Aareal Bank AG
XETRA:ARL
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Mastercard Inc
NYSE:MA
|
Technology
|
|
US |
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Walmart Inc
NYSE:WMT
|
Retail
|
|
US |
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
N/A
N/A
|
Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
Johnson & Johnson
NYSE:JNJ
|
US | |
Berkshire Hathaway Inc
NYSE:BRK.A
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Mastercard Inc
NYSE:MA
|
US | |
UnitedHealth Group Inc
NYSE:UNH
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Walmart Inc
NYSE:WMT
|
US | |
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome and thank you for joining the Aareal Bank AG Q1 2019 Analyst Conference Call. [Operator Instructions] I would now like to turn the conference over to Jürgen Junginger, Managing Director and Head of IR. Please go ahead.
All right. Good morning, ladies and gentlemen. Thank you for joining our conference call for our Q1 results that our CEO, Marc Hess, will present to you, and later on, we will be happy to take your questions. So Marc?
Yes. Thank you very much, Jürgen. Good morning from my side, too. Let me start right away with the presentation. You can find the highlights on Page 3. Overall, we could summarize that we had a good start into 2019. We have reached all the goals that we had set for ourselves. The operating profit, as you already know, stood at EUR 61 million, so in line with our expectations, especially as we already booked the full costs for the deposit protection scheme and the banking levy, as usual, completely in Q1, but also digested a large part of the integration costs for DHB already.Regarding our segment performance. In the commercial real estate loan business, you know we were very cautious in our planning and said we didn't want to increase our portfolio this year. We want to keep it stable. This is why we were able to be very selective in a market that showed low activity levels in the first quarter and that led to really good margins that I can report to you later on. In Aareon, we saw the sales revenues further increasing especially from our digital solutions, something that we are very happy about, of course, given that this is the focus of our investment initiatives going forward. Regarding DHB integration, we really made good progress. We are fully in line with our own plans, and we'll complete that by mid this year. As I just mentioned, we have already booked a large part, 2/3 of the integration costs, in Q1, that is diluting Q1's cost base, but of course a relief going forward. So all in all, we had a good start, as I just said, and we are confident for the rest of the year. This is why we are confirming our targets.Going into the segments on Page 5. Yes. As I just said, the market activity was comparatively low in Q1. Turnover in Europe was 25% below last year's Q1 and the U.S. 15% below last year's Q1, that also resulted in less outflows in our own portfolio, which was also supported by the FX movements. So we had a stable portfolio and therefore were able to select the -- or even to pick, I would say, the new business. Regarding the margin, above 250 basis points. Certainly, this is not sustainable for the year, but it's of course great a support to reach our target of 180 to 190 basis points that we have set ourselves. Regarding the regional distribution, you can see it below. This is certainly due to low volume, not representative. But here, we were, especially in America, as you know, and also Asia, we had some parts here -- including Australia, as you know, which we just opened as a new market last year. So looking ahead, we are quite optimistic for the second quarter. Activity has been picking up. We may even come close to the figures of new business that we had last year, which was not a weak quarter at all. And this is why we are confirming our new business target as well as our target to keep the portfolio stable over the year. Consulting/Services, well, if we are looking at the operating profits, first of all, it shows us a small decline from minus EUR 8 million to minus EUR 9 million. However, that is for a technical reason because we have also on a segment level now booked the deposit protection scheme, a fee of minus EUR 3 million fully in Q1. Last year, we did accrue it on a segment level over the year, so this explains the -- the short reduction here. As you can see, the underlying performance, especially in Aareon, was good. Operating profit increased from EUR 6 million to EUR 8 million, driven by a good momentum in our revenues, increasing from EUR 55 million to EUR 59 million quarter-over-quarter, driven here again by our digital solutions, which increased by 25%.On the deposits, the volume remained stable or even was increased by 200 million in comparison to end of last year. And as I just mentioned, when we are looking here at the operating profit, this overstated the negative development here because it's distorted from this change regarding the consideration of the deposit protection scheme.Going into the P&L in a little bit more detail, starting on Page 8 as an overview. As mentioned, the operating profit