Investor Presentation • May 11, 2021
Investor Presentation
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May 11, 2021 Marc Hess (CFO) Christof Winkelmann (CMO)
| Still uncertain environment |
▪ Sticking to swoosh scenario (economic recovery) ▪ Positive developments in the US, UK and Asia - Continental Europe still lagging behind triggered by slower vaccination process |
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|---|---|---|---|---|---|---|---|---|---|
| Aareal Bank Group |
Solid performance |
▪ Solid Q1 with operating profit in line with FY-guidance ▪ Strong double digit NII growth yoy ▪ Low Q1-LLP after Covid-19 related comprehensive risk provisioning in 2020 ▪ Growth in all three segments ▪ SPF: - New business and promising deal pipeline support growth plan, attractive margins and good LTVs - Portfolio further increased towards target size ▪ BDS: - Growing NCI - Deposit volume at high level ▪ Aareon: - Sales revenues further increased yoy despite Covid-19 related burden in Consulting business |
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| Outlook confirmed |
▪ Outlook confirmed AGM dividend1) ▪ proposal of € 0.40 – remaining € 1.10 intended to be paid out after an extraordinary Annual General Meeting which could possibly take place in the fourth quarter |
1) The dividend payment of € 1.50 per share in 2021 for the financial year 2020 would need to be made in two steps. In compliance with the requirements published by the European Central Bank (ECB) on 15 December 2020, the distributable amount is € 0.40 per share. The Management Board will submit a proposal for the appropriation of profits to the ordinary Annual General Meeting in May 2021. Depending on the economic developments, the regulatory requirements, the capital position and the risk situation of the bank,
3 an extraordinary Annual General Meeting, which could possibly take place in the fourth quarter, could then decide on the intended remaining payout of € 1.10 per share.
Operating profit in line with FY-guidance, strong double digit NII growth yoy
| € mn | Q1 '20 | Q2 '20 | Q3 '20 | Q4 '20 | Q1 '21 | Comments |
|---|---|---|---|---|---|---|
| Net interest income | 123 | 122 | 128 | 139 | 138 | Positive impacts from increased portfolio and TLTRO participation |
| Loss allowance | 58 | 48 | 61 | 177 | 7 | Low Q1-LLP after Covid-19 related comprehensive risk provisioning in 2020 |
| Net commission income | 57 | 54 | 57 | 66 | 59 | Above last year driven by BDS and Aareon growth despite Covid-19 burdens |
| Derecognition result | 7 | 9 | 3 | 9 | 0 | Positive effects from early loan repayments, de-risking measures (Italian bonds) |
| FV- / hedge-result |
11 | -16 | -2 | -19 | -4 | Negative hedge-result and minor value adjustments (NPLs) |
| Admin expenses | 129 | 109 | 114 | 117 | 150 | In line with FY-guidance despite higher deposit guarantee fees and bank levy, Q1/20 contained Covid-19 related underspend |
| Others | 0 | -10 | 0 | -1 | -4 | Covid-19 related lower income from own assets |
| Operating profit (EBT) | 11 | 2 | 11 | -99 | 32 | In line with FY-guidance |
| Income taxes | 4 | -7 | 10 | -13 | 11 | |
| Minorities | 1 | 0 | 1 | 3 | 1 | |
| AT1 | 4 | 4 | 4 | 4 | 4 | |
| Consolidated net income allocated to ord. shareholders |
2 | 5 | -4 | -93 | 16 | |
| Earnings per share (€) | 0.04 | 0.07 | -0.05 | -1.56 | 0.27 |
Growth in all three segments reflected in increasing NII and NCI
Low LLP, Admin expenses in line with FY-guidance
Aareon:
▪ Increased cost base from higher FTE, anticipating further growth. First investments in VCP
Vaccination is speeding up normalisation
Investment markets
| North America |
▪ Close to 50% of the US-adult population have received the vaccine ▪ US consumer sentiment in April is at its highest level in 14 months ▪ 90% of cinemas are open selling >20% more tickets in Q1/21 vs. Q4/20 ▪ CDC has lifted travel warning within the US, number of flights are approaching pre-covid levels ▪ NYC is opening up all remaining venues latest on July 1st ▪ GDP grew at an annual rate of 6.4% during the first quarter of 2021 |
|---|---|
| Continental Europe |
▪ Lagging behind due to remaining lockdown measures to fight 3rd wave, but vaccination speed is picking up, openings of retail and restaurants are starting in several countries ▪ In Germany, Union Investment made a comeback into the hotel market acquiring a 21 storey hotel in Stuttgart with completion by December of this year |
