.

As I have said in the past, Transform 2019 is just the beginning on which we will build a solid foundation for UniCredit to become a true pan European winner. I am very encouraged by these results. We showed a tangible impact of Transform 2019. And as I said at the outset, I am proud of all our teams for the [indiscernible] gesture to our Board members who have all been working very hard in every way fully committed to transforming the bank. Again, thank you.

Thank you for your support and trust, I and all management team are confident we will continue to make good progress with the transformation of the Group in 2018 and achieve our objective of making one bank, one UniCredit, the true pan European winner. And now, Gianni, Mirko and I are ready to take your questions.

If you could, please try and limit your question to two each so that as many of you as possible can ask to us questions. Many thanks. Operator?

[Operator]

[Operator Instructions] The first question is from Andrea Filtri from Mediobanca.

[Andrea Filtri, analyst]

A question on capital and one on cost of risk. Are you not damaging your commercial competitiveness versus peers by adopting EBA guidelines in the most prematurely? And what is the component on Slide 40 of the capital walk of the other that you indicate in there? And on cost of risk, the underlying cost of risk is already running at the 2019 levels, excluding the model changes, can you please confirm the 2019 target does not include any negative effects from models, and given the improvement in macro and inflows, why should cost of risk stay flat for the next two years?

[Jean-Pierre Mustier, executive]

Yes, I will, on the cost of risk side, handover to TJ and he will answer your question. On the first question on capital, we have the capital on our balance sheet already. So the fact that we anticipated by guidelines, there's no change on absolute amount of capital and there is no change on return on tangible equity. So afterwards what is important is to make sure that when we target clients, we target the right profitability per client and that has to be done looking forward at what should be our regulatory capital charge beyond the end of our transaction basically, and so it is important that we know exactly what should be the profitability of the clients going forward. So I think it makes sense in fact to anticipate these regulatory capital charges, so that we are completely sure that the profitability we drive for clients on the loan on one side and the [ side ] business on the other is appropriate. On the cost of risk target for 2019 and the impact of regulatory change, I'll let TJ comment.

[Thiam Lim, executive]

On the cost of risk for 2019, as already communicated in our CMD, we confirm the 55 basis points and clearly this also take into account, if you look at the next two years, also the model effect that we have built into it. And clearly, we expect with a better macro environment that if anything, things to improve constructively. So we again confirm our cost of risk of 55 basis points with 4 basis points on the model impact.

[Jean-Pierre Mustier, executive]

Mirko, you want to add something?

[Mirko Bianchi, executive]

Yes. No, you also asked what is the minus 8 basis point impact on the capital walk on the other, this includes basically 4 bps in intangible, then also there is a small impact from shortfall deductions for our performing loans and also a very small impact from direct and indirect funding on UCI shares and governance action. So nothing really material about the 4 bps coming from intangibles.

[Operator]

The next question is from Adrian Cighi of RBC.

[Adrian Cighi, analyst]

Just a couple questions on net interest income, please. So your guidance for next year talks about stable H1 with H2 increase. However, we've seen Q4 already showing stable spreads. Do you expect a deterioration in H1, and if so, are there any particular geographies? And the second question on NII is the EUR 36 million from investment portfolio and markets treasury, how much of this would you call it recurring for future quarters or is this sort of a one-off?

[Jean-Pierre Mustier, executive]

Sure, I will let Mirko comment on the EUR 36 million. On the NII guidance, as we said during the Capital Market Day and repeated today, we said that the NII should remain stable based on the average of 2017 for the first half of 2018 and then gradually grow up with a stabilized customer rate, and higher loan volume. We expect for the full year 2018, customer rate reduction of around 5 basis points, 1 basis point of customer rate reduction is more or less EUR 50 million per year, EUR 8 million or EUR 9 million per quarter, and we expect this 5 basis point reduction to happen mostly, as I said, during the first half. So we'll take most of the customer rate reduction impact in the first half, we should be compensated by higher loan volume and by tighter funding spreads. And then the customer rates level will stabilize and then the higher loan volume will allow us to grow the NII. Mirko, I let you comment on the EUR 36 million.

