EFG International AG (EFGN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for joining us today at the SIX ConventionPoint in Zurich for our Investor Update and Analyst Day 2022 and also joining us via webcast. We will have presentations from the senior management, followed by Q&A. And as usual, I assume that the disclaimer of the presentation has been read. Welcome to EFG. [Presentation]

Good morning, and welcome to EFG Investors Day. I must say it is very refreshing after many virtual presentations to have so many familiar faces here in the room. And also we would like to thank who has joined via webcast and telephone. Today, we are here because we want to take stock over the last 4 years. And also, we want to look ahead. We want to look at our ambitions and targets for the next planning cycle for 2025. We are here in Zurich, at the SIX Convention Center with all the top management team, as you can see on the slide. We have been working a lot on this plan over the last, I would say, months. And if there is 1 point that I would like immediately to make at the moment is that at EFG all is about the team, all is about our people because we know that if the only way to succeed is to work together as 1 bank, 1 team. Let me now give you a bit -- the overview of the agenda for today. We have 5 sections. I will start with taking stock of where we are after the last 4 years, after the last planning cycle. And then I will say it immediately clear what is our ambition for 2025. After that, we will look at the drivers for sustainable and profitable growth, clients and simplicity. In Section 3, we will look at the areas where we can accelerate and the areas where we believe they are -- we are differentiating compared to our peers. We will look at content innovation at digital acceleration, and we will look at our people. Clearly, if we want to maintain such a strong trajectory in terms of sustainable and profitable growth, we need to have a strong foundation and we will talk about resilience. Finally, Dimitris will wrap up all the initiatives and the actions that we will talk about and talk about the 2025 financial plan. We will have very short final remarks, and then all the management team here is at your disposal to answer questions during the Q&A session. Let us start with the -- what we have achieved over the last 4 years. Now I start with this page. We are on Page 6, which somehow sets a bit the stage of what we have done and what we plan to do. I see that many people that are in the room, and I'm sure also via webcast and telephone have followed us for many years, so they can relate to the 3 waves. We are at the moment in the second phase of our trajectory of profitable growth. And I must say, and I'd like to say it upfront, we are very proud of what we have achieved over the last 4 years. As you can see at the bottom of the chart, we have more than doubled our profitability. We have increased our return on tangible equity from 8% in 2019 to 15% this year. And clearly, looking ahead, we are very confident of what we can achieve. We want to sustain this trajectory of profitable growth, and we want to maintain a double-digit increase of net profit. As you can see here, we plan to have a 15% growth per annum. Clearly, this will allow us to improve further the return for our shareholders up to 18%. I would like that you consider this slide a bit as the [indiscernible] a bit as the [indiscernible] for the presentation. But let us now look at what we have achieved in more detail in the last 4 years. We are now on Page 7. I'd like to start from the right-hand side of the page, what did we deliver? And in a nutshell, we delivered a continued growth. This morning, we have also published our trading update for the first 9 months of the year and obviously, with an update about Q3. And Dimitris will elaborate later. But I'd like to say that this has been the 14th consecutive quarter where we have delivered positive NNA. But this growth has also translated into a growth in profitability as we have seen, and we managed to further improve year-after-year operating leverage. Why did we achieve that and why we believe that what are the prerequisites for value creation? We are convinced that we have a distinctive value proposition. And later in the presentation, we'll go in more detail. And we have a very resilient business model that, as you know, very well in the last few years and probably for the next few quarters will be needed given the uncertainty and volatility in the market. As I said, as a management team, we are very proud. And overall, all our teams across the organization are very proud of what we have achieved over the last 4 years. And looking at Page 8, the message we want to bring across is that we have entered the new strategic cycle, 2023-2025 from a position of strength. We have delivered in a consistent way, we have managed to grow our top line to improve our efficiency, to increase our profitability. We have a very balanced and diversified business. We have 5 regions, and we will hear later from the regional business head their strategies. And also, we have a very balanced way of growing between new CROs, client relationship officers. This is the way we call relationship managers, our bankers, existing CROs and new initiatives. And clearly, as you look on the right-hand side of the page, we have been very disciplined about cost management. We managed to bring down the cost/income ratio from 85% to 75%, a 10 percentage point decrease. Now before looking ahead, we need to look at the market at the industry where we are in. Now it is clear that if we look very short term, we all know what's going on in the markets. We all are aware of the disruption in the supply chain, on the inflation. We are all aware of the energy markets and also the inflation that is coming out of that. We are aware that the interest rates have grown at the fastest rate since the last 40 years and everything that is creating in the financial market. So clearly, if we look at the next 3 months or probably next 2, 3 quarters, the going is going to be quite difficult. The situation will remain complicated. But today, we are here to have a plan for the next 3 years. So besides the short-term situation, we need to look at the long-term trends of our industry. We are convinced that wealth creation will continue in the future years. And therefore, we are in a very attractive and growing industry. You can see it on the left-hand side, we are now on Page 9. The growth in our industry and the growth of value creation is well balanced between growth in mature markets, and growth in more growth markets. And it's also very well spread between the segments, in particular, on the high end of the spectrum, we see that the ultra net-worth individual and the high-net-worth individual will grow faster than the rest of the market. And this is where we are positioned. Another critical opportunity is also the growth in sustainable investing. We will talk about that. This is something that will shape the future of our industry going forward. Now this page is about our plan for 2025 and as you can see immediately from the title of the page on Page 10, our objective is to continue the trajectory and also to accelerate this profitable growth. Let me start again from the right-hand side of the page. What do we want to deliver? We want to deliver a consistent financial performance. We want to continue to grow our business. To grow our Assets under Management via NNA growth and top line growth. And obviously, we want this growth to translate into profitability and deliver bottom line growth, earnings per share growth. Now what do we have to do in order to achieve these targets and to implement this strategy? First of all, starting now from the left. We need to continue to do what we have been doing well in the last years, i.e., we need to focus on the drivers of sustainable and profitable growth, focus on our clients and focus on simplicity. We need to focus also coming now in the middle of the slide into what will allow us to accelerate this trajectory. In particular, content innovation, digital acceleration and what will make us differentiating from the rest of the market, which is our people and our culture. It's clear that if we want to have a very accelerating and strong trajectory, we need to have a very solid foundation. And we will talk about compliance and risk management and also about operational and financial resilience. This again helps you to visualize how we go about our 2025 plan. And in the next pages and the next -- in the rest of the presentation, we will elaborate on the various points. Now in other words, I'm now on Page 11, what we are trying to achieve is to increase our operating leverage, maintaining a very efficient cost base and accelerating the top line. Now 1 key point that I would like to make here is that we have built a very strong and scalable engine and now it's about putting more scale into this engine. And if you look at the last bullet point on the right-hand side, we can express this in a very simple way what we want to do. We want to increase scale at all levels, starting from the individual CROs, where we want to increase the average CRO portfolio but also starting and looking at the regions and in particular, at the key booking centers where we want to increase the load and the AuM per booking center. Now trying to summarize all these points and looking -- we're now on Page 12, looking at what were the targets that we set ourselves in March 2019 and seeing where we are today, you can see that basically, we are on track to achieve all our targets. Dimitris will elaborate later about the single individual components but I want to immediately bring forward the targets for 2025. And for 2025, in a nutshell, we are confirming the growth target. We maintain the 4% to 6% NNA growth per annum for the next 3 years. We maintain the revenue margin at 85 basis points. On the other hand, we want to further improve our productivity and our efficiency. And that's why our target in terms of cost-to-income ratio is 69%, which is significantly better than where we are today. And obviously, if we achieve all that, we will increase the return on tangible equity for our shareholders up to 18%. Now quantitative targets are very important to define our ambition. At the same time, we believe that it is very essential to capture what makes us unique in the eyes of our clients and our people. And so we have tried close to the -- next to the targets to distill what EFG stands for in a very simple statement. And we have defined what is our purpose. And I think that this, together with the targets will help us succeed in the next planning cycle. Our purpose is about empowering entrepreneurial minds to create value today and for the future. We want and we believe we have been empowering clients, CROs and people, all of them have a very strong entrepreneurial mindset, and we are here as a management team, but all the people at EFG to create value for our clients, for our shareholders and for our employees today and obviously, for the future. As I said, we believe that having very hard and clear targets and a very simple purpose helps us, all of us, to succeed going forward. I close now the first section, which was about setting the stage in terms of what we have achieved in the last 4 years and what are our targets going forward. And in Section 2, we start looking at the drivers of sustainable and profitable growth. Clearly, we have to start with the clients. The clients are at the heart of everything we do, are the purpose why we are here. And we are convinced to have a unique CRO model, a unique business model that allow us to satisfy the client needs in the best possible way. Now our value proposition, I'm now on Page 15, is a client-centric value proposition. Clients are at the center of everything we do. The CROs that are here in the CRO model that is here in the middle of the page are the