Consolidated management report

Group financial statement

The LLB Groups consolidated interim financial statement is prepared in accordance with International Financial Reporting Standards (IFRS). In the first half year of 2013, the LLB Group achieved a net profit of CHF 13.6 million (first half 2012: CHF 60.9 million).

The first half year was marked by the new strategic focus of the LLB Group. One-off effects depressed the Group financial result by CHF 58.4 million. These consisted largely of an impairment of goodwill amounting to CHF 70.1 million together at the same time with positive adjustment to purchase price obligations from acquisitions of CHF 55.8 million. In addition, extraordinary write-downs of CHF 9.6 million on real estate and restructuring provisions of CHF 3.3 million had to be taken into account. Additional provisions totalling CHF 31.2 million had to be set aside for risks in connection with US taxation issues.

Without considering these one-off effects, the LLB Group would have reported a net profit of CHF 72.0 million for the first half of 2013. In comparison with the previous year, and adjusted to take into consideration the positive one-off effect in 2012 of CHF 19.8 million in connection with the change over made by the Personnel Pension Fund Foundation of Liechtensteinische Landesbank AG to a defined contribution pension plan, the Group net profit in the first half of 2013 would have been CHF 31.0 million, or 75.4 percent higher than in the first half of 2012.

The net profit for the first half year attributable to the shareholders of LLB amounted to CHF 11.7 million (first half 2012: CHF 59.0 million). Earnings per share stood at CHF 0.41 (first half 2012: CHF 2.08).

Assets under management

Developments on the financial markets had a positive effect on client assets under management, which stood at CHF 50.5 billion per 30 June 2013 (31 December 2012: CHF 49.9 billion). Assets in own-managed funds climbed by 8.0 percent to CHF 4.2 billion (31 December 2012: CHF 3.9 billion). Assets with discretionary mandates rose by 7.3 percent to CHF 8.3 billion (31 December 2012: CHF 7.7 billion). Other assets under management amounted to CHF 38.0 billion per 30 June 2013 (31 December 2012: 38.3 billion).

In the first half year of 2013, the LLB Group recorded a net new money outflow of CHF 210 million (31 December 2012: outflow of CHF 2 million).

Assets under management as at 30 June 2013

CHF 50.5 billion

Assets under management as at 30 June 2013 (pie chart)

Income statement

Historically low interest rate levels and shrinking margins continued to characterise the business environment in the first half year of 2013. The LLB Group succeeded in increasing operating income by 35.2 percent to CHF 279.9 million (first half 2012: CHF 207.1 million). This was largely attributable to the one-off effect of the adjustment to purchase price obligations from acquisitions of CHF 55.8 million. Adjusted to eliminate this one-off effect, operating income would have risen by 8.2 percent.

Interest income before credit loss expense in the first half of 2013 fell by 25.5 percent to CHF 73.3 million (first half 2012: CHF 98.5 million). In interest business with clients a decline of 4.2 percent to CHF 69.2 million was recorded (first half 2012: CHF 72.2 million), which was largely due to the 10.3 percent fall in interest income from loans to clients. Interest earned from client business fell by CHF 10.9 million to CHF 97.7 million, and interest paid in client business decreased by CHF 7.9 million to CHF 28.5 million. Credit loss expense was substantially reduced by CHF 22.1 million, or 82.7 percent, to CHF 4.6 million (first half 2012: CHF 26.8 million). As expected, interest income due from banks declined sharply as a result of the historically low level of interest rates and the lack of investment alternatives on the interbank market. This items decreased by 62.9 percent to CHF 13.2 million (first half 2012: CHF 35.5 million). With the persisting low level of market interest rates, interest income due from banks will not increase during the second half of 2013.

Net fee and commission income climbed by 3.5 percent to CHF 106.7 million (first half 2012: CHF 103.1 million). The pleasing market development had a positive impact on clients trading activities. Brokerage earnings increased by 17.7 percent. Higher earnings, up by 12.9 percent, were posted with asset management and investment business.

Net trading income expanded to CHF 42.8 million (first half 2012: CHF 5.1 million). Whereas hedging costs for interest swaps of CHF 9.1 million were booked in the first half of 2012, in the first six months of 2013 income of CHF 28.2 million was attained from interest rate swaps as a result of higher market interest rates. Client trading with foreign exchange, notes and precious metals also showed a pleasing gain of 5.7 percent to CHF 14.6 million.

Net income from financial investments at fair value through profit and loss stood at CHF 4.1 million (30 June 2012: CHF 22.1 million). The decrease of 81.5 percent in comparison with the previous year is attributable to valuation losses on our bond portfolio due to rising interest rates. The positive performance of the stock markets was only able to compensate for a portion of the decline.

Other income totalled CHF 57.6 million (first half 2012: CHF 5.1 million). This increase is due to the extraordinary one-off effect of the adjustment to purchase price obligations from acquisitions of CHF 55.8 million. Without this one-off effect, other income for the first half of 2013 would have amounted to CHF 1.9 million.