[Mirko Bianchi, executive]

Yes. In terms of the EUR 36 million positive impacting the NII, of the EUR 36 million, 18 million are a positive contribution from the net interbank position in repo markets and this is, thanks to lower volumes in net liquidity positions that we have and also some of it is related to the run-off of term funding. Then there is a EUR 22 million gains on derivatives on FX and rates. So in order to, let's say, if this is recurring, I think I would not say that this is recurring because every quarter basically it has its own life in terms of market there, the market situation.

[Operator]

The next question is from Delphine Lee of JPMorgan.

[Delphine Lee, analyst]

First of all, just wanted to come back on net interest income. So you've commented on the customer spreads but just wanted to get [ a feel a ] little bit on what's happening on your investment portfolio and replicating portfolio, if you think the bulk of the decline has occurred already, and can we expect a better yield? Secondly, on capital, I know that [indiscernible]. So you have quite a lot of moving parts in 2018, just wanted to understand, so if you could confirm that there is still slightly above 40 basis points of negative impact from regulation, models and procyclicality, I can see in Q4 that you only took 24 basis points, it's slightly below the 30 basis points and just trying to understand a little bit the moves around IFRS 9 and the improvement that we should see from the 75 basis points to 40 basis points?

[Jean-Pierre Mustier, executive]

Thank you, very much. I'll let Mirko comment on the investment portfolio dynamics and briefly comment on the impact of the regulatory change. As we mentioned during the Capital Market Day, we have, for the first, for the full year '17, we have basically impact of regulatory change and model and procyclicality, which more or less around 50 basis points and when you combine that slightly below that. And then for 2018, we have a regulatory, model and procyclicality of 57 basis points. We have the IFRS 9 impact, which is going to be on the net basis of 40 basis points, on a net basis because we have a gross impact of 75 basis points the 1st of January and then we have a compensating impact coming from tax impact as well as the shortfall, which means that the net impact for the year is 140 basis point. Then we have the EBA guidelines anticipation, which should be around 80 basis point as we communicated during the Capital Market Day. So that's is the detail of the impact in terms of timing, as far as the EBA guidelines impact is concerned, it's going to be more -- I mean the bulk of which is going to come in Q3 and a little bit in the Q4. The fact that the coming Q3, Q4 that this impact comes once the ECB has validated the model change, basically. So it follows the ECB validation. And so we maintain our guidance for the full year of a fully loaded CET1 ratio between 12.2% to 12.7% of CET1 ratio based on which regulatory impact and of course organic capital generation, which was around 40 basis points. I'll let Mirko comment on the investment portfolio.

[Mirko Bianchi, executive]

Yes. The impact on the investment portfolio and the NII of the 4Q was very limited. Nevertheless, in terms of the performance of the investment portfolio, we continue to see tightening bond spread. So that's the outlook that we are foreseeing. Of course, the impact is slowing down vis-a-vis, let's say, the previous two years. And on the replicating portfolio, also huge impact quarter-on-quarter was quite small because we have a 10-year rolling investment strategy. So that is dampening quite dramatically the impact of up and down on interest rates. But if I look at basically the investments going forward are basically stable volumes, we are going to still experience on a yearly basis a slight reduction going forward. So if I look fiscal year on fiscal year, basically we had an impact of minus EUR 90 million on EUR 1.6 billion earnings, let's say, from our net benefit from the replicating portfolio.

[Operator]

The next question is from Mr. Antonio Reale of Morgan Stanley.

[Antonio Reale, analyst]

Two questions for me. First one is on banking union, the debate seems to be gaining momentum this year, at least if you extrapolate from the increasing pressure on the non-performing loans issue in Italy. From your perspective, what do you think banking union road map could look like? And how do you think you need to adapt your strategy or position the Group going forward? The second question is on the operating trends. NII and fees did well in the quarter, but the loan growth seems to be still relatively muted, which is understandable given your restructuring efforts in Western Europe and I remember you did comment that you expect a pick up for the second half of 2018, but maybe you could give us some additional color as to new loan production and in which products you see more activity pick up?

