Performance indicators

Measurement and analysis of performance

UBS's performance is reported in accordance with International Financial Reporting Standards (IFRS). Our results discussion and analysis comments on the underlying operational performance of our business, and focuses on continuing operations. As discontinued activities are no longer relevant to our management of the company, we do not consider them as indicative of our future potential performance. They are therefore not included in our business planning decisions. This helps to better assess our performance against peers and to estimate future growth potential.

In the last two years, two discontinued items had a ­significant impact on our consolidated financial statements:

In fourth quarter 2005, we sold our Private Banks & GAM unit to Julius Baer. The unit comprised the Banco di Lugano, Ehinger & Armand von Ernst and Ferrier Lullin ­private banks as well as specialist asset manager GAM. ­After the sale, we retained a stake of 20.7% in the new Julius Baer.

On 23 March 2006, we sold our 55.6% stake in Motor-Columbus to a consortium representing Atel's Swiss minority shareholders, EOS Holding and Atel, as well as to French ­utility Electricité de France (EDF).

Performance against targets

For the last seven years, we have consistently focused on four performance indicators designed to ensure we deliver continually improving returns to our shareholders. All are calculated based on results from continuing operations. The first two, return on equity and diluted earnings per share, are based on the results of the entire firm. The cost / income ratio and net new money indicators are limited to our financial businesses. On this basis, performance indicators 2006 show:

– return on equity in full-year 2006 at 26.5%, down from 27.7% in 2005, but well above our target of a 20% minimum over the cycle. Higher attributable profit was offset by an increase in average equity following strong retained earnings.

– diluted earnings per share in 2006 at CHF 5.58, up 20% from CHF 4.66 a year ago, reflecting increased earnings and a slight reduction in the average number of shares outstanding (–2%) following share repurchases.

– a cost / income ratio for our financial businesses of 69.7% in 2006, down 0.4 percentage points from 70.1% a year ago. This reflects the increase in net trading income and net fee and commission income, largely offset by higher personnel and general and administrative expenses. We have added over 8,500 employees during the last year in areas where we see long-term strategic opportunities.

– net new money of a record CHF 151.7 billion, up from CHF 148.0 billion a year earlier, corresponding to an ­annual growth rate of 5.7% of the asset base at the end of 2005. Inflows remained strong worldwide. Wealth Management International & Switzerland recorded inflows of CHF 97.6 billion during the year, driven by consistently strong inflows in Asia Pacific and Europe as a result of our growth strategy. Our US business contributed CHF 15.7 billion in net new money, CHF 11.2 billion below 2005 levels. Global Asset Management inflows fell to CHF 37.2 billion, down from the strong CHF 49.5 billion result a year earlier. The Swiss retail business recorded net new money inflows of CHF 1.2 billion.