“The markets, and with them the asset management industry, are entering more challenging times after enjoying sustained favourable conditions since 2009. We are confident that with our global and diversified business across all asset classes, along with our accelerated focus on cost efficiency, we will withstand a tougher market environment.
In line with our commitment to a 65 to 75 percent dividend payout ratio, we are proposing a dividend of EUR 1.37 per share for 2018”, said Asoka Woehrmann, CEO.
“We exceeded our 2018 cost savings guidance with significant reductions in the full year. And we expect this downward trend to continue in 2019 as we progress our successful cost efficiency initiatives.
Our Management fee margin was resilient with 30.3 basis points in the fourth quarter and 30.6 basis points for 2018 consistent with our medium-term target.
While we saw net outflows in the quarter, we registered a promising turnaround in the flows of important flagship funds", said Claire Peel, CFO.
Along with the wider asset management industry, DWS faced challenging market conditions and high volatility in the fourth quarter of 2018. An increase in political uncertainty both in Europe and globally along with market tensions as we enter the late-phase of the cycle made for a testing environment for the business.
During the quarter, there was a change in leadership, with Asoka Woehrmann appointed CEO of DWS on 25 October, replacing Nicolas Moreau. Subsequently, Asoka Woehrmann made two changes to the Executive Board, with Mark Cullen joining as COO and Dirk Goergen joining as Head of Coverage EMEA.
Total adjusted revenues in Q4 2018 decreased to EUR 549 million (Q3: EUR 574 million; FY18: EUR 2,259 million), mainly due to lower management fees as a result of weaker markets and outflows. Adjusted profit before tax therefore reduced to EUR 160 million, (Q3: EUR 177 million; FY18: EUR 625 million). After deduction of taxes, DWS posted a net income of EUR 80 million for the fourth quarter (Q3: EUR 121 million) and EUR 391 million for 2018. The Executive Board will propose a dividend of EUR 1.37 per share for the 2018 financial year.
The management fee margin decreased to 30.3 basis points in the fourth quarter (Q3: 30.5 basis points), burdened substantially by the market downturn. The management fee margin stood at 30.6 basis points for full year 2018, in line with our medium-term target of at least 30 basis points.
Assets under Management (AuM) decreased to EUR 662 billion in the fourth quarter of 2018. This was primarily driven by the negative market performance with a 13 percent decline of the Euro Stoxx50 and a 14 percent drop of the Dax, while net outflows were partly offset by a positive impact from exchange rate movements.
The fourth quarter saw net flows of minus EUR 7.0 billion (Q3: minus EUR 2.7 billion; FY18: minus EUR 22.3 billion). A single large low-margin insurance mandate outflow, which had already been highlighted following the third quarter, accounted for more than a third of the total net outflows.
Despite tough market conditions, we reported solid net flows into Passive Asset Management, a strategic growth area for DWS. In addition, our flagship funds DWS Top Dividende and DWS Concept Kaldemorgen both attracted net inflows, reversing a trend from previous quarters and compared with active outflows in the broader European market.
Active Asset Management had net flows of minus EUR 11.0 billion in the fourth quarter (FY18: EUR 31.1 billion). While Active Equity flows improved significantly quarter-on-quarter, Active Fixed Income and Cash products saw the opposite development.
Passive Asset Management saw net inflows of EUR 3.9 billion in the fourth quarter (FY18: EUR 8.1 billion), its best quarter of 2018. Sales continued to be driven by European-listed ETPs (exchange-traded funds and commodities). In addition, an ESG mandate for a Dutch pension fund alone accounted for EUR 1 billion. For the full year 2018, DWS ranked second in ETP net flows in Europe with an 17 percent flow market share according to ETFGI (Q4: 27 percent), surpassing our AuM market share significantly.
The net inflows into Alternatives were flat in the fourth quarter as sustained high demand for Real Estate products was offset by net outflows in Liquid Alternatives. For full year 2018, net inflows into Alternatives totaled EUR 0.7 billion, with strong real estate inflows more than compensating for liquid real asset outflows.
