Annexe au procès-verbal de l'assemblée Annuelle du 17 juin

Transcription

1 Annexe au procès-verbal de l'assemblée Annuelle du 17 juin COMMENTS BY CEO & CFO In connection with the presentation of the Company s results for the fiscal year ended 31 December 2013, Leonhard Fischer and Martha Böckenfeld were invited to make a few comments as Chief Executive Officer and Chief Financial Officer, respectively. Leonhard Fischer: Good afternoon ladies and gentlemen. Thank you for joining us at our 2014 Annual Shareholders Meeting. Together with Martha Böckenfeld, our CFO, I would like to give you a short overview of our strategy and business performance before opening the floor to questions was a year in which we made steady progress towards our strategic goals. We completed the long-awaited transformational acquisition of BHF-BANK shortly after the year end, marking a pivotal point in RHJI s transformation from a diversified holding company into a focused financial services business. The Group s profitability, however, continued to be hampered by a range of factors. At a headline level, the Company recorded an operating loss for the year of 66.4 million Euro. This was a reduction of 21% on the previous year; however it is still nowhere near the level of financial performance we believe the business can achieve. Martha will provide some more detail on our operational and financial performance in a few moments, but before this I would like to remind you of the three key components of our transformational strategy as well as our progress against each of these. In summary, the three strategic priorities that Management and the Board focused on are: The creation of a strong and stable financial services business The simplification of the corporate structure to reduce holding company and other costs The sale of the legacy portfolio Looking at each of these in more detail: The sale of the legacy portfolio has been a key priority since the appointment of the current management team in 2007 and I am pleased that we have now successfully divested virtually all of our significant legacy industrial investments. In June 2013 we completed the sale of a 39% stake in Shaklee via a share buyback transaction for a gross consideration of 39.8 million Euro. This was followed by the two-stage divestment of our 21.8% stake in SigmaXYZ in September and December 2013, for total proceeds of 17 million Euro. 1 Note : Les personnes qui ont participé à l assemblée ont bénéficié d une traduction simultanée en français des exposés et de la séance de questions et réponses qui a suivi. 1

2 In December 2013 we completed the spin-off of our merchant banking operations previously conducted by Ripplewood Holdings into a separate legal entity, initially named Kleinwort Benson Advisors but now renamed to Ripplewood Advisors. As part of this arrangement, through which RHJI holds a 19% interest in Ripplewood Advisors and retains access to future investment products and services, we made a capped and final cash payment of 3.6 million Euro as consideration for our equity stake and as a contribution to the costs of winding down the operations of Ripplewood Holdings. This was fully expensed in The creation of a strong and sustainable financial services business is an area in which we have made exciting progress in the last year with the closure of the acquisition of BHF-Bank. I would like to provide a brief recap on the rationale and to update on the integration process as we create a combined financial services platform for the enlarged Group. As many of you know, this was a process we began nearly three years ago and brings together two leading financial services businesses both in terms of Assets under Management and revenue generation as well as significant synergistic benefits. BHF-BANK represents a strong cultural and strategic fit with Kleinwort Benson Group s existing operations. Combining these operations will allow us to build a financial services company based on three core businesses of Private banking and wealth management; Asset management; and Financial markets and corporate banking. Each of these pillars are strategic to Kleinwort Benson Group s operations. In Private Banking the acquisition will give us substantial scale, with a high quality franchise, strengthening our value proposition. In Asset Management the acquisition of BHF-Bank will provide substantial opportunities for Kleinwort Benson Investors and Frankfurt Trust to leverage distribution strategies and selected products. Finally, in Financial Markets and Corporates, Kleinwort Benson Group will greatly benefit from BHF-Bank s strong track record and leading position in the fast-growing German Mittelstand (SME) market segment. These businesses offer a number of attractive features including relative stability, complementarity and scalability. When added to the fact they will be focused on two of Europe s largest and fastest growing financial services markets, namely Germany and the UK, this provides us with a significant opportunity to drive profitable growth through these businesses, delivering value for our clients, our shareholders and our employees. Total Assets under Management and revenues across the combined BHF-BANK and Kleinwort Benson s financial services businesses amount to 51.0 billion Euro and approximately 310 million Euro respectively. BHF also has a highly liquid and low risk balance sheet. Consequently, the enlarged entity post-acquisition has a robust capital position, with a pro-forma combined Basel III tier 1 ratio of 16.3% at the end of While in the short term we anticipate profitability to remain under pressure, with 2014 results expected to reflect the expenses and transformation costs of the BHF transaction, underlying operating profits will begin to benefit from the advantages the acquisition will bring to the group. More specifically the improved financial performance will be affected by two key levers: 2

