Good result in a difficult market environment
Evli Plc was created by a partial demerger from Evli Bank Plc on April 2, 2022. In the demerger all assets and liabilities related to Evli Bank Plc’s asset management, custody, brokerage, corporate finance activities and supporting functions for these businesses were transferred to a new independent company Evli Plc. This report is based on carve-out figures derived from Evli Bank Plc's consolidated figures as of March 31, 2022.The report presents Evli Group's assets, liabilities, income, expenses and cash flows without banking activities, i.e., as if the company had operated in its current form in January-March 2022.
As the carve-out interim report has been prepared on a carve-out basis, it is not possible to determine key figures on a per share basis, such as earnings per share, for the period presented. Evli Plc has not officially existed as a company and therefore has no share capital, and thus part of Evli’s outstanding shares cannot be allocated to it.
For a more detailed description of the effects of the partial demerger on Evli Group’s financial information, the presentation of the information and the accounting policies used in its preparation, see the accounting policies set out in the table section of the release and in the carve-out financial statements of Evli Plc, available at evli.com.
Financial performance January-March 2022
- Operating income was EUR 23.3 million (1-3/2021: EUR 27.3 million)
- Operating profit was EUR 9.7 million (EUR 12.8 million)
- Operating result of the Wealth Management and Investor Clients segment decreased to EUR 9.6 million (EUR 10.6 million)
- Operating result of the Advisory and Corporate Clients segment decreased to EUR 0.8 million (EUR 1.1 million)
- At the end of March, assets under management amounted to EUR 15.8 billion (EUR 15.0 billion) on a net basis
- Return on equity was 33.8 percent (51.2%)
- The ratio of recurring revenues to operational costs was 138 percent (121%)
Outlook for 2022
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
The first quarter ended in a downturn for the capital markets. The values of equity and fixed income investments fell as inflation accelerated, monetary policy tightened, and interest rates rose. Russia's invasion of Ukraine and the subsequent harsh Western sanctions and Russian retaliatory sanctions turned optimism about global economic growth into concerns about slowing growth, especially in Europe, which is dependent on Russian energy. China's strict zero-Covid policy also contributed to growth concerns and made it more difficult to normalise global commodity flows and supply chains.
In the first quarter, Evli's business developed in line with the weak performance of the capital markets. Operating income decreased by 15 percent year-on-year to EUR 23.3 million, while Group operating profit decreased by 24 percent to EUR 9.7 million. Fee and commission income increased in the incentives business and in brokerage but decreased in the Corporate Finance unit. However, the most significant reason for the decline in fee and commission income was the decrease in performance-related fees compared to the previous year. In the first half of the year, Evli's return on equity was almost 34 percent (51%) and recurring income to operating expenses was 138 percent (121%). The Group's solvency and liquidity were at an excellent level.
Operating income in the Wealth Management and Investor Clients segment decreased by 10 percent to EUR 19.9 million. Assets under management rose to EUR 15.8 billion (EUR 15 billion) but fell from EUR 17.5 billion at the turn of the year as a result of the fall in share prices and net redemptions. Evli Fund Management Company’s mutual fund capital amounted to EUR 9.5 billion (EUR 9.4 billion), with net redemptions of EUR 428 million, mainly in Nordic and European corporate bonds and European equities. The segment's revenues were positively affected by higher fee income from traditional and alternative funds and increased brokerage fees. The revenue development was negatively affected by a significant decrease in performance-related fees from around EUR 5 million in the comparison period to EUR 0.4 million in the review period.
Operating income in the Advisory and Corporate Clients segment decreased by 11 percent to EUR 3.6 million. Corporate Finance invoicing decreased from the comparison period to EUR 0.7 million (EUR 2.9 million). However, the unit’s mandate base is at a good level and prospects for closing mandates are brightening after the shock reaction in the beginning of the year. As in previous years, the incentives business revenues increased to EUR 2.8 million (EUR 2.1 million). The unit won new incentive plan design and administration contracts, and its outlook is good.
After the review period on April 2, 2022, the merger announced in the summer of 2021 was completed, as a result of which Evli Bank Plc was split into a new listed company focusing on asset management and a company continuing the banking operations, to which Fellow Finance Plc was merged. The shares of investment services group Evli Plc were admitted to trading on the main list of the Helsinki Stock Exchange. The implementation was carried out according to the original plans and schedule, and the system conversion, which was critical for operations, was successfully completed.
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 Nordic corporate bond funds at its core, suffered from rising interest rates in the early part of the year and increased uncertainty due to the war in Ukraine. Redemptions by international clients totalled EUR 300 million and international clients accounted for 23 percent (23%) of Evli's total fund capital, including alternative investment products. In the first quarter, alternative investment products were sold for a total of EUR 126 million (EUR 73 million). Sales were spread across several funds, with the largest subscriptions being for Evli Private Equity I and Evli Private Equity III (around EUR 60 million in total), Evli Residential II (around EUR 17 million) and Evli Impact Forest I (around EUR 13 million). We expect demand for alternative investment products to remain strong for the rest of the year.
During the first quarter, we continued our systematic work to develop responsible investment under the leadership of our new Head of Sustainability, Petra Hakamo, who was appointed on January 1, 2022. Human rights and biodiversity were key themes for development. Climate work continued in line with the 2021 roadmap of climate targets, and our already diverse client reporting on responsibility was expanded in terms of governance and sustainability metrics. Following Russia's invasion in Ukraine, Evli decided to exclude Russia-related investment targets from its investments. Evli also complies with all sanctions against Russia.
After the review period, on April 22, 2022, we announced a letter of intent under which Evli Plc and EAB Group Plc will explore the possibility of combining their operations. The parties aim to sign a merger agreement and other transaction agreements during May 2022. The planned merger is expected to be implemented during the fall 2022.
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