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AAREAL BANK AG (FRA:ARL) Aareal Bank Group remains on track in the second quarter: net interest income remains stable while net commission income increased significantly thanks to Aareon's performance

Directive transparence : information réglementée

13/08/2019 07:00

DGAP-News: Aareal Bank AG / Key word(s): Quarter Results
Aareal Bank Group remains on track in the second quarter: net interest income remains stable while net commission income increased significantly thanks to Aareon's performance

13.08.2019 / 07:00
The issuer is solely responsible for the content of this announcement.


Aareal Bank Group remains on track in the second quarter: net interest income remains stable while net commission income increased significantly thanks to Aareon's performance

- Consolidated operating profit for the second quarter remains solid at EUR 61 million (Q2 2018: EUR 62 million); full-year earnings outlook affirmed

- Net interest income of EUR 134 million maintained at the level of the preceding quarters, despite a challenging market and competitive environment

- Double-digit revenue growth at IT subsidiary Aareon pushes net commission income up to EUR 57 million (Q2 2018: EUR 51 million)

- New business in the Structured Property Financing segment picks up significantly in the second quarter, while margins remain at good levels

- Integration of Düsseldorfer Hypothekenbank completed as planned


Wiesbaden, 13 August 2019 - During the second quarter of 2019, Aareal Bank Group maintained the momentum seen at the start of the year and continued its positive development. Consolidated operating profit reached EUR 61 million (Q2 2018: EUR 62 million) in what continues to be a challenging market and competitive environment and remained fully in line with the Bank's projections. Aareal Bank Group's consolidated operating profit for the first six months of the current financial year totalled EUR 122 million (H1 2018: EUR 129 million). The Group affirmed its forecast for the full year in view of its robust business performance over the first six months of the year: Aareal Bank Group continues to anticipate consolidated operating profit of between EUR 240 million and EUR 280 million for 2019.

Consolidated net income allocated to ordinary shareholders for the second quarter was unchanged from the same period of the previous year at EUR 37 million; it totalled EUR 72 million for the first six months of the financial year (H1 2018: EUR 76 million). Earnings per share amounted to EUR 0.61 for the second quarter and EUR 1.20 for the first half of 2019 (Q2 2018: EUR 0.62; H1 2018: EUR 1.27).

On the income side, key trends continued: net interest income remained stable at EUR 134 million in the second quarter, despite even tougher competition in key markets and the persistently low level of interest rates (Q2 2018: EUR 136 million; Q1 2019: EUR 135 million). The net derecognition gain, which must be reported separately, amounted to EUR 11 million in the second quarter (Q2 2018: EUR 5 million). Loss allowance of EUR 23 million (Q2 2018: EUR 19 million) was in line with the usual range of fluctuation.

Net commission income maintained its momentum, thanks to the encouraging positive development of the Bank's IT subsidiary Aareon AG. In the second quarter, Aareon achieved double-digit revenue growth and was thus the key driver for the significant increase in net commission income to EUR 57 million (Q2 2018: EUR 51 million). This demonstrates all the more clearly how Aareal Bank Group's strategy of broadening the scope of its Consulting/Services segment - with Aareon as the cornerstone - is paying off and turning it into the Group's principal growth driver. As previously announced, Aareon has launched a comprehensive growth and investment programme for this purpose, aimed in particular at expanding the already rapidly growing digital business on a massive scale while doubling its contribution to the Group's earnings in the medium term.

Consolidated administrative expenses totalled EUR 112 million for the second quarter (Q2 2018: EUR 109 million) and EUR 256 million for the first half of the year (H1 2018: EUR 237 million). As expected, these figures reflect, in particular, expenses (H1 2019: EUR 11 million) in connection with the integration of former Düsseldorfer Hypothekenbank (DHB, acquired on 31 December 2018), which was completed as planned in mid-2019, as well as Aareon's business growth.

"Once again, our year-to-date figures demonstrate that Aareal Bank Group is ideally positioned to meet the challenges that lie ahead. We are maintaining our position in the Structured Property Financing segment, even in this more challenging environment - in the Consulting/Services segment, we are gradually unlocking the great potential we see with our subsidiary Aareon. Not only are we on track to achieve our ambitious goals for 2019, but we are also committed to building on Aareal Bank Group's continued success over the medium to long term", explained CEO Hermann J. Merkens.

