Statement by the Chairman of the Board and the Chief Executive Officer
Ladies and Gentlemen
Major challenges prevailed yet again in the 2016 financial year: aside from the persistently lacklustre economic environment, there were also landmark political developments such as the Brexit vote that had a seminal influence on global business activity and the financial markets. Against this backdrop, VP Bank Group put in a fine performance – especially thanks to the strategic and operative measures that have started to gain traction.
Gratifying annual results
For the 2016 financial year, VP Bank Group recorded consolidated net income of CHF 58.0 million after having earned a profit of CHF 64.1 million in the previous year. However, excluding the one-time effects in 2015 from the merger with Centrum Bank and the application of IAS 19, this annual result lies 89.5 per cent above VP Bank Group’s prior-year adjusted consolidated net income of CHF 30.6 million.
Compared to the previous year, operating income declined by 10.9 per cent from CHF 306.6 million to CHF 273.2 million. Here again, though, if the one-time effects from the Centrum merger are excluded, operating income actually rose by 6.5 per cent.
Operating expenses decreased versus the previous year by 13.9 per cent to CHF 212.2 million, which is mainly a reflection of the successfully concluded integration of Centrum Bank and the resulting synergies.
Client assets under management increased by 2.8 per cent, from CHF 34.8 billion to CHF 35.8 billion. In 2016, VP Bank Group registered a CHF 7 billion net inflow of new client money – a significant improvement compared to the organic trend in net new money seen in 2015. Here, our intensive market cultivation efforts in Asia were the main source of this pleasing inflow.
On 31 December, VP Bank’s tier 1 ratio stood at 27.1 per cent (31 December 2015: 24.4 per cent).
Dividend increase to be proposed
At the annual general meeting on 28 April 2017, the Board of Directors will propose a dividend of CHF 4.50 per registered share A (previous year: CHF 4.00) and CHF 0.45 per registered share B (previous year: CHF 0.40). This is a clear reflection of the dividend policy the Board of Directors upholds: VP Bank strives to maintain a consistent approach to dividend distributions with the aim of paying out 40 to 60 per cent of its annual net income to shareholders. The newly proposed dividend is based on VP Bank Group’s consolidated net income of CHF 58.0 million.
Also to be proposed at the annual general meeting is a grant to the VP Bank Foundation in the amount of CHF 2 million.
Strategic orientation and positioning
With its “Strategy 2020”, the Board of Directors in 2015 remapped the strategic course of VP Bank Group to account for the changed market conditions and general circumstances.
With the related goals in mind, we reinforced our organisational and management structure in 2016 and reallocated the tasks within Group Executive Management. The structure as determined by the Board also places redoubled emphasis on client and marketing orientation. This should help VP Bank, as a group enterprise, to grow both in terms of profitability and quality in its defined target markets, as well as to generate true added value for its clients.
The newly formed organisational unit “Chief Operating Officer” commenced its activities as of 1 January 2016. The Board of Directors of VP Bank Group has named Martin C. Beinhoff to the post of Chief Operating Officer and head of this unit, where the job will be to strengthen the relevant support functions and optimise various processes. At the same time, greater focus will be placed on the increasing digitisation and heightened significance of IT-based processes both in the Intermediaries and Private Banking segments. Through the combination of these important functions, further complexities and costs can be avoided.
Special attention is also being paid to the realigned organisation of the strategically important intermediaries business: here, the structures have become more market- and client- oriented, and a new information platform for intermediaries was introduced. Our reinforcement of the team in Singapore underscores the growing importance of VP Bank’s markets in Asia. And in terms of growth, we would also mention the successful further development of our fund business.
In 2016, we forged ahead with client-side digitisation projects and the automation of our internal processes with the aim of efficiency enhancement. “Digitisation” also represents the leitmotif of this Annual Report in reflection of how extremely important it has become to the financial industry. VP Bank has taken that fact into account by establishing a Strategy & Digitalisation Committee of the Board of Directors as well as a Group-wide project team.