people that bring the value proposition to life vis-a-vis our clients. We always say and we will say later that people are the best -- are the most important asset of EFG but the relationship between clients and CRO is the most precious asset that we have that we want to nurture to preserve and to cultivate going forward. Now obviously, clients want service. And by the way, let me say that upfront, we are convinced that our CROs are second to none in delivering top quality service to our clients and 1 service want a global bank, but we want also the service very close to them. And this is why looking at the left-hand side, we are a global bank, but we need to be present locally and to deliver local know-how and expertise. Now clients want service, but they want also content. They want also solutions. And if you look at the right-hand side, the third component of our value proposition is obviously to deliver a holistic client solution to our clients to satisfy their needs. Now the way we need to frame our value proposition more and more going forward will be in the context of sustainability. Sustainability is, for sure, 1 of the top challenges that we will be faced not only as a business in general as a society. And on the other hand, can be also an opportunity for society and also for our business. I believe that as a private bank, we have the ability to contribute into accelerating the transition to a more sustainable future. And basically, our strategy in terms of sustainability is based on 2 areas and 2 dimensions. For sure, the biggest lever we have is to channel, the capital and the assets of our clients towards innovation, towards technologies, toward companies that will support the sustainable development of our planet. I think this is where we have the biggest lever. And this, again, is a matter of partnership with our clients. We will talk later about how to define the preferences of our clients. And second stage, obviously, we have a responsibility as a firm. We have a commitment to our people. We have commitment towards the communities where we operate and commitments to the environment. So the way we are framing our value proposition will be more and more embedded into the sustainability strategy. This is what clients want. This is what our people want. And finally, this is what society is going to be all about. Now let's go back to the CRO model. And we are convinced that clients benefit from our unique and entrepreneurial approach of our CROs. This is something that we live every day with my colleagues here. We meet clients every day, and this is the feedback we receive. What are the key cornerstones of our CRO model? First of all, is the focus on the needs of the clients. We are here to deliver independent and impartial advice. As you can see on the right-hand side, we have the values of EFG. One of the key values is about being solution-oriented, solution-driven as we write here. And for sure, the purpose of our CROs is to deliver solutions to our clients. We want to be independent and impartial. I emphasize that because I believe that in this day and age, this is a major differentiator in the market. We are also here and our CROs are here to develop long-term relationships with our clients. Another key value is about partnership. And we build partnership with our clients that usually go beyond 1 generation. On this, I think that we have a very clear approach because for us, it's the client that has the choice to bank with us and with whom to bank. We will talk about segmentation later. But for us, and you saw in the video at the beginning, we put the client first and the client has the choice of the client relationship officers and that's why we want long-term relationship. Now we have a model that is very transparent and very competitive. We will talk in a minute about attracting CROs from the market and motivating our existing CROs. What is important for the CROs is to build -- to have the ability to build their own team and also to know that they are recognized in a very transparent way about their performance. Everything is based on performance and conduct, and we will talk later about our compliance and risk management framework. The fourth point is that, and we will hear it later, it's not a one-man show. I think it is important to note that our are obviously complemented by the product specialists, by the global markets professionals and also by the support and control function. This is a team sport. I emphasize again that we talk always about team and not the individual effort. Now in the last 4 years, and I'm now on Page 18, we have had a very good track record in attracting CROs. As you can see on the left-hand side, we have hired more than 70 CROs every single year over the last 3 years. To be fair, in 2019, pre-COVID has been easier and 2020 was a bit more complicated, but we are very pleased that we could be very competitive in the market also during COVID. The new CROs that we have attracted, they have generated about half of the net new assets that we have generated over the period in the last, as I said, 14 consecutive quarters where we have generated NNAs. And looking at the right-hand side of the slide, not only we have attracted new CROs from the market, but also we have managed to improve the productivity of the existing CROs. Now on average, every CRO has more than CHF 300 million of AuM. And if you look at the growth over the last 3 years, this is very significant. This is around 40% overall, which I think is something to emphasize. Looking now, I'm on Page 19, of what our goals going forward, for the next planning cycle for 2025, we write here a guidance, and I'll comment why this is a guidance and not a target. But what we intend to do is to hire every year between 50 and 70 CROs. We still believe that the new CROs will be able to generate about half of the NNA that we plan to grow in the next cycle. Having said that, again, we are convinced that we can still close the gap versus our competition in terms of productivity and grow between 10% and 15% of the average AuM per CRO. Now let me tell you why we write guidance and not target. The reason is very simple. For us, quality is more important than quantity. And therefore, if we do not find the right people, we will not hire just to fulfill a target. But as I said, given our track record in the last 4 years, we are confident that we will be able to meet this guidance. Now on the right-hand side, we are trying to make 2 key points in the way we go about attracting new CROs. The first 1 is that hiring, identifying, scouting and at the end, hiring new CROs. It is a top priority for our Heads of Private Bank in the various locations. I see some here in the room, from our regional business heads that are here, from my colleagues in EXCO and for myself. We dedicate a lot of time in identifying, talking, discussing and hopefully attracting the right CROs for our organization. The cultural fit is extremely important. Obviously, we are complemented by a very dedicated team of strategic recruitment in HR that keeps the process very structured and systematic. And obviously, the combination of the 2 is, I would say, very effective as we have seen in the last few years, and I'm sure that we can improve further going forward. Now hiring -- the hiring seasoned CROs, and again, the key point I also would like to make, I'm sure you've seen it in the previous page, it's about teams. We want to hire, if possible, teams. But hiring seasoned CROs with sizable portfolios is part of the story. The second part of the story, we are now on Page 20, is that if we want to play for the long game for the future, we need also to develop the next generation of CROs to support growth. And again, we can look and we are looking in the market to attract junior CROs, top talents. But also, as you can see on the right-hand side at the top, we want to support and encourage the progression of CSOs, client service officers or other professional figures in the organization to develop. We have defined career paths and development plans so that people have the opportunity to develop into successful CROs. And then something that we had since inception of EFG has been a very successful and structured succession plan that allows a very smooth transition from the, let's say, senior and seasoned CROs that has decided to move on and to retire to the new CROs and this obviously with the best interest of the clients at heart, so that there is a smooth transition. So this is also, for us, a key priority going forward for the next 3 years. Now as I mentioned already, we want also to improve and tailor our service model on how we go about dealing with the needs of the different clients and the different client segment. On one hand, and I said it already, we do not believe in a rigid segmentation. We don't think that this is in the best interest of the clients. We believe this is very artificial. We believe that the clients have to decide who is the best CRO to serve them. But as you can see from this slide on the left-hand side, already 50% of our Assets under Management come from ultra high-net-worth individuals, about 40% from the high-net-worth individual and only around 10% from affluent. So clearly, we need to become more granular in the way we service these different client segments in terms of the offering, in terms of the service model. And this is something that we are working on and will become more effective and more granular. Now I'd like also looking at the right-hand side of the page, and I'm on Page 21, to make a key point that I believe for our industry is very important. There is always a debate in the financial services industry, whether at some point, machines will substitute people. And we are very clear about that. The client relationship officer will remain in our business as the key focal point for our clients. We believe that our clients want to have a very experienced and seasoned person to talk about their financial affairs. Having said that, we believe that the digital solutions and the digital augmented capabilities, to use a term on vogue, will be extremely important going forward to deliver a better and faster service to our clients. We will discuss later with Martin and Demis about the digital capabilities and what we intend to do in order to give this augmented abilities to our CROs. Now we would like, on Page 22, to focus and deep dive a bit on what we intend to do for the ultra high-net-worth individuals that in terms of AUMs are already about half of our business. Now clearly, this is a segment where we need to be extremely tailor-made, extremely sophisticated. We will listen from our colleagues later about the sophisticated solutions that we can provide to our clients. So there is a lot of work. We'll talk about content innovation that we are doing and will be a top priority for the next 3 years in order to meet the more sophisticated needs of these kind of clients. We believe that also speed and a fast delivery is extremely important. We believe that speed is a sign of quality and this is why we are trying to make sure that throughout the organization, and this -- we are going to talk about simplicity, and again, digital, this is also to make sure that we have a faster delivery, especially for our clients, in general, but in particular, for the ultra high-net-worth individuals. And to make sure that we can provide a holistic coverage and a holistic advice to these kind of clients, we have set up a top deal team that puts together all the specialists from the various functions both in terms of product capabilities, but also in terms of support and control functions to make sure that, again, we have the best and the fastest delivery possible. Now I could talk about the CRO model for hours. As you can imagine, I am very biased, and I am a fan. But I believe that the best is for you to see the CRO video and to listen from the CROs directly for the horse's mouth. Thank you. [Presentation]

