UniCredit: a pan-European winner. 4Q18 and FY18 Group Results

PREFACE - EXTRAORDINARY POSITIVE TAX EFFECT FOR €887 M RELATED TO IFRS9 FIRST TIME ADOPTION (FTA) ON 4Q18 STATED NET PROFIT

 

As communicated in the Consolidated Interim Report as at 31 March 2018 - Press Release (page 1 - footnote 2), UniCredit took a gross impact of -€3.8 bn for the FTA of IFRS9 on 1 January 2018. According to established accounting practices, such impact was taken at equity and had no impact on the Group's P&L. UniCredit S.p.A. did not book any positive tax impact in Italy related to IFRS9 FTA ^[1].

Following the publication of the recent Italian Budget Law, it has been ruled that such IFRS9 FTA shall become tax deductible over 10 years, rather than to be taken all at once in the first year. Taking into account the relevant accounting treatment, this change will accelerate the booking of the positive tax effects ^[2] associated to IFRS9 FTA at the current tax rate, as for all Italian banks, of around 33 per cent; for UniCredit this results in a positive effect of +€887 m ^[3].

As the FTA was recognised at equity, a coherent representation for the related tax impact should have been at equity as well.

However, based on the very recent indications received from the relevant Authorities, UniCredit has now recognised such positive tax effect related to IFRS9 FTA through its P&L in 4Q18, generating a positive extraordinary effect equivalent to +€887 m³. The application of such accounting treatment has resulted in a stated 4Q18 net profit of €1,727 m. Excluding such positive tax effect, the 4Q18 would have recorded a net profit of €840 m.

In what follows, UniCredit will focus its analysis on the adjusted net profit that does not contain the above mentioned positive one-off tax impact, so as to reflect what UniCredit considers the economic performance of the Group in the period. The regulatory capital and dividend implications will be clarified on the following pages.

 

UNICREDIT: A PAN-EUROPEAN WINNER

 

STRONG FY18 PERFORMANCE, UP VERSUS FY17

TRANSFORM 2019 WELL AHEAD OF SCHEDULE

 

4Q18 AND FY18 GROUP RESULTS

 

 

Strong FY18 Group performance notwithstanding macro and one-offs

-     Net operating profit of €6.4 bn (+13.1 per cent FY/FY), best since 2008

-     Adjusted net profit of €3.9 bn (+7.7 per cent vs FY17 adjusted ^[4]), regardless of large additional provisions for US sanctions

 

FY18 Group Core performing very well, resulting in high profitability:

-     Net operating profit of €7.5 bn (+12.3 per cent FY/FY)

-     Adjusted RoTE of 10.1 per cent (+1.0 p.p. FY/FY), regardless of large additional provisions for US sanctions

-     Gross NPE ratio of 4.1 per cent (-99 bps Y/Y), ahead of plan

-     Customer loans grew €28 bn, around 3 times FY17 growth

 

FY18 good commercial dynamics with Transform 2019 well ahead of schedule:

-     Group net interest of €10.9 bn (+2.1 per cent FY/FY)

-     100 per cent of FTEs and 93 per cent of branch reduction targets achieved, both well ahead of plan

-     Group operating expenses of €10.7 bn, better than the €11.0 bn target

-     Group CoR of 58 bps, better than the 68 bps target

-     Non Core gross NPEs of €18.6 bn, down €7.5 bn Y/Y. Group disposals of €4.4 bn. Both better than target

 

FY18 strong Group balance sheet and excellent access to markets:

-     Fully loaded CET1 ratio of 12.07 per cent, with an MDA buffer of 201 bps ^[5]. Pro-forma TLAC subordination ratio of 18.13 per cent with a buffer of 107 bps ^[6]

-     Tangible equity of €47.7 bn, up 3.0 per cent Q/Q from trough in 3Q18

-     Excellent capital markets access as demonstrated by recent issuances

-     Proposed cash dividend of €0.27 per share equal to €0.6 bn ^[7]

 

4Q18 Group adjusted net profit of €840 m (+19.9 per cent vs 4Q17 adjusted)

-     Best fourth quarter in a decade for the second time running

-     Operating expenses of €2.7 bn (-2.7 per cent Y/Y)

-     CoR of 79 bps, including 4Q18 negative impacts from models (13 bps) and the IFRS9 macro scenario (10 bps)