[Jean-Pierre Mustier, executive]

I will comment on the banking union side and then let Gianni comment on the loan growth for '17, which actually was very good and for 2018. On the banking union and on the NPL strategy of the Group, we have decided on self-help, basically, and we have put in place a strategy, which started with your capital market in 2016 and announcements of FINO of proactive sell down of NPL. This is something which is important for us because as we said, we want to sell down our NPL to de-risk the balance -- in order to reduce our cost of capital. So other banks can offer whatever strategy they want, for us, it is important that we run off our NPL to reach NPE ratio, which already on the core bank is below 5% at 4.9%. And we are targeting a 7.8% NPE ratio for the Group by 2019. And further we run off the non-core, the further the NPL ratio will go down. I think it's important today to focus as well on the NPL ratio of the core bank. So we keep doing that. Our strategy is, I mean consistent with what the regulator is asking and it is no more -- and the more we move towards the banking union, that balance sheet of banks are de-risked to reach the final [indiscernible] of the banking union, which is the European Deposit Insurance Scheme, but we do that not because we're priced by the regulator, because it is important for us to reduce the cost of capital to make the bank performance better. And so we don't expect any change or any change of strategy as far as our NPL strategy is concerned, we are [indiscernible] we are going to have an improvement of EUR 4 billion versus the initial plan in 2019 in terms of gross NPL, which should be amounted to EUR 40.4 billion, and that's the run-off on the self-funded basis the non-core by 2025. On operating trends and loan growth, I hand over to Gianni.

[Gianni Papa, executive]

Thank you very much, Jean Pierre. So if we look at the overall net loans growth in 2017, the loans on the Group core customer was up EUR 8 billion and it was driven mainly by Commercial Banking Italy and CIB business. In the fourth quarter, we had a growth of -- on the core of EUR 2 billion. But if I -- if we stay for a second on the new production, during the year, we had a new production on the medium- to long-term loan of around EUR 76 billion that was then offset by run offs and early repayments and prepayments due to the high liquidity and lower interest rates in the market. In the fourth quarter loan, we had a new production on medium to long term of around EUR 24 billion. So the commercial dynamic is there and this is very positive because it shows that as mentioned before, notwithstanding the restructuring that we have been having in '17, we've been growing very fast and we had a very positive return from our customers. Now for '18, we see growth coming from different segment of the markets. We are pushing on the consumer loans in Italy, in Germany, in Austria as well as in Central Eastern Europe. We are pushing on the mortgage loans, recapturing market share that we lost in the couple of years previously in Italy, but we're also having an inroad in Germany and we're already growing in mortgage loan in Austria by double digits, so we have higher growth than the market. And then we have also on the corporate, we have -- on the corporate commercial, we have a growth in all the countries and in Central Eastern Europe. We are moving very fast on the so-called working capital solutions, which is mainly fostering anticipation of invoices and so on, where for instance in Italy, we have been growing quite fast and we're replicating this business across the countries where we have presence. Not to mention then corporate investment banking where we have a very strong pipeline of very large deals that should materialize already in the first half of this year.

[Jean-Pierre Mustier, executive]

Just to add a final note in that, we don't do loan volume, we don't have campaign for loan volume, we manage the balance sheet from a risk reward point of view and that is very clear. So the reason is, the staff and the management has a long-term incentive plan, if we do loan volume today, we create provision to move and that's not good, specifically it's not good for our shareholders. So we manage the loan based on our own risk view. We were #1 in leveraged LBO financing in 2016, in terms of [indiscernible] we're 11 in 2017. It's the same team, but we feel that the risk reward is not good so, we just pulled back. If you look at Italy, we have increased our medium- to long-term corporate loan origination in terms of new loans by 34% in '17, but we have decreased our mortgage origination, retail mortgage origination by 26%, why? Because we felt that from the mortgage side the risk reward was not good, competitors were going for transaction in terms of spread or structure, which were not appropriate. And so we increased where we see the risk is good and we let our market share go down when we see the risk is not good. As Gianni mentioned, this has changed, so we're going to increase again because the risk reward is better. So don't expect us to push loan volume for the sake of loan volume and to come up with something which we know will not turn out good for our shareholders, if we were just to target the NII without having a proper risk view.