is at EUR 61 million, so down by EUR 6 million compared to last year's first quarter figures. However, we digested DHB integration costs of EUR 9 million and last year also benefited from a one-off in the other line from Coreal. If we are looking at the underlying development, it is really positive and has stabilized, was even up slightly compared to last year's Q1. The derecognition result was supported by an alignment of our treasury portfolio, which have increased -- which did increase by EUR 1.4 billion, with a consolidation of DHW (sic) [ DHB ], and now we reduced it again. The fee income was growing steadily. And in the fair value and hedge result, we benefited from a valuation effect on our cross-currency basis swaps. That is certainly not sustainable but will have a pull to par effect. And on the other hand, we also had some positive contribution from our interest rate derivatives, which are somehow recurring, given that here, we have small spreads, let's say, from closing client derivatives that we have outstanding.Costs underlying, you'll see a stable development. This is distorted by the DHB and the banking levy, but here I will give you further insight in a moment.Page 9, NII in more detail. The stabilization, as you can see here, continued. Remember, we were down through '17 through to '18 by quite an amount, so now this has stabilized and even increased quarter-over-quarter. Here, of course, the high new business margins that we generated in Q1 will help us going forward. On the derecognition result side, well, EUR 4 million came from early repayment. This is, of course, also influenced by the low market activity that I just explained. EUR 12 million came from the treasury portfolio adjustments where we used the market opportunities to reduce the inflated portfolio from the DHB consolidation.Regarding loan loss provision, well, as you would have expected, in Q1, due to the value adjustment period until February regarding the full year report and accounts closing, of course, traditionally, there is not much to report about. EUR 5 million, that are only some stage shifts here, but we didn't have any new nonperforming loans in Q1 this year.Net commission income, driven, just mentioned, by the positive trend on the Aareon side, supported here from the high growth rate in our digital product, which even picked up by 25%. And this is before we started the initiative here with further investments which we are going to explain to you in the Aareon investment seminar at the end of this month.Admin costs. Certainly, here, a closer look. It's somehow beneficial. And as you can see it, we showed a nominal increase both versus Q4, which will certainly not surprise you, and versus Q1 last year. However, the underlying is basically at the same level as last year. So comparing to Q4, of course, we had the banking levy and the deposit protection scheme contribution, that increased by EUR 1 million to EUR 21 million compared to last year -- EUR 1 million increase. If we compare this then to Q1 2018, of course, we have to consider the DHB integration costs. Here, we already booked EUR 9 million, which is 2/3 of what we expect. So there is not much to come in Q2 and hopefully probably nothing in Q3 going forward as we will complete our integration efforts as planned by mid this year. So that will be a one-off. On top, you know last year benefited from the reversal of some provisions, in total EUR 20 million over 2018. We already gave you that indication very early that this will not happen this year. And then we have some increases in the running costs, especially on the Aareon side, for material costs and personnel. However, that then led to the fee increase of EUR 3 million in Aareon, and therefore, it's well explained.Regarding capital and funding. First of all, a deeper look into our regulatory ratios on Page 14. As you know, we are well capitalized on a comfortable level. We had already included the trim results and the new NPL guideline by the end of last year, which certainly diluted our figures. And as you also know, we report Basel IV consistently and to also steer our bank already according to Basel IV. So for us, it's the dominant figure. We are well above our own target ratio of 12.5%. And show a ratio here this quarter of 13.1%. That is a small dilution by 10 basis points, which can be explained with the implementation of IFRS 16. Here, we had a small capital deduction on the one side. And on the other side, has, let's say, to account for the right of use of these leasing contracts which led to a respective RWA increase and therefore resulted in approximately 10 basis points dilution, both in the Basel IV and in the Basel III ratio. The Basel III ratio also obviously decreased a little bit further to 16.7%. This has basically 2 effects which are not affecting Basel IV. One is that we have to deduct over the year the gross risk provisions. This is between EUR 20 million and EUR 30 million for the first quarter. You know that is only a temporary effect because that comes back at the end of the year when we consolidate the full year results, but it's certainly burdening the ratio over the quarters