Excellent. I think it was very, very authentic, as was mentioned, very refreshing and very, very good. Now let's look at our overall global presence. As I said, and as you have seen from the video, our CROs operate on a global scale. We have 5 regions that are spanning 4 continents. And I think that the best in order to understand our regional strategies for the next 3 years is to listen directly our regional business heads. [Presentation]

Excellent. Well done, guys. Now if -- just to try to close this section, if we look at Page 26, as you have seen, all the regional business heads have had very individual and specific levers that they want to pull for the next 3 years. The objective is to pursue growth and critical mass across all the regions. As you can see from this slide, basically we want to grow in line or better than the market in every regions. And if I try to find the minimum common denominator about the levers, for sure, the first 1 is about CROs, it's about hiring and promoting our CROs. The second is to have a very specific expansion growth in specific markets. These are -- this is the second bullet point on the slide. And third is obviously to continue to adapt and adjust our holistic product offering to the needs -- to the local needs of the various clients. It is important we will see in a minute about content innovation to have the right balance between the global approach and the local needs of the various clients. Now we continue regarding the next lever regarding profitable growth. We are talking here about simplicity. We want to, in a nutshell, improve the operating leverage via simplification. But I would like to tell a brief story about simplicity and where the term comes from. When I met for the first time, Peter Fanconi, our Chair, about 3 years ago, he told me simplicity is the ultimate form of sophistication. This is a quote by Leonardo Da Vinci. And he basically told me you need to reduce complexity. You need to improve simplicity. And this is how and when, 3.5 years ago, we embraced this concept and we have started to develop very successfully, as you have seen, the Simplicity program. I will be very brief here. We are on Page 28 because Martin, our Global COO, will present the simplicity strategy and the program for the next 3 years in the next video. But the key point I'd like to make on Page 28 is very simple. We have been very disciplined and very efficient in reducing our cost-to-income ratio, in multiple ways. You can see them on the slide, and Martin will elaborate. We managed to bring down the cost income 10 percentage points to 75%. And obviously, going forward, we want to continue on this track up to 69% by 2025. The way to go about it is to be very disciplined, very structured with a program, which we call obviously, Simplicity program that will deliver CHF 40 million in terms of cost benefit that we will realize by 2024. So this is the first phase of the Simplicity program. But without any further ado, I'll give the word to Martin, our Global COO. [Presentation]

Thank you, Martin. Very, very good. With this, we closed the second section about our drivers for sustainable and profitable growth. And we go now to the third section, which is about the areas where we can actually accelerate and make a difference. We will start with content innovation where the focus here is about enhancing the quality and enriching the product offering to drive profitability forward, obviously in the best interest of our clients. I'm now on Page 32. And I think that we have heard it directly from the CROs mouth, our game is not a solo game. It is a team. It's not a one-man show. And as you can see here, the CRO is complemented by about 350 specialists, [ 280 ] investment solutions specialists and about 70 global markets professionals that work together in a team to create and deliver the best solutions from our clients. Obviously, as I mentioned earlier, we are trying in the next -- now and obviously going forward for the next 3 years to be more granular in the way that we match the needs of our clients, depending on the various segments with all the product suite and the services that we have and also to find the right pricing for our services. I think this is extremely important. I think the area of product is an area where innovation is constant. We will hear it in a minute and where the market never, never sleeps. Now to see and to give you a sense of our progress, I think that 1 way, 1 proxy to show it in the next slide on Page 33 is to see how we have been progressing in terms of mandate penetration. Obviously, when we talk about mandate, we talk about the overall, they can be very different mandate. We always talk about open architecture, but this is where our investment process is obviously involved. And as you can see, we have been a very good progress now in the last few months with the markets tanking was more difficult to increase also because the level of cash doesn't go down, but the level of securities does. But our ambition going forward is obviously to go between 65% and 70%. So more than 2/3 of our Assets under Management to be basically under the EFG mandate umbrella. Moving forward, we will talk and Harald will elaborate on sustainability. As I said, the biggest levers that we as private bank have in managing or trying to accelerate the transition towards a sustainable future is to channeling the assets and the capital of clients towards innovation and companies and technology that will support sustainable development. The first step is obviously to understand what are the preferences of our clients. This is extremely important. There are many nuances, current generations versus next generation. Second, sustainability at the end of the day is a mindset, and we need to embed the sustainability across all the areas of the bank. So training and ESG-related research are key if we want to progress in this direction. And finally, we want to capitalize on the investment process where the sustainability has been now for years embedded in our investment offering and proposition. We have developed and Harald will talk more about that, a proprietary ESG rating methodology that we call grip and this is becoming basically the key way of going forward about sustainability investing. Going forward, I think that our content innovation is not only about Investment Solutions. Obviously, Investment Solutions is a very important pillar, but it's also about Global Markets, especially with markets like this, where visibility, medium-term is very poor. It is important to have a very strong global market, a very strong dealing room globally in the various key locations to be able to serve our clients if they want to take a more tactical and short-term view. Wealth Solutions is extremely important, in particular, for the high-net-worth individuals and ultra-net-worth individuals to advise on the family affairs, succession and structuring of their wealth. And obviously, for us, credit solution is an asset class on its own right. Now without any further ado, let's hear from my colleagues, Harald, Moz, Kurt, and Anthony about our content innovation. [Presentation]

Excellent. Well done, guys. Let's try to summarize, I think what does ESG stand for in this domain? ESG stands for independent advice, sophisticated solutions and client proximity. Two points I would like to emphasize here. One, again, is about open architecture. And the second, and I think that Moz mentioned in the video, is the institutional-like investment process. Let us now go to the second element of acceleration. We talk about digital acceleration. I said it earlier, we believe that in our business, the client relationship officer as a person will remain a focal point vis-a-vis clients. But throughout the organization, we will need to augment our digital capabilities. We have a very clear, defined digital strategies based on 5 pillars that you can see on Page 39, Martin and Demis, our Global COO, will talk about the digital strategy in a minute. What I'd like to emphasize out of this page is that this digital strategy is directly linked to our strategy overall and is directly impacting our business metrics in terms of revenue growth, optimizing for cost reduction and obviously strengthening the resilience. Also here, we are very disciplined in terms of having a road map for the next 3 years. And we have a very clear set of initiatives that will span the entire period. Now without any further ado, Martin and Demis. [Presentation]

