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Business Report Shareholder letter

Shareholder letter

André Rüegg, Chief Executive Officer, and Veit de Maddalena, Chairman of the Board

Dear Shareholders,

2022 was one of the most challenging investment years in more than a decade. Multiple crises surprised experts and investors alike. Escalating geopolitical tension in the wake of the Russian invasion of Ukraine, the unexpectedly sharp rise in interest rates and the unrelenting increase in inflation pressured the world economy. Investor confidence was clearly shaken by the cumulation of events, leading to significant outflows from every asset class.

Against this backdrop, Bellevue Group, like the entire financial sector, was confronted with dramatic downturns across its business landscape. Meanwhile Bellevue’s time-tested investment strategy focused on innovative small and mid-sized companies across the global healthcare sector was challenged very early in the year by a sustained correction in these stocks. While that led to significantly lower earnings compared to the exceptional, record-breaking year of 2021, the reported results are comparable with pre-pandemic figures.

Simple, robust, and low-risk business model a sturdy foundation

Since the implementation of its current positioning as a specialized asset manager with internationally recognized core competencies in healthcare, selected traditional niche strategies, and private market investments, Bellevue has operated with a simple and understandable business model. With our high-performing team, we have established a selective focus on investment niches within the healthcare sector that are distinguished by top quality and powerful innovation. Bellevue combines high earnings power with cost agility by virtue of its entrepreneurial compensation model. As a result, it has a robust and low-risk financial profile that has proven its worth in every market situation. Creating value for clients, shareholders and employees has been our ambition from the beginning. An attractive dividend yield is one way of sharing the success we achieve together. Dedicated, highly qualified employees who are invested in the investment strategies they manage are the very foundation of Bellevue and almost all staff have a financial stake in Bellevue Group as shareholders.

Asset outflows represented less than 5% of client assets under management.

Stable AuM in the second half of the year – loyal clients thanks to acknowledged expertise and strong client relationships

Investor interest in the healthcare sector soared during the COVID-19 pandemic and ultimately led to Bellevue’s record earnings in 2021, but market turbulence during the past year under review resulted in a significant contraction in assets under management, particularly during the extremely challenging first half of the year. In the second half, the asset base was fairly stable overall. Pressure from the interest rate front subsided, fueling a brief recovery in stock prices, especially in the small and mid cap segments of the global healthcare sector, but a sustained rebound has not yet been seen. Despite the negative market performance, asset outflows of CHF 577 mn represented less than 5% of client assets under management. Assets under management declined by 26% from the record-high level of 2021 to CHF 9.4 bn. Our investment expertise is acknowledged by our very loyal clientele amid the very difficult market environment and therefore our broad international base of clients has remained very stable.

Product developments 2022

Surging inflation in the US and Europe was a defining aspect of the 2022 investment year. Central banks in the West were compelled to enact a series of aggressive rate moves to tackle high inflation. Stocks and bonds corrected sharply. In the equity market, small and mid cap stocks showed the biggest losses along with growth stocks. Markets began to regain their footing during the second half of 2022, which also benefited Bellevue strategies.

Profitability declines to pre-pandemic level – constructive compensation model

Earnings were clearly impacted by the lower average asset base. Income from asset management services declined by about one-quarter to CHF 104 mn. At the same time, unrealized losses of CHF 10 mn due to market declines were recognized on investments in own investment products and on financial assets related to equity-based employee compensation. Total operating income thus declined by about 32% year-on-year to CHF 95.9 mn.

Thanks to our entrepreneurial compensation model, we quickly brought the cost base into alignment with the general business environment, resulting in a 29% decline in personnel expenses that is comparable with the reduction on the income side. General operating expenses were largely unchanged, resulting in an overall decline in expenses of 24%. The cost/income ratio came in at 64%, bringing a temporary end to the positive multi-year trend in this indicator. Despite last year’s increase, the ratio remains within the short-term target range of 60–65%. Consolidated net profit declined by 41% to CHF 25.3 mn. The return on equity is 23.2% (previous year: 38.6%).

Attractive dividend policy maintained, thanks to the Group’s financial solidity

Bellevue’s equity situation remains strong and its balance sheet is uncomplicated and debt-free. Surplus equity of CHF 39 mn and our confidence in Bellevue’s robust business model enable us to maintain a predictable and attractive dividend policy, even after a year that fell short of our ambitions.

Dividend 2023


CHF 2.00

Accordingly, the Board of Directors will propose an ordinary dividend of CHF 2.00 per share at the Annual General Meeting on March 21, 2023. This is well above the pre-pandemic dividend payout and corresponds to a dividend yield of 5.3% based on the 2022 closing price.

Further earnings diversification via steady expansion of «Bellevue Private Markets»

The acquisition of adbodmer AG in 2019 marked the start of Bellevue’s efforts to build up its Bellevue Private Markets unit and further diversify its income streams while reducing its reliance on the stock market. In the ensuing three years, we have systematically expanded our activities in the structural growth market of private-market investments and sharpened our profile as a specialized asset manager.

Bellevue Private Markets is now active in the three areas of direct equity investments, co-investment funds, and private equity secondary strategies. Direct investments are made in collaboration with an exclusive «deal-by-deal» group of investors, to which seven new members were admitted in 2022, raising the total number of investors to 30 (entrepreneurs, families and selected institutions). This business activity is focused on minority stakes in successful, privately owned SMEs in the DACH region that support future growth. There are currently 14 active investments in the Private Markets portfolio, representing an investment volume of more than CHF 270 mn. During the past year three new deals were arranged. In view of the maturity of the investments in the portfolio, we realistically expect to realize the initial exits along with attractive earnings potential over the next 6–18 months.

