eQ Plc’s half year report 2023 – eQ’s profit for the period fell

eQ Plc half year financial report
8 August 2023 at 8:00 AM

eQ Plc’s half year report 2023 – eQ’s profit for the period fell

January to June 2023 in brief

• The Group's net revenue during the period was EUR 35.7 million (EUR 44.0 million from 1 Jan. to 30 June 2022). The Group’s net fee and commission income was EUR 35.2 million (EUR 43.0 million).
• The Group’s operating profit fell by 27 per cent to EUR 19.8 million (EUR 27.1 million).
• The Group’s profit was EUR 15.7 million (EUR 21.5 million).
• The consolidated earnings per share were EUR 0.39 (EUR 0.54).
• The net revenue of the Asset Management segment fell by 14 per cent to EUR 34.4 million (EUR 40.1 million) and the operating profit by 19 per cent to EUR 21.2 million (EUR 26.3 million). The management fees of the Asset Management segment grew by 5 per cent to EUR 31.3 million (EUR 29.9 million) and the performance fees fell by 68 per cent to EUR 3.3 million (EUR 10.4 million).
• The net revenue of the Corporate Finance segment was EUR 0.9 million (EUR 2.9 million) and the operating profit was EUR -0.7 million (EUR 1.0 million).
• The operating profit of the Investments segment was EUR 0.1 million (EUR 1.2 million).
• The net cash flow from the Group’s own private equity and real estate fund investment operations was EUR -0.2 million (EUR 1.0 million).

April to June 2023 in brief

• In the second quarter, the Group’s net revenue totalled EUR 18.0 million (EUR 22.4 million from 1 April to 30 June 2022). The Group’s net fee and commission income was EUR 17.8 million (EUR 21.6 million).
• The Group’s operating profit fell by 30 per cent to EUR 9.8 million (EUR 14.1 million).
• The Group’s profit was EUR 7.8 million (EUR 11.2 million).
• The consolidated earnings per share were EUR 0.19 (EUR 0.28).

Key ratios	1-6/23	1-6/22	Change	4-6/23	4-6/22	Change	1-12/22
Net revenue, Group, MEUR	35.7	44.0	-19%	18.0	22.4	-20%	77.8
Net revenue, Asset Management, MEUR	34.4	40.1	-14%	17.3	20.5	-16%	71.8
Net revenue, Corporate Finance, MEUR	0.9	2.9	-70%	0.4	1.1	-62%	5.4
Net revenue, Investments, MEUR	0.1	1.2	-88 %	0.2	0.8	-71%	0.7
Net revenue, Group administration and
eliminations, MEUR	0.3	-0.1		0.0	0.0		-0.1
Operating profit, Group, MEUR	19.8	27.1	-27%	9.8	14.1	-30%	45.7
Operating profit, Asset Management, MEUR	21.2	26.3	-19%	10.5	13.7	-23%	45.9
Operating profit, Corporate Finance, MEUR	-0.7	1.0	-168%	-0.3	0.3	-205%	1.7
Operating profit, Investments, MEUR	0.1	1.2	-88 %	0.2	0.8	-71%	0.7
Operating profit, Group administration, MEUR	-0.9	-1.4		-0.6	-0.6		-2.6
Profit for the period, MEUR	15.7	21.5	-27 %	7.8	11.2	-30%	36.3
Key ratios	1-6/23	1-6/22	Change	4-6/23	4-6/22	Change	1-12/22
Earnings per share, EUR	0.39	0.54	-28%	0.19	0.28	-32%	0.91
Equity per share, EUR	1.44	1.64	-12%	1.44	1.64	-12%	2.02
Cost/income ratio, Group, %	44.4	38.4	16%	45.3	36