Excellent. Well done. Now in -- maybe in summarizing the last 2 sections before -- I think that what we will focus on going forward is what we can do best but also trying to accelerate on the content innovation and in the digital acceleration. But the key differentiator to make all this happen and what will, at the end, allow our strategy to be implemented are our people. That's why we talk about people as the key differentiating factor in our business and as our priority for the next 3 years. Our HR strategy is focused on 3 main levers. One is attractive talent. We have talked a lot about CROs, but talent is not only about CROs. We want to have talent across geographies, across functional areas, across the organization, and this is extremely important. I repeat, not only the top management is involved in recruiting talent, not only for CROs but also across all the areas. We want to develop our people. It is very important that we invest in the future skills, that if we want to remain competitive is to embed all our strategy and motivate our people, it is essential. And the engagement of our people mobilizing everyone for the new challenges, for the new strategic plan is absolutely essential. I think in a nutshell from my perspective, we are a very good firm. I think it is quite cool, if I may use this during the Investors Day. And also, if I look at all the work that we have put with a lot of people across the organization, not only the management team here, to prepare this Investors Day, I must say that it was a lot of work, but it was also a lot of fun. And at the end, we want to recognize and reward excellence, and we want to incentivize sustainable and long-term success. Now we talked a lot about values today. And Ioanna, our Global Head of HR, will talk about them more in a video in a minute. The point that I would like to make and emphasize very clearly on this page, we are on Page 44, is that at EFG, the values and the corporates are embedded in the day-to-day and they are embedded in the management processes. For example, during the appraisal, during the valuation, during a lot of our discussions very often, especially at the top management level are about values of maybe sometimes how we can improve on those. But without any further ado, let us hear from Ioanna and the team. [Presentation]

Well done, Ioanna and team. Now I think that by now, I'm sure you have realized that we are very confident that we have the teams, we have the platform, we have the technology to continue our trajectory of sustainable and profitable growth but without a strong foundation, we could not go further. So we want to talk here about resilience. We want to talk about here about compliance and risk management framework. These are the key prerequisites for profitable and sustainable growth. So in a minute, you will hear from Kiki, our Global Head of Legal & Compliance; and Enrico, our global -- our Chief Risk Officer, about how to reinforce the compliance culture and how prudent risk management will support sustained value creation. [Presentation]

Excellent. Well done. And obviously, on top of compliance and risk management, as we have seen over the last 3 years to have operational and financial resilience is extremely important. Dimitris will elaborate about balance sheet and capital. All is in the last 3 years, we have further derisked our operational platform, and we have given proof of our ability to react quickly to external shocks. We are convinced that this quality will be irrelevant also in the near future. With this, we have closed the first 4 sections of the presentation and now all the actions, the initiatives will be condensed into a consistent financial plan for 2025. Dimitris, the floor is yours.