Further details on our strategic orientation and positioning can be found in the “Strategic orientation of VP Bank” section.
Medium-term goals for 2020
With regard to VP Bank’s “Strategy 2020”, in 2015 we defined our medium-term goals, i.e. through the end of 2020, as follows:
- CHF 50 billion in client assets under management;
- CHF 80 million in consolidated net income; and
- a cost/income ratio of less than 70 per cent.
At the end of 2016, assets under management totalled CHF 35.8 billion (previous year: CHF 34.8 billion) and total net income amounted to CHF 58.0 million (2014: CHF 64.1 million). The cost/income ratio on 31 December 2016 was 68.4 per cent (previous year: 59.4 per cent). Our growth initiatives, disciplined use of available resources, exploitation of synergy opportunities and strict cost controls will help us to achieve the aforementioned goals for 2020.
The shares of VP Bank
At VP Bank’s annual general meeting on 29 April 2016, shareholders approved the conversion of bearer shares into registered shares. The listed bearer shares of VP Bank (par value CHF 10.00) were exchanged for registered shares A with the same par value. The existing non-listed registered shares (par value CHF 1.00) remain as registered shares B and in future will still not be publicly traded. This conversion was completed in early May 2016.
Within the scope of the authorisation granted by shareholders at the annual general meeting on 24 April 2015, VP Bank Ltd also decided in 2016 to increase the number of treasury shares by means of a further buyback of up to 10 per cent of the outstanding share capital. This follows through on the two successful buyback programmes conducted in 2015. The repurchase of registered shares A, which lasts from 7 June 2016 to at latest 31 May 2017, is being accomplished via ordinary trading lines on SIX Swiss Exchange. The acquired registered shares A are to be used for future acquisitions or treasury management purposes.
VP Bank’s registered shares A in 2016 trended steadily higher and, with a gain of 37.1 per cent for the year (including the dividend), were among the strongest performers on the Swiss stock exchange. Yet again, VP Bank shares proved to be a solid investment. Details the share price development can be found in the “VP Bank shares” section.
Maintaining open and amicable investor relations is of great importance to us. During the past year, we conducted numerous talks with investors, shareholders and analysts. VP Bank’s third Investor Day is scheduled to be held in May 2017.
In July 2016, rating agency Standard & Poor’s reaffirmed its excellent “A–“ rating for VP Bank and raised its outlook from “Negative” to “Stable”. In its assessment, Standard & Poor’s took into account the operative progress being made at VP Bank, the Bank’s circumspect management of risks, as well as its solid capital base and the successful integration of Centrum Bank. As of 2 March 2017, the outlook was improved again to “Positive“. This fine “A–“ rating and the positive outlook testify to our well-founded, successful business model and VP Bank’s ability to generate profitable growth without eroding its capital base.
Other significant events
In April 2016, VP Bank celebrated its 60th anniversary and published a jubilee book for shareholders. Our summer employee festival was fully dedicated to this milestone birthday.
Sustainability is a theme that has accompanied VP Bank for years now. By having joined the worldwide sustainability initiative “UN Global Compact” in 2016, we have committed to rendering an annual account of our compliance with social and ecological standards. A broadly diverse Corporate Social Responsibility (CSR) workgroup supports us in our efforts to implement all measures of relevance to sustainability. Moreover, in 2016 our avowal of sustainable corporate leadership and social responsibility was evidenced by various activities, including our “Volunteering Day” as well as the provision of cost-free e-bikes for VP Bank employees in Liechtenstein.
During the past year, a number of VP Bank Group managers attended a workshop on the topic of “Leadership”. The major thrusts in this regard are the development of management skills as well as future managers, and the nurturing of a sales culture. Our client advisory teams also attended training sessions to receive formal certification of their know-how.