3 On the revenue side we are targeting net new asset flows of 4-6% per annum which we are confident will be achieved through our expanded range of products and wider distribution platform, allied with good performance in asset management. In addition to the headline scale benefits that the BHF acquisition brings to Kleinwort Benson Group s existing financial services businesses, the combination also offers significant potential to drive both operational and cost synergies across the Private Banking and Wealth Management franchises. We have already stated that we are confident we will achieve synergy cost savings in excess of 20 million. Now that the transaction has completed, RHJI s management team is able to focus exclusively on driving operational performance across the group and using its experience of integrating businesses to achieve these synergies. This enhanced ability to focus on the operations will include looking closely again at the final of our strategic priorities; the holding company costs we have talked to you about before. Following the completion of the BHF transaction, we are now actively engaged with our coinvestors to discuss the future conversion of their interests in Kleinwort Benson Group into RHJI shares. Once we have reached agreement, with appropriate shareholder approval, we intend to collapse the dual holding structure of the group. This would be a significant development that will be instrumental in moving us towards our targeted run rate. In the interim, today s proposal to restructure the board from eight to five board members will generate further efficiency savings. We are also looking at ways of improving efficiencies further and are actively investigating options to utilise our property space more efficiently. The improvement in the efficiency of the business, both through the benefits of scale and operational synergies as we execute the integration plan, plus the efficiencies of simplifying the holding cost structure, as outlined above, will provide a significant uplift to overall profitability and allow us to achieve our goal of delivering over 60 million of pre-tax profit for the group. We expect to meet these targets two years after the transformation of the businesses and will update our shareholders on progress made on a regular basis. We believe that delivery against these targets will demonstrate the success of the transaction. These are the Board s and Management s key priorities. I would now like to hand over to Martha to run through the operational and financial highlights. Martha Böckenfeld: Thank you, Leonhard. Good afternoon ladies and gentlemen. As Leonhard mentioned, I would like to give you a brief overview of the financial and operational highlights of the year. I will cover the performance at both BHF-Bank and Kleinwort Benson, as well as our progress in reducing corporate costs and the impact of the BHF-Bank acquisition on the group s performance. Turning firstly to the performance of BHF-Bank, in the first three months of the year, Assets under Management increased to 38.9 billion Euro compared to 38.5 billion Euro at the end of BHF- Bank continued to demonstrate its position as a leading portfolio manager, and for the eighth consecutive time it was awarded first place in the Elite Report market survey on wealth management. Against a backdrop of sound economic fundamentals in Germany the bank s 3

4 corporate division saw a strong start to the year winning a mandate of co-lead manager for the IPO of SLM Solutions, the global technology leader and pioneer in metal-based 3D printing. The Financial Markets Division made considerable investments in the expansion of its multi-asset trading platform in the first quarter of the year, further enhancing the quality and capability of equity, bond, derivative and currency trading systems. Finally, in line with the Group s wider strategy of maintaining a strong balance sheet, BHF Bank reported a solid Tier 1 ratio of 15% and a loan to deposit ratio of 29%. Moving on to Kleinwort Benson s wealth management operations, performance across our businesses was mixed. The strong growth in Assets under Management did not fully translate through to the Group s operating performance. Assets under Management were up 14% to 7.1 billion Euro in 2013 but decreased by 3% in the first quarter of 2014 as a result of withdrawals of short-term deposits received in Q and seasonal trends, including clients settling their annual tax bills. In our wealth management business, we saw good growth in our asset base and loan portfolio, with growing momentum in the business reflected in the new business flows being generated by our senior banker hires, recent mandate wins and the quality of our pipeline. We continue to see an increase in client numbers in our target high net worth and ultra-high net worth client groups which grew by 10% in the year. Similarly we saw a 19% growth in the loan portfolio to Euro 533 million, with a loan to deposit ratio of 24%. This is reassuring as it provides a solid platform for future Assets under Management growth when market conditions normalise. While we have continued to make operational progress, profitability remains challenging in our wealth management operations. This largely reflects our ongoing investment in the business, coupled with the challenges of a low-yield environment, competitive pricing pressure in the deposit market, and our prioritisation of balance sheet strength over short-term profitability. At a headline level, operating expenses were broadly flat with the prior year. Focusing on longerterm franchise strength, growth and profitability, we continue to reinvest in the business, including the hiring of senior bankers and systems improvements, as well as driving operational efficiencies. Looking ahead, we will also continue to review our conservative approach to balance sheet management and will look to grow our loan book as part of a broader and more profitable client proposition. These additional levers to improved profitability will be continually assessed by Management and the Board, taking into account our own appetite for risk and our view of the broader market environment. Our asset management operations at Kleinwort Benson Investors have performed very well during 2013, with a significant increase in net sales in North America and Europe, strong investment returns and effective management of the operating platform. Assets under Management increased by 49% and KBI generated a segment profit of 2.5 million Euro, up from 0.3 million Euro in the previous year. While the supportive equity markets played a significant role, the growth was mainly attributable to net inflows of 1.4 billion Euro in the year. Within this, we have seen good growth in our Environmental equity strategies which produced strong absolute performances. Our success in winning mandates has continued into 2014 with a 24% increase in Assets under Management to 6.7 billion Euro in the first quarter of the year. 4