Thank you, Giorgio, and good morning to everyone. Welcome to Section 5, consistent financial performance. We'll start on Page 50 of the presentation. I think what you have realized by now is that the next 3 years are more about evolution rather than revolution. I think it is important for us given the track record we've had in the past 4 years. And I think the best way to start is to give you a few glimpses of our track record and our successes in the last 4 years. And also to give you an update on what is our current financial performance, like we went with a trading update this morning. So I think that is going to be helpful for you to understand what is the starting point for the next 3 years. Turning to Page 51. You'll see the performance in the last 4 years. If there are 2 words I would like you to focus on. One is growth. And the second one is operating leverage. The growth is on the top left, you'll see that we have been consistent in growing the business through attracting NNAs between 4% and 5.5% in the last 3 years, but even in a challenging year like this one, we've managed to have all 3 quarters of the year with positive NNA. The trading update we issued this morning states that our year-to-date annualized growth rate is at 2% for the 9 months of the year. At the bottom left, you see our performance when it comes to efficiency. We've managed to decrease our cost-to-income ratio from over 85% and to a run rate of 75%. The run rate is our current run rate. So I think it's been a tremendous effort in the last few years which has been a combination of both increasing revenues and decreasing costs at the same time. What does that lead to? It leads to what you see on the right, doubling of underlying net profit doubling of reporting net profit. And as of that, it's not just the strong and continued performance. What you should note is that, that performance is also accelerating over time if you look at the performance over the last 6 or 9 months. Moving to Page 52. This is a bit of taking stock of where we are compared to our financial targets, the last ones that we put out in 2019. Clearly, meeting all the targets, if you look at the middle of the page, we have some indication of what is our current performance. So we are at about 5% per annum on average for the period for our NNA growth. We are at 85 basis points currently in terms of our revenue margin. Cost-to-income ratio is clicking at about 75%. At this point, this is again a run rate and our return on tangible equity is about 15%. We also have the indications of our capital position. It's 15.5% core Tier 1 as of June 2022. And our dividend payout has been just over 50% for the last dividend. That gives us a lot of confidence that with our current operating performance, we can continue growing the business, and we can continue increasing operating leverage. And that is the reason that we have set the target as they are, which you see at the right hand of the page. So we are repeating or reiterating our first 2 targets, 4% to 6% NNA growth for 2025. 85 basis points for the revenue margin. And as Giorgio mentioned earlier, we believe that we can extract a lot more efficiency and use our scale to improve our bottom line performance. That's the reason we are going with 69% cost-to-income ratio and our return on tangible equity aiming at 18% towards the end of the period. I will come back to each one of the targets as we move along the presentation to explain what drives them. And I will also close the presentation with some indications on capital, where we have a management floor of 12% and a continued progressive dividend payout model based on 50% of underlying net profit. Now going to the first target, which is NNA growth, and I'm on Page 53. I think you've heard every single regional head and Giorgio describing pretty much the same thing. There are 2 levers driving NNA growth. One is the further scope that we have to improve on CRO productivity. If you look at our track record until now in the last 3 years, we've increased CRO productivity by 40%. From the indications we have from the market, there is scope for another 30% if we are just to match our peers, and we plan to exploit that scope over the 2023 to 2025 period. The second point is recruiting high-quality CROs. We've had a good track record as we see also in the last 3 years. Now the scope is between 50 and 70 gross CROs. This is a guidance as Giorgio described, this is not a target. And all in all, we believe that the 4% to 6% will come from a balance between the two. So it's not just 1 driving. It's a combination of both levers for us to get to our 4% to 6% NNA growth over the next 3 years. Moving on to the second target or the second metric, which is revenue margin, you will see that -- if you look at the last few years, it's -- I'll just use the word volatile for lack of any other word in terms of revenue margin. Unfortunately, when we're planning -- the first plan back in 2019, we could not guess COVID, we could not guess a war in Europe. So there have been quite a few things happening over the period. What is very important is now we are running at 85 basis points, clearly benefiting from movements in net interest income from interest rate hikes from central banks. We also provide you some sensitivity information on what would mean if we were to get another 100 basis points on each currency, this is on everything else being equal basis. So if we get 100 basis points on every currencies, our NII would benefit by CHF 150 million per annum. But the area where we have really been focused on over the last 4 years has not so much been the net interest to come where you depend on external factors. It has been on growing the commission margin. And what you see here is we started with 41 basis points in 2019. And by 2021, we have reached 45 basis points. There's been a lot of work on tactical repricing. There's been a lot of work in increasing penetration of high-value products. And clearly, this year, the margin is lower because of lower trading activity but we have the ingredients to recover a lot of that when markets normalize. The last bit in terms of historical performance on the revenue margin is the net other income. We have been clearly benefiting from higher client activity on currency trading that has been a boost. And we are seeing that this continues very strong within the last few months of this year. Now moving to Page 55, which is what we expect going forward. As I said, we are running at 85 basis points currently. We do expect to have tailwinds on net interest income. But we are also seeing very clear signs of substitution. So client accounts, which were not remunerated in the past, now become remunerated accounts. And clearly, there's going to be some loss of revenue of that. In general, we prefer to be cautious on the NII line. And over the 3-year period, I would expect that we would lose a bit of the margin that we have today as a run rate. As I said before, our main focus is and will be improving on the cost-to-income -- on the commission side of the business. You've heard Harald before in terms of all the areas that we're going to be pushing in terms of improving the value proposition we have to the client. And what we have experienced is when you're providing a higher value proposition, you actually managed to earn a few basis points more. We also expect client activity to improve over the period. I don't expect that what we're seeing in the last few months of the year is something that would be the norm for the medium term. And we also have factored in some general dynamics of the business, which is that we've seen prices on a like-for-like basis going down with the price competition between banks. Finally, we're also cautious on the other income line. We know that the currency trading levels that we've seen this year are also above normal. Kurt has described earlier a few actions on the treasury side that could help net other income. But all in all, we also stay cautious on the net other income line which means that all in all, we do expect to be running at 85 basis points of revenue margin in 2025. Moving to Page 56. It is very interesting because when we started preparing this page, we said we need to limit it to starting from 2019 for the ones who have been following us even earlier than that, you know that the cost effort did not start in 2019. Actually, it started back in 2015, '16 with the integration of BSI and all the work that has been done since then. So for me, stating that we have a strong track record, I wouldn't call it an understatement. But clearly, it is -- cost has been on our minds for a very long time. We've managed to decrease the cost-to-income ratio by 10 percentage points throughout the last strategic cycle, you see that we have reduced our absolute level of operating expenses, we have reduced our headcount. And one of the action plans that I'd like to highlight is what you see on the right. Clearly, Giorgio mentioned it earlier, we were a lot more complicated and unsimplified in 2019. One area that we focused was booking centers and within the last 3, 3.5 years, you see the 9 actions on the right hand of