Operating expenses totalled CHF 261.2 million, CHF 123.1 million above the level of the previous year (first half 2012: CHF 138.1 million). Whereas in 2012 a one-time reduction in personnel expenses due to the change over from a defined benefit to a defined contribution plan by the Personnel Pension Fund Foundation of Liechtensteinische Landesbank AG led to a decrease of CHF 19.8 million in operating expenses, one-time expenses in connection with one-off effects of CHF 114.2 million weighed on operating expenses in the first half of 2013. Without these special effects operating expenses would have been lower by CHF 10.9 million or 6.9 percent.

Personnel expenses totalled CHF 90.1 million, 19.0 percent higher than in the previous year (first half 2012: CHF 75.7 million). Adjusted to take into account the reduction in expenses of CHF 19.8 million caused by the change in pension plans in 2012 and the provisions for restructuring measures in 2013 of CHF 2.1 million, personnel expenses would have amounted to CHF 7.5 million, or 7.8 percent, lower than in the previous year. Full-time jobs at the LLB Group decreased by 5.4 percent to 1'031 (31 December 2012: 1'090).

General and administrative expenses at the LLB Group stood at CHF 137.6 million in the first half of 2013 (first half 2012: CHF 44.6 million) and were therefore CHF 92.9 million higher than in the previous year. This increase is due to the impact of one-off effects amounting to CHF 102.0 million comprising an impairment of goodwill totalling CHF 70.1 million, provisions for legal and ligitation risks for the US taxation issue amounting to CHF 31.2 million, and provisions for restructuring costs of CHF 0.7 million. Without these one-off effects, general and administrative expenses would have stood at CHF 35.5 million, corresponding to a decrease of CHF 9.1 million, or 20.4 percent, compared with the previous year. Savings were achieved mainly in the areas of marketing and public relations, IT costs as well as with consultancy fees. The savings in personnel and general and business expenses are a clear confirmation of the strict implementation of the cost-cutting and efficiency improvement programme.

Depreciation and amortisation rose compared with the previous year by CHF 15.7 million to CHF 33.5 million (first half 2012: CHF 17.8 million). This increase was also related to the LLB Groups new «Focus2015» strategy. As a result of the closure of LLB (Switzerland) Ltd. extraordinary write-downs on business real estate of CHF 9.6 million were necessary. Furthermore, additional write-downs of CHF 4.2 million were made on intangible assets.

In the first half year, the Cost-Income-Ratio stood at 70.2 percent (first half 2012: 58.5 %). This reference figure was calculated as follows: operating expenses (excluding provisions for legal and ligitation risks, allowances for non-current assets held for sale and impairment for goodwill) in relation to operating income (excluding credit loss expense and adjustments on purchase price obligations from acquisitions). One-off effects were therefore eliminated and the Cost-Income-Ratio reflects the operative business activity.

IAS 19 (revised) regulates the benefits to employees and stipulates a retrospective application of the standard. The values for the comparison periods in the income statement, the statement of comprehensive income, the balance sheet and the statement of changes in equity were restated accordingly. Consequently, the pension plan obligation, adjusted to take into account deferred taxes, decreased by CHF 9.8 million to CHF 109.5 million per 1 January 2012. As per 31 December 2012, the pension plan obligation stood at CHF 80.8 million, whereby in addition to IAS 19 (revised) the positive, one-time effect of the change from a defined benefit to a defined contribution plan contributed to the reduction. As per 1 January 2012, other reserves decreased by CHF 9.4 million and equity attributable to minorities increased by CHF 0.4 million. The equity of the LLB Group rose from CHF 1'641.7 million to CHF 1'651.5 million per 1 January 2012. IAS 19 (revised) had no significant influence on the income statement. Expenses for pension plans for the first half of 2012 rose by CHF 0.8 million. Comprehensive income for the period ending on 30 June 2012 climbed from CHF 55.4 million to CHF 56.1 million (see the consolidated interim financial statement).

On 1 January 2014, the LLB Group will introduce a new compensation model. In the first half of 2013 this led to a one-time pension plan expense of CHF 3.2 million (see Accounting principles in the consolidated interim financial reporting).

Balance sheet

In comparison with the end of 2012, the consolidated balance sheet total decreased by CHF 0.1 billion, or 0.4 percent, to CHF 21.2 billion (31 December 2012: CHF 21.3 billion). In compliance with IFRS, the assets of the Jura Trust Group, which is up for sale, are reported in the balance sheet separately under the position «Non-current assets held for sale» (see Accounting principles). swisspartners Group has been fully consolidated again as per 30 June 2013.

Equity stood at CHF 1.7 billion. The tier 1 ratio amounted to 17.4 percent (31 December 2012: 15.7 %) and the return on equity attributable to LLB shareholders stood at 1.5 percent (30 June 2012: 7.5 %).

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