Operating profit decreased in a difficult market environment
Financial performance January-June 2022
- Operating income was EUR 46.2 million (1-6/2022: EUR 55.8 million)
- Operating profit was EUR 18.0 million (EUR 26.4 million)
- Operating result of the Wealth Management and Investor Clients segment decreased to EUR 15.5 million (EUR 19.1 million)
- Operating result of the Advisory and Corporate Clients segment decreased to EUR 2.0 million (EUR 5.7 million)
- At the end of June, assets under management amounted to EUR 14.5 billion (EUR 16.1 billion) on a net basis
- Return on equity was 28.6 percent (47.1%)
- The ratio of recurring revenues to operational costs was 131 percent (132%).
Financial performance April-June 2022
- The Group's net revenue was EUR 22.9 million (EUR 28.5 million)
- The Group's operating profit was EUR 8.3 million (EUR 13.6 million)
- Earnings per share amounted to EUR 0.24.
Outlook for 2022 unchanged
The year 2022 has started in a challenging market, due to heightened interest rate and inflation fears, increased geopolitical risks and a declining market.
Despite increased risks, we estimate that the result for 2022 will be at a good level.
CEO Maunu Lehtimäki
As in the first quarter of the year, the second quarter was negative for capital markets. The values of key asset classes, especially equities and fixed income, fell sharply. The fall in valuations was fuelled by rising energy and commodity prices and the resulting increase in inflation and interest rate concerns. Central banks' assessments of the risks of increased inflation and the need for a sharp tightening of monetary policy to prevent it, combined with the challenges of global supply chains that have hampered the economy for the second year in a row, added to investors' fears of a recession. With the war in Ukraine, the availability of energy, especially natural gas, became a real concern in Europe.
In the second quarter, Evli's business reflected the weak performance of the capital markets. Net revenue fell by 20 percent year-on-year to EUR 22.9 million, while Group operating profit decreased by 39 percent to EUR 8.3 million. Fee income from alternative investment products and the incentives business increased, but the income from Corporate Finance in particular was well below the exceptionally high level of the previous year.
In January-June, Evli's return on equity was good and stood at 28.6% (47.1%). The ratio of recurring income to operating costs was 131% (132%). The Group's solvency and liquidity were at an excellent level.
Operating income in the Wealth Management and Investor Clients segment decreased by 12 percent to EUR 17.6 million. Client assets under management fell to EUR 14.5 billion (EUR 16.1 billion), reflecting weak market performance and increased net redemptions. Evli Fund Management Company's investment fund capital, including alternative investments, amounted to EUR 9.5 billion (EUR 11.5 billion), with net redemptions of around EUR 900 million in the first half of the year, targeting traditional funds, especially short-dated bond funds, corporate bond funds and European equities. The segment's performance was positively influenced by an increase in fee income from alternative investment products, however this did not compensate for the decline in income due to a reduction in assets under management in traditional funds. Brokerage income was also at a lower level than in the previous year.
Operating income in the Advisory and Corporate Clients segment decreased by 42 percent to EUR 4.4 million. Corporate Finance invoicing decreased from the comparative period to EUR 1.7 million (EUR 5.6 million). However, the mandate base is strong. As in previous years, the Incentives business saw an increase in revenues to EUR 2.5 million (EUR 2.1 million). The company has won new incentive plan design and administration clients and its prospects are also good.
At the beginning of the quarter, a business combination was completed as planned, as a result of which Evli Bank Plc was split into a new listed company focusing on asset management, Evli Plc, and a company continuing the banking operations, to which Fellow Finance Plc was merged.
The key drivers of Evli's strategy, international sales and alternative investment products, showed a mixed performance during the quarter. International sales, with Evli's corporate bond funds at its core, suffered in the first half of the year from rising interest rates and general market uncertainty. Redemptions by international clients amounted to almost EUR 700 million and the share of international clients in total Evli fund capital, including alternative investment products, fell to 22 percent (25%).
Alternative investment products were sold in the second quarter for a total of EUR 76 million (EUR 110 million). Sales were spread across several funds, with the largest subscriptions being Evli Private Equity I and Evli Private Equity III with a total of EUR 33 million, Evli Private Debt I with EUR 16 million and Evli Rental Yield with EUR 11 million. We expect demand for alternative investment products to remain strong in the future, and as a result we have clarified our distribution strategy and increased our sales resources in Sweden.
Responsibility is one of Evli's strategic focus areas. In the second quarter, we organised extensive internal training on climate issues, biodiversity and EU sustainable development legislation. We also continued our development work on climate targets, human rights and biodiversity.
During the second quarter, we signed a merger agreement with EAB Group Plc, which is expected to be implemented around the beginning of October. The combined company will be one of the leading companies on the Helsinki Stock Exchange to offer investing and wealth management services with a broad expertise and whose clientele would cover institutions, corporations, and private persons. The Combined company has a strong financial position and good capabilities for future growth according to Evli’s strategy and its larger size will allow it to operate more operationally efficiently, enabling synergies to be achieved. For our clients, the combined company will offer a wider range of products and services and more comprehensive specialist resources.
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