until Q4. And then secondly, we saw a drop in the respective discount rate for our pension obligations, which we had to reflect, so we are down here from 1.8 to 1.55 to be considered via the OCI in our capital. This is not affecting Basel IV because this was locked in on an even lower basis, in fact, when we started the implementation and calculation on Basel IV, so this explains why we had a slight reduction here in Basel III ratios.Funding. Well, as you can see it on the page, we continue to show very well balanced funding mix, with our deposits from the housing industry accounting for 1/3. We were very successful in issuing new successful Pfandbriefe in Q1, so are fully in line with our funding plan. You can see the figures here, that even continued in early Q2. You may have seen that we placed senior benchmarks successfully at very attractive rates. So here, everything as planned and well underway. The liquidity ratios are solid, as you know, and we more than overfulfilled our ratios on MREL, NSFR and LCR side.The balance sheet itself on Page 16. First of all, stable at EUR 42.7 billion. As I mentioned, excluding the derecognition result, we adjusted our treasury portfolio, that increased with the consolidation of DHB in Q4. So we adjusted it now from 10.6 to 9.8, with the respective effect on our derecognition result. Then I'm already jumping to asset quality on Page 18. Well, as you may have expected, regarding the low market volatility and the unchanged level of our portfolio, there is no real big changes that I can report here about. You can see the year-end figures in the brackets. So really nothing that I would -- that would be worth mentioning. It's well diversified by regions. As you know, you know that we are focusing on a cash flow producing stabilized loans, so we're not doing any new business and development. Low LTVs, so we have sufficient buffers in adverse market development. But you know all that. We have shown you that in greater details for the respective portfolios. So on Page 19, same story. Distribution by country has hardly changed. That is also true for the defaulted exposure, which is stable compared to last year. And as said, no new NPLs in Q1. We can also say that we are -- negotiations to get some old NPLs off the balance sheet and we are confident that we can show some success here in the second half, maybe around year-end.Next slide shows you the Italian portfolio. Here, I gave you some more insights in our last analyst conference with the review that we had done in Q4. Here, the same story applies. No bigger changes, hardly no new LLPs, no NPL, hardly any new LLPs in Q1. So here, nothing really to report about. And the treasury portfolio is also what I just mentioned has been reduced from EUR 8.7 billion nominal to EUR 8.0 billion in Q1 after the increase of DHB in Q4. So that is basically it. I would already jump to the outlook on Page 24. As said, we had a good start in 2Q -- into 2019 which makes us confident for the full year. We reiterate our target. And as you can see it here on the slide, no changes. We considered nevertheless as challenging, as we mentioned in our year-end call. The middle of the range of our operating profit that we show is basically what we had last year ex DHB [ Basel ]. That is, nevertheless, a challenge because last year, we benefited from the release of provisions of EUR 20 million, and we will show a same number, but this time not positive as additional burdens from DHB integration and also have to digest the Aareon investments. So last year, we had plus EUR 20 million. This year, we have minus EUR 20 million to digest. But as said, we are well on track. And this is basically the conclusion. For the next and final slide, we are well on track to see a solid development in our operating business, both in commercial real estate and in Aareon. We reconfirm our targets after a good start in Q1. We continue with the implementation of our strategy, Aareal 2020. Our focus will be on Aareon, and especially this quarter with our investment in the digital initiatives. We will present that to you on the 28th of May, and I guess you have all already received the invitations. And we would be happy if you could join us on that event.So that is it so far from my side regarding the presentation. I'm now happy to take your questions.
[Operator Instructions] First question is from the line of Benjamin Goy from Deutsche Bank.
3 questions, please, from my side. First, on costs. So when I take the underlying Q1 run rate, annualize it, and at the end, the full year effect, is it fair to say that still around about EUR 500 million is a fair guide for this year? Or do you expect changes in the underlying run rate going forward? And secondly, you mentioned APAC was quite good in the new business. Is it all Australia or some other countries? And so maybe you can give some more color here on the Q1 and whether we should see more volumes coming out of this market going forward. And the last point is on DHB. So you gave us a good handle on the cost side, the integration costs. Just wondering, on the revenue side, whether anything stands out that we should be aware of.
