Business Context and Reporting Period
This Form 6-K filing, dated March 9, 2018, presents the audited standalone financial statements for UBS Group AG for the year ended December 31, 2017. UBS Group AG serves as the ultimate holding company for the UBS Group, the grantor of deferred compensation plans, and the issuer of long-term capital instruments. The entity operates as a Swiss corporation with no direct employees; all personnel are employed by subsidiaries.
Key Financial Metrics
| Metric (CHF million) | 2017 | 2016 |
|---|---|---|
| Operating Income | 719 | 6,202 |
| Net Profit | 47 | 5,606 |
| Total Assets | 52,998 | 53,751 |
| Total Liabilities | 14,704 | 13,427 |
| Equity Attributable to Shareholders | 38,294 | 40,324 |
| Long-term Interest-bearing Liabilities | 7,882 | 7,865 |
| Liquid Assets | 2,543 | 1,714 |
Note: Cash flow statement is not provided in these standalone statements as UBS Group AG is exempt from this disclosure under Swiss law due to the preparation of consolidated IFRS statements.
Material Changes vs. Prior Period
- Profitability Decline: Net profit collapsed from CHF 5,606 million in 2016 to CHF 47 million in 2017. This was primarily driven by a sharp decrease in dividend income from subsidiaries (CHF 5,684 million in 2016 vs. CHF 10 million in 2017).
- Dividend Income: The 2016 figure included significant dividends from UBS AG (CHF 3,434 million and CHF 2,250 million). In 2017, dividend income consisted only of minor amounts from UBS Business Solutions AG and the liquidation of UBS Group Funding (Jersey) Ltd.
- Asset Composition: Other short-term receivables decreased significantly from CHF 2,830 million to CHF 710 million, largely due to the collection of the 2016 dividend receivable from UBS AG.
- Liabilities: Current interest-bearing liabilities increased from CHF 595 million to CHF 1,640 million. Total liabilities rose by CHF 1,277 million.
- Equity Reserves: The voluntary earnings reserve increased from CHF 1,716 million to CHF 7,323 million, while general reserves (capital contribution reserve) decreased from CHF 34,886 million to CHF 32,683 million.
Guidance, Outlook, and Risks
- Dividend Proposal: The Board of Directors proposes an ordinary cash dividend of CHF 0.65 per share, payable out of the capital contribution reserve. The proposed distribution totals CHF 2,505 million. Payment is scheduled for May 9, 2018.
- Capital Instruments: UBS Group AG issued perpetual capital notes (AT1 capital) in 2015 and 2016, proceeds of which were on-lent to UBS AG. As of December 31, 2017, distributable items for AT1 capital purposes were CHF 37.8 billion.
- Guarantees: UBS Group AG issued guarantees totaling CHF 27,706 million (equivalent) for senior debt issued by its subsidiary, UBS Group Funding (Switzerland) AG, to support the Group's Total Loss-Absorbing Capacity (TLAC).
- Contingent Liabilities: The company is jointly and severally liable for the combined VAT liability of UBS entities within the Swiss VAT group.
- Compensation Plans: Significant liabilities exist related to deferred compensation plans, including the Deferred Contingent Capital Plan (DCCP), which qualify as AT1 capital on a consolidated basis.
Investor Verification Checklist
- Verify the approval of the proposed CHF 0.65 dividend at the Annual General Meeting on May 3, 2018.
- Confirm the sustainability of dividend income from subsidiaries, noting the absence of major dividend distributions from UBS AG in 2017 compared to 2016.
- Review the terms of the AT1 perpetual capital notes (maturities ranging from 2020 to 2025) and the associated interest expense obligations.
- Assess the impact of the CHF 27.7 billion guarantee issued for subsidiary debt on the holding company's risk profile.
- Monitor the valuation of investments in Alternative Investment Vehicles (AIVs) used for hedging compensation awards, which are marked to fair value.