the page, which we call them the footprint actions, which were about reducing, minimizing, making simpler, all the booking structure of our entity, and this is a combination of sales, restructurings or other actions that we had to take to make our organization more efficient. Moving to Page 57. I think Martin was very specific on our ambition on the cost side. What you see on the left is the simplicity program, and simplicity is a program that was not born yesterday. Simplicity was a program that started being designed in the second half of 2021. And in May of 2022, we managed to lock in about 100 actions, which are being very rigorously monitored. There is a monthly update on each one of the actions and each one of the actions has a price tag, a cost reduction target. This is how we get to the 40 million. This is how we get to the timing of the 40 million. And as Giorgio mentioned, this is an ongoing review, and there's going to be some additional effort or some additional scope that we will need to add to this simplicity program. Now simplicity is more about restructuring, it's about a structural change. What you see on the right-hand side of the page is the more day-to-day rigorous cost management. We have a number of KPIs that we follow in terms of efficiency. This is for the front line. This is for the front support. This is for the back office units of the bank. We clearly pay a lot of attention on general and admin expenses, third-party providers, negotiations, all these are handled by specialized teams. And I think what is more important is the last 2 bullets on that page on the right. There is a clear allocation both locally and globally, of responsibility for specific expense lines and also our incentives are aligned on cost efficiency. So there are both targets and a bonus-malus system in the case that there's achievement or nonperformance in each one of these areas. On Page 58, we decided to provide you a bit of a more detailed overview on our future investments in technology, both Martin and Demis have been very explicit about what we're trying to achieve when it comes to technology. For me, the 2 operating words are focused and progressive. What you see in the chart is that we have already been investing in technology. Martin was explaining in his video that this has been more in the core operating system and more on the efficiency side. On the right hand of the page, we're trying to give you an indication of what has been the focus of investment in the past 3 years and how that will shift going forward. So Overall, we are aiming for a moderate increase in investment. You see that our annual investment goes to CHF 40 million. And this is capital investment. This is not P&L. This is the actual IT money that we put into acquiring the systems and making sure that we make them work. So this is CapEx. So it is a moderate investment. And also, if you look at the chart on the right, you will see that there is a shift in focus, and that's the reason it is moderate. We're moving a bit less from the core banking system, which we already have completed to a large extent to moving towards the client experience side, which is going to be a lot more in focus for the next 3 years. Now on Page 59 is sort of well -- where all of it comes together in terms of the cost-to-income ratio. We are currently running at 75 basis points. We clearly expect that simplicity and day-to-day rigorous cost management will deliver improvement in efficiency. That's the first block. Digital investments will improve operational efficiency, but they also carry some modest investments. Growing the business, which is the third block, which we discussed earlier, will also be driving an improvement in cost-to-income. We expect to add more CROs. We expect to add more business. Giorgio explained that we have the platform and we have the scale to actually capitalize on this. And clearly, given what is happening in the market, we will need to make sure that we also accommodate some inflation in our projections. Taking everything into account, all the levers that we can pull, both on the revenues and the cost side, we come to a target of 69% cost-to-income ratio for 2025. Moving to Page 60. This is the bottom line. We expect that in the next 3 years, we will be increasing revenues and increasing costs very modestly throughout the period. This will lead to the 15% increase in underlying net profit on an annual basis on average for the next 3 years. This is what we get us to 15% to 18% return on tangible equity by 2025. I think that on Page 61, I would like to take a bit of a pause from looking forward because clearly, markets are volatile. There's a lot of uncertainty in the world at this point. And as Giorgio also said, this is a plan for the next 3 years. This is not a plan for the next 3 months or 3 quarters. But it is very interesting to see and to note that -- and I'm personally convinced now being at this bank for just over 5 years. The agility we have in execution is one of the more important aspects and are more strong points than maybe some other organizations. And I'll just need to just give you an indication of what happened in the last 3 years as a backdrop to the statement. If you look at 2020, which is the first block. Clearly, with COVID, there was a significant impact on revenues. How did this bank react? It actually managed to reduce costs by a bigger amount, and it managed to increase profitability in a very tough year. So if you look at the bottom of the chart, you see that costs went down by 28 million -- sorry, revenues went down by 28 million, but costs went down by 51 million in that period. If you look at the top part, we managed to increase profits by 5%. Now in the next year, clearly, there was some relaxation. There was some more business development. We increased revenues by 71 million, and we increased cost by 24 million. We managed to create a 47% increase in bottom line profit that year. And in the first 6 months of this year, we have been increasing revenues, but we have been keeping costs flat. This is a 40% increase in profitability. So I think this is very important. Our ability to react to external -- changing excellent conditions has been very important in us getting exactly where we are today. So moving to capital, which is Page 62. Just to remind you that in June, 2022, our reported core Tier 1 capital ratio under IFRS was 15.5%. The principles that we have been working on throughout the period is a very capital-light business model, operating model. We are reiterating our progressive dividend approach. So we expect to distribute 50% of our net -- of our underlying net profit as a dividend. And for the ones who have followed us over the last few years, we have successfully derisked our legacy issues throughout the last 4 years, which means that in terms of our capital framework going forward, clearly, there is a 7.9% minimum regulatory capital ratio for core Tier 1. We are working with a 12% management floor, which is 50% higher than the regulatory minimum capital ratio. And we are also proposing that there might be a potential to distribute surplus capital if our core Tier 1 exceeds 15%. And this is subject to market conditions, M&A opportunities that we might be exploring at the time and also possible regulatory developments. We believe that through this structure, we have enough capital to support organic growth, but we also maintain the optionality to proceed with quick M&A activity in case we so decide. I'm talking about M&A activity, I'll take you to Page 63. M&A activity is something that we would love to do. We have been actively looking to do it over the last 3 years. Unfortunately, the number of targets or transactions in the market has been fairly limited compared to previous times. So here in terms of our key assessment parameters, I would say that for us, what is more important is we want to acquire market share and/or increase our capabilities where we actually have a presence, where we have a booking center and where we can realize synergies. For us, it is very important to focus on that. Clearly, we need the cultural fit. If you don't have the cultural fit, you might as well not even consider the acquisition because it's going to be a failure. And the third point is that apart from being strategic and cultural fit, there are very specific financial metrics that we consider internally when we review acquisitions. And every transaction that we make needs to be value accretive. We have included an example of one of the metrics that we use, which is we need a return on investment, which exceeds 10% in year 3. But clearly, there are other metrics that any transaction needs to meet for it to make sense for us. So to close, I'd just like to repeat the page with the financial targets. I will not repeat each one of them. I think that by now, everybody is aware of the actual figures. What I would like to stress is the 2 concepts that are driving this are business growth and still increasing operating leverage, and that is what will be driving enhanced profitability for the next 3 years. Thank you very much. And I'll let Giorgio take over for his closing remarks.