[Operator]

The next question is from Jean-Francois Neuez of Goldman Sachs.

[Jean-Francois Neuez, analyst]

I wanted just to ask about the tax rate. What we've seen throughout 2017 is that there's been a fairly low tax rate. I think that there was some allusion about DTA recognition in the introductory comments. I just wanted to understand whether anything has changed in your outlook for tax throughout the business plan? And also if you could -- if you would be so kind enough to tell us what you expect to see in 2018? And the second thing is, so we are seeing now -- of the other two banks that have reported in Italy this quarter, we are seeing additional cost synergies or cost reduction in either plans of further out after the initial plans? If you have to bet after 2019, would you say that the EUR 10.6 billion in cost that your target for 2019 and 2020 and later will go up or down?

[Jean-Pierre Mustier, executive]

I will let Mirko comment on the tax rate and I will take the cost synergies. Just on the tax rates, our tax rate remains the same. The cash payment on the tax change because of various impact, but Mirko will comment on that. On the cost side, I think it is important that you guys look at our absolute cost prediction which for this year is more than 4%. We communicate on the next tax prediction which is net of inflation of investment and whatever, and our cost base reduced by EUR 480 million just in 2017. That's, I think, a lot and I don't comment about other banks. But just try to look at the comparison with others and you will see that EUR 480 million is well above what many banks in Europe are committing for their plan. We're going to reduce for an additional absolute amount of EUR 250 million in 2018. And then another absolute amount of EUR 400 million in 2019. These are massive net cuts. At the same time, we take into account the inflation in the investments, so this prediction take into account everything and a real net reduction. That would be different compared to what is announced by other people. And by 2020, we have a carryover of the reduction of 2019 because we have staff leaving during the year and so we said during the Capital Market Day in '16 and repeated that we have -- probably everything has been equal and results and impact, the EUR 100 reduction of carryover basically of course by 2020. We are focusing on the Transform 2019 plan. We are not looking at our 2023 plan for the time being. So we work on optimizing the bank. We said our plan is not a 3-year plan, but a 20-year plan and it is very clear that banks will have to keep optimizing their processes for the next 20 years. So we will work on process optimization for a very long time as any other bank will do. So let's focus first on the additional kilometers of our marathon, it's only 14 kilometers out the 42. So we have another 28 to run. So let's focus on that and we look at what we do for the triathlon post 2019. Mirko, on the tax rate.

[Mirko Bianchi, executive]

Thank you, Jean Pierre. Yes, you're right, the first Q, we had a tax rate of 8%. If I normalize the tax rate, we are at 24%. The reason of the, let's say, the low tax rate is mainly because of a positive Germany DTA write-up that we talked of EUR 128 million and some tax releases also in Germany for EUR 34 million. Now if I look at fiscal year '17, the tax is 14.7%. If I normalize, this is around 22%, slightly lower our budget. Now if I look forward, the more we increase the business profitability, this would lead to potential DTA write-ups in some countries. And clearly this will depend on the accounting DTA test outcome and assessment that we have to take.

[Operator]

The next question is from Mr. Alberto Cordara of Merrill Lynch.

[Alberto Cordara, analyst]

Your comments about the -- your attention to underwriting is very clear. However, just wanted to elaborate a bit more on that and I mean you must be speaking with a lot of entrepreneurs, so just want to know from you what is the current sentiment, if you see some loan demand coming back from quality clients in the corporate space? And then on a different issue, IFRS 9 first time adoption, it seems that you're not taking this into Stage 3 assets, which is a strategy that has been followed by other Italian banks. Just the question to you is why you just use it for Stage 1 and Stage 2?

[Jean-Pierre Mustier, executive]

I will let TJ comment on IFRS 9. But we are actually applying -- it's more or less 50% I think of the IFRS 9 impact on Stage 3 assets but TJ will give you more detail. On the sentiment, Gianni will comment as well, because we, both of us, spend a lot of time meeting clients in the various countries, I will let Gianni comment in more details, but overall, the clients we see on the corporate side in Italy, Germany, Austria are depending us for the EU countries that their performance and the environment has been in the past few months are best for the past eight years, and that I think quite reassuring in terms of looking at the questions behind us. And we're looking to grow and develop their business, but Gianni, you can be more specific on some examples I think.

