Van Lanschot Kempen NV (VLK) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Van Lanschot Kempen Analyst Call 2026 Half Year Results. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Maarten -- apologies, Maarten Edixhoven, Chairman of the Management Board. Please go ahead.

Well, thank you, Sharon. And I can tell you, even in Dutch, it's a difficult name to pronounce. So thank you very much, and good morning all. Thank you for joining us for this update on our first half results today. I'm here together with Jeroen Kroes, our CFO, and I will share some of the key financial and strategic highlights with you before Jeroen talks you through the numbers in more detail. And of course, there will be ample opportunity for your questions afterwards. Let me start with saying that we have had -- we had strong results as we continue to deliver on our Growing Further Together strategy. This led to strong net inflows in assets under management of EUR 19.5 billion in the first half. And I'm proud to say we crossed the EUR 200 billion mark in client assets for the first time as for Lanschot. On the back of that, our net result rose by 30% to EUR 88 million, and our focus on scalability resulted in a cost-income ratio of 66.4%, outperforming our target range of 67% to 70%. And importantly, our CET1 ratio remains strong at 17%. If we go to the next slide. As you know, our strategy is focused on continuous and scalable client and revenue growth. We do this in a way that matters to our clients and is grounded in our expertise and highly personal approach, complemented by bolt-on acquisitions in our target markets. We continue to invest in our offering, our people and technology. For 5 years now, we have grown our assets under management by an average of 12% per year, and we continue to see momentum despite the volatile economic and geopolitical environment. Over the first 6 months, we again delivered strong growth. I already mentioned the EUR 200 billion clients assets -- clients' assets milestone. We see both new and existing clients entrusting us with significantly more of their wealth. This is the case in both private banking and fiduciary management on the institutional side. Importantly, growth increasingly translates into operating leverage. I just mentioned the inflows in fiduciary management, where our current scale supports profitable growth. We continue to invest in technology and AI-enabled client tools to drive this further. Our ambition is to be the best wealth manager in Western Europe for our clients. With a personal approach and deep expertise, we support them through market developments, wealth transitions, family business opportunities and pension reforms. Our dedicated staff makes a real difference here. This is reflected in very high employee engagement scores and the widespread staff ownership of our shares. We see the feedback we receive from clients and externally as an encouragement to maintain our distinctive course as an independent wealth manager. We are very pleased with the Net Promoter Score of 45 for Private Clients Netherlands, for instance, up from 43 last year. Let's now look at some of the drivers of this growth. First, growth in private banking. In the Netherlands, we saw very strong net inflows, primarily from new clients. In Belgium, we recorded net inflows following a bit lower than the stellar net inflows of the past 3 years. Also in Switzerland, we saw positive net flows in our private banking franchise. Secondly, we continue to expand our private markets offering with total assets under management in private market solutions growing to EUR 6.5 billion. In July, we secured $120 million in commitments from private banking clients for our second North American private equity fund. More than EUR 180 million was also committed to our new fund, investing in existing private equity portfolios, also known as secondaries. Since 2018, we have introduced 6 private equity funds. The third growth driver I want to mention here is fiduciary management, where we have won multiple large mandates over the last 6 months. This includes Dutch Pension Fund SPV or SPW, our largest single client ever. The mandate is a clear demonstration of our expertise and leading position in this area, both in the Netherlands and the U.K. And finally, we saw healthy growth in private banking loans, in line with the growth of our client assets. We increasingly support our clients, including the next generation with a combination of investing and financing, providing liquidity. The further development of our wealth management lending product is an example of how we meet this demand. To sum up, we continue to build momentum across our growth drivers. As is clear, AI and cybersecurity are both key topics impacting our industry. We see AI as a great opportunity to deepen the relationships with our clients, make the work of our bankers and investment professionals even more rewarding and improve our efficiency. AI has already become an enabler of our personal service, investment capabilities and scalable growth. Today, we see AI helping us to prepare, process and protect. Our focus here is on empowering our bankers and reducing administrative workload. This frees up time for personal contact and value-adding services for our clients. The current efficiency gain is about 3 hours per week per private banker. This is and will be a continuous process where our business and technology teams work very closely together to move relevant use cases into production rapidly. In this slide, it is important that we see a very high adoption rate across our workforce. 97% of staff is using our AI tools and 1 in 2 colleagues is using AI intensively. We also invest in our cybersecurity in order to protect client data and assets to the highest standards. So how does this work in a day-to-day business of our bankers? They are supported by our proprietary private banker AI assistant, which makes it easier to prepare effectively for meetings with all relevant insights readily available for them. After the meeting, it securely captures what was discussed and the follow-up actions. It does all of this while taking into account compliance requirements. This reduces the workload for our bankers and relationship managers and lowers the risk of manual errors. Another area where we see efficiency gains is in continuous client due diligence and transaction monitoring. It's easier to get signals in case of anomalies and AI supports consistent and structured reviews. This enables data-driven and risk-focused due diligence while maintaining essential human oversight. To continue to provide excellent service and to keep improving ourselves, we aim to retain and attract the best talent. I'm proud to say that we are succeeding quite well in this regard. We continue to focus on balanced hiring and our employee engagement remains high, very high. Turning to our environmental targets. We continue to lower our carbon footprint. We reduced the weighted average carbon intensity by 13% on average for the discretionary assets under management that are in scope. Within our own operations, the annual average carbon intensity per FTE dropped by 11%. As we continue to work towards our ambitions here, we invest in awareness and engagement among clients and employees through dedicated training, network and initiatives. I also very much look forward to the planned move this year to our new Amsterdam office, where we aim to achieve the highest standard in terms of sustainability, well-being and hospitality for our clients and also look forward to welcoming you there soon. Finally, from my side, we look back on a strong first half of the year, for which I want to compliment and thank all of my colleagues for their contribution and our clients for their trust. With these results, we are making strong progress against our 2027 targets in terms of growth, cost income, capital and capital returns. We have confidence in the second half of the year whilst we continue to execute on our Growing -- further Together strategy. Jeroen, over to you.

