UBS AG UK Regulatory Announcement: UBS announces second-quarter 2023 earnings and decision to integrate Credit Suisse (Schweiz) AG (Ad hoc announcement pursuant to Article 53 of the SIX Exchange Regulation Listing Rules)
ZURICH–(BUSINESS WIRE)–
UBS: (NYSE:UBS) (SWX:UBSN):
UBS’s 2Q23 results materials are available at ubs.com/investors – The audio webcast of the earnings call starts at 08:30 CEST, 31 August 2023.
A definition of each alternative performance measure, the method used to calculate it and the information content are presented under “Alternative performance measures” in the appendix to our 2Q23 report.
The reconciliation of reported and underlying performance is presented in the appendix of our 2Q23 results presentation.
Information in this news release is presented for UBS Group AG on a consolidated basis unless otherwise specified.
| 1 Excluding negative goodwill, integration-related expenses and acquisition costs |
| 2 Credit Suisse’s media release is available at https://www.credit-suisse.com/about-us/en/media-news/media-releases.html |
Update on CS acquisition and priorities for 2023
On 12 June 2023, we successfully closed the acquisition of Credit Suisse Group AG. Since then, we have started to implement our target operating model, which includes leadership appointments up to three levels below the Group Executive Board. We have also stabilized Credit Suisse’s Wealth Management and Swiss Bank, defined the Non-core and Legacy perimeter and reduced its risk-weighted assets by USD 8bn during the second quarter, we have repaid liquidity support to the Swiss National Bank and voluntarily terminated the Public Liquidity Backstop and Loss Protection Agreement. Today, 31 August 2023, we have announced our decision to fully integrate Credit Suisse’s Swiss Bank.
Credit Suisse (Schweiz) AG to be fully integrated
“Our decision on Credit Suisse (Schweiz) AG follows a thorough evaluation of all available options. Our analysis clearly shows that full integration is the best outcome for UBS, our stakeholders and the Swiss economy. Clients will continue to receive the premium level of service they expect, benefiting from enhanced offerings, expert capabilities and global reach. Our stronger capital base will enable us to keep the combined lending exposures unchanged, while maintaining our risk discipline. Aware of the important role both firms play in our communities, we will maintain all agreed sponsorship of civic, sporting and cultural activities in Switzerland at least until the end of 2025.”
Sergio P. Ermotti, Group CEO
The full integration will reinforce the strengths that make UBS the leading bank in Switzerland. Clients will benefit from an enhanced product offering and unique global capabilities enabled by the combination of both businesses. Together, we will be able to offer a broader investment platform. Our capital and financial strength allows us to continue to serve and finance all our clients without compromising on our risk capacity and standards. Competition in the Swiss market remains robust across all our business activities. The cantonal banks in aggregate will continue to have the highest market shares in all relevant personal and commercial banking products. After the merger our branch network will be the third biggest in Switzerland.
UBS and Credit Suisse’s Swiss Bank will operate separately until their planned legal merger in 2024. The Credit Suisse brand and operations will remain in place until we complete the migration of clients to our system, which we expect in 2025.
“Our goal is to make the transition for clients as smooth as possible. The two Swiss entities will operate separately until their planned legal integration for 2024 with the gradual migration of clients onto UBS systems expected to be completed in 2025. Nothing will therefore change for clients in the foreseeable future. As we progress the integration, we remain fully committed to our personal, private, institutional and corporate clients.”
Sergio P. Ermotti, Group CEO
Continued stabilization of Credit Suisse franchise
Since the close in June, we engaged with clients across the businesses and saw their confidence returning, as evidenced by positive trends in deposit flows which have carried into July and August. For the second quarter, net inflows into deposits for the combined group were USD 23bn, of which USD 18bn from Credit Suisse’s Wealth Management and Swiss Bank. While asset outflows from Credit Suisse’s Wealth Management division continued in the second quarter, they did so at a slower pace compared to previous quarters and turned positive in June.
Across UBS’s asset gathering businesses, we continued to see strong momentum in the second quarter. UBS Global Wealth Management saw net new money (NNM) inflows of USD 16bn, the highest second-quarter inflows in over a decade, and Asset Management NNM was USD 17bn (or USD 19.5bn excl. money market and associates).