Structured Property Financing segment: Strong new business and good margins, portfolio volume in line with projections

New business in the Structured Property Financing segment rose markedly in the second quarter compared with the start of the year. It totalled EUR 2.4 billion from April to June (Q2 2018: EUR 2.7 billion), compared with EUR 0.8 billion in the first quarter. The focus remained on North America. New business volume for the first six months of the year totalled EUR 3.2 billion, compared with EUR 4.2 billion in the same period of the previous year. Portfolio volume, the key benchmark for new business volume, remained - at EUR 26.6 billion - within the target range of EUR 26 to EUR 28 billion for the full year 2019. Aareal Bank continues to maintain its annual target for new business volume of EUR 7 to EUR 8 billion.

At 205 basis points (H1 2019: 225 basis points), the average gross margin in new business (before currency effects) for the second quarter again exceeded the projected full-year range of 180 to 190 basis points.

Consulting/Services segment: Aareon increases sales revenues and earnings - deposit volumes remain at a high level

Operating profit in the Consulting/Services segment totalled EUR -8 million in the second quarter of 2019, on a par with the same period of the previous year. Subsidiary Aareon AG increased its contribution to Group operating profit to EUR 9 million in the second quarter (Q2 2018: EUR 8 million). The total figure for the first half-year was EUR 17 million (H1 2018: EUR 14 million). Aareon's sales revenues rose by 11 per cent to EUR 63 million (Q2 2018: EUR 57 million). Digital products performed particularly well, with sales revenues up 23 per cent year-on-year.

Averaging EUR 10.7 billion, the volume of deposits from the housing industry remained at a high level during the second quarter of 2019 (2018 average: EUR 10.4 billion). The persistently low interest rate environment continued to burden income generated from the deposit-taking business, and therefore the segment result. Nonetheless, the importance of this business goes way beyond the interest margin generated from deposits - which is under pressure in the current market environment. Deposits from the housing industry are a strategically important additional source of funding for Aareal Bank.

Comfortable funding situation and a solid capital base

Aareal Bank continued to be very well-funded during the second quarter of 2019, maintaining its long-term funding inventory at a high level. In the second quarter, it raised around EUR 1.7 billion on the capital market, primarily through the placement of two Mortgage Pfandbriefe with an issue volume of EUR 500 million and USD 600 million, respectively, and a EUR 500 million senior preferred benchmark bond.

Aareal Bank continues to have a very solid capital base. As at 30 June 2019, the Bank's Common Equity Tier 1 (CET 1) ratio was 17.3 %, which is comfortable also on an international level, and the Total Capital Ratio was 26.9 %. The CET1 ratio determined on the basis of the Basel Committee's final framework - the estimated so-called 'Basel IV' ratio, which is relevant for capital planning - was 13.1 %.

Notes to Group financial performance

Net interest income for the second quarter of 2019 was EUR 134 million. It totalled EUR 269 million (H1 2018: EUR 269 million) for the first six months of the financial year.

Loss allowance amounted to EUR 23 million for the second quarter (Q2 2018: EUR 19 million) and EUR 28 million for the first half of the year (H1 2018: EUR 19 million).

Net commission income increased to EUR 57 million (Q2 2018: EUR 51 million), driven by Aareon's strong performance. Net commission income totalled EUR 110 million for the first half of the year, a significant increase on the same period last year (H1 2018: EUR 101 million).

Net derecognition gain amounted to EUR 11 million for the second quarter (Q2 2018: EUR 5 million) and EUR 27 million for the first half of the year (H1 2018: EUR 11 million). This was due both to adjustments to the Treasury portfolio and market-driven effects from early loan repayments.

The net gain or loss from financial instruments (fvpl) and from hedge accounting totalled EUR -7 million (Q2 2018: EUR -5 million), due to the mark-to-market measurement of loans. The total figure for the first half-year was EUR -1 million (H1 2018: EUR -4 million).

Consolidated administrative expenses totalled EUR 112 million for the second quarter (Q2 2018: EUR 109 million) and EUR 256 million for the first half of the year (H1 2018: EUR 237 million).

Consolidated operating profit totalled EUR 61 million for the quarter under review (Q2 2018: EUR 62 million). Taking tax deductions of EUR 20 million into account, consolidated net income attributable to shareholders of Aareal Bank AG amounted to EUR 41 million (Q2 2018: EUR 41 million). Assuming the pro-rata temporis accrual of net interest payable on the AT1 bond, consolidated net income allocated to ordinary shareholders amounted to EUR 37 million (Q2 2018: EUR 37 million).

Aareal Bank Group's consolidated operating profit for the first six months of the financial year totalled EUR 122 million (H1 2018: EUR 129 million). Taking tax deductions of EUR 41 million into account and after deducting EUR 1 million in non-controlling interest income, and assumed pro-rata net interest payable on the AT1 bond of EUR 8 million, consolidated net income allocated to ordinary shareholders of Aareal Bank AG amounted to EUR 72 million (H1 2018: EUR 76 million).