| UK | ▪ Vaccination ahead continental Europe ▪ Reopening of facilities such as retailers, pubs, etc. ▪ Restaurants with reservation rates at 80% of April 2019 although open only outside ▪ Footfall across all UK shopping destinations was estimated to be up approx. 88% week on-week during the first week of opening, with footfall across high streets, retail parks and shopping centers up 330% from April 11 to 17 versus the same week in 2020 ▪ Recovery is however still at an early stage and is still subject to possible further volatility in individual cases |
| Asia / Pacific | ▪ China is mostly back to pre-covid activity and in parts already above ▪ Travel bubbles established between countries i.e. Australia and New Zeeland |
1) Renewals only
2) Thereof 40% Italian renewals
ESG Integration – achievements & next steps
Important milestones reached in expanding a risk-conscious and ESG-orientated portfolio:
Portfolio further increased towards target size
1) Performing CREF-portfolio only (exposure)
2) Incl. Student housing (UK & Australia only)
Update on hotel- and retail portfolio
No additional NPLs
Recovery gaining momentum with the opening of shopping centers e.g. in UK and the US
Growing NCI, deposits at high level
| Progress on M&A activities and the development of products, markets | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| M&A activities | ▪ Signing of Twinq acquisition, Netherlands, in Q2/21 - market-leading software specialist for private owned housing market – complementing the offering of Aareon NL and manifesting its leading position in the market ▪ Extensive market screening, numerous opportunities have been identified. They are systematically pursued: The promising M&A pipeline will lead to upside potential on top of communicated mid-term adj. EBITDA-target ▪ Credit facility of € 250 mn provided by Aareal to finance M&A ▪ Arthur Online Ltd., UK: Transaction successfully closed in January. Post merger integration project has started. Enables Aareon to develop the market for small and medium-sized property managers in the UK |
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| Products/Markets | ▪ High demand for next generation ERP product Wodis Yuneo in Germany with more than 320 customer (30% of Wodis customers) already contracted. Wodis Yuneo has high flexibility due to web-based technology and features with intelligent tools and analytics components as well as optimised user interface ▪ Neela AI based Virtual Assistant: First Pilot customers. Marketing Launch in France in January. ▪ CalCon – new Logos for new product generation AiBATROS |
Note: Numbers not adding up refer to rounding 1) PS (Professional Services) = Consulting business
20
1) The dividend payment of € 1.50 per share in 2021 for the financial year 2020 would need to be made in two steps. In compliance with the requirements published by the European Central Bank (ECB) on 15 December 2020, the distributable amount is € 0.40 per share. The Management Board will submit a proposal for the appropriation of profits to the ordinary Annual General Meeting in May 2021. Depending on the economic developments, the regulatory requirements, the capital position and the risk situation of the bank, an extraordinary Annual General Meeting, which could possibly take place in the fourth quarter, could then decide on the intended remaining payout of € 1.10 per share.
€ 500 mn Pfandbrief Benchmark with a 7 year tenure very successfully placed
▫ February:
\$ 750 mn Pfandbrief Benchmark with a 4 years maturity and a well oversubscribed orderbook placed mainly outside Germany (GER < 30%)
| METRIC | 2020 | OUTLOOK 20211) | |
|---|---|---|---|
| p u o Gr |
▪ Net interest income ▪ Net commission income ▪ LLP ▪ Admin expenses |
€ 512 mn € 234 mn € 344 mn € 469 mn |
€ 550 - 580 mn € 250 - 270 mn € 125 - 200 mn € 520 - 540 mn |
| ▪ Operating profit ▪ Earnings per share (EPS) |
€ -75 mn € -1.50 |
€ 100 - 175 mn € 0.70 - 1.50 |
| Aareal Next Level |
METRIC | 2020 | OUTLOOK 20211) | ||
|---|---|---|---|---|---|
| s nt |
"Activate" | Structured Property Financing |
▪ REF Portfolio ▪ New business |
€ 27.8 bn € 7.2 bn |
€ ~29 bn2) € 7 bn - € 8 bn |
| e m g e S |
"Elevate" | Banking & Digital Solutions |
▪ Deposit volume ▪ NCI |
€ 11.0 bn € 26 mn |
€ ~11 bn € ~28 mn |
| "Accelerate" | Aareon | ▪ Revenues ▪ Adj. EBITDA |
€ 258 mn € 62 mn |
€ 276 mn - € 280 mn € 63 mn - € 65 mn |
1) Based on "Swoosh" scenario. In the current environment, this forecast is subject to significant uncertainty, especially with regard to the assumed duration and intensity of the crisis, the pace of recovery and the associated effects on our clients, as well as prevailing unclear regulatory and accounting provisions, and the possibility that individual loan defaults cannot be reliably predicted.