Throughout July and August 2023 we recorded further USD 8bn NNM inflows in the combined wealth management businesses.
Non-strategic assets and businesses to be exited through Non-Core and Legacy
We have created a Non-core and Legacy (NCL) business division, which will include Credit Suisse positions and businesses not aligned with our strategy and policies, such as the assets and liabilities of the Capital Release Unit (Credit Suisse) and the majority of assets and liabilities of the Investment Bank (Credit Suisse), Wealth Management (Credit Suisse) and Asset Management (Credit Suisse), as well as the remaining assets and liabilities of UBS’s NCL portfolio and smaller amounts of assets and liabilities of UBS business divisions that we have assessed as not strategic in light of the acquisition of the Credit Suisse Group. As of 30 June 2023, the positions that will be included in NCL represented approximately USD 55bn of risk-weighted assets (RWA), excluding operational risk RWA, and USD 224bn of leverage ratio denominator (LRD). About half of these RWA are expected to run off by the end of 2026. We intend to actively reduce the assets of the NCL unit in order to reduce operating costs and financial resource consumption, and to enable us to simplify infrastructure.
Aim to achieve gross exit-rate cost saving greater than USD 10bn by end-2026
We aim to substantially complete the integration by the end of 2026. We further aim to achieve gross cost reductions of over USD 10bn by that time. Cumulative integration-related expenses are expected to be broadly offset by accretion-to-par effects of approximately USD 12bn related to fair value adjustments applied to amortized-cost financial instruments.
As part of the integration we plan to simplify our legal structure, including the merger of UBS AG and Credit Suisse AG planned for 2024.
Based on these plans, and excluding integration-related expenses and accretion-to-par effects, we aim to achieve an exit rate cost income ratio of less than 70% by the end of 2026, and to progress toward a 2026 exit rate return on CET1 capital of around 15%.
We expect 3Q23 underlying PBT for UBS Group to be at around breakeven, and to deliver positive underlying PBT in 2H23, supported by various levers, including revenue stabilization, cost saves and lower funding costs.
Future reporting and disclosures
Beginning with the third quarter of 2023, we will report five business divisions – Global Wealth Management, Personal and Corporate Banking, Asset Management, Investment Bank, and Non-core and Legacy and to separately report Group Items.
We will provide further updates with our third quarter results and a more extensive strategic update at our fourth quarter and full year earnings.
2Q23 Group performance
Consolidated financials for 2Q23 and 1H23 include results for the former Credit Suisse business from 1 June 2023
2Q23 PBT was USD 29,239m, including USD 28,925m of negative goodwill and USD 830m integration-related expenses and acquisition costs. Net credit loss expenses were USD 740m. The cost/income ratio was 88.9%. Net profit attributable to shareholders was USD 28,875m, with diluted earnings per share of USD 8.99. Return on CET1 capital was 185.0%.
Credit Suisse sub-group loss before tax for the month of June was USD 1,209m, including net credit loss expenses of USD 724m and integration-related expenses and acquisition costs of USD 374m. For information on the 2Q23 operating performance of Credit Suisse AG consolidated on a US GAAP basis in CHF, please refer to https://www.credit-suisse.com/about-us/en/media-news/media-releases.html.
Excluding negative goodwill, integration-related expenses and acquisition costs, 2Q23 PBT was USD 1,144m, with a cost/income ratio of 80.3% and a return on CET1 capital of 4.5%.
Balance sheet for all seasons
For over a decade we have built and strengthened our culture based on capital strength, efficiency, and prudent risk management. Our balance sheet for all seasons is the foundation of the execution of our strategy. In the second quarter, our capital ratios were consistent with our guidance, and our liquidity position was strong and well above regulatory requirements. The quarter-end CET1 capital ratio was 14.4% and the CET1 leverage ratio was 4.8%, both in excess of our current guidance of ~14% and >4.0%, respectively. We also maintained healthy liquidity buffers with an LCR of 175% and an NSFR of 118%.
