EFG International : increases profitability and raises dividend

EFG International AG	Phone [phone]
Bleicherweg 8	Fax [phone]
8001 Zurich	efginternational.com
Switzerland
Media Release

EFG increases profitability and raises dividend

Zurich, 13 March 2019

In 2018, EFG returned to net profit and raises dividend to CHF 0.30, as it emerges from BSI integration. In addition, EFG enlarges its presence in Asia Pacific with the acquisition of a majority stake in the Australian financial services provider Shaw and Partners, subject to regulatory approval. Looking ahead, EFG announces its 2022 strategic plan to deliver profitable growth with effective capital deployment.

• • Return to IFRS net profit attributable to equity holders of CHF 70.3 million from a loss of CHF 59.8 million in 2017; increase in underlying net profit of 16% to CHF 191.8 million

• • Cost synergies at CHF 187 million, exceeding year-end target of CHF 180 million

• • Underlying net new assets of CHF 2.5 billion, slightly up compared to the previous year; all regions within 3-6% growth target range, with the exception of Switzerland & Italy Region due to de-risking impact

• • EFG enlarges its presence in Asia Pacific by acquiring a majority stake in the Australian financial service provider Shaw and Partners with Assets under Management of CHF 11.4 billion, subject to regulatory approval

• • Assets under Management of CHF 131.2 billion at the end of 2018, mainly reflecting adverse market and FX effects; Assets under Management of CHF 135.4 billion as of 28 February 2019 and of CHF 146.41 billion on an adjusted basis including Shaw and Partners

• • Continued strong capital position, with a Swiss GAAP CET1 ratio of 17.6%, Total Capital Ratio of 21.6%; underlying return on tangible shareholder's equity of 12.8%

• • Increase in proposed dividend to CHF 0.30 per share, up 20% from CHF 0.25

• • 2019-2022 strategic plan focused on profitable growth and effective capital deployment with targeted initiatives to hire CRO teams across geographies, develop the Swiss onshore business, build a presence in Italy, Portugal and the Middle East

• • 2022 financial targets: Average net new asset growth of 4-6% over the period, revenue margin of at least 85 basis points, a cost/income ratio of 72-75% and return on tangible equity in excess of 15% by end-2022; going forward, EFG aims to return 50% of underlying profit to shareholders, while maintaining a minimum CET1 capital ratio of 14%

Giorgio Pradelli, CEO of EFG International: "In 2018, we returned to net profit, exceeded our year-end target on synergies and further improved our already strong capital position, which allows us to propose a 20% increase in dividend. As we are emerging stronger from the integration, we are now shifting focus towards delivering profitable growth, while effectively deploying our capital to accelerate value creation and increase returns to shareholders."

He added: "As a first milestone in the implementation of our growth plan, we are very excited to announce the acquisition of a majority stake in Shaw and Partners that will considerably strengthen our market position in Asia Pacific and enable us to double our Assets under Management in the region by 2022."

1 Excluding CHF 0.4 billion of Assets under Management referred to EFG (balance eliminated to avoid double count)

Overview of 2018 key results

2018	2017
In CHF millions
Underlying net profit*	191.8	165.0
IFRS net profit/(loss) attributable to equity holders	70.3	(59.8)
Underlying operating income*	1,165.1	1,202.3
Underlying operating expenses*	(966.4)	(1,033.2)
In CHF billions
Underlying net new assets**	2.5	2.3
AuM attrition	(4.6)	(8.2)
Revenue-generating Assets under Management	131.2	142.0
Underlying Ratios
Revenue margin (in bps)	84	87
Cost/income ratio*	82.9%	85.9%
Client Relationship Officers (CROs)	590	644
Number of full-time employees (FTE) ***	3,153	3,366

* Underlying - Excluding impact of integration costs, BSI related intangibles amortisation, legacy legal costs and provisions and contribution of life insurance ** Excluding attrition ***Excluding FTE's on notice period or in social plan (as of 31 December 2018)

2018: Optimising the business to capture future growth potential

Following the completion of the BSI integration by end-2017, in 2018 EFG continued to transform the bank building a stronger, more robust and sustainable business. Throughout the year, EFG not only maintained its cost-conscious approach in realising the targeted synergies but also further de-risked its portfolio, enhanced its compliance framework, further streamlined its IT systems and processes, and strengthened its management team and governance structure.