[Gianni Papa, executive]

Yes, sure. Well, I think across Europe, we have a very positive spin [indiscernible] and we have no requests coming and we see a growth in the loan dynamic. So if you go country by country, we look at Italy, for instance, we had some reforms that took place that really enable and clear the situation. And what we're seeing, thanks also to the TLTRO, quite a lot of investments coming on the fixed assets. So we have been quite active under this point of view. The activities also driven by the very large balance that we have in the export, we do know that '16 was called as a record year for exports for EUR 417 billion, '17 is even higher than that, we don't have yet the full numbers, but would be much better than what was expected and we have a growth in economy. We do see also companies, those Italian companies investing abroad, bank companies and we're assisting them across the different continents where they move. The same I would say for Germany and Austria where we see quite a pickup in demand. There is a lot of liquidity, and this is what has affected the volumes, especially in the last month of the year, especially in Germany, because of their liquidity we had quite a large repayment and prepayments of loans. Nevertheless, we see now the return and I mean coming back of loans. The same in Austria. And we see also quite good development in Central Eastern Europe, the countries in Central Eastern Europe in '17, we had only one country Russia that witnessed a decrease in volumes. This already given by the very high liquidity in the market for which large companies were repaying their loans. Nevertheless, we do expect also their -- a coming back of request of loans. So overall, we have a positive, very positive feeling on this.

[Audio Gap]

[Operator]

The next question is from Ignacio Cerezo of UBS.

[Ignacio Cerezo Olmos, analyst]

Couple of things from me. First one is on Turkey. If you can give us your view of what to expect there, the quarter seems to be incorporating a couple of negative one-offs. But again, your color basically about how things are evolving there, and also in terms of the hedging policy, if you can remind us basically of how you hedge the currency? And then the second one is on the net interest income. This EUR 41 million benefit from the term fund in this quarter is like a big number. So I was just wondering if there was anything specific there in the quarter.

[Unknown Executive]

[Audio Gap]

[Operator]

We have the next question from Mr. Victor Galliano of Barclays.

[Victor Galliano, analyst]

Just a couple of questions from me, if you could remind us please in terms of rate sensitivity, what we could expect from the 100 basis points parallel shift? And also regarding FINO phase 2, can you give us any more color on that transaction on the usage of the GACS and at least some kind of indication relative to FINO phase 1 where the pricing is, presumably above, but if you can give us any indication on that, that would be helpful. And would you consider using GACS again going forward in further NPL disposals and securitizations?

[Jean-Pierre Mustier, executive]

Just rate sensitivity or sensitivity to 3-month [indiscernible] bond at 10 bps, the evolution is EUR 182 million for 10 bps and sensitivity for 100 basis point balance sheet of the curve is EUR 1.80 billion, so it has been, both sensitivities have increased from last quarter where we were at a lower level. On the FINO phase 2, first of all, we said that the impact on the first quarter once we have [indiscernible] right now will be 17 basis points positive, the net impact is on 10 basis points, but we have minus 6 or 7 basis point taken in Q3 and Q4. So this is why have a positive 17 basis points from the first quarter coming in. The pricing of phase 2, phase 2 is structured in a different way than phase 1, so you cannot compare things one against the other, but we said and we communicated when we launched and closed the [indiscernible] assets, if you were to reconstruct phase 2 in a similar way to phase 1, the pricing is marginally above phase 1, which means that in [ rumors ] or initial comment on the price value were completely wrong, and we are [indiscernible] and we are very happy with our FINO transaction and we hope to be like [indiscernible]. Going forward, on the GACS, we are not selling smaller portfolios because it's a targeted asset [indiscernible] so we probably don't anticipate our last portfolio sales where we will put the GACS to give more leverage. If this is something which can [indiscernible] we will do that gladly, we were very happy with our tax contraction, which was indicated to investors, and we have seen strong investor demand with rate, which was actually better than our initial forecast, we came out at 1.5% for [indiscernible]. So we'd include the [indiscernible] GACS traction, but we see probably unlikely that we will use it anyway, use it in the same size that we used it for FINO.