Yes, Benjamin. Thank you very much for your questions. Regarding costs in Q1, I think I explained all the factors that somehow diluted Q1. And I confirm your calculation. And this is also a part of our guidance for this year. Yes, we aim to around EUR 500 million, plus-minus. This is what we planned for. And this is certainly distorted by DHB, but also by the transformation costs that we will still see this year. You know we guided EUR 20 million, that will be reduced next year. So certainly, we will see a peak in 2019.Regarding APAC, well, it was basically split. There was some in Australia. We also did a luxury resort in Maldives. We had a quite good experience there over the last couple of years. And a little bit in China, but this was a very small new business project. So it's just as I said, we will continue to develop Asia, especially Australia. It is in our focus. So after the market entry last year, this is going to be one of the markets where you will see more loans to come, if they fit. But the percentage regarding new business that we showed in APAC is certainly overstated.In DHB, regarding the revenue development. Here, everything is in line. You know that we reduced our original guidance already with our full year figures somehow because the portfolio that we inherited was a little bit lower, EUR 300 million commercial loans according to EUR 500 million or compared to EUR 500 million which we expected before. But on that basis, we are very much in line. And also, regarding the transformation costs, we are in line. So yes, I can say, tick the box.
The next question comes from the line of Johannes Thormann from HSBC.
Johannes from HSBC. Also, 3 questions. First of all, a follow-up on the APAC business. Is it only the Australia business done by the new offices and the Maldives and China by the existing offices, or what do we have to expect from that or, I mean, how do we have to understand this? And then also in terms of the China business. Previously, you went out and now you said just a little bit. Why just a little bit? Why not more? Secondly, on your NII, a split question. First of all, what is your outlook for the underlying NII in the next quarters? And secondly, with the derecognition result of EUR 16 million, you nearly reached the low end of your guidance already. So what should we expect in the next quarters?
Yes, hello, Johannes. Good morning and thank you for your question, too. Regarding the APAC business, this is all done from our existing offices, so no cost increases to be expected from that side. With regards to China, yes, it was a very low contribution or a small contribution to our new business. Why? Because it really has to fit. I explained to you before, we were very selective regarding our new business. In Q1, we were able to be very selective because we didn't want to increase our portfolio. So here, we have, let's say, one opportunity that fits very well. It was an office building in our portfolio. Here, we will continue to be selective. So it's not in our growth strategy focus, but we will always be ready if something interesting comes across.In NII, regarding the underlying NII, so the EUR 135 million. Yes, this is expected to be more or less stable over the next couple of quarters, reflecting a stable portfolio development. What comes to derecognition results? Yes, obviously, we had a positive here. And nevertheless, the underlying, the EUR 4 million was a little bit below our own expectation, reflecting the low market activity. So here, we have to wait and see. It's hard to predict. And we are, let's say, somehow confident that it could pick up, but it's certainly too early to guide this up.
Okay. So you confirm basically the EUR 20 million to EUR 40 million guidance?
We have confirmed the guidance as we have shown it here.
[Operator Instructions] The next question comes from the line of Britta Schmidt from Autonomous Research.
I would like to ask about the goodwill. I think there was a small increase this quarter. Maybe you can elaborate on what that was related to. And should we see more goodwill increases? So for example, investment into the consulting and services business. But just a clarification. So on the deposit-taking business, can I just confirm? Did you mean that the whole reduction of the EUR 14 million operating result last year minus EUR 17 million also in the quarter was due to the deposit protection scheme fees to be paid or not to be accrued, but to be fully paid in Q1? Or were there any other changes in there?
Yes. Britta, thank you very much for your questions. The small increase in goodwill is easily explained by the first time consolidation of plusForta. You know that we acquired a comparatively small company here which is specialized in deposits, deposit solutions for rents. This very much fits in our portfolio because we can provide this to our customers, and therefore, we acquired this company. Regarding the minus EUR 17 million from our deposit business, here, my comment was that the increase compared to last year, which is EUR 3 million, is explained by the EUR 3 million deposit protection scheme which was accrued last year and where we decided to book it fully in Q1 this year. So if I understood your question correctly, then this is the answer.