Outlook for 2019 affirmed

Aareal Bank affirms its forecasts published for the full year 2019: consolidated net interest income (excluding net derecognition gain) is expected to be between EUR 530 million and EUR 560 million. Net derecognition gain is forecast to amount to between EUR 20 million and EUR 40 million. Loss allowance is expected to be in a range between EUR 50 million and EUR 80 million. Net commission income, which continues to gain importance for Aareal Bank Group due to the strategic expansion of business in the Consulting/Services segment, is anticipated to rise further year-on-year, to between EUR 225 million and EUR 245 million. Administrative expenses - including Aareon's additional investments for accelerated growth, as well as costs for integrating DHB - are expected to range between EUR 470 million and EUR 510 million.

Against this background, Aareal Bank expects consolidated operating profit for the current year to be in a range between EUR 240 million and EUR 280 million; this is in line with the previous year's figure, adjusted for the positive one-off effect from the acquisition of DHB. The Bank expects RoE before taxes of between 8.5 per cent and 10 per cent for the current financial year, with earnings per share (EpS) between EUR 2.40 and EUR 2.80.

The reduction of non-strategic portfolios in the Structured Property Financing segment will continue during 2019, whilst the core credit portfolio is expected to continue to grow, market conditions permitting. Overall, subject to exchange rate fluctuations, Aareal Bank Group's property financing portfolio is expected to range between EUR 26 billion and EUR 28 billion. New business volume of between EUR 7 billion and EUR 8 billion is projected for the current year. Aareal Bank expects its IT subsidiary Aareon to contribute approximately EUR 35 million to consolidated operating profit, taking strategic investments for accelerated growth into account. Excluding strategic investments, the contribution is anticipated at around EUR 41 million.

Note to editors: the full interim report as at 30 June 2019 is available at http://www.aareal-bank.com/en/financialreports.

Aareal Bank Group
Aareal Bank Group, headquartered in Wiesbaden, is a leading international property specialist. It provides smart financings, software products, and digital solutions for the property sector and related industries, and is present across three continents: Europe, North America and Asia/Pacific. Aareal Bank AG, whose shares are included in Deutsche Börse's MDAX index, is the Group's parent entity. It manages the various entities organised in the Group's two business segments: Structured Property Financing and Consulting /Services. The Structured Property Financing segment encompasses all of Aareal Bank Group's property financing and funding activities. In this segment, the Bank facilitates property investment projects for its domestic and international clients, within the framework of a three-continent strategy covering Europe, North America and the Asia/Pacific region. In its Consulting/Services segment Aareal Bank Group offers its European clients from the property and energy sectors a unique combination of specialised banking services as well as innovative digital products and services, designed to help clients optimise and enhance the efficiency of their business processes.

Aareal Bank Group - Key Indicators

  1 Jan-30 Jun 2019 1 Jan-30 Jun 2018
     
Results    
Operating profit (EUR mn) 122 129
Consolidated net income (EUR mn) 81 85
Consolidated net income allocated
to ordinary shareholders (EUR mn) 1)
72 76
Cost/income ratio (%) 2) 45.5 44.2
Earnings per ordinary share (EUR) 1) 1.20 1.27
RoE before taxes (%) 1) 3) 8.6 9.4
RoE after taxes (%) 1) 3) 5.6 6.1
 
  30 Jun 2019 31 Dec 2018
     
Statement of Financial Position    
Property finance (EUR mn) 4) 25,699 26,395
Equity (EUR mn) 2,821 2,928
Total assets (EUR mn) 43,264 42,687
     
Regulatory Indicators 5)    
Risk-weighted assets (EUR mn) 12,791 13,039
Common Equity Tier 1 ratio (CET1 ratio) (%) 17.3 17.2
Tier 1 ratio (T1 ratio) (%) 19.6 19.5
Total capital ratio (TC ratio) (%) 26.9 26.2
     
Common Equity Tier 1 ratio (CET1 ratio) (%)
- Basel IV (estimate) - 6)
13.1 13.2
     
Employees 2,827 2,748
     
 

1) The allocation of earnings is based on the assumption that net interest payable on the AT1 bond is recognised on an accrual basis.