Thanks, Maarten. As you said, we delivered a strong set of results in the first half of 2026. Let's take a closer look at what we have achieved. I will start with our assets under management. Our strategy is centered on sustainable, profitable growth while maintaining our capital-light business model with a target of 10% average annual growth in assets under management. In the first half of 2026, total AUM increased by more than 18% with organic growth accounting for 12 percentage points and positive market performance for the remainder. We saw strong inflows in both Private Banking and Investment Management. Two large new pension fund mandates drove particularly strong AUM growth in fiduciary management. And over the past 5 years, we have delivered average annual AUM growth of around 12%. Now let's turn to our client segments. Private Clients Netherlands delivered strong net inflows of EUR 1.5 billion, which is in line with last year. The commercial momentum is good, both in the Netherlands and in the Swiss part of the business. We continue to attract new clients, which account for 2/3 of net inflow in the first half of the year. The first quarter also included some seasonal effects of clients converting savings into investments. The result before tax grew by more than 50%, driven by higher commission income and higher interest income. Costs remained well controlled and increased by 5%, mainly due to the expansion of our teams in order to serve a growing number of clients. As a result, the cost/income ratio improved to 59%. The margin for Private Banking remained stable. Looking at Avi, we see that Avi's margin increased further. This is driven by growth in the AV pension product and the continued simplification and harmonization of our product offering. In Belgium, we delivered strong financial results. Commission income increased by 18% and profit before tax by 11% to EUR 32 million. The net inflows amounted to EUR 0.2 billion. Compared with recent years, net inflows were lower in the first half of 2026 and reflected 3 developments. First, we continued to attract many new clients with inflows from new clients at a similar level to the first half of last year. Second, following the launch of MercierLandsold 2.5 years ago, we saw a significant increase in share of wallet among existing clients. That effect was less present in the first half of 2026. And third, our investment approach in Belgium focuses on quality companies at a reasonable price. The market environment in the first half of the year has favored different investment styles, which led some existing clients to reallocate assets elsewhere, and that partially offset the strong inflow from new clients. The average AUM margin in Belgium increased to 83 basis points, driven by continued growth in higher-margin discretionary mandates. Then turning to Investment Management clients. Investment Management clients delivered a strong first half year performance. The investments in this client segment in recent years continued to pay off, supporting growth across all activities. Profitability improved by 30% to EUR 15.7 million. Commission income increased by 7%, mainly driven by growth in private markets and fiduciary management. Looking at the inflows, our liquid investment strategies recorded net inflows of EUR 0.3 billion, primarily in our credits and dividend strategies. To accelerate growth in this part of the business, we are exploring potential strategic partnerships to increase our scale. Private Market Solutions generated net inflows of EUR 0.2 billion as we saw continued interest for these products from our private and fiduciary clients. Total AUM in private markets increased to EUR 6.5 billion with an additional EUR 1.5 billion in client committed capital. We had strong inflows in fiduciary management, mainly driven by the new mandates, like Maarten mentioned, of sticking pension funds for the [Ronning Corporatis] of EUR 15 billion and the mandate of [Pension Funds Houoning] Netherlands of EUR 1.3 billion. As fiduciary management now takes up a larger share of the total AUM in this segment, the average AUM margin declined to 13 basis points, while the margin of our investment strategies remained stable. Looking at both private banking and Investment Management together, we see that the security income -- securities commission income grew year-on-year in line with AUM. The combination of strong inflows and positive market performance led to growth in our recurring securities commissions, which increased to EUR 595 million on a full year basis. And we see multiple engines to grow our commission income further, particularly by attracting new clients and expanding our private markets offering. Proceeding now to our investment banking activities. Commission income declined compared with the first half of 2025 and was broadly in line with the second half of 2025. This reflected lower activity levels in M&A and equity capital market transactions. And while it's difficult to predict market conditions in investment banking, we see some improvements in our activity level and pipeline. We maintained disciplined cost management and operating expenses remained in line with the previous year. With respect to the joint venture, we made good progress in preparing the combination of our specialist equities activities with KBC Securities, and we expect the transaction to close in the fourth quarter of this year. Let's turn to our loan portfolio. We are starting to see the proof points of our increased attention towards providing loans to our private banking clients. Total lending continued to grow with mortgages increasing by 2% and other loans by 9%. And the quality of the loan book remains good with an impaired ratio of 1% and additions to the loan loss provisions, which amounted to EUR 3 million this half year. Our net interest income increased by 27% to EUR 97 million in the first half of the year. And as expected, net interest income has recovered strongly from the low level that we reached in the first half of 2025. This is driven by balance sheet growth and the gradual repricing of the asset side of the balance sheet. And based on the strong first half performance and the current market conditions, we now expect full year net interest income to be around EUR 200 million, and this is above our previously guided range of EUR 180 million to EUR 195 million. Let's move on to costs. In the first half of 2026, we operated with a positive jaw between income and cost. Income increased by 14%, while cost increased by 6%, and this resulted in a 36% increase in gross result. Our operating expenses include continued investments in growth. Staff costs increased, and we made additional investments in technology and AI. Our focus is on increasing scalability across the organization, particularly in support functions while using AI to improve efficiency and enhance our services to clients. The cost/income ratio improved to 66.4%, and that is outperforming our target range of 67% to 70% Zooming in on our FTE cost, we can see the following. We expanded our workforce in line with business growth, primarily at client segments to support our growing client base. At the same time, we are centralizing selected activities in our client support teams and corporate center to improve scalability and free up front office capacity for client engagement. This all combined led to a rise in net result of 30% to EUR 88 million, underpinned by strong growth in both commission income and net interest income. Revenue growth more than offset the higher operating expenses, resulting in strong operating leverage. Our results included EUR 4.2 million of one-off costs related to our new Amsterdam headquarters. And while these costs will not recur next year, premises costs will increase from 2027 on, reflecting a larger office footprint and the transition from a below-market legacy lease to market-based rental levels. Let me now take you through our capital developments. In June, we returned capital of EUR 0.80 per share to our shareholders. Further growth in the lending portfolio and client facilities led to a CET1 ratio of 17% at the end of the first half. And this ratio does not include first half retained earnings. Later this year, the DNB floor on risk weights for residential mortgages will be lifted. This floor currently has a negative impact on our CET1 ratio of approximately 1.3 percentage points, meaning our CET1 ratio would increase when the floor is lifted. Our capital strategy remains unchanged. We steer towards a ratio of 17.5%. If we expect that this ratio will be clearly above 17.5%, we intend to return the capital above 17.5% to our shareholders. To conclude, our first half year financial performance reflects strong progress towards our 2027 financial targets and we look forward to the second half of the year. And with that, I would like to hand it back to the operator to start our Q&A.