[Operator]

The next question is from Benjie Creelan-Sandford of Jefferies.

[Benjie Creelan-Sandford, analyst]

Just a couple of questions. The first one is just looking at Slide 72 of the presentation, you gave some data around your NPL coverage ratio, including the value of collateral, it basically shows that the all-in coverage is 92% in the non-core division, 85% in core Italy. I mean, is it the right way to think about lot of that should basically trend to 100% over time, or is there any sort of benefits about why it should be lower, I'm just wondering what you've got embedded in your existing provision guidance in relation to that ratio? The second question is, just coming back to the capital. Again, I mean obviously given a lot of detailed guidance, for the full year '18 guidance does give us a relatively wide range of 12.2% to 12.7% for the core Tier 1 ratio. So just wondering whether you could be a bit more explicit about why there is that range [ to get ] the price positively or negatively in terms of your assumptions you've laid out.

[Jean-Pierre Mustier, executive]

I will take the second question and I will TJ comment on the first one on the NPE coverage. On the guidance for the full year '18, in terms of CET1 ratio, as I said, first of all, we have the stage impact of the regulatory change and impact of EBA guidelines anticipation. We should have model and procyclicality, which are more front-loaded for first half of the year between 15 to 10 basis point for each quarter and then the EBA guidelines kicking in the third quarter for the most part and the last quarter for the second part. But we have still some uncertainty, if I may say, about the full impact discussion with DCB on whether or not we can optimize some of the structure. This is why we give a range and the midpoint of the range, as you have noticed, it's very close to 12.5%. So if you put a gun on my head and ask me what should be the outcome, I'll say, the outcome should be in the midpoint of the range. But based on what we are doing, the [indiscernible] for this change, we can offer something flipping from one quarter to another, which is why you want to keep these 20 basis points more or less change on each side. TJ, on the first question, on the coverage.

[Thiam Lim, executive]

Yes, on the coverage on Page 72, if you look at the footnote, we calculate a collateral value according to the EBA methodology that basically cap at net loans across loan value, if we do not cap this, the coverage would actually exceed 100%. So we are, as we said, our coverage ratio is actually very strong.

[Operator]

Next question is from Mr. Ignacio Cerezo of UBS.

[Ignacio Cerezo Olmos, analyst]

There was some technical issue before with the question, so a couple of quick things for me. First one is on Turkey, if you can give us some color of how things are evolving there, I think the quarter was impacted by a couple of negative one-offs on trading and non-traded provisions, so again, understanding a little bit more actually what you're expecting from there including how you hedge the currency? And the second one is on the net interest income, the EUR 41 million benefit this quarter from the term funding is a big number, so just trying to understand if there is anything extraordinary this quarter.

[Jean-Pierre Mustier, executive]

Thank you very much. On the Turkey side, Gianni will comment about it, on the NII and term funding, I'll let Mirko comment in more detail. Gianni, on the Turkey side.

[Gianni Papa, executive]

Yes. Well, if we look at the results of Yapi Kredi in '17, they are very positive and we had the net income that grew by 22%, which is at 33% adjusted for year-on-year, adjusted for the VISA transaction that was done in '16 and this was considered as the best growth among all the peers in the market [indiscernible] 170 basis points to 13.6%, we had cost that grew by 7% that is well below the underlying inflation that is at 12%. Cost of risk also is very good because it was down by 50 basis points at 107 basis points year-on-year and this is driven by lower NPE inflows and a very strong increase by an increase of 32% in the collection. CET1 ratio is up by 30 basis points, driven by also 75 basis points of internal capital generation. Well, very important is the revenue side and the revenue side where the very good results on loan profitability and this, despite the challenge in cost of funding, with net interest income growing by 18% year-on-year with swap adjusted of 3.1% and loan deposit price also improved. So overall, if you look at revenues, you look at cost, you look at risk, I think we have a very positive result in Yapi Kredi and we are also improving our comparison vis-a-vis the best peers in the market. I'll pass it to TJ.