Adjusted costs decreased by EUR 9 million quarter-on-quarter to EUR 389 million (Q3: EUR 398 million; FY18: EUR 1,633 million), largely due to lower general and administrative expenses. With approximately EUR 65 million of gross efficiency savings we surpassed our guidance for 2018 of 20 to 30 percent of our medium-term target: EUR 125 to 150 million compared to full year 2017.
The adjusted Cost-Income Ratio (CIR) increased by 1.7 percentage points to 70.9 percent (Q3: 69.2 percent; FY18: 72.3 percent), with positive cost development in the fourth quarter offset by lower revenues.
Growth Initiatives and Strategic Progress
In the fourth quarter we continued our digital growth strategy. We agreed to acquire a 15 percent equity stake in Neo Strategic Holding, the holding company that owns Neo Technologies (Neo), a digital first-mover platform for investment services in the Middle East. In addition, a strategic partnership is part of the transaction, whereby DWS and Neo Strategic Holding agreed to collaborate on the expansion of the digital asset management services in the region.
Furthermore, we entered into a strategic partnership with and have become a minority shareholder in Skyline AI, a real estate asset management technology company. Skyline AI uses proprietary artificial intelligence (AI) to enhance the investment process for real estate investments throughout the United States.
Together with BNP Paribas Securities Services we jointly decided not to proceed with the transfer of our fund administration operations in Germany and Luxembourg to BNP Paribas Securities Services and the provision of depositary and custody services to our retail funds, as announced in June 2018. We will continue to explore all options to improve operational efficiency.
Following the appointment of Asoka Woehrmann as CEO during the fourth quarter, two further changes were made to DWS’s Executive Board. Mark Cullen became Chief Operating Officer and Dirk Goergen became Head of EMEA Coverage. Jon Eilbeck and Thorsten Michalik left the company. Both Mark Cullen and Dirk Goergen bring a diverse set of qualities to their roles.
In order to further improve our regional management structure, we appointed dedicated Regional Heads for EMEA and APAC, in addition to the existing Head of Americas role, who are responsible for interlinking our individual business lines, from the investment platform to distribution, operations and the administration of our regional legal entities.
Following the IPO in March, we introduced key growth initiatives in 2018. We focused on products and services where we can differentiate ourselves in a competitive market like ESG or Alternatives and agreed on strategic partnerships and alliances with Nippon Life, Tikehau Capital and Generali. We also worked diligently to improve our cost efficiency and sustainably lower our cost base over the last year.
In 2019, we intend to intensify all of these efforts. This will be supported by recent changes to our organizational structure, such as the strengthening of the regional leadership structure and important new hires to our coverage and our investment platform. All in all, the strategic progress we achieved in 2018 will help us to ensure sustained success for our business in the future. We will hold our strong position in our home market, building on our success in Germany across all markets as a global asset manager.
In the fourth quarter of 2018, we saw strong improvement in the performance and flows of important flagship funds. This, we believe will be an important driver for net flows in 2019 along with our expertise in the increasingly important ESG area, which we see leading to a growing number of related mandates. Furthermore, we do not expect the scale of insurance mandate outflows of EUR 10 billion, the effect of the US tax reform redemptions of EUR 11 billion or the negative impact of the MiFID II introduction on inflows to repeat in 2019.
Last but not least, DWS’s management has accelerated the successful cost efficiency initiatives – which helped us lower our cost base significantly in 2018 – in order to further reduce our cost base in 2019 and move towards the target CIR of below 65% in the medium term. In 2019, we aim to reach the top end of our gross efficiency savings target of EUR 125 to 150 million compared to full year 2017 ahead of our medium-term schedule.
2018 figures published in this quarterly release are preliminary and unaudited.
Contact details for further information
+49 69 910 61960
+49 69 910 14941
Asoka Woehrmann, Chief Executive Officer, and Claire Peel, Chief Financial Officer, will elaborate on the Q4 & FY 2018 results in an investor and analyst call on 1 February 2019 at 10.30am CET. The analyst webcast/call will be held in English and broadcasted on https://dws.com/Our-Profile/ir/reports-and-events/financial-results/. It will also be available for replay. Further details will be provided under https://dws.com/Our-Profile/ir.