[Operator Instructions] We will now go to our first question. And our first question today comes from the line of Cor Kluis from ABN AMRO [indiscernible].

Hello, good morning, and thanks for the figures, which were better than expected from a bottom line point of view. A couple of questions. Maybe first question is about Private Banking net inflow Belgium. I heard, of course, your explanation why it was somewhat low, at least in the first half of this year. Could you elaborate a little bit more on what kind of net inflows you expect in Belgium going forward? Was this something that's temporary and you expect high mid-single digit or net inflows in the future? or is this something that's going to continue for a while? Second question is on loan growth. Loan growth in other loans that was better than expected or at least higher than we expected. [indiscernible] business loans, could you elaborate a little bit which part is temporary and which part is recurring because I think Lombard loans can be a little bit driven by what clients do in a specific period, so that might come back again. And the reason why I ask is, of course, that we can estimate a little bit what RWAs will be in the rest of the year because this RWA growth was, I think, mostly driven by the growth in other loans. I think it grew by almost 9% in the half year. So could you elaborate a little bit more on the total loan growth for other loans for the rest of the year? Was this temporary or is this more recurring? And my last question is about NII. You increased your NII guidance from EUR 180 million to EUR 195 million to around EUR 200 million. Is this mostly driven by this loan growth? Or is this also driven by deposit margins, which are better? That were my questions.

