The spread of the coronavirus into a global pandemic was reflected in Evli’s operations and financial performance in the second quarter. The recovery of the equity and corporate bond markets from the market collapse in March restored investor confidence, and the substantial net redemptions witnessed in the first quarter decreased significantly. Evli’s commission income declined from the previous year, but the operating profit improved as a result of lower costs and improved return from own balance sheet items.
In order to ensure uninterrupted continuation of our operations, we switched over to remote working at the end of the first quarter. This was continued until the end of May, after which it has been possible to return to the office. Despite the exceptional circumstances our operations run smoothly during the first half of the year and we focused on active client communications and on impeccable implementation of administrative duties, including legal and official requirements. Evli’s staff adjusted well to the exceptional circumstances and, based on the results of a personnel survey, plans to increase remote working possibilities under normal conditions were launched.
In the second quarter, Evli’s net sales remained at the previous year’s level, but the operating profit increased by 25 percent on the previous year. Due to the market collapse, brokerage and fund fees fell short of the comparison period, however, net income from securities trading and foreign exchange dealing over doubled and totalled EUR 2.9 million (EUR 1.3 million). Evli’s return on equity was 17.3 percent (19.8%), and the proportion of recurring revenue to operating expenses increased to 121 percent (113%).
The Wealth Management and Investor Clients segment’s revenue decreased by seven percent to EUR 13.3 million (EUR 14.4 million). At the end of June, assets under management were EUR 12.9 billion (EUR 13.3 billion) and Evli Fund Management Company’s fund capital was EUR 8.0 billion (EUR 9.0 billion). Net subscriptions during the quarter were EUR -71.6 million. The redemptions were focused on fixed income funds, as in the previous quarter.
The Advisory and Corporate Clients segment’s revenue declined by nine percent to EUR 2.3 million (EUR 2.5 million). The Corporate Finance unit’s invoicing fell below the previous year’s level after several advisory projects were suspended as a result of the crisis. The unit’s mandate base has decreased, and the execution and timetable of mandates are uncertain. The incentive systems management business continued to grow as in previous quarters.
Evli’s strategic focus areas – international fund sales and sales of alternative investment products – showed contrasting performance. International fund sales developed less favourably than we had expected, as international clients redeemed more than EUR 250 million from our mutual funds in the second quarter. However, we expect this trend to remain temporary and subscriptions to increase again as the global economic picture becomes clearer, especially with respect to European and Nordic corporate bonds, which are critical for international fund sales. Net sales of alternative investment products were EUR 73 million during the second quarter and combined investment assets grew by 30 percent year-on-year to around EUR 1 billion. Alternative investment product fees’ share of all fund fees exceeded 20 percent, and we expect this share to grow further in the future. This view is supported by investors’ interest shifting to non-traditional asset classes and the expectation that interest rates will remain low far into the future. Our aim is to present new alternative investment solutions this year and next year to complement our current product portfolio.
At the end of the first quarter, we launched a series of cost adjustment measures aimed at boosting Evli’s profitability. Almost all of these measures were implemented during the first half of the year and their positive cost impact has already been noticeable. Since the operating environment recovered faster than we expected, the adjustment measures will be dissolved during the third quarter and we will continue the development work started earlier to streamline Evli’s processes and further improve client satisfaction.
I would like to thank our clients and shareholders for their trust and our employees for their hard and successful work in this exceptional environment.
Maunu Lehtimäki, CEO, Evli Bank Plc