[Jean-Pierre Mustier, executive]

[indiscernible] the sensitivity, on the forex side, we had a sensitivity of 2 basis points for 10% devaluation on the currency on our capital, so it's 2 basis points, so it's quite small. You are asking us in terms of term funding, and we don't touch neither the capital exposure nor the revenue, the net income, specifically, yes. And then in terms of the term funding impact, yes, it's quiet dramatic, but the reason is that we did EUR 5.5 billion less in volumes and also the spreads have reduced on average on the stock by 5 basis points and that's resulting in yearly a strong impact on our NII. And that's the recurring impact basically with plan in terms of new issuance for next year which would be lower, you might comment on that.

[Thiam Lim, executive]

Exactly. And if I look at, let's say, the budget versus what's happening right now, the reduction in spreads that it is [indiscernible] on us is quite dramatic. So we are repositioning the credit in the market is recognizing the repositioning and also, we are not only [indiscernible] in terms of spreads on a comparable perspective, but also in comparison to our peers. So we are closing the gap also from that perspective. So going forward, we will continue to experience lower funding cost and then the funding cost, of course, will depend on the mix of that funding that we are going to do during the rest of -- the remaining part of the year.

[Operator]

The final question is from Mr.Giovanni Razzoli of Equita.

[Giovanni Razzoli, analyst]

Two very quick questions. The first one is on the -- can you comment on the competitive environment on Germany, which in my view is reporting a very good performance in terms of commercial activity, so I was wondering whether we can assume that this is very brilliant, the revenue generation is confirmed also, in the future in light of the competitive environment in the country? And the second clarification on your de-risking strategy, you said no plan to change our de-risking strategy, which in my view means that the rundown of the non-core portfolio is maintained in 2025, so I was wondering whether I got it correctly or if the anticipation of a couple of years of this target is in theory a possibility?

[Jean-Pierre Mustier, executive]

On the question for Germany, I will hand over to Gianni, on the run down of our portfolio de-risking strategy, I mean we have announced at the Capital Market Day what we want to do improvement by EUR 4 billion versus the initial target by the end of '19 and the self-funded runoff of the non-core by 2025. So we keep these targets, which were announced two months ago, and we said during the Capital Market Day, the environment is more favorable, we might do more earlier, but for the moment, I mean, nothing has changed in our plan. Gianni, on the German side?

[Gianni Papa, executive]

Well, on the German side for sure we have very strong competition both in retail and private banking and on the corporate banking and this is due to the high number of banks in Germany. We saw an intense market competition that led to a further pricing pressure, especially for consumer lending and mortgage business is on the retail side. And this is also driven by the low interest environment. In as much as the corporate bank in German that is concerned, the competition that we witness is also very high on the [indiscernible] clients particularly in the mid to large cap segments, and obviously we see this competition coming from the large established players as well as from the more local banks [indiscernible] and also the foreign banks that are -- all of them competing on the share of wallet, client on pricing, and basically what they are trying to do and what everybody is trying to do is to crowd out their competitors. Nevertheless, let me give you one detail in Germany, in 2017 for the year, we grew our -- the new production on the medium- to long-term loans and this is we're talking only about Commercial Banking Germany not including CIB Germany of almost EUR 12 billion and obviously then as I mentioned, we had run off and prepayments and in the fourth quarter alone, the new production was up EUR 4.2 billion. So which clearly indicate how despite the competition that I was mentioning before, we have very strong inroads in the corporate commercial banking [indiscernible] we are a very strong player on the corporate investment banking Germany and we are making inroads also in retail banking through, as I mentioned before, consumer financing that they had a very quiet -- good growth during '17 and mortgage business.

[Jean-Pierre Mustier, executive]

Thank you very much for your attention. We are now at the end of our presentation and Q&A session. We [indiscernible] tomorrow morning in London together with [indiscernible] and Europe, and will be in the U.S. early next week. So I'm sure we'll have a chance to speak to [indiscernible]. Thank you, and have a good day.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over and you may disconnect your telephones.