Bellevue offers co-investment vehicles to give a broader range of investors access to the deal flow of the aforementioned investor group as well as other exclusive investment opportunities. The first co-investment fund, «Bellevue Entrepreneur Private I» was launched beginning of 2021 for this purpose. It was successfully closed in the summer of 2022 after raising CHF 63 mn in funds, more than half of which is already invested in seven promising companies based in Switzerland, Germany and Austria. A second fund will be launched as soon as the first co-investment fund is largely invested.

The direct investment and the co-investment franchises are rounded off with scalable special strategies. Leveraging the expertise of our highly experienced team for the private equity secondary market that joined Bellevue in December of last year, we launched «Bellevue Global Private Equity» in January of 2023, a strategy focused on the niche segment of so-called secondaries. This fund is focused on small transactions of less than USD 30 mn within the small- and mid-sized market. In view of the currently record-high deal flow and the attractive market conditions for buyers of top-quality assets with falling valuations (discounts to NAV have been widening), the investment opportunities in this highly specialized segment are very attractive. The target size of the secondaries fund is USD 200 mn, which is expected to be reached during the first half of 2024. Initial investment transactions are pending.

The steady expansion of the Private Markets activities is intended to enhance the Group’s recurring income potential and provide Bellevue with an additional source of performance-based earnings (so-called carry).

Changes in the Board of Directors

We are very pleased to propose Barbara Angehrn Pavik as a new member of the Board of Directors to our shareholders at the Annual General Meeting on March 21, 2023. Barbara Angehrn Pavik has held a number of executive functions across the international healthcare industry for more than 20 years, most recently as Chief Business Officer and a member of the Executive Board at Vifor Pharma Group. Prior to the four years she spent at Vifor Pharma Group, Barbara Angehrn Pavik was the founder and CEO of Stepstone Pharma and she also held executive positions at Exelixis Pharmaceuticals International, San Francisco, Onyx Pharmaceuticals International, Zug, and Amgen International, Zug. Barbara Angehrn Pavik has been on the Board of Directors of Medmix since 2022. Barbara Angehrn Pavik will serve on Bellevue’s Board of Directors and further strengthen its expertise. With her many years of international experience, she can give our Group, a leading healthcare investment specialist, additional valuable inputs in the years to come.

After serving as a director for Bellevue Group AG for 16 years, Daniel Sigg has announced that he will not be standing for reelection at the upcoming Annual General Meeting in 2023. Daniel Sigg left a distinctive mark on Bellevue’s corporate development and transformation, most recently as Vice Chairman of the Board of Directors. The Board of Directors and the Executive Board thank Daniel Sigg for his dedication and valuable service.

Steady investments in asset management capabilities – healthcare remains a megatrend

In addition to expanding its capabilities and product offering in the «Private Markets» segment, Bellevue is steadily investing in its asset management capabilities as well as in the enhancement of its investment product quality and growth. The recent enlargement of the Investment Team for our flagship product BB Biotech AG through the recruitment of specialists in data analytics and in the therapeutic field of neurology serves as an example here. We are also investing substantially in the modernization of our IT infrastructure and tools. Examples here are the planned implementation of a modern portfolio and risk management tool that will further improve our investment management and monitoring capabilities.

We intend to hire additional sales professionals to strengthen our presence in all segments of our core markets of Switzerland, Germany and the UK. At the same time we will seize opportunities for growth in strategic secondary markets such as Austria, Spain, the Benelux and Scandinavia as well as in selected Latin American countries. Our recently established presence in Singapore bolsters our ability to serve existing clients in the region and target further opportunities for growth in Asia.

Distribution developments 2022

Bellevue’s client base in its core markets of Switzerland, Germany and the UK remains strong. In Bellevue’s strategic secondary target markets of Austria, the Benelux and Italy, growth dynamics weakened slightly due to the difficult market conditions. Only in Spain did business show above-average growth. After a long delay because of the pandemic, Bellevue’s Asia office commenced operations in collaboration with a local partner.

Bellevue expects the general market environment to remain very volatile and challenging. High inflation rates, the prospect of more interest rate hikes, and geopolitical uncertainty are unlikely to brighten investor sentiment in the short term. Healthcare will remain an investment megatrend. We are equally convinced of the viability of Bellevue’s business model and its positioning as a specialized asset manager in the attractive healthcare sector and in the fast-growing market for private market investments. As a «House of Investment Ideas», we will act with agility in seizing investment opportunities that benefit the clients we serve. We reiterate our long-term guidance, provided that markets are constructive.

Our general confidence is bolstered by the loyalty of our clients and shareholders and by the tremendous efforts of our employees. All of them were an inspiring and much appreciated constant amid a very challenging business environment. Our claim remains unchanged even in demanding times: create value for our clients and shareholders. Everyone at Bellevue strives to do so every day. On behalf of the Board of Directors and the Group Executive Board, we thank our employees for their extraordinary and greatly appreciated commitment. We also thank our clients and shareholders for their enduring trust.

Veit de Maddalena

Chairman of the Board

André Rüegg

Chief Executive Officer

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