Outlook
Amid relatively robust economic growth data, and despite signs of abating inflation and decreasing wage pressures, central banks have continued to raise interest rates. Although improving, the outlook for economic growth, asset valuations and market volatility remains highly uncertain and difficult to predict. The effects of central bank tightening may also have an impact on market liquidity. Ongoing geopolitical tensions and the Russia–Ukraine war continue to add uncertainty to the macroeconomic outlook. Against this backdrop, we are still expecting clients to continue to diversify cash holdings by investing their deposits into higher-yielding products, although at a slower pace.
While major developments in the macroeconomic and geopolitical picture would impact our business in the short term, we currently see a pick-up in both client sentiment and transactional momentum among our Wealth Management clients.
We expect positive net new asset flows in our wealth and asset management franchises, and higher asset valuations are also expected to have a positive impact on our recurring net fee income year on year.
Our first priority is to stay close to clients and help them manage the challenges and opportunities this uncertain environment presents, while we continue to execute on our strategy and integration plans and continue to pursue growth opportunities.
Second quarter 2023 performance overview – Group
Group PBT USD 29,239m
PBT was USD 29,239m, primarily reflecting a USD 28,925m negative goodwill on the acquisition of Credit Suisse Group and including net credit loss expenses of USD 740m. The cost/income ratio was 88.9% and excluding negative goodwill, integration-related expenses and acquisition costs, the cost/income ratio was 80.3%. Net profit attributable to shareholders was USD 28,875m, with diluted earnings per share of USD 8.99. Return on CET1 capital was 185.0% or 4.5% excluding negative goodwill, integration-related expenses and acquisition costs.
Global Wealth Management (GWM) PBT USD 1,110m, -4% YoY
Total revenues increased 1% YoY to USD 4,736m. Net interest income increased 14%, mainly driven by higher deposit margins, which resulted from rising interest rates, more than offsetting the effects of lower average deposit volumes and lower loan revenues, which reflected lower average loan volumes and margins. Recurring net fee income decreased 3%, mainly reflecting negative market performance, slightly offset by the impact from net new fee-generating assets over the past year, which were primarily in lower-margin products. Transaction-based income decreased 6%, mainly driven by lower levels of client activity particularly in the Americas and Asia Pacific. Net credit loss expenses were USD 5m, compared with net releases of USD 3m in 2Q22. Operating expenses were up 3%, mainly driven by unfavorable foreign currency effects, increases in technology expenses and personnel expenses, and integration-related expenses associated with the acquisition of Credit Suisse Group. These were partly offset by lower provisions for litigation, regulatory and similar matters. The cost/income ratio was 76.5%, up 1.2 percentage points YoY. Fee-generating assets were up 3% sequentially to USD 1,380bn. Net new fee-generating assets1 were USD 12.6bn. Net new money was USD 16.2bn.
| 1 Net new fee-generating assets exclude the effects on fee-generating assets of strategic decisions by UBS to exit markets or services. |
Personal & Corporate Banking (P&C) PBT CHF 612m, +54% YoY
Total revenues increased 24% YoY. Net interest income increased 45%, mainly driven by higher deposit margins, which resulted from rising interest rates, and higher loan revenues, partly offset by lower deposit fees. The second quarter of 2022 included a benefit from the Swiss National Bank deposit exemption. Recurring net fee income increased 5%, partly reflecting higher revenues from account fees. Transaction-based income increased 2%, mainly driven by higher corporate client fees. Net credit loss expenses were CHF 9m, compared with net expenses of CHF 33m in 2Q22. Operating expenses increased 9%, mainly driven by higher technology expenses, accruals for variable compensation, and integration-related expenses associated with the acquisition of Credit Suisse Group. The cost/income ratio was 50.8%, 6.9 percentage points lower YoY.
Asset Management (AM) PBT USD 90m, -91% YoY
Total revenues were down 64% YoY, primarily due to 2Q22 including a gain of USD 848m from the sale of our shareholding in the Mitsubishi Corp.-UBS Realty Inc. joint venture. Excluding that gain, revenues decreased 5%. Net management fees decreased 5%, mainly reflecting negative market performance and pressure on margins from asset shifts. Performance fees decreased by USD 2m, mainly in Hedge Fund Businesses and Equities. Operating expenses decreased 1%, mainly reflecting lower personnel expenses, partly offset by foreign currency effects and increases in technology, control functions and general and administrative expenses. The cost/income ratio was 82.1%. Invested assets increased 4% sequentially to USD 1,188bn. Net new money was USD 17bn (USD 19bn excluding money market flows and associates).
