Robert Oudmayer, Chief Executive Officer, commented: “We are very satisfied with our 2017 financial result, delivering on all our targets. We recorded growth across all our products. We successfully managed to offset the pressure from the interest rate reduction and the lower domestic interchange fee. With the recent acquisitions and new partnerships we act in line with the Group’s strategy and we are well positioned for the future.“
Strong fee and commission income in cards offsetting lower interest income
Overall, net revenues increased by 1 % to CHF 396.3 million. Net interest income, which accounted for 72 % of net revenues, declined 5 % to CHF 283.6 million following the implementation of the interest rate cap in July 2016. Interest expense reduced by 7 % as the Group continued to take advantage of the continued low-negative interest environment to refinance upcoming maturities and acquisitions. Commission and fee income, which contributed 28 % of net revenues, grew 17 % to CHF 112.7 million, mainly driven by strong credit cards fee income (up 18 %). Provision for losses on financing receivables were CHF 45.1 million translating into a loss rate of 1.0 % which was in-line with the performance in prior years. Asset quality remained robust with a 0.4% non-performing loan ratio which was in-line with last year.
Total operating expenses were CHF 167.9 million. Personnel expenses of CHF 99.9 million marginally reduced as a result of lower pension costs, despite an increase in headcount following the two acquisitions. General and administrative expenses of CHF 68.0 million were 1 % higher mainly due to the on-going investment in the digitalisation of the business and increasing regulatory requirements. The cost/income ratio of 42.4 % was in-line with last year. Income before taxes increased by 1 % to CHF 183.3 million resulting in net income of CHF 144.5 million after tax or CHF 5.13 per share.
Financing receivables growth across all products
The Group’s net financing receivables increased by 12 %, or CHF 489 million, to a record CHF 4,562 million with growth across all products. Acquisitions accounted for CHF 327 million (or 8 %) and organic growth accounted for CHF 162 million (or 4 %).
Net financing receivables in the personal loan business increased by 4 % to CHF 1,782 million. Interest income of CHF 167.1 million was 13 % lower due to the implementation of the rate cap translating into a 9.3 % yield. By the end of 2017 the vast majority of the personal loans portfolio had been re-priced.
The Swiss auto market was stable in 2017 with a flat used car market and a 1 % reduction in new car registration. The Group’s net financing receivables of the auto leases and loans business increased by 18 % (or 1 % excluding the EFL acquisition) to CHF 1,942 million. The acquisition of EFL Autoleasing (the deal was closed on 30 November 2017 with only one month impact) added CHF 278 million of net financing receivables. Overall, interest income increased marginally to CHF 83.8 million generating a 4.9 % yield.
Net financing receivables in the credit cards business recorded a strong growth of 17 % reaching CHF 833 million at year-end 2017. The increase was driven by the increase in the number of cards issued, by higher average customer spending and by the increase in the number of transactions per card. Consequently interest income grew by 17 % to CHF 60.5 million with a 7.8 % yield. The number of credit cards issued increased by 10 %, or 76,000, to circa 803,000.
Balance sheet reached the CHF 5 billion mark
The Group reached a new milestone with CHF 5,099 million in total assets, breaking the CHF 5 billion mark for the first time since the IPO. The funding portfolio increased to CHF 4,048 million (from CHF 3,874 million) and the funding mix shifted to 65 % deposits and 35 % non-deposits to finance both acquisitions and organic growth. The Bank raised a total of CHF 350 million via the issuance of two senior unsecured bonds of CHF 150 million and CHF 200 million in June and November 2017 respectively. Overall, the average remaining maturity increased from 2.7 years to 2.9 years and the average remaining funding cost was reduced from 66 basis points to 52 basis points.
Shareholders’ equity increased by 4 % to CHF 885 million with the payment of 2016 dividend of CHF 125.5 million in May 2017 which was more than compensated by the net income. CET 1 capital ratio was 19.2 % with a 15.4 % leverage ratio and the excess capital above the Group’s minimum CET 1 target of 18 % amounted to CHF 49 million.
Increasing ordinary dividend
In-line with the financial performance, the Board of Directors will propose a CHF 3.55 ordinary dividend per share (a 69 % pay-out ratio) at the next General Meeting on 18 April 2018 translating into a 3 %, or CHF 0.10, increase compared to last year. The dividend will be split in two components: CHF 3.00 will be paid out of reserves from capital contributions and, therefore, will not be subject to Swiss withholding tax. The remaining CHF 0.55 will be paid from retained earnings as the reserves from capital contributions will be depleted.
New partnerships in auto leasing and credit cards
The Group recently signed a number of new partnerships. In the auto leases and loans business, Cembra signed a financing cooperation with Tesla in Switzerland. Following the acquisition of EFL Autoleasing, the Bank is now the captive finance partner for Hyundai and since 1 January 2018 Cembra is the captive finance partner for Harley-Davidson motorcycles. Beginning February 2018, the Group introduced Samsung Pay as a mobile payment solution for four of its credit card programmes. Furthermore, and starting in April this year, the Group will launch a cooperation with the furniture store Interio, which belongs to the Migros group. An Interio branded credit card will be launched (based on Cumulus Mastercard) and a point of sales invoice solution will be developed in the second half of 2018.
Outlook for 2018
Assuming no major change in the current economic environment, the Group is expecting earnings per share between CHF 4.80 and CHF 5.10 for the financial year of 2018. Additional revenues from the recent acquisitions and the ongoing growth of the credit cards business are expected to offset the impact of the rate cap on interest income in the personal loans business. Operating expenses are expected to increase driven by higher headcount and further investment in the digitalisation of the business, translating into a healthy but slightly higher cost/income ratio. Loss performance is expected to be in line with prior years.
All documents (investor presentation and the media release) are available at www.cembra.ch/en/investor.