2) Structured Property Financing segment only

3) On an annualised basis

4) Excluding EUR 0.5 billion in private client business (31 December 2018: EUR 0.6 billion) and EUR 0.4 billion in local authority lending business by the former Westdeutsche ImmobilienBank AG (WestImmo) (31 December 2018: EUR 0.5 billion)

5) When calculating own funds as at 30 June 2019, interim profits were taken into account, deducting the pro-rata dividend in line with the dividend policy, and incorporating the pro-rata accrual of net interest payable on the AT1 bond. Moreover, the expected relevant impact of the TRIM exercise on commercial property financings, and of the SREP recommendations concerning the NPL inventory as well as the ECB's NPL guidelines for exposures newly classified as NPLs, were taken into account for determining regulatory indicators.
6) Underlying estimate, given a 72.5 % output floor based on the final Basel Committee framework dated 7 December 2017. The calculation of the material impact upon Aareal Bank is subject to the outstanding EU implementation as well as the implementation of additional regulatory requirements (CRR II, EBA requirements etc.).
Consolidated Income Statement for the first half-year
(according to IFRSs)

  1 Jan-30 Jun 2019 1 Jan-30 Jun 2018 Change
  EUR mn EUR mn %
Net interest income 269 269 0
Loss allowance 28 19 47
Net commission income 110 101 9
Net derecognition gain or loss 27 11 145
Net gain or loss from financial instruments (fvpl) 0 -1 -100
Net gain or loss from hedge accounting -1 -3 -67
Net gain or loss from investments accounted for using the equity method 0 -  
Administrative expenses 256 237 8
Net other operating income/expenses 1 8 -88
Negative goodwill from acquisitions - -  
Operating profit 122 129 -5
Income taxes 41 44 -7
Consolidated net income 81 85 -5
Consolidated net income attributable to non-controlling interests 1 1 0
Consolidated net income attributable to shareholders of Aareal Bank AG 80 84 -5
Earnings per share (EpS)      
Consolidated net income attributable to shareholders of Aareal Bank AG 1) 80 84 -5
of which: allocated to ordinary shareholders 72 76 -5
of which: allocated to AT1 investors 8 8  
Earnings per ordinary share (in EUR ) 2) 1.20 1.27 -6
Earnings per AT1 unit (in EUR ) 3) 0.08 0.08  
       
 

1) The allocation of earnings is based on the assumption that net interest payable on the AT1 bond is recognised on an accrual basis.
2) Earnings per ordinary share are determined by dividing the earnings allocated to ordinary shareholders of Aareal Bank AG by the weighted average of ordinary shares outstanding during the financial year (59,857,221 shares). Basic earnings per ordinary share correspond to diluted earnings per ordinary share.
3) Earnings per AT1 unit (based on 100,000,000 AT1 units with a notional amount of EUR 3 each) are determined by dividing the earnings attributable to AT1 investors by the weighted average of AT1 units outstanding during the financial year. Earnings per AT1 unit (basic) correspond to (diluted) earnings per AT1 unit.

Consolidated income statement for the second quarter of 2019 (in accordance with IFRSs)

  Q2 2019 Q2 2018 Change
  EUR mn EUR mn %
Net interest income 134 136 -1
Loss allowance 23 19 21
Net fee and commission income 57 51 12
Net derecognition gain or loss 11 5 120
Net gain or loss from financial instruments (fvpl) -6 -4 50
Net gain or loss from hedge accounting -1 -1 0
Net gain or loss from investments accounted for using the equity method - -  
Administrative expenses 112 109 3
Net other operating income/expenses 1 3 -67
Negative goodwill from acquisitions - -  
Operating profit 61 62 -2
Income taxes 20 21 -5
Consolidated net income 41 41 0
Consolidated net income attributable to non-controlling interests 0 0 0
Consolidated net income attributable to shareholders of Aareal Bank AG 41 41 0
Earnings per share (EpS)      
Consolidated net income attributable to shareholders of Aareal Bank AG 1) 41 41 0
of which: allocated to ordinary shareholders 37 37 0
of which: allocated to AT1 investors 4 4  
Earnings per ordinary share (in EUR ) 2) 0.61 0.62 -2
Earnings per AT1 unit (in EUR ) 3) 0.04 0.04  
       
 

1) The allocation of earnings is based on the assumption that net interest payable on the AT1 bond is recognised on an accrual basis.
2) Earnings per ordinary share are determined by dividing the earnings allocated to ordinary shareholders of Aareal Bank AG by the weighted average of ordinary shares outstanding during the financial year (59,857,221 shares). Basic earnings per ordinary share correspond to diluted earnings per ordinary share.
3) Earnings per AT1 unit (based on 100,000,000 AT1 units with a notional amount of EUR 3 each) are determined by dividing the earnings attributable to AT1 investors by the weighted average of AT1 units outstanding during the financial year. Earnings per AT1 unit (basic) correspond to (diluted) earnings per AT1 unit.