23 2) Subject to FX development
| 01.01.- 31.03.2021 |
01.01.- 31.03.2020 |
Change | |
|---|---|---|---|
| € mn | € mn | ||
| Profit and loss account | |||
| Net interest income | 138 | 123 | 12% |
| Loss allowance | 7 | 5 8 |
-88% |
| Net commission income | 5 9 |
5 7 |
4 % |
| Net derecognition gain or loss | 0 | 7 | |
| Net gain or loss from financial instruments (fvpl) | -1 | 1 0 |
-110% |
| Net gain or loss on hedge accounting | -3 | 1 | -400% |
| Net gain or loss from investments accounted for using the equity method | 0 | 0 | |
| Administrative expenses | 150 | 129 | 16% |
| Net other operating income / expenses | -4 | 0 | |
| Operating Profit | 3 2 |
1 1 |
191% |
| Income taxes | 1 1 |
4 | 175% |
| Consolidated net income | 2 1 |
7 | 200% |
| Consolidated net income attributable to non-controlling interests | 1 | 1 | |
| Consolidated net income attributable to shareholders of Aareal Bank AG | 2 0 |
6 | 233% |
| Earnings per share (EpS) | |||
| Consolidated net income attributable to shareholders of Aareal Bank AG1) | 2 0 |
6 | 233% |
| of which: allocated to ordinary shareholders | 1 6 |
2 | 700% |
| of which: allocated to AT1 investors | 4 | 4 | 0 % |
| Earnings per ordinary share (in €)2) | 0.27 | 0.04 | 575% |
| Earnings per ordinary AT1 unit (in €)3) | 0.04 | 0.04 | 0 % |
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 3 € each) are determined by dividing the earnings allocated 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.
| Financing | Structured Property |
Solutions | Banking & Digital |
A a Aareon r e |
Consolidation/ Reconciliation |
Aareal Bank Group |
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|---|---|---|---|---|---|---|---|---|---|---|
| 01.01.- 31.03. 2021 |
01.01- 31.03. 2020 |
01.01.- 31.03. 2021 |
01.01- 31.03. 2020 |
01.01.- 31.03. 2021 |
01.01- 31.03. 2020 |
01.01.- 31.03. 2021 |
01.01- 31.03. 2020 |
01.01.- 31.03. 2021 |
01.01- 31.03. 2020 |
|
| € mn | ||||||||||
| Net interest income | 127 | 113 | 1 1 |
1 0 |
0 | 0 | 0 | 0 | 138 | 123 |
| Loss allowance | 7 | 5 8 |
0 | 0 | 7 | 5 8 |
||||
| Net commission income | 2 | 2 | 7 | 5 | 5 3 |
5 3 |
-3 | -3 | 5 9 |
5 7 |
| Net derecognition gain or loss | 0 | 7 | 0 | 7 | ||||||
| Net gain or loss from financial instruments (fvpl) | -1 | 1 0 |
0 | -1 | 1 0 |
|||||
| Net gain or loss on hedge accounting | -3 | 1 | -3 | 1 | ||||||
| Net gain or loss from investments | 0 | 0 | 0 | 0 | ||||||
| accounted for using the equity method | ||||||||||
| Administrative expenses | 8 4 |
6 8 |
1 9 |
1 8 |
5 0 |
4 6 |
-3 | -3 | 150 | 129 |
| Net other operating income / expenses | -5 | 0 | 0 | 0 | 1 | 0 | 0 | 0 | -4 | 0 |
| Operating profit | 2 9 |
7 | -1 | -3 | 4 | 7 | 0 | 0 | 3 2 |
1 1 |
| Income taxes | 1 0 |
3 | 0 | -1 | 1 | 2 | 1 1 |
4 | ||
| Consolidated net income | 1 9 |
4 | -1 | -2 | 3 | 5 | 0 | 0 | 2 1 |
7 |
| Allocation of results | ||||||||||
| Cons. net income attributable to non-controlling interests |
0 | 0 | 0 | 0 | 1 | 1 | 1 | 1 | ||
| Cons. net income attributable to shareholders of Aareal Bank AG |
1 9 |
4 | -1 | -2 | 2 | 4 | 0 | 0 | 2 0 |
6 |
| Structured Property Financing |
Banking & Digital Solutions |
Aareon | Consolidation / Reconciliation |
Aareal Bank Group | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Q1 2021 |
Q4 | Q3 2020 |
Q2 | Q1 | Q1 2021 |
Q4 | Q3 2020 |
Q2 | Q1 | Q1 2021 |
Q4 | Q3 2020 |
Q2 | Q1 | Q1 2021 |
Q4 | Q3 2020 |
Q2 | Q1 | Q1 2021 |
Q4 | Q3 | Q2 2020 |
Q1 | |
| € mn | |||||||||||||||||||||||||
| Net interest income | 127 | 129 | 119 | 113 | 113 | 11 | 10 | 9 | 10 | 10 | 0 | 0 | 0 | - 1 |
0 | 0 | 0 | 0 | 0 | 0 | 138 | 139 | 128 | 122 | 123 |
| Loss allow ance |
7 | 177 | 61 | 48 | 58 | 0 | 0 | 0 | 0 | 0 | 7 | 177 | 61 | 48 | 58 | ||||||||||
| Net commission income | 2 | 4 | 1 | 1 | 2 | 7 | 8 | 6 | 7 | 5 | 53 | 58 | 53 | 49 | 53 | - 3 |
- 4 |
- 3 |
- 3 |
- 3 |
59 | 66 | 57 | 54 | 57 |
| Net derecognition gain or loss |
0 | 9 | 3 | 9 | 7 | 0 | 9 | 3 | 9 | 7 | |||||||||||||||
| Net gain / loss from fin. instruments (fvpl) |
- 1 |
-21 | - 4 |
-17 | 10 | 0 | 0 | 0 | 0 | 0 | - 1 |