Investment Bank (IB) PBT USD 139m, -66% YoY
Total revenues decreased 10%. Global Markets revenues decreased by USD 197m, or 11%, primarily driven by lower Derivatives & Solutions and Execution Services revenues, partly offset by higher Financing revenues. Global Banking revenues decreased by USD 6m, or 2%, driven by lower Advisory revenues, partly offset by increased Capital Markets revenues. Net credit loss expenses were USD 1m, compared with net releases of USD 28m in 2Q22. Operating expenses increased 2%, mainly driven by higher technology expenses and increases across a number of other expense lines, partly offset by lower provisions for litigation, regulatory and similar matters. The cost/income ratio was 92.6%, 10.8 percentage points higher YoY.
Group Functions PBT USD -495m, compared with USD -324m in 2Q22
Credit Suisse (June 2023) PBT USD -1,209m
UBS’s sustainability approach through the integration
Following the acquisition of Credit Suisse, our ambition is unchanged: to be a global leader in sustainable finance, building on the strong foundation we have developed over many years. We aim to offer solutions to help private and institutional clients meet their investment objectives, including through sustainable finance. In addition, we want to be the provider of choice for clients who wish to mobilize capital toward the achievement of the United Nations 17 Sustainable Development Goals and the orderly transition to a low-carbon economy.
Reaching net zero is an ambitious goal, and UBS remains committed to playing our part. We will continue to drive towards our long-term aspiration of net-zero greenhouse gas emissions by 2050. Both UBS and Credit Suisse have previously announced interim targets for the firm’s own operations, financing and discretionary client portfolios. We are currently evaluating the implications of the acquisition of Credit Suisse for these interim targets, given the different shape and activities of the businesses. We are conducting a robust risk analysis, assessing and re-baselining the emissions of the combined firm. An update will be provided in our 2023 Sustainability Report to be published next year.
| Our key figures |
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| As of or for the quarter ended |
| As of or year-to-date | ||||
| USD m, except where indicated |
| 30.6.23 | 31.3.23 | 31.12.22 | 30.6.22 |
| 30.6.23 | 30.6.22 |
| Group results |
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| Total revenues |
| 9,540 | 8,744 | 8,029 | 8,917 |
| 18,284 | 18,299 |
| Negative goodwill |
| 28,925 |
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| 28,925 |
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| Credit loss expense / (release) |
| 740 | 38 | 7 | 7 |
| 778 | 25 |
| Operating expenses |
| 8,486 | 7,210 | 6,085 | 6,295 |
| 15,696 | 12,929 |
| Operating profit / (loss) before tax |
| 29,239 | 1,495 | 1,937 | 2,615 |
| 30,735 | 5,344 |
| Net profit / (loss) attributable to shareholders |
| 28,875 | 1,029 | 1,653 | 2,108 |
| 29,904 | 4,244 |
| Diluted earnings per share (USD)1 |
| 8.99 | 0.32 | 0.50 | 0.61 |
| 9.30 | 1.22 |
| Profitability and growth2,3,4 |
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| Return on equity (%) |
| 160.7 | 7.2 | 11.7 | 14.6 |
| 92.9 | 14.4 |
| Return on equity (excluding negative goodwill, integration-related expenses, and acquisition costs) (%)5 |
| 3.9 |
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| Return on tangible equity (%) |
| 177.8 | 8.1 | 13.2 | 16.4 |
| 103.6 | 16.2 |
| Return on tangible equity (excluding negative goodwill, integration-related expenses, and acquisition costs) (%)5 |
| 4.3 |
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| Return on common equity tier 1 capital (%) |
| 185.0 | 9.1 | 14.7 | 18.9 |
| 111.3 | 18.9 |
| Return on common equity tier 1 capital (excluding negative goodwill, integration-related expenses, and acquisition costs) (%)5 |
| 4.5 |