So it's -- it was EUR 3 million that has now been reflected in Q1. So on a comparable level, it would have been flat year-on-year. And therefore, the following quarters are going to slightly benefit from the fact that they will no longer see an accrual, correct?
Basically flat. I mean of course, 1/4 of that would have been naturally also be [ considered ] last year. So let's say, 2-point something, but that is rounding.
Next question is from the line of Tobias Lukesch from Kepler Cheuvreux.
Two questions from my side, please. First, on the new business. So if I understood you correctly, you are saying that you were very picky with regards to new business. So it was not so much an effect of having done a lot in Q4 and maybe having seen a strong April. Could you maybe nevertheless quickly comment on April? What you've seen there? And what you expect maybe for Q2? And secondly, on the NPLs, can we expect an active NPL reduction coming forth in 2019?
Yes, Tobias. Thank you for your questions. Regarding the new business, indeed, we have been very picky. And certainly, this is somehow related to the very strong performance in Q4 because our goal is to keep the portfolio stable and to keep the portfolio at that level, to say it precisely. And here, the strong Q4 numbers helped to increase it to that level, meaning that we were not under pressure this year. Be reminded, we already decreased our new business target compared to last year. Last year, we had EUR 9.4 billion. And we said this year, we want to be 7 -- we want to be in the range of EUR 7 billion to EUR 8 billion. So we were more cautious on that side. And this is reflected in Q1. And here, as said, given that there was not much outflow in the portfolio itself, we were able to be very selective. Regarding April, and therefore, outlook to Q2. Well, Q2 is not over obviously, so need to be cautious somehow. Nevertheless, we can see that market activity is picking up again and there are still very good opportunities here which are interesting for us. So I'm confident that we will be somewhere around the level regarding new business that we saw last year in the second quarter, too. NPL reduction. Here, I hinted that we are aiming to reduce the portfolio actively. This will not be really very big steps, yes. So we are not talking about cutting it by 50%. So this will go step by step, loan by loan. But here, we are confident that this is going to show some effect. However, we will, of course, also see new NPLs. We are not guiding you for a risk provision of 0 or even negative. So I'm talking about the old exposure. Please be reminded, and we also said this when we explained to you our outlook regarding the prudential provisioning. Our through-the-cycle PD is expected to be 1.15%. So the EUR 1.6 billion that we showed here is, let's say, very much in line with that expectation.
Next question is from the line of Philipp Häßler from Pareto Securities.
Philipp Häßler from Pareto Securities. I have 2 questions, please. Firstly, on the new business in Asia. Could you perhaps give us some details regarding the new business margin you could achieve there? And secondly, on the NPL reduction which you just mentioned again. Just to be curious, would you be willing to take the book loss when selling some NPLs or would you rather not be?
So regarding your second question. This is really normal business, reducing our book here which we have also done in the past. And you didn't see much of risks -- additional risk provisioning needs. We see or we feel ourselves well provisioned. Overall, that doesn't mean that in one loan, let's say, you have to book a small adjustment, and in the other loan, you get something back. But overall, we feel well-provisioned.Regarding, let's say, even more transparency on the individual margin. I think we have a tradition to give you overall margins for our new business. Of course, knowing and considering that in Asia margins are somehow above average, same is true for the U.S. business -- and this is why we also said on the slide I think, it's written there, that the high margin is also reflecting the regional mix.
[Operator Instructions] There are no more questions at this time. And I would like to hand back to Jürgen Junginger for closing comments. Please go ahead.
I would like to say thank you for taking part in our conference call. And for saying goodbye, I will leave it to Marc. He has done the presentation and answered the questions, so please.
Yes, okay. Thank you, Jürgen. Thank you from my side as well for participating. Hope to see you soon on the 28th of May in Frankfurt and -- well, see you then. Bye-bye.
Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.