-21 | - 4 |
-17 | 10 | ||||||||||
| Net gain or loss on hedge accounting |
- 3 |
2 | 2 | 1 | 1 | - 3 |
2 | 2 | 1 | 1 | |||||||||||||||
| Net gain / loss from investments acc. for using the equity method |
2 | 0 | - 1 |
0 | 0 | 0 | 0 | 1 | 0 | 0 | 0 | ||||||||||||||
| Administrative expenses |
84 | 54 | 56 | 49 | 68 | 19 | 18 | 15 | 17 | 18 | 50 | 50 | 46 | 46 | 46 | - 3 |
- 5 |
- 3 |
- 3 |
- 3 |
150 | 117 | 114 | 109 | 129 |
| Net other operating income / expenses |
- 5 |
- 3 |
0 | -11 | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 3 | 0 | 1 | 0 | 0 | - 1 |
0 | 0 | 0 | - 4 |
- 1 |
0 | -10 | 0 |
| Operating profit | 29 | -109 | 4 | - 1 |
7 | - 1 |
0 | 0 | 0 | - 3 |
4 | 10 | 7 | 3 | 7 | 0 | 0 | 0 | 0 | 0 | 32 | -99 | 11 | 2 | 11 |
| Income taxes | 10 | -18 | 9 | - 8 |
3 | 0 | 1 | - 1 |
0 | - 1 |
1 | 4 | 2 | 1 | 2 | 11 | -13 | 10 | - 7 |
4 | |||||
| Consolidated net income |
19 | -91 | - 5 |
7 | 4 | - 1 |
- 1 |
1 | 0 | - 2 |
3 | 6 | 5 | 2 | 5 | 0 | 0 | 0 | 0 | 0 | 21 | -86 | 1 | 9 | 7 |
| Cons. net income attributable to non controlling interests |
0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1 | 3 | 1 | 0 | 1 | 1 | 3 | 1 | 0 | 1 | |||||
| Cons. net income attributable to ARL shareholders |
19 | -91 | - 5 |
7 | 4 | - 1 |
- 1 |
1 | 0 | - 2 |
2 | 3 | 4 | 2 | 4 | 0 | 0 | 0 | 0 | 0 | 20 | -89 | 0 | 9 | 6 |
€ 27.6 bn highly diversified
All of the building(s) securing a loan must fulfil at least one of the following criteria in order for the loan to be classified as green
| 1. Classification as EU taxonomy compliant | Buildings meet the EU Taxonomy criteria according to the EU Commission Delegated Regulation, Chapter 7.7 "Acquisition and ownership of existing buildings" |
|
|---|---|---|
| 2. Green building certification (type/level) | of the following providers: ▪ BREEAM: "Outstanding", "Excellent" and "Very Good" ▪ LEED: "Platinum" and "Gold" ▪ DGNB: "Platinum" and "Gold" ▪ HQE: "Exceptional" and "Excellent" ▪ Green Star: "6 Stars" and "5 Stars" ▪ NABERS: "6 Stars", "5 Stars" and "4 Stars" |
Existence of a reputable (referring to the World Green Building Council) green building certificate with an above-average rating, according to the below listed rating categories |
| 3.Energy efficiency of the property | valid at the time of the financing commitment and / or The property falls below 75 kWh/m² p.a. 140 kWh/m² p.a. 65 kWh/m² p.a. |
The property meets the national requirements for a nearly zero-energy building (nZEB) the maximum energy reference values Residential Office, Hotel, Retail Warehouse / Logistics |
Well balanced
1) Other assets includes € 0.3 bn private client portfolio and WIB's € 0.3 bn public sector loans
As at 31.03.2021 – all figures are nominal amounts 1) Composite Rating
Public Sector Debtors: 97%
(98%)
| P&L Aareon segment - Industry format1) |
Q1'20 | 3M'20 | Q2'20 | Q3'20 | Q4'20 | 3M'21 | ∆ Q1 '21/'20 |
∆ 3M '21/'20 |
|---|---|---|---|---|---|---|---|---|
| € mn | ||||||||
| Sales revenue ▪ Thereof ERP ▪ Thereof Digital |
64 49 15 |
64 49 15 |
61 47 15 |
63 49 14 |
70 53 17 |
66 49 16 |
2% 0% 9% |
2% 0% 9% |
| Costs2) ▪ Thereof material |
-50 -11 |
-50 -11 |
-51 -12 |
-50 -10 |
-53 -12 |
-55 -12 |
9% 8% |
9% 7% |
| EBITDA | 14 | 14 | 10 | 13 | 17 | 10 | -24% | -24% |
| Adjustments2) | -1 | -1 | -2 | -2 | -4 | -4 | >100% | >100% |
| Adj. EBITDA | 15 | 15 | 12 | 14 | 21 | 15 | 0% | 0% |
| EBITDA | 14 | 14 | 10 | 13 | 17 | 10 | -24% | -24% |
| D&A / Financial result | -7 | -7 | -7 | -6 | -6 | -7 | 1% | 1% |
| EBT / Operating profit | 7 | 7 | 3 | 6 | 10 | 4 | -47% | -47% |
| R&D, RPU and operating cashflow | |
|---|---|
| Revenue per unit (RPU) – LTM (€) |
24 |
| R&D spend as % of software revenue – YTD Capitalisation ratio (%) |
21% 18% |
| YTD Operating Cash Flow (€ mn) | 18 |
1) Calculation refers to unrounded numbers
2) Incl. New product, VCP, Ventures, M&A and one-offs
Operating profit target of € ~300 mn to be achieved already in 20231)
| January 2020 |
▪ We introduced our strategy 'Aareal Next Level' with three strategic pillars ACTIVATE!, ELEVATE! and ACCELERATE! |
|---|---|
