Zurich – Cembra Money Bank (Ticker: CMBN) achieved in 2016 a net income of CHF 143.7 million or CHF 5.10 earnings per share. This represents a return on average shareholders’ equity (ROE) of 17.4% while maintaining a strong capital position with a Tier 1 capital ratio of 20.0%. A total dividend distribution of CHF 4.45 will be proposed to the General Meeting including an extraordinary dividend of CHF 1.00. Net financing receivables remained stable at CHF 4.1 billion with a shift from personal loans to credit cards.

Robert Oudmayer, Chief Executive Officer, said: "Against the backdrop of regulatory headwinds we achieved again a strong result in 2016. We made substantial progress in the business development with the early extension of the Migros contract, the addition of Fnac to our credit card partners and the acquisition of SWISSBILLING. Furthermore, we decided to refine the capital policy to provide more line of sight for investors while keeping flexibility for arising growth opportunities."

Strong fee and commission income development

Net revenues increased by 1% to CHF 394.0 million compared to CHF 388.7 million in 2015. Net interest income, which accounts for 76 % of net revenues, declined 1% to CHF 297.7 million, translating into a net interest margin of 7.2%. Interest income was 4 % lower driven by the impact of the lower interest rate cap and by the costs for cash held at the Swiss National Bank (SNB). Interest expense reduced 27% driven by lower refinancing cost and by the repayment of the term loan from General Electric. Commissions and fee income, which contributed 24% to net revenues, was up 11% to CHF 96.3 million, mainly driven by strong credit cards fee income and higher insurance profit share. Provision for losses came in at CHF 44.6 million translating into a loss rate of 1.1% of financing receivables which was in line with 2015 performance. Cembra Money Bank’s prudent risk management approach was reflected in the stable and low delinquency levels: 1.8% for 30+ days past due and 0.4% for non-performing loans (NPL).

Total operating expenses increased 4 % to CHF 167.5 million. Personnel expenses increased by 1 % to CHF 100.4 million on the back of higher pension cost as a result of a lower discount rate. General and administrative expenses of CHF 67.1 million were 9 % higher mainly due to an increase in IT and depreciation costs after the successful completion of the IT migration to a stand-alone platform by end-2015. The Bank continued to invest in digitizing the business as demonstrated by the stable headcount despite a 7 % increase in the number of customers to 748,000. As a result of the lower rate cap the Bank also initiated cost saving measures and reduced the number of branches by seven to today 18 overall. This resulted in a cost/income ratio of 42.5 %. Income before taxes decreased by 1% to CHF 181.9 million which with 21 % effective tax rate led to a strong net income of CHF 143.7 million or CHF 5.10 per share.

Capitalising on low rate environment

Cembra Money Bank continued to further optimise its funding profile. The attractive term deposit rate offering enabled the Bank to increase deposits from retail and institutional clients to an aggregate CHF 2,355 million. Deposits accounted for 61 % of total funding by end-2016. The Bank successfully tapped the capital market and raised CHF 200 million through an auto lease asset backed security (ABS) transaction and another CHF 200 million through an unsecured bond, both at favourable conditions. The average funding cost was reduced from 82 basis points to 66 basis points. In the course of 2016, the Bank also fully repaid the remaining CHF 250 million term loan from General Electric and is today 100 % independently funded.

Shift towards credit cards

Despite a subdued Swiss credit market the Bank’s net financing receivables increased slightly by CHF 10 million to CHF 4,073 million. Receivables in the Bank’s personal loan business decreased by 4% to CHF 1,720 million compared to year-end 2015 in a consumer loan market which declined for the seventh consecutive year. Interest income of 191.3 million was 8% lower due to lower volume and due to lower interest rate leading to a 10.7% yield.