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| Return on leverage ratio denominator, gross (%) |
| 2.8 | 3.4 | 3.2 | 3.4 |
| 3.1 | 3.5 |
| Cost / income ratio (%)6 |
| 88.9 | 82.5 | 75.8 | 70.6 |
| 85.8 | 70.7 |
| Cost / income ratio (excluding integration-related expenses and acquisition costs) (%)5,6 |
| 80.3 |
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| Effective tax rate (%) |
| 1.2 | 30.7 | 14.5 | 19.0 |
| 2.7 | 20.2 |
| Net profit growth (%) |
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| (51.8) | 22.6 | 5.1 |
| 604.6 | 10.8 |
| Net profit growth (excluding negative goodwill, integration-related expenses, and acquisition costs) (%)5 |
| (66.8) |
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| Resources2 |
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| Total assets |
| 1,678,780 | 1,053,134 | 1,104,364 | 1,113,193 |
| 1,678,780 | 1,113,193 |
| Equity attributable to shareholders |
| 86,999 | 56,754 | 56,876 | 56,845 |
| 86,999 | 56,845 |
| Common equity tier 1 capital7 |
| 80,258 | 44,590 | 45,457 | 44,798 |
| 80,258 | 44,798 |
| Risk-weighted assets7 |
| 556,603 | 321,660 | 319,585 | 315,685 |
| 556,603 | 315,685 |
| Common equity tier 1 capital ratio (%)7 |
| 14.4 | 13.9 | 14.2 | 14.2 |
| 14.4 | 14.2 |
| Going concern capital ratio (%)7 |
| 16.8 | 17.9 | 18.2 | 19.0 |
| 16.8 | 19.0 |
| Total loss-absorbing capacity ratio (%)7 |
| 35.2 | 34.3 | 33.0 | 33.7 |
| 35.2 | 33.7 |
| Leverage ratio denominator7 |
| 1,677,877 | 1,014,446 | 1,028,461 | 1,025,422 |
| 1,677,877 | 1,025,422 |
| Common equity tier 1 leverage ratio (%)7 |
| 4.78 | 4.40 | 4.42 | 4.37 |
| 4.78 | 4.37 |
| Liquidity coverage ratio (%)8 |
| 175.2 | 161.9 | 163.7 | 160.8 |
| 175.2 | 160.8 |
| Net stable funding ratio (%) |
| 117.6 | 117.7 | 119.8 | 120.9 |
| 117.6 | 120.9 |
| Other |
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| Invested assets (USD bn)3,9,10 |
| 5,530 | 4,184 | 3,981 | 3,933 |
| 5,530 | 3,933 |
| Personnel (full-time equivalents) |
| 119,100 | 73,814 | 72,597 | 71,294 |
| 119,100 | 71,294 |
| Market capitalization1,11 |
| 69,932 | 74,276 | 65,608 | 56,781 |
| 69,932 | 56,781 |
| Total book value per share (USD)1 |
| 26.95 | 18.59 | 18.30 | 17.45 |
| 26.95 | 17.45 |
| Tangible book value per share (USD)1 |
| 24.61 | 16.54 | 16.28 | 15.51 |
| 24.61 | 15.51 |
| 1 Refer to the “Share information and earnings per share” section of the UBS Group second quarter 2023 report for more information. 2 Refer to the “Targets, aspirations and capital guidance” section of the Annual Report 2022 for more information about our performance targets. 3 Refer to “Alternative performance measures” in the appendix to the UBS Group second quarter 2023 report for the definition and calculation method. 4 Credit Suisse‘s second quarter results for the one-month period ended 30 June 2023, as included in the Group’s second quarter results, have been annualized for the purpose of the calculation of return measures, by multiplying such by four and two for quarterly and semi-annual measures, respectively. 5 Refer to the “Group performance” section of the UBS Group second quarter 2023 report for a definition of integration-related expenses and for more information about negative goodwill, integration-related expenses, and acquisition costs. Refer also to “Note 2 Accounting for the acquisition of Credit Suisse Group” in the “Consolidated financial statements” section of the UBS Group second quarter 2023 report for more information about acquisition costs. 6 Negative goodwill is not used in the calculation as it is presented in a separate reporting line and is not part of total revenues. 7 Based on the Swiss systemically relevant bank framework as of 1 January 2020. Refer to the “Capital management” section of the UBS Group second quarter 2023 report for more information. 