Return to net profit reflecting continued cost management

In 2018, EFG increased underlying profitability by 16% to CHF 191.8 million, primarily reflecting the realisation of targeted synergies and a lower underlying cost base. Underlying net profit also included an exceptional after-tax gain of CHF 18 million in the fourth quarter of 2018 from a valuation gain of the SIX participation, following a one-off gain at similar levels in 2017.

Underlying operating income was CHF 1,165.1 million, compared to CHF 1,202.3 million in 2017, reflecting a sharp decline in client activity during the second half of 2018 in light of investor uncertainty. Underlying net commission and net interest income were CHF 564.6 million and

CHF 372.7 million, respectively. Underlying net other income was CHF 227.8 million. Affected by the lower client activity, EFG's underlying revenue margin decreased to 84 basis points for 2018.

EFG continued to make significant progress in realising cost synergies and reducing its cost base. Underlying operating expenses for 2018 were CHF 966.4 million, down 6% compared to 2017. By end-2018, EFG achieved cumulative pre-tax cost synergies of CHF 187 million, exceeding its pre-tax cost synergy target of CHF 180 million for end-2018. By end-2019, EFG targets cumulative pre-tax cost synergies of CHF 240 million. For 2018, EFG's underlying cost/income ratio improved to 82.9%, down 3.0 percentage points from 85.9% in 2017.

2018 also included a net release in provisions of CHF 15.8 million, primarily reflecting the release in the first half of the year, in line with what was previously reported in July 2018.

Pre-tax integration costs decreased significantly to CHF 75.3 million in 2018. Overall, as of year-end 2018, EFG reported integration costs of CHF 267.5 million for the full integration process, also reflecting the completion of the de-risking process. Given the conclusion of the BSI integration, EFG will no longer separately report integration costs relating to this.

EFG continued to deliver on its headcount reduction programme in line with the combination of the business, targeting between 100-150 reductions per annum. At the end of 2018, the number of employees was 3,1532 (full-time equivalents), down from 3,366 at end-2017. This reflects an overall decrease of 420 since 2016, indicating that EFG is ahead in reaching its overall synergy target.

The underlying net profit for 2018 of CHF 191.8 million excludes the following items:

• • CHF 75.3 million of costs relating to the integration

• • CHF 26.9 million negative impact from the life insurance portfolio

• • CHF 6.4 million BSI intangible amortisation charge

• • CHF 12.9 million of legal costs and provisions relating to previously disclosed legacy matters

Including those items, EFG reported an IFRS net profit attributable to equity holders of

CHF 70.3 million in 2018. This compares to a net loss of CHF 59.8 million in 2017.

With the integration and optimisation process completed, EFG's underlying performance will in future only exclude the impact of the life insurance portfolio, legal costs and provisions relating to previously disclosed legacy matters, and intangible amortisation.

Stable underlying net new assets

2018	2017
In CHF billions, unless otherwise stated
Underlying net new assets*	2.5	2.3
Underlying net new asset growth	1.8%	1.6%
Asset under Management attrition	(4.6)	(8.2)
Revenue-generating Assets under Management	131.2	142.0
* Excluding attrition

EFG saw a positive trend in overall net new asset development in 2018 compared to the previous year, as net asset outflows more than halved from CHF 5.8 billion in 2017 to CHF 2.1 billion in 2018. However, following a strong first half of the year - recording overall positive net new assets for the first time since the start of the integration process - the second half of 2018 saw a weaker performance. This was primarily due to significantly lower client activity during November and December as well as active exiting of remaining client relationships which were not in line with EFG's risk appetite.

Excluding AuM attrition, EFG reported underlying net new assets of CHF 2.5 billion for 2018, slightly up compared to the previous year, albeit below EFG's target range of 3-6%. All regions achieved underlying growth above 3% - with the exception of the Switzerland & Italy Region.

2 Excluding FTE's on notice period or in social plan (as of 31 December 2018)

Overall AuM attrition levels reduced considerably from CHF 8.2 billion in 2017 to CHF 4.6 billion in 2018. As of end-2018, total AuM attrition since the closing of the BSI acquisition in November 2016 stood at CHF 16.2 billion. While cumulative AuM attrition levels of 10.9% slightly exceeded the initial outflow guidance of 5-10% of the total Assets under Management as of the closing of the acquisition, more than half resulted from active de-risking of the business.

