Segment reporting

1. The provision for a single payment which is to be made to the German authorities as part of an agreement is shown in Corporate Center.
2. Calculation in accordance with Table P of the Guidelines to the Liechtenstein Banking Ordinance issued by the Government of Liechtenstein (FL-BankO).

The recharging of costs and revenues between the business units takes place on the basis of internal transfer prices, actual recharges or on prevailing market conditions. Recharged costs within the segments are subject to an annual review and, where necessary, are amended to reflect new economic conditions. 

As of 1 January 2017, VP Bank amended its organisational structure by creating two new organisational units “General Counsel & Chief Risk Officer” and “Investment Solutions”. As part of the process of implementing Strategy 2020, the function of the General Counsel was merged with that of the Chief Risk Officer and the Group’s investment-related expertise systematically strengthened. As already communicated in the 2016 Annual Report of VP Bank Group (page 15), the management structure consists, from this date on, of the six organisational units “Chief Executive Officer”, “Client Business”, “Investment Solutions”, “General Counsel & Chief Risk Officer”, “Chief Financial Officer” and “Chief Operating Officer”.

The organisational unit “Client Business” is divided into two business segments “Client Business Liechtenstein” and “Client Business International”. In segment reporting, the unit “Investment Solutions” is disclosed under “Client Business Liechtenstein” and “Client Business International”. The four organizational units “Chief Executive Officer”, “Chief Financial Officer”, “Chief Operating Officer” as well as “General Counsel & Chief Risk Officer” are regrouped together under the business segment “Corporate Center”.

1. Change of accounting principles (note 1 and 3 and principles underlying financial statement reporting).
2. Calculation in accordance with Table P of the Guidelines to the Liechtenstein Banking Ordinance issued by the Government of Liechtenstein (FL-BankO).

The recharging of costs and revenues between the business units takes place on the basis of internal transfer prices, actual recharges or prevailing market conditions. Recharged costs within the segments are subject to an annual review and, where necessary, are amended to reflect new economic conditions. 

1. Annualised, average values.
2. Operating expenses excluding depreciation and amortisation, valuation allowances, provisions and losses / gross income less other income and income from financial instruments.

The business segment “Client Business Liechtenstein” encompasses the international private banking business and the business with intermediaries conducted in Liechtenstein as well as the local universal banking and credit-granting businesses. It includes those units of VP Bank Ltd, Vaduz having direct client contact. In addition, Group Investment, Product & Market Management and VP Fund Solutions (Liechtenstein) AG are allocated to this business segment. 

The pre-tax segment result for the first half of 2017 rose by CHF 7.4 million (15.6 per cent) over that of the comparative prior-year period. In the first half of 2017, operating income could be increased, period-on- period, by CHF 3.6 million (4.1 per cent). This growth results from interest income from clients (+9.8 per cent) as well as commission and service income (+1.0 per cent). Contributing to this positive result in interest income was principally the interest-rate developments in the USD as well as margin increases in credit- granting operations. As regards commission income, trade-related income from clients in particular reported an improvement, period-on-period, thanks to higher levels of client activities. Operating expenses could be reduced by CHF 3.7 million (9.2 per cent) to CHF 37.1 million (prior-year period: CHF 40.9 million). This decline results primarily from the position valuation adjustments, provisions and losses as well as the lower level of intersegmental recharges from other segments. During the first half of 2017, charges for valuation adjustments, provisions and losses, period- on-period, declined by CHF 3.6 million to minus CHF 2.8 million (prior-year period: CHF 0.8 million) because of the release of valuation adjustments no longer required. Intersegmental recharges in Client Business Liechtenstein are based upon internally set transfer prices. Indirect costs for internal services are reported in the caption “services to/from other segment(s)”. With 74.0 basis points, the gross margin could be marginally increased (prior-year: 73.6 basis points). The cost/income ratio improved from 43.3 per cent to 41.6 per cent. 

During the reporting period, the segment reported a balanced result in terms of net new client money. Net new money inflows resulting from market-development activities could fully offset outflows resulting from the regulatory environment and tax-related issues. Assets under management at 30 June 2017 totalled CHF 25.0 billion (31 December 2016: CHF 23.6 billion). The employee headcount rose from 171 (31 December 2016) to 179 individuals.

1. Annualised, average values.
2. Operating expenses excluding depreciation and amortisation, valuation allowances, provisions and losses / gross income less other income and income from financial instruments.