| Q4 2020 | ▪ Management initiated a 360° review of 'Aareal Next Level' in the context of Covid-19 and its mid term structural implications supported by McKinsey ▪ Key focus of 360° review: i) create sustainable shareholder value in a new normal after Covid-19 mid-term1) and ii) resume our track record as reliable dividend payer2) with the aim of earning our CoE |
| Early 2021 | ▪ 360° review confirms 'Aareal Next Level' remaining a successful and attractive strategy even in a post Covid-19 environment. Thus, we will enter into first stage evolution of 'Aareal Next Level' 1 2 3 4 5 ▪ We identified additional levers within the 'Aareal Next Level' strategic framework to significantly improve our successful performance in the future |
| ▪ We envisage to achieve an operating profit target of € ~300 mn already in 20233) which translates into a return on equity after taxes of ~8%1) on Group as well as on Bank level |
|
| ▪ Free capital retained for either M&A and/or capital management |
1) 15% CET 1 reference ratio (Basel IV, phase-in, revised IRBA) exceeding the market average as a reference; excluding any potential acquisitions; subject to the Covid 19 crisis being fully overcome by then
47 2) Subject to ECB approval
Note: All 2020 figures preliminary and unaudited 3) Excluding any potential acquisitions, and subject to the Covid-19 crisis being fully overcome by then
Strategy and business model confirmed, being successful in a normalised environment post Covid-19
First evolution of 'Aareal Next Level' enables utilising market opportunities in Covid-19 environment and increase efficiency in organisation, of processes and infrastructure
Operating profit target of € ~300 mn to be achieved already in 20231) translating into a RoE after taxes of ~8%2) on Group and Bank level
Additional investment budget4) for Aareon with growth costs in context of VCP implementation (2021: € ~8 mn) leading to a temporary dilution of EBT
3) Formerly known as Consulting / Services Bank: has been renamed effective from Jan. 2021
1) Excluding any potential acquisitions, and subject to the Covid-19 crisis being fully overcome by then
2) 15% CET 1 reference ratio (Basel IV, phase-in, revised IRBA) exceeding the market average as a reference; excluding any potential acquisitions; subject to the Covid 19 crisis being fully overcome by then
Take advantage of market opportunities, grow book and optimize funding
We continue to leverage on expanded origination, structuring and exit opportunities – "Play the Matrix" i .e. countries, property types and structures
| Lever | First stage evolution of 'Aareal Next Level' |
Targets |
|---|---|---|
| 1 | Continue to pursue risk-conscious and ESG conform, organic expansion of financing business based on attractive margins to increase our on-balance credit portfolio |
REF portfolio: YE 21: € ~29 bn |
| ▪ As done in Q4, utilizing market opportunities in the Covid-19 environment with attractive risk / return profiles building on our USPs |
YE 22: € ~30 bn | |
| ▪ Increase our NII, leverage our platform and enhance profitability through RoE accretive business, syndication capability is continuously used to improve structure of new business and profitability / return |
||
| ▪ We will continue to further develop our asset light strategy |
||
| 2 | Optimisation of funding mix and capital structure to enhance profitability and return ▪ Review and fine-tune our liquidity and ALM strategy, but maintain prudent liquidity ratios ▪ Enhance our funding mix regarding new products e.g. establishing a CP programme and optimize funding costs, by speeding up our cover pool process ▪ Optimize our regulatory capital structure |
Q1 21: Termination of T2 € 300 mn YE 22: Executed ALM / liquidity strategy |
49
Preliminary data on climate performance for about 85% of our existing CREF portfolio has been collected – pursuit of further data ongoing
50
Leverage on our deeply embedded customer integration and increase NCI