Thank you. Thank you, Dimitris, very clear. As always, we are coming to the close of the presentation. And as I said, the whole management team here will be happy to take your questions. I have only 2 slides. One you've already seen, I'm on Page 66, is to do a full circle and to come back from the beginning. Hopefully, now this slide makes much more sense with all the color that you have heard that you have seen in the videos and in the live presentations. I will not repeat, obviously everything that has been said, I would like just to say again that we want to continue on our path of double-digit growth, as we said, and we are very confident that we have the people, we have the platform and we have the grit, let's put it that way to do it. The 2 key points that I would like to make about these slides are the following. The first is that as 4 years ago, when we prepare the strategic plan at the time, we will not be able to predict how the developments in the next 3 years will unfold. This, I can guarantee you. We don't have the crystal ball. What I can say on the other hand is that the majority of the levers that we will need to pull in order to deliver the plan are levers that we control. Obviously, in life, like in business, you know what you can control and what you cannot control. Given the poor visibility, we have tried to have a plan where we can control the majority of the actions going forward. This is very important because, as I said, and Dimitris mentioned also the visibility at the moment for the next 2, 3 months or maybe 2, 3 quarters is very complicated. The second point, echoing what Dimitris said is that the agility and the ability of the organization to react to external shocks or changes in the external conditions is, I would say, incredible. We have gone together through difficult times. And as I said, we are very fast in reacting. So these 2 points for me are very important because, as I said, we need to be able to control our destiny, and we need to be able to react quickly to changes in events. To close, our ambition for 2025 is clear. Our targets. I also put them on the right-hand side of the page are clear, but what is extremely important is the commitment starting from the top management team here and all the teams throughout the organization and all our people is the commitment to increase value for our clients, for our shareholders and for our people. And this commitment is intrinsically linked to our targets. It's not a vague and generic, commitment is a commitment linked to the targets, and I'll briefly repeat them. We want to maintain the target about NNA growth, 4% to 6%. We want to maintain the target of revenue margin, 85 basis points. We want to improve in terms of productivity and improve our cost-to-income ratio to 69%, and we want to improve the return for our shareholders up to 18%. With this, I think we can close the presentation and I'll ask Jens to come on stage and start the Q&A session. Thank you very much.

