CEO's review

Positive development in all business areas

Economic growth in the United States continued to be strong in the second quarter, as in the early part of the year, but remained subdued in Europe. Consumer price growth in the United States slowed less than expected, resulting in expectations of interest rate cuts shifting further into the future. In Europe, on the other hand, consumer price growth slowed in line with the European Central Bank's (ECB) wishes, and the ECB lowered its key interest rate to 4.25 percent in June. Interest rate cuts are expected to continue, reaching 3.5 percent at the end of this year and 3.0 percent at the end of next year.

As at the beginning of the year, the tense situation in the Middle East, the war in Ukraine, increased tensions between NATO and Russia as well as the competition between the United States and China for strategic leadership dominated the geopolitical discussion. The US presidential election in November is also expected to become an increasingly central theme affecting market sentiment during the rest of the year.

Share prices rose slightly in April-June in the United States, Europe, and emerging markets. Share prices also rose in Finland. In fixed income investments, high-yield bonds and emerging market loans performed best during the period. The return on higher-rated Investment Grade bonds was slightly positive, while the yield on government bonds was negative, as in the early part of the year. In the real estate market, the decline in prices levelled off, but vacancy rates in rental apartments and business premises as well as low transaction activity in the real estate market are likely to postpone the recovery in prices until next year.

Evli Group's net revenue in the second quarter increased by approximately 11 percent to EUR 29.3 million (EUR 26.4 million). Revenue growth was supported by increased commission income from traditional funds, performance-based fees recognized during the quarter, stronger invoicing in the Corporate Finance unit than in the previous year, and income from the company's own balance sheet. Net revenue growth was dampened by the corporate restructuring carried out in March, in which private equity firm Bregal Milestone and Evli entered into a strategic partnership to grow the business of Evli Alexander Incentives Oy (currently Allshares Oy). As a result of the arrangement, Allshares Oy will be reported as an associated company in the future. Going forward, Evli will recognize the share of the result of the incentive business directly in operating profit, and operating income and expenses will no longer be combined line by line in the consolidated financial statements.

The Group's operating profit for the second quarter increased by 24 percent to EUR 12.1 million (EUR 9.8 million). Evli's return on equity for the first half of the year was 37.9 percent (22.6%). The ratio of recurring revenue to operating expenses was 125 percent (128%). The Group's solvency and liquidity were at an excellent level.

The Wealth Management and Investor Clients segment's net revenue increased by 16 percent in the second quarter and was EUR 24.1 million (EUR 20.8 million). As a result of positive market development and net subscriptions, managed client assets increased to EUR 18.7 billion (EUR 16.8 billion). Evli Fund Management Company's mutual fund capital, including alternative investment products, was approximately EUR 13.3 billion (EUR 12.2 billion). Net subscriptions of traditional investment funds amounted to approximately EUR -120 million during the quarter. The largest net subscriptions were received by Evli Europe Growth fund, which invests in European growth stocks, and Evli Emerging Frontier fund, which invests in emerging and frontier market equities.

The Advisory and Corporate Clients segment's net revenue decreased by 60 percent in the second quarter to EUR 2.0 million (EUR 5.0 million). The decrease in net revenue is a consequence of the corporate arrangement in which the incentive business became an associated company of the Group and is therefore no longer part of segment reporting. Advisory fees received from M&A activities increased compared to the corresponding period of the previous year. The unit’s mandate base is good, and there are clear signs of pickup in the M&A market from the previous year’s exceptionally low level.

The key areas of Evli's strategy, international sales and alternative investment products, developed twofold during the quarter. Net redemptions by international clients totaled EUR 30 million and international clients accounted for 18 percent (19%) of Evli's total fund capital, including alternative investment products. Sales of alternative investment products totaled EUR 82 million (EUR 90 million) during the quarter. Higher interest rates, lower valuations, slowdown in M&A activity and hence a decrease in returns have reduced investor interest in committing to new private equity fund investments. In the longer term, however, we expect that interest in private equities will once again recover.

In the area of responsibility, Evli continued engaging with the investee companies, both independently and together with other investors. During the second quarter of the year, Evli engaged directly with four companies and participated in 16 General Meetings. Evli also participated in the collaborative engagement through the CDP 2024 Non-Disclosure Campaign. In addition, Evli signed the investor letter Finance Statement on Plastic Pollution to support a global plastics treaty.

Maunu Lehtimäki, CEO, Evli Plc

Updated in connection with the publication of Evli Plc's Half Year Financial Report 1–6/2024 on July 15, 2024.