We continue to leverage and grow our housing and adjacent industries business through elevation and expansion of our product suite with focus on NCI based income and take opportunities in cooperation with customers and other partners
| Lever | First stage evolution of 'Aareal Next Level' |
Targets Ø 23: Deposit volume of € >11 bn |
|
|---|---|---|---|
| 3 | Increase our opportunities for a further expansion with a particular focus on our net commission income in our Digital Solutions business |
||
| ▪ Sharpening our strategic profile and enhance our development capabilities |
|||
| ▪ Continue to leverage and grow our housing and adjacent industries business through cross selling with an increasing contribution of our innovation portfolio |
Grow NCI with a CAGR of 13% |
||
| ➢ grow NCI with a CAGR of 13% until 2023 |
until 2023 | ||
| ▪ On top: Innovation budget for growth initiatives of on average € ~2 mn p.a. between 2021 and 2023 together with pursuing selected M&A opportunities with the ambition to double NCI until 2025 |
Ambition to double NCI until 2025 |
▪ Sticky deposit base at attractive terms and costs from group perspective, further upside in a rising rate environment and the opportunity of additional cross selling
1) Formerly known as Consulting / Services Bank: has been renamed effective from Jan. 2021
ACCELERATE! Aareon
| Lever | First stage evolution of 'Aareal Next Level' |
Targets YE 23: VCP with add. positive EBT impact (organic) YE 25: Increase |
|
|---|---|---|---|
| 4 | VCP, developed with Advent, Aareon and Aareal, to increase mid-term adj. EBITDA target from € >110 mn to € 135 mn and M&A on top |
||
| ▪ Accelerate investment in developing new digital products and offerings to add to Aareon's growing portfolio of Digital Solutions |
|||
| ▪ Go to market excellence and accelerate "new logo" wins |
adj. EBITDA from € >110 mn to € ~135 mn; achieve Rule of 402) |
||
| ▪ Leveraging Aareon's core ERP installed base to upsell / cross sell new modules and digital solutions from Aareon's Smart World |
|||
| Additional investment budget1) ▪ for Aareon with growth costs in context of VCP implementation (2021: € ~8 mn) leading to a temporary dilution of EBT |
|||
| M&A | Implementing Aareon's strategic M&A roadmap |
EBITDA from | |
| ▪ Execution of strategic M&A roadmap and EBITDA contribution from M&A activities on top |
M&A on top | ||
| ▪ Initially up to € 250 mn debt funding of M&A roadmap negotiated |
|||
| ▪ Recent acquisition of SaaS company Arthur being the first evidence of the successful partnership with Advent |
|||
| 1) | Excluding costs for Aareon M&A and M&A financing |
VCP to increase mid-term adj. EBITDA target to € 135 mn, M&A on top
We continue to strengthen Aareon's position as the leading and independent software company for the
2) Rule of 40: Sum of Aareon's annual revenue growth and adj. EBITDA margin will at least reach 40%
Operational business (as presented at Investor Day)
Despite Covid-19 pandemic KPIs remained rather solid in 2020
| 2020A | Former Mid Term |
2025E | |
|---|---|---|---|
| Revenue growth | 2% | 7-9% | 10%* |
| % Recurring revenues of total revenue |
67% | - | 70% |
| Revenue per unit (RPU) in € | 24 | 35-40 | 40 |
| Adj. EBITDA in €m (without M&A) |
62 | 110 | 135 |
| Rule of 40 | 27% | - | ≥40% |
| % R&D spend** (of software revenue) |
22% | 20% | 20% |
| **short-term up to 25% |
*CAGR 20/25 |
Objective of further efficiency measures in organisation, processes & infrastructure ▪ IT Next Level: Further reduction of specific internal developments and implementation of standardized applications in our S4 Hana environment will i) further reduce complexity of Aareal's IT platforms and ii) enable cloud-based business and IT operating models. Thus, leading to lower running and change costs ▪ Efficiency measures optimising marginal costs of portfolio expansion, i.e. automatisation of the credit and adjacent processes as well as reporting procedures ▪ Campus: i) recalibrate workfloor concepts to address new way of working, ii) optimise self-owned real estate incl. residential development realising a related capital gain of € ~10 mn and iii) create an attractive source