At the 53rd annual general meeting of VP Bank on 29 April 2016, Dr Guido Meier – representative of the Bank’s largest anchor shareholder (Stiftung Fürstl. Kommerzienrat Guido Feger) – announced that he would waive a further term of office and step down from the Board of Directors of VP Bank after 27 years of service. Newly elected as members of the Board were Dr Christian Camenzind, lic. iur. Ursula Lang and Dr Gabriela Maria Payer. With that, the Board of Directors has reinforced its skill set and ensured long-term continuity in the Bank’s highest governance body. Lic. oec. Markus T. Hilti was elected to a further three-year term on VP Bank’s Board of Directors and subsequently named its Vice Chairman.
Dr Daniel H. Sigg decided not to stand for re-election at the annual general meeting on 28 April 2017 and will step down from Board of Directors. He was elected to the Board in 2008 and was able to contribute his vast experience in the major Asian, European and US financial centres, as well as his expertise in the area of financial products. Dr Daniel H. Sigg was Chairman of the Risk Committee and a member of the Audit Committee. The Board of Directors thanks him for his tremendous efforts on behalf of VP Bank and wishes him all the best in his future endeavours.
At the beginning of 2017, the General Counsel function was combined with that of the Chief Risk Officer. The Group Legal, Compliance & Tax and Group Risk are to be merged into a new organisational unit at the Group management level. This reinforcement is in response to increasing market regulation and the consequential raft of new requirements for internationally oriented financial services companies. Monika Vicandi, who has been Head of Group Legal, Compliance & Tax for five years, will bear management responsibility for this important unit in her function as General Counsel and, since 1 January 2017, also as Chief Risk Officer.
A look back and a look ahead
In the 2016 financial year, our key priorities were growth, the further development of our fund business, strengthening our position in the intermediaries business, developing and introducing new digital services, as well as building-out our international business. As the financial figures presented in this Annual Report clearly testify, we have made good progress in all these areas.
Thus in 2016 we laid the foundation for VP Bank’s increased profitability, and in 2017 the results of those efforts should filter through to the bottom line. In parallel, we will press ahead with our resolute cost management by seeking out further possibilities for cost savings and optimising our product and service offering.
At the beginning of 2017, the new “Investment Solutions” organisational unit came into being. It is comprised of the Group Investment, Product & Market Management as well as the VP Fund Solutions operating units which were previously included in the Client Business organisational unit. Their merger into a stand-alone unit underscores the growing importance of these competence centres, given the current and future trends in the market environment. It also adds emphasis to the Group’s investment expertise.
And growth will remain a key topic also in 2017: Europe is in a state of commotion, and Asia is steadily becoming the driving force behind global growth. For VP Bank, this means focusing squarely on the qualitative enhancement of our client care and services, as well as on adding experienced advisory teams – especially in Asia. Moreover, we shall take advantage of market opportunities as they arise in order to grow through acquisition. VP Bank continues to enjoy a very solid equity capital base, a factor that puts us in an excellent position to make the most out of the change underway in the financial industry.
Special emphasis will also be placed on the expansion of our fund business and the implementation of our newly plotted course with regard to intermediaries. In light of today’s ever more demanding clients and markets, we shall intensify our efforts to expand VP Bank’s international business and develop an even broader range of digital services.
Another central task in 2017 will be the acquisition of new, experienced client advisors: our goal is to hire an additional 25 professionals per year over the next three years, roughly 50 per cent of whom will hail from Asia.
We are confident of our ability to reinforce VP Bank Group’s already sustainable foundation for growth. And with our workforce of highly competent, motivated employees, we are indeed well equipped to do so.
A word of thanks
2016 was yet another eventful and challenging year in which VP Bank made significant operative progress, as can be seen in the actual numbers. For these successes, we sincerely thank our dedicated employees.
We would also like to express our special thanks to VP Bank’s clients and shareholders for the trust they have placed in us. It is of great importance to us that we can justify that trust again in 2017.