All right. Thanks, Cor. And I think I will take all 3 of your questions. And starting with the first one. What about the inflows in Belgium going forward? Let me start by saying that we see and we saw very strong inflows from new clients. So this is a trend that is continuing. and that is the same as before. So what are the things that are different? One thing is the fact of increasing share of wallet. And as we have said before, the fact that we entered the market as Merci vans led to effect that we saw share of wallet at existing clients increase. And this is an effect that now was less visible. As you can see, with existing clients, increasing share of wallet is something that is a good thing, but this effect also had a sort of a onetime part of it. So but that was something that we said before that we expected some normalization in that part. Then -- looking forward, when we look at our -- I also mentioned that our investment strategy and the way we invest that, that was, of course, less in favor in the market than, let's say, before. And this is totally normal effect if you have an investment that is an investment strategy that is value-based and that is based on high-quality companies at a good price. You see what we saw last half year that this was very much AI growth driven. And then we saw that our investment strategy was lagging behind what market. But I said that is totally normal. And we see that underlying our companies we invest in are doing really well. So over time, we see no reason that returns wouldn't come back to the levels that we have seen over the longer term in our investment strategy. So that being said, the temporary effect of reallocating by some clients of part of their portfolio, that is, of course, not something that we expect to recur for -- in future periods in the same way that we saw this half year. So we remain very confident in the way of -- in our investment strategy. Then the loan growth in other loans, yes, we see very good developments in numbered lending, especially, and that is in the Netherlands, in Belgium and in Switzerland, and we make an effort in providing more loans to our private banking clients. And this is something that we -- that is part of our strategy, and we see that, that is paying off. So we are doing more loans to our private banking clients. And therefore, you can say -- you say, is this recurring? Yes, it is part of our strategy to be more active in this part. And we see that our clients also have -- that it's in the clients' interest and the demand for this kind of service. Then on NII, yes, it is better than we expected. And it has to do with, of course, loan growth helps -- but what we also have seen is that over the past 6 months, we have seen upward interest rate movements that were not in our first guidance. And these upward interest rate movements have increased our expectations, and that's why we increased NII guidance.

Our next question today comes from the line of Jason Kalamboussis from ING.

I just wanted to have a couple of follow-up questions. Notably, on the Private Bank. On Belgium, do you find scope for M&A because now it has been some time since you have done your last deal. And this was also part of your growth ambition in the market that at the end of the day, needs a bit more consolidation. So if you could comment there, that would be great. On the inflows or in Belgium, do we have now was the first half represent a good representation of what we should be expecting for the second half? And also related to Belgium, you said that your strategies were more value based. Would you consider, is it -- does that mean that you have your eggs in 1 basket? Or would you consider, for example, having other strategies? Or you find that you are better off being based unknown for having this value-based approach. And the second question is on the Netherlands. We saw -- I mean, within the Netherlands, very good inflows in Switzerland. Do you find that Switzerland will be more the engine growth in your inflows over the coming half year?

Thank you, Jason. Very good question. I'll take the first and the last one and then the second and the third on Belgium for Jeroen. With regard to your question for scope of M&A in Belgium. Yes, our strategy is to going further together, strategy is autonomous growth and also bolt-on acquisitions. We have done 2 acquisitions in the last couple of years in Belgium, Achondo Linda and accrual, increased our presence there in 5 years' time, almost fivefold in terms of assets under management. So yes, we -- it's a very strong engine now of our entire franchise. And we will also be looking for more M&A opportunities in Belgium, of course, also in Holland, but especially also in Belgium. And of course, that always has to do with either increasing further our scale, but also looking for maybe additions of capabilities that we would like to add. But always with a discipline on the financial side and also it has to be a cultural match because that will determine the future success. So yes, we will be on the lookout for bolt-on acquisitions in Belgium. Then with regard to your question on Switzerland, which indeed we report on the segment of Private Clients Netherlands, yes, we are quite positive on our franchise in Switzerland. We are the only Dutch-based wealth manager that has a fully licensed subsidiary in Switzerland, and we see also from clients, and those are predominantly Dutch and Belgium clients increasing interest for our services that we offer in Switzerland. We have a great team there. So we expect future growth to come from our Swiss operations and also to reach more skill over there. So that I would say, on Switzerland. And then over to you,Jeroen.

I think I answered the part of it, but let me rephrase it that. In Belgium, we have the value way of investing and it's a very strong investing together philosophy that we have in Belgium that works well. and has led to very good returns over the years. So there are certainly -- we are convinced that this is a good strategy, and we will continue with that strategy. And over the long term, that strategy has led to very good yields and returns. And that being said that is also what we -- what we say that over time, this will also lead to continued inflow. And as I said, new clients keep coming and inflow in the first half of the year from new clients was very strong. So that's also what -- yes, I think that's what I can say about it.

Very good. Just on a follow-up or I did ask, I think the first half inflows do they reflect what we should expect for the second half? Is it the new normal essentially?