of income for our CTA (pensions) ▪ Implementation of young talent programme already started in 2020; first positive effects already achieved ▪ Cost reduction through streamlining of management structure: number of members of first management level (Managing Director) to be reduced by 15 percent; Supervisory Board to consider size and composition of Executive Board YE 23: SPF CIR of <40%1) Transformation budget financed by related one off effects Lever First stage evolution of 'Aareal Next Level' Targets 5 Continued cost discipline, additional efficiency measures and growth at low marginal costs underlines our Cost / Income Ratio LTM2) 49% 44% 20 ARL ex. Aareon1) 20 ARL SPF1) Target 23 SPF1) 23 ARL ex. Aareon1)
<40%
1) Excluding bank levy; 2020 ARL ex Aareon incl. bank levy 54% / 2020 ARL SPF incl. bank levy 48%
2) Euro StoxxBanks plus Deutsche Pfandbriefbank as of 15.02.2021, total non-interest expense LTM divided by revenue before loan losses LTM (excluding unusual Items like goodwill impairments, restructuring costs etc.); Source: S&P Capital IQ
compared to peers best in class Cost/Income Ratio
56
Operating profit target of € ~300 mn to be achieved already in 20231)
| On track to achieve 'Aareal Next Level' objectives (February 2020) |
Our KPIs and targets | ||||
|---|---|---|---|---|---|
| 2020 | 2023 | 2025 | |||
| Aareal Bank Group | |||||
| ▪ Revenues2) |
€ 746 mn | ✓ | Mid-single digit growth CAGR |
||
| ▪ Operating profit |
€ -75 mn | € ~300 mn1) Incl. positive impact of VCP |
|||
| ▪ RoE post tax Group |
-3.5% ~8%3) |
||||
| ▪ Dividend policy |
Announced | Unchanged, 50% base dividend plus 20-30% supplementary dividend4) | |||
| Aareal Bank | |||||
| CIR SPF5) ▪ |
44% | <40% | |||
| Aareon | |||||
| ▪ Revenue |
€ 258 mn | ✓ | 10% CAGR | ||
| ▪ Adj. EBITDA |
€ 62 mn | ✓ | € ~135 mn Achieve rule of 40 |
||
| EBITDA from M&A on top |
3) 15% CET 1 reference ratio (Basel IV, phase-in, revised IRBA) exceeding the market average as a reference; excluding any potential acquisitions; subject to the Covid-19 crisis being fully overcome by then
4) Subject to ECB approval 5) Excluding bank levy
57
Note: All 2020 figures preliminary and unaudited
Note: All 2020 figures preliminary and unaudited
Strengthening ESG as an integral part of our DNA by refining our strategy and setting ambitious goals and targets
1) e.g. Building certificates (i.e. DGNB, BREEAM, HQE, LEED, NABERS) or energy-performance certificates based on an ongoing dialogue with our clients as well as research in external databases
▪ We intend to distribute approx. 50% of the earnings per ordinary share (EpS) as base dividend
▪ In addition, we plan to distribute supplementary dividends of up to 20-30% of the EpS under the following prerequisites:
Supplementary Dividend
Base Dividend
+
▫ No material deterioration of the environment (with longer-term and sustainably negative effects)
▫ Nor attractive investment opportunities neither positive growth environment
Payout ratio of up to 80%1) Significant book value per share growth incl. dividend
▪ Attractive dividend policy and significant book value growth created sustainable value for Aareal and hence our shareholders
1) ECB approval required
Available Distributable Items (as of end of the relevant year)
| € mn | 31.12. 2016 |
31.12. 2017 |
31.12. 2018 |
31.12. 2019 |
31.12. 2020 |
|---|---|---|---|---|---|
| Net Retained Profit ▪ Net income ▪ Profit carried forward from previous year ▪ Net income attribution to revenue reserves |
122 122 - - |
147 147 - - |
126 126 - - |
120 120 - - |
90 90 - - |
| + Other revenue reserves after net income attribution |
720 | 720 | 720 | 720 | 840 |
| Total dividend potential before amount blocked1) = |
842 | 870 | 846 | 840 | 930 |
| ./. Dividend amount blocked under section 268 (8) of the German Commercial Code ./. Dividend amount blocked under section 253 (6) of the German Commercial Code |
235 28 |
283 35 |
268 42 |
314 40 |
320 43 |
| = Available Distributable Items1) | 579 | 552 | 536 | 486 | 566 |
| + Increase by aggregated amount of interest expenses relating to Distributions on Tier 1 Instruments1) |