-     Gross NPE ratio of 7.7 per cent, significantly down 265 bps Y/Y

 

FY19 key targets:

-     Group revenues of €19.8 bn, operating expenses of €10.4 bn and CoR of 55 bps confirmed

-     Group net profit of €4.7 bn, Group RoTE above 9 per cent and Group Core RoTE above 10 per cent confirmed

-     Non Core gross NPEs confirmed at €14.9 bn and accelerated 2021 rundown fully on track

-     Tangible equity to grow throughout FY19

-     Year-end 2019 CET1 ratio confirmed between 12.0-12.5 per cent. CET1 ratio MDA buffer target of 200-250 bps. TLAC ratio buffer target of 50-100 bps

 

New Strategic Plan presentation to be held in London on 3 December 2019

Milan, 7 February 2019: on 6 February 2019, the Board of Directors of UniCredit S.p.A. approved the 4Q18 and FY18 Group's consolidated financial accounts as of 31 December 2018.

 

Jean Pierre Mustier, Chief Executive Officer of UniCredit S.p.A., commenting on the 4Q18 and FY18 Group results:

"UniCredit has delivered a record performance in 2018, with the best results in a decade. I am  proud of our strong performance and the commitment of our teams, which have worked tirelessly throughout the year against a challenging macroeconomic backdrop. 

Our Group Core bank is performing very well, resulting in  high profitability, with a Group Core net operating profit of Euro 7.5 billion, up 12.3 per cent year on year. Adjusted Group Core RoTE stands at 10.1 per cent, driven by good commercial dynamics across the Group, with customer loans up by Euro 28 billion, around three times the growth in 2017.

Transform 2019 is well ahead of schedule. We have already achieved 100 per cent of the FTE reductions and 93 per cent of  the branch closure targets. Our Group operating expenses at Euro 10.7 billion are better than the Euro 11 billion target. Group NPEs are down by more than 50 per cent since the third quarter of 2016. Non Core Gross NPEs stand at Euro 18.6 billion, down Euro 7.5 billion year on year. We continue to actively de-risk our balance sheet and the accelerated 2021 rundown of Non Core  NPEs is fully on track.

We confirm our FY19 net profit target of Euro 4.7 billion and a RoTE of above 9 per cent, with Group Core RoTE above 10 per cent. The Group will continue to maintain a strong MDA buffer of 200-250 bps, with  a fully loaded FY19 CET1 target ratio of 12.0-12.5 per cent.

Based on these results, we will propose to the AGM a cash dividend of Euro 27 cents per share, which is equivalent to a 20 per cent payout.

As a team, we continue to focus fully on Transform 2019 to ensure UniCredit remains a true pan-European winner."

 

 

 

Notes

 

^[1] Related to Loan Loss Provisions (LLPs).
^[2] Mainly represented by deferred tax assets (DTAs).
^[3] of which +€871 m from recognition of temporary differences DTAs and +€16 m IRAP tax effect, both related to UniCredit S.p.A. IFRS9 FTA.

^[4] Throughout this press release, Group and Group Core adjusted net profit and RoTE exclude the net impact from Pekao and Pioneer disposals (-€310 m in 2Q17, +€2.1 bn in 3Q17 and +€93 m in 4Q17), a one-off charge booked in Non Core (-€80 m in 3Q17), the net profit from Pekao and Pioneer (+€48 m in 1Q17, +€72 m in 2Q17, +€3 m in 3Q17 and +€7 m in 4Q17), the Yapi Kredi (Yapi) impairment (-€846 m in 3Q18) and the IFRS9 FTA tax effect (+€887 m in 4Q18); net profit and RoTE are not adjusted for large additional provisions for US sanctions in FY18. RoTE calculated at CMD 2016 perimeter, taking into account the capital increase and Pekao and Pioneer disposals as at 1 January 2017.

^[5] MDA stands for Maximum Distributable Amount. MDA buffer vs. fully loaded requirement as at 1 January 2019.
^[6] Managerial figures under current regulatory assumptions, including USD3 bn of senior non-preferred issuance in January 2019.
^[7] Dividend proposed to Annual General Meeting, 20 per cent payout ratio on stated net profit excluding the net impact from the IFRS9 FTA tax effect (+€887 m in 4Q18). For FY17, 0.32 per share equal to €0.7 bn was paid. For FY19 payout ratio of 30 per cent.