8 The disclosed ratios represent quarterly averages for the quarters presented and are calculated based on an average of 64 data points in the second quarter of 2023, 64 data points in the first quarter of 2023, 63 data points in the fourth quarter of 2022 and 64 data points in the second quarter of 2022. Refer to the “Liquidity and funding management” section of the UBS Group second quarter 2023 report for more information. 9 Consists of invested assets for three UBS business divisions (Global Wealth Management, Asset Management and Personal & Corporate Banking) and, starting from the second quarter of 2023, for three Credit Suisse business divisions (Wealth Management, Swiss Bank and Asset Management). Refer to “Note 31 Invested assets and net new money” in the “Consolidated financial statements” section of the Annual Report 2022 for more information. 10 Comparative figures have been restated to include invested assets from associates in the Asset Management and Asset Management (Credit Suisse) business divisions, to better reflect the business strategy. 11 The calculation of market capitalization has been amended to reflect total shares issued multiplied by the share price at the end of the period. The calculation was previously based on total shares outstanding multiplied by the share price at the end of the period. Market capitalization has been increased by USD 10.0bn as of 31 March 2023, by USD 7.8bn as of 31 December 2022 and by USD 4.3bn as of 30 June 2022 as a result. | ||||||||
| Income statement |
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| For the quarter ended |
| % change from |
| Year-to-date | ||||
| USD m |
| 30.6.23 | 31.3.23 | 30.6.22 |
| 1Q23 | 2Q22 |
| 30.6.23 | 30.6.22 |
| Net interest income |
| 1,713 | 1,388 | 1,665 |
| 23 | 3 |
| 3,101 | 3,436 |
| Other net income from financial instruments measured at fair value through profit or loss |
| 2,463 | 2,681 | 1,619 |
| (8) | 52 |
| 5,143 | 3,845 |
| Net fee and commission income |
| 5,175 | 4,606 | 4,774 |
| 12 | 8 |
| 9,781 | 10,127 |
| Other income |
| 188 | 69 | 859 |
| 172 | (78) |
| 258 | 891 |
| Total revenues |
| 9,540 | 8,744 | 8,917 |
| 9 | 7 |
| 18,284 | 18,299 |
| Negative goodwill |
| 28,925 |
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| 28,925 |
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| Credit loss expense / (release) |
| 740 | 38 | 7 |
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| 778 | 25 |
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| Personnel expenses |
| 5,651 | 4,620 | 4,422 |
| 22 | 28 |
| 10,271 | 9,343 |
| General and administrative expenses |
| 1,968 | 2,065 | 1,370 |
| (5) | 44 |
| 4,033 | 2,578 |
| Depreciation, amortization and impairment of non-financial assets |
| 866 | 525 | 503 |
| 65 | 72 |
| 1,391 | 1,009 |
| Operating expenses |
| 8,486 | 7,210 | 6,295 |
| 18 | 35 |
| 15,696 | 12,929 |
| Operating profit / (loss) before tax |
| 29,239 | 1,495 | 2,615 |
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| 30,735 | 5,344 |
| Tax expense / (benefit) |
| 361 | 459 | 497 |
| (21) | (27) |
| 820 | 1,082 |
| Net profit / (loss) |
| 28,878 | 1,037 | 2,118 |
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| 29,915 | 4,262 |
| Net profit / (loss) attributable to non-controlling interests |
| 3 | 8 | 10 |
| (60) | (69) |
| 11 | 18 |
| Net profit / (loss) attributable to shareholders |
| 28,875 | 1,029 | 2,108 |
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| 29,904 | 4,244 |
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| Comprehensive income |
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| Total comprehensive income |
| 28,011 | 1,833 | 1,079 |
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| 29,844 | 1,008 |
| Total comprehensive income attributable to non-controlling interests |
| (2) | 13 | (17) |
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| (91) |
| 11 | 9 |
| Total comprehensive income attributable to shareholders |
| 28,013 | 1,820 | 1,097 |
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| 29,833 | 999 |
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