46 | 32 | 24 | 23 | 21 |
| = Amount referred to in the relevant paragraphs of the terms and conditions of the respective Notes as being available to cover Interest Payments on the Notes and Distributions on other Tier 1 Instruments1) |
625 | 584 | 560 | 509 | 587 |
1) Unaudited figures for information purposes only
| = New Business |
Newly acquired business + renewals |
|---|---|
| Common Equity = Tier 1 ratio |
CET 1 Risk weighted assets |
| = Pre tax RoE |
Operating profit/income ./. loss attributable to non-controlling interests ./. AT1 coupon Average IFRS equity excl. non-controlling interests, AT1 and dividends |
| = CIR |
Admin expenses (excl. bank levy) Net income |
| = Net income |
net interest income + net commission income + net result on hedge accounting + net trading income + results from non-trading assets + results from investments accounted for at equity + results from investment properties + net other operating income |
| Net stable funding = ratio |
Available stable funding Required stable funding |
| Liquidity coverage = ratio |
Total stock of high quality liquid assets Net cash outflows under stress |
| = Earnings per share |
operating profit ./. income taxes ./. income/loss attributable to non controlling interests ./. net AT1 coupon Number of ordinary shares |
| = Yield on Debt |
NOI x 100 (Net operating income, based on 12-months forward looking estimate) Outstanding incl. prior/pari-passu loans (without developments) |
| = CREF-portfolio |
Commercial real estate finance portfolio excl. private client business and WIB's public sector loans |
| = REF-portfolio |
Real estate finance portfolio incl. private client business and WIB's public sector loans |
| = NPL-ratio |
NPL-exposure acc. CRR (excl. exposure in cure period) / Total CREF Portfolio |
Managing Director Investor Relations Phone: +49 611 348 2636 [email protected]
Director Investor Relations Phone: +49 611 348 3337 [email protected]
Director Investor Relations Phone: +49 611 348 3616 [email protected]
Manager Investor Relations Phone: +49 611 348 3009 [email protected]
Group Sustainability Officer Director Investor Relations Phone: +49 611 348 3424 [email protected]
Manager Sustainability Management Phone: +49 611 348 3554 [email protected]
Sustainability Management Phone: +49 611 348 3433 [email protected]
Sustainability Management Phone: +49 611 348 2335 [email protected]
This document has been prepared by Aareal Bank AG, exclusively for the purposes of a corporate presentation by Aareal Bank AG. The presentation is intended for professional and institutional customers only.
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This presentation is provided for general information purposes only. It does not constitute an offer to enter into a contract on the provision of advisory services or an offer to purchase securities. Aareal Bank AG has merely compiled the information on which this document is based from sources considered to be reliable – without, however, having verified it. The securities of Aareal Bank AG are not registered in the United States of America and may not be offered or sold except under an exemption from, or pursuant to, registration under the United States Securities Act of 1933, as amended. Therefore, Aareal Bank AG does not give any warranty, and makes no representation as to the completeness or correctness of any information or opinion contained herein. Aareal Bank AG accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of, or in any way connected with, the use of all or any part of this presentation. The securities of Aareal Bank AG are not registered in the United States of America and may not be offered or sold except under an exemption from, or pursuant to, registration under the United States Securities Act of 1933, as amended.
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Aareal Bank AG assumes no obligation to update any forward-looking statement or any other information contained herein.
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