The business segment “Client Business International” encompasses the private banking business in international locations. VP Bank (Switzerland) Ltd, VP Bank (Luxembourg) SA, VP Bank (BVI) Ltd, VP Bank (Singapore) Ltd, VP Wealth Management (Hong Kong) Ltd and VP Fund Solutions (Luxembourg) SA are allocated to this business segment.

The pre-tax segment result for the first half of 2017 could be improved by CHF 1.1 million over that of the 2016 comparative semi-annual result. Period-on-period, operating income rose by CHF 3.7 million (10.9 per cent). This increase primarily resulting from higher interest income from clients (23.3 per cent), income from trading activities (39.2 per cent) as well as other income (including gain from the disposal of an associated company) contributed to the positive result. Operating expenses rose by CHF 2.6 million or 8.8 per cent to CHF 32.6 million. This increase results from personnel and general and administrative expenses reflecting primarily the recruitment offensive for senior client advisors. Charges for valuation adjustments, provisions and losses amounted to CHF 1.4 million. In the business segment “Client Business International”, the recharging of services is based on actual invoices and recorded under general and administrative expenses.

The gross margin fell to 64.5 basis points (prior-year comparative period: 65.5 basis points). The cost/income ratio improved from 85.8 per cent to 81.7 per cent.

Net new money developed positively in the first half year of 2017 aggregating CHF 1.1 billion. All locations recorded net new money inflows in the reporting period. The recruitment offensive at these locations left its mark on the first net new money inflows al­- ready in the first semester of 2017. Net new money inflows could again be achieved in the investment- fund business as well as on Asian markets thanks to intensive market-development efforts. Assets under management at 30 June 2017 totalled CHF 12.4 billion (31 December 2016: CHF 10.4 billion). The employee headcount of 241 remained at a comparable level to that of the prior year (30 June 2016: 239 positions).

The business segment “Corporate Center” is of immense importance for banking operations and the processing of business transactions. It encompasses the areas Group Operations, Group Information Technology, Group Credit, Group Treasury & Execution, Group Finance, Group Risk, Group Legal, Compliance & Tax, Group Human Resources Management, Group Communications & Marketing, Group Business Development and Group Strategy. Those revenues and expenses of VP Bank Ltd having no direct relationship to client-oriented business segments, as well as consolidation adjustments are reported in the Corporate Center. Revenue-generating business activities of the segment Corporate Center arise in the Group Treasury Function. The results of the Group's own financial investments, the structural contribution and the changes in the value of interest-rate hedges are reported in this segment. 

The pre-tax segment result in the first semester of 2017 amounted to minus CHF 26.1 million in comparison to minus CHF 23.3 million in the prior-year comparative period.

Period-on-period, operating income rose by CHF 13.9 million principally due to income from financial investments.

Interest income declined by CHF 1.8 million over the comparative prior-year period. This is to be ascribed in part to the on-going negative interest-rate levels and, as a result, to the decline in interest revenues from maturity transformation (SNB negative interest). 

Commission and service income reported a decline in income. The latter comprises third-party bank commissions which were passed onto front business units by the service units through internal recharges.

Income from trading activities includes the income of Group Treasury & Execution. This relates to income generated from the execution of foreign-exchange trades. The caption also includes the results of derivatives employed to minimise risks as well as gains/losses from balance-sheet management activities. 

Income from financial investments in the first half of 2017 aggregated CHF 11.9 million. This welcome increase of CHF 11.2 million results primarily from unrealised revaluation gains on financial investments. Interest and dividend income reported a slight increase. 

Operating expenses in the reporting period rose by CHF 16.8 million from CHF 30.7 million to CHF 47.5 million. The reason for this is primarily the establishment of a provision for a payment to the German authorities in connection with a settlement reached with them. The settlement covers VP Bank Ltd and all subsidiary banks and is reported in full within the Corporate Center. The charges for valuation adjustments, provisions and losses thus recorded an increase of CHF 10.6 million in the reporting period. Personnel and general and administrative expenses rose by CHF 2.9 million and CHF 3.0 million, respectively, reflecting, inter alia, costs in connection with growth initiatives as well as brand renewal costs (corporate image of VP Bank). Depreciation and amortisation declined from CHF 7.8 million to CHF 7.0 million.

The personnel headcount rose from 326 (30 June 2016) to 338 positions.