The development of revenue-generating Assets under Management during the year largely mirrored the challenges in the operating environment. While Assets under Management were largely stable at CHF 140 billion until the end of October 2018, they decreased to CHF 131.2 billion by the end of 2018. This decrease from CHF 142.0 billion at end-2017 reflected adverse market effects of CHF 5.9 billion and foreign exchange impacts of CHF 1.9 billion, as well as additional forced AuM attrition of

CHF 4.6 billion, partly offset by underlying net new assets of CHF 2.5 billion. By the end of February 2019, Assets under Management were CHF 135.4 billion. On an adjusted basis, including Shaw and Partners, Assets under Management were at CHF 146.4 billion3 as of 28 February 2019.

As of end-2018, EFG is discontinuing the concept of AuM attrition, which was used during the integration process to give investors a clearer view of the bank's underlying performance. Going forward, EFG will only report net new assets as a total figure.

CRO development reflecting completion of integration process

As part of the continued optimisation process in 2018, the number of Client Relationship Officers (CROs) decreased from 644 at end-2017 to 590 at the end of 2018, mostly reflecting the completion of the integration process and ongoing performance management efforts. In 2018, 39 new CROs were hired. Going forward, EFG will leverage on its improved platform - both in terms of geographical footprint and products and services - to attract experienced CRO teams in line with EFG's growth strategy. By the end of February 2019, EFG has already signed or approved over 50 new hires.

Update on life insurance portfolio

Following the adoption of the IFRS9 reporting standard as of 01 January 2018, volatility effects of the life insurance portfolio on the IFRS net profit has increased, given that the portfolio's exposures are being recognised at fair value through profit and loss. In the second half of 2018, EFG's life insurance portfolio positively impacted the Group's IFRS profitability by CHF 9.5 million, partly offsetting the negative impact of CHF 36.4 million during the first six months of 2018. Of the overall negative impact of CHF 26.9 million in 2018, CHF 13.9 million were due to interest rate effects and

CHF 13.0 million of fair value impact. The overall impact was significantly lower in 2018 compared to the negative effect of CHF 68.5 million in the previous year, reflecting the measures EFG has taken in 2017 to decrease the exposure from its insurance portfolio.

3 Excluding CHF 0.4 billion of Assets under Management referred to EFG (balance eliminated to avoid double count)

Further improved already strong capital position

2018	2017
Capital position*
Total capital ratio	21.6%	21.5%
CET1 capital ratio	17.6%	17.3%
Total regulatory capital	2,181.4	2,288.7
Return on shareholders' equity**	11.3%	10.6%
Return on tangible equity**	12.8%	12.1%
* Swiss GAAP Basel III, fully applied - including impact from agreement regarding final BSI purchase price announced 17 July 2017

** Underlying - Excluding impact of integration costs, BSI related intangibles amortisation, legacy legal costs and provisions and contribution of life insurance

At the end of 2018, EFG's Swiss GAAP Common Equity Ratio (CET1) was 17.6%, up from 17.3% at end-2017. Overall, the Total Capital Ratio improved to 21.6% compared to 21.0% at end-2017, primarily reflecting a 7% reduction in risk-weighted assets to CHF 10.1 billion at end-2018. EFG has a strong and liquid balance sheet, with a Liquidity Coverage Ratio of 163% and a Loan/Deposit Ratio of 53% at the end of 2018.

As announced in April 2018 and in light of its strong capital position, EFG launched a share buyback programme on 27 July 2018. As part of this programme, EFG had repurchased by year end 2018 4,362,873 of a maximum of 6,000,000 ordinary shares from the market for a total amount of

CHF 30.1 million. The repurchased shares are used to fund EFG's restricted stock units for employee incentive plans in order to prevent further shareholder dilution.

Proposing to raise ordinary dividend

EFG will propose an increased ordinary dividend of CHF 0.30 per share (exempt from Swiss withholding tax) to the Annual General Meeting of 26 April 2019. This reflects an increase of 20% compared to the previous years.

EFG expands its presence in Asia Pacific by acquiring majority stake in Shaw and Partners

As announced separately today and in line with its long-term growth strategy to expand its presence in target markets, EFG will acquire a majority stake in the Australian financial services provider Shaw and Partners with Assets under Management of CHF 11.4 billion, subject to regulatory approval. This partnership and the combined growth potential should enable EFG's Asia Pacific Region to approximately double in size by 2022.

Upon closing, EFG will gain immediate access to the Australian market and can further enlarge its coverage in the Asia Pacific region and strengthen its presence in the Chinese HNWI market. In addition, Shaw and Partners' clients can benefit from EFG's comprehensive product and service offering, while the Australian corporate and pension managed funds industry offers significant penetration potential for EFG's acclaimed New Capital funds.

See the fullmedia release on the acquisition of Shaw and Partners.