The Swiss auto market came back to normality in 2016 after strong growth in 2015 on the back of the EUR/CHF de-peg. While new car registrations slightly regressed, the market for used cars developed positively. The Bank’s net financing receivables of the auto leases and loans portfolio decreased by 1% to CHF 1,641 mil­lion. Interest income reduced by 2% to CHF 83.5 million with a 5.0% yield.

Net financing receivables in the credit cards business recorded a strong growth of 15 % reaching CHF 711 million by year-end 2016. The increase was driven by the increase in the number of cards, by higher average spending and by the increase in the number of transactions. Interest income in the cards business increased by 13 % to CHF 51.6 million and the corresponding yield was stable at 7.7 %. The number of credit cards issued increased by 11 % to circa 727,000.

Business development sets base for future growth

In 2016, Cembra Money Bank made significant progress in securing the development of its growing credit cards business. The cooperation agreement with the credit card partner Migros was extended prior to expiry for another five year term until 2022 with an expected go-live of the next card generation around mid-2017. Additionally, the contract with Conforama was successfully extended and Fnac, a new retail partner, was launched in November 2016.

Entering invoice financing business

On 16 February 2017, Cembra Money Bank reached an agreement to acquire 100 % of the shares of SWISSBILLING SA, a Swiss-based invoice financing company with operations mainly in the French speaking region of Switzerland. SwissBilling began operations in 2012 and targets primarily online merchants and consumers with its "payment by invoice" product. Payment by invoice remains the most prevalent means of payment for shopping online in Switzerland with over 80% of online volume being paid by invoice. Thanks to this acquisition, Cembra Money Bank gains access to a best-in-class technology platform that will enable it to provide financing to a broader range of the Swiss consumer base. SWISSBILLING will continue to operate under the SWISSBILLING brand and as an independent entity within the Cembra Money Bank Group.

Refining the capital policy and proposing a total dividend of CHF 4.45 per share

The Board of Directors decided to refine the existing capital policy with regards to the deployment of excess capital. Going forward, Cembra Money Bank intends to return excess Tier 1 capital above c.20% to shareholders either via extraordinary dividends or share buybacks unless there is a more efficient allocation of capital – in particular for internal or external growth. The target pay-out ratio for the ordinary dividend of 60–70% of net income remains unchanged.

Reflecting on the Bank’s strong financial results, the Board of Directors will propose to the Annual General Meeting on 26 April 2017 a 3%, or 10 cents, higher ordinary dividend per share of CHF 3.45 which equals to a pay-out ratio of 68% of net income. The ordinary dividend will be paid out of reserves from capital contributions and, therefore, will not be subject to Swiss withholding tax.

Furthermore, and applying the newly introduced capital policy, the Board of Directors has decided to return excess capital of approximately CHF 28 million to shareholders. The additional distribution is returned to shareholders by means of an extraordinary dividend of CHF 1.00 per share which will be paid from retained earnings, resulting in a total dividend of CHF 4.45 for the financial year 2016.

Strongly capitalised Bank

Shareholders’ equity increased 6% to CHF 848 million by year-end 2016. With a Tier 1 capital ratio of 20.0% Cembra Money Bank remains very well capitalised. Compared to the Bank’s self-imposed minimum Tier 1 target of 18%, the excess capital amounts to CHF 76 million.

Outlook for 2017

Overall, 2017 net revenue is expected to slightly decrease due to the reduction in net interest income, following the introduction of the rate caps in July 2016, partially offset by the increase in fee and commission income on the back of the continued growth of the credit card business. Additionally, and whilst keeping a strong focus on the cost discipline, the Bank will continue to further invest in the digitalization of the business leading to a slightly higher cost/income ratio compared to 2016. Loss performance is expected to be in line with prior years. Assuming no major change in the current environment, the Bank is expecting earnings per share of between CHF 4.70 and CHF 5.00 for the financial year of 2017.

All documents (investor presentation and this media release) are available at www.cembra.ch/en/investor.

Contacts

Key dates

Audio webcast and telephone conference for investors/analysts (in English)