Thank you, Giorgio, and thank you for the whole management team for the very insightful presentation. So as usual, we will start with questions from the room first and then we move to the telephone lines or if somebody in the room has a question, Andreas then would start here, please. Thank you.

Thank you very much for the presentation. Andreas Venditti, Bank Vontobel. Maybe to start on your last note, Giorgio, you mentioned, obviously, things that you cannot control the market. Still to have a 3-year plan with very clear targets as we've seen, you might have to take some assumptions in terms of what you put into the trajectory. In terms of markets, maybe you can explain a bit more what your assumptions are there? Then also on the capital management. Thank you for the explanation of potential distributions. Maybe you can explain a bit more in terms of time frame, how we should look at that when you might take a decision assuming, let's say, you end up above 15% at the end of this year, is it already something that you would consider for next year? Or are you still waiting for potential M&A? Maybe on this in terms of time frame, a bit more clarification would be helpful. Then on the product side, you talked about alternatives in a few slides. Maybe I will be interested there, what your intentions are in terms of offering of alternatives to your clients. And also in terms of other income, you mentioned some enhanced treasury solutions. Maybe you can explain a bit more what you plan there?

Thank you, Andreas. Nice to see you in person. Now regarding the first question about the markets, as we mentioned, this is a plan over 3 years. We believe that the cycle will at some point, normalize regarding our assumptions, we believe that the next probably 3 quarters is going to be complicated. We believe that at some point, this has been the period where interest rates where central banks have raised interest rates, the fastest pace in the last at least 4 years, even worse than 1994. I was there at the time. I still remember. And our view is that this will continue unabated probably for the next few quarters. So we will not see a major stabilization in the next 2, 3 quarters. After that, we feel that at some point, the situation will normalize, and then the cycle will take its course. Again, I can make reference to the page that I'm sure you have seen that the Dimitris showed how the cycle has been particularly volatile in the last 4 years. But at the end, we managed to extract a good performance out of that. Regarding the capital management, I think, Dimitris, you take the question.

Yes. So Andreas, these principles or this framework is now is going to be effective starting 1st of January 2023. As you know, like -- we go to the market twice a year to discuss our financial performance. I expect that this topic is going to be a topic at the Board meeting of those discussions every 6 months and it is at the -- it's a discussion with the Board to decide whether we should be doing something which is extraordinary or not at that point in time. So it becomes effective 1st of January, and it will be a topic of discussion.

I think the other question was about the alternative. So [indiscernible], would you like to take the question, please?

Thank you, Giorgio. Thank you, Andreas, for the question. You make me move. So it's good for me, so I don't need to be keep seated. Thank you for that. Now listen, on the alternative side, obviously, we do have already a very strong platform. But in order to further enhance the platform, we have now decided to make it a separate business unit within investment solutions. So give it more focus, give it a tier business plan, give it very concrete KPIs in order to deliver. And to be very concrete to your question, we have already embarked on our own proprietary offering so we have come up with the vintage program, Series 1, which we launched very successfully this year already as we speak, we're in the phase of launching Series 2 already because we want to come with vintage programs every single year for our clients. And what we do there is really best selection. It's not a typical fund of fund, it's best selection of what we do there. So we will also have a more robust illiquid offering overall, but we also focus on liquid and semi-liquid offerings. So we will -- as always, we are an open architecture, so we will have our own products in order to enhance revenues and in order to enhance capabilities, but at the same time, also open architecture. I think this combination is the recipe, if you ask me for success, and this is also what our clients like.

The other question was about the Global Market Solutions and the access to the trading floor. Kurt, do you want to take the question, please?

Yes. Thank you. Thank you, Andreas, for the question. I think it was more related to treasury performance and how treasury will help contributing to basically the top line and the revenue growth. The 2 main levers there are, from our point of view, the client offering. In this market environment, we will be able to not only reintroduce products, which were just not attractive over the last couple of years, but which will also be able to introduce additional new products which have been developed over the last couple of years. That is lever 1. And lever 2 will be basically our own balance sheet. Also there, we obviously had, over the past year, big placements in money markets, big placements with central banks like basically the whole financial industry. And there are opportunities which we foresee for the coming years, which will help the revenue contribution of the division.

Thank you. Other questions from the room? Then we would move to the telephone line and take a question there, please.

The first question from the telephone comes from the line of Adam Terelak with Mediobanca.

I have a few on revenues and then one on cost as well. I want to dig into the 85 basis point margin on the outlook. Clearly, are you running at that level on a fairly depressed activity and kind of the brokerage type revenues and with rates still kind of pushing up as well. You mentioned normalization in the cycle further out. Is there implicitly some interest rate cuts baked into this on the forward look? And just kind of explain kind of the moving parts between the different elements of the margin would be quite helpful. And then digging into each one slightly more. In terms of your current NIM or your NII what sort of repricing have you seen already? How quickly do you see that developing? And just kind of the profile of NII on the outlook from here? And then on fees, you mentioned, well, in the previous cycle, conversations were about repricing. Now I think there's a bit more of an element of competition being introduced into your commentary around the fee outlook. So if you can just give us the idea of kind of how that's changing in your thinking, whether there's any more repricing actions, whether that's part of the strategy or whether it's a bit more upsell against kind of offsetting some of the competitive elements that are coming through you. So a bit more detail on both the NII outlook and the fee outlook. And then finally, a quick one on costs. I just want to understand your inflation assumptions. What are you seeing, clearly, Switzerland is more insulated but are you seeing competitive dynamics through your relationship manager head count? And is that an area of inflation we need to worry about as well?