5 Both our wealth management and asset management operations are underpinned by a robust investment framework, which has generated benchmark-beating performance during the year and has been recognised in a number of industry awards. Turning to our corporate holding costs, these were reduced by 40% in 2013 to 30.6 million Euro. Within total holding costs, fixed cash holding costs, excluding London lease costs, reduced by 17% to 15.9 million Euro, but we are disappointed that we have not yet achieved our targeted annualized run rate of fixed cash holding company costs, excluding London lease costs, of under 10 million. This is largely due to the significant delays associated with the BHF acquisition, which has had a major knock-on effect on our ability to drive through the necessary change to our holding company structure to achieve the full extent of the savings required. As Leonhard has already mentioned, the reduction of our cost base is a key priority of the Board and Management and we are actively engaging with our co-investors in the BHF-Bank transaction to reach an agreement on the conversion which would allow us to simplify the current holding company structure. This development will contribute to bringing our run rate of total cash fixed holding costs to targeted levels and complement other cost saving actions that we will look to implement in the course of Before concluding I would also like to briefly touch on the transformational impact of the acquisition of BHF-Bank for the financial performance of the group. In Private Banking, it provides substantial scale, leading to a 270% increase in Assets under Management from 7.1 billion Euro to 26.3 billion Euro, with associated income increasing by 101% from 81.5 million Euro to million Euro based on both businesses 2013 revenues. Similarly, in Asset Management the acquisition has a profound impact with Assets under Management quadrupling from 5.4 billion Euro to 22 billion Euro and revenues tripling from 15.6 million Euro to over 47 million Euro. As Leonhard mentioned the Group will have combined Assets under Management of 51 billion Euro and 310 million Euro in revenues. In addition, as a result of the highly-complementary nature of BHF-BANK and Kleinwort Benson s Wealth Management businesses we also expect to see synergy cost savings and benefits from scale across, amongst other areas, including back office functions and IT, in excess of Euro 20 million To achieve these synergies and lead the transformational process RHJI Executive Management has taken on a more execution-based and operational role than they have been able to do while the BHF transaction and approval process were in progress. We are confident that this will enable us to deliver against the targets that have been outlined above and enable us continue to build a leading, successful financial services business. 5

6 SUMMARY OF THE QUESTION AND ANSWER SESSION After the presentation by Mr. Fischer and Ms. Böckenfeld, participants had the opportunity to ask any questions on items of the agenda or on the topics covered during the presentation. Various questions were asked in relation to the above mentioned goal of delivering over 60 million Euro of pre-tax profit for the group. In relation to the timing for achieving such goal, it was indicated that the target was expected to be met in 2017, that no guidance was being offered on the progress anticipated for the intermediary period , and that RHJI would on a regular basis update the shareholders on progress made. In relation to the effective tax rate that would be of application, it was indicated that such rate was not known at this stage given the complexity and international nature of the group s operations. A question was raised in relation to the BHF segment analysis and the nature of the loss of 44.8 million Euro reported as other/consolidation. It was indicated that this technically constituted overhead expense that had not been allocated to individual business units and that such presentation for the fiscal year ended 31 December 2013 had been determined before RHJI acquired BHF. In relation to a question on the planned simplification of the group structure, it was indicated that the step process for the conversion of the co-investors stake in KB Group into RHJI shares entailed an agreement with the co-investors, and in relation to any share issuance below par value, the approval of RHJI s shareholders and that no statement was made as to the status of discussions with the co-investors. In relation to a question on the March 2014 issuance by RHJI of new shares in consideration of a 9% stake in BHF, it was indicated that such issuance derived from a redistribution of BlackRock s initial participation between Fosun, Aqton and Deutsche Bank, that in view of the issuance price such issuance was preferable over a cash payment, and that while such issuance was not decided because of minimum regulatory requirements as to cash level, the company wanted to preserve cash. In relation to a question on the injection by RHJI of 4.6 million Euro into KB Group Limited which holds RHJI s and the co-investors participations into KB Group, it was answered that KB Group Limited had always been equity-funded as RHJI s sub-holding company for the KB Group assets. In relation to a question on the computation of the value of KB Group (a carrying value of 294 million Euro versus a valuation of 194 million Euro for the purpose of the BHF transaction), it was indicated that such discount was in line with the equivalent multiple of 0.69x net asset value that was used to value BHF, with the alternative multiple of 0.80x applied to KBG s 241 million Euro tangible net asset value higher than the corresponding multiple of 0.74x that had been applied to BHF. 6