Segment results for the first half-year
(according to IFRSs)

  Structured
Property
Financing
Consulting/Services Consolidation/Reconciliation Aareal Bank Group
  1 Jan - 1 Jan - 1 Jan - 1 Jan - 1 Jan - 1 Jan - 1 Jan - 1 Jan -
  30 Jun - 30 Jun - 30 Jun - 30 Jun - 30 Jun - 30 Jun - 30 Jun - 30 Jun -
  2019 2018 2019 2018 2019 2018 2019 2018
EUR mn                
Net interest income1) 276 275 -7 -6 0 0 269 269
Loss allowance 28 19 0 0     28 19
Net commission income1) 4 4 109 99 -3 -2 110 101
Net derecognition gain or loss 27 11         27 11
Net gain or loss from financial instruments (fvpl) 0 -1         0 -1
Net gain or loss from hedge accounting -1 -3         -1 -3
Net gain or loss from investments accounted for using the equity method     0       0  
Administrative expenses 140 129 119 110 -3 -2 256 237
Net other operating income/expenses 1 7 0 1 0 0 1 8
Negative goodwill from acquisitions                
Operating profit 139 145 -17 -16 0 0 122 129
Income taxes 47 50 -6 -6     41 44
Consolidated net income 92 95 -11 -10 0 0 81 85
Consolidated net income attributable
to non-controlling interests
0 0 1 1     1 1
Consolidated net income attributable to shareholders of Aareal Bank AG 92 95 -12 -11 0 0 80 84
                 
Allocated equity2) 2,116 2,048 200 172 243 260 2,559 2,480
Cost/income ratio (%) 45.5 44.2 116.1 116.4     62.9 61.6
RoE before taxes (%) 2) 3) 4) 12.1 13.0 -18.0 -19.9     8.6 9.4
                 
 

1) As of this reporting year, interest from housing industry deposits is shown in net interest income of the Consulting/Services segment (previously included in net commission income). The previous year's figures were adjusted accordingly.
2) The Structured Property Financing segment's allocated equity of the comparative period was adjusted to Basel IV. This also led to a change in RoE before taxes.
3) On an annualised basis
4) The allocation of earnings is based on the assumption that net interest payable on the AT1 bond is recognised on an accrual basis.
Segment results from the second quarter
(in accordance with IFRSs)

  Structured
Property
Financing
Consulting/Services Consolidation/Reconciliation Aareal Bank Group
  Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2
  2019 2018 2019 2018 2019 2018 2019 2018
EUR mn                
Net interest income1) 138 139 -4 -3 0 0 134 136
Loss allowance 23 19 0 0     23 19
Net commission income1) 2 3 57 49 -2 -1 57 51
Net derecognition gain or loss 11 5         11 5
Net gain or loss from financial instruments (fvpl) -6 -4         -6 -4
Net gain or loss from hedge accounting -1 -1         -1 -1
Net gain or loss from investments accounted for using the equity method                
Administrative expenses 53 55 61 55 -2 -1 112 109
Net other operating income/expenses 1 2 0 1 0 0 1 3
Negative goodwill from acquisitions                
Operating profit 69 70 -8 -8 0 0 61 62
Income taxes 23 24 -3 -3     20 21
Consolidated net income 46 46 -5 -5 0 0 41 41
Consolidated net income attributable
to non-controlling interests
0 0 0 0     0 0
Consolidated net income attributable to shareholders of Aareal Bank AG 46 46 -5 -5 0 0 41 41
                 
 

1) As of this reporting year, interest from housing industry deposits is shown in net interest income of the Consulting/Services segment (previously included in net commission income). The previous year's figures were adjusted accordingly.




Contact:
Aareal Bank AG
Corporate Communications

Sven Korndörffer
Phone: +49 611 348 2306
sven.korndoerffer@aareal-bank.com

Christian Feldbrügge
Phone: +49 611 348 2280
christian.feldbruegge@aareal-bank.com


 


13.08.2019 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG.
The issuer is solely responsible for the content of this announcement.

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Language: English
Company: Aareal Bank AG
Paulinenstr. 15
65189 Wiesbaden
Germany
Phone: +49 (0)611 348 - 0
Fax: +49 (0)611 348 - 2332
E-mail: aareal@aareal-bank.com
Internet: www.aareal-bank.com
ISIN: DE0005408116
WKN: 540811
Indices: MDAX
Listed: Regulated Market in Frankfurt (Prime Standard); Regulated Unofficial Market in Berlin, Dusseldorf, Hamburg, Munich, Stuttgart, Tradegate Exchange; Stockholm
EQS News ID: 856403

 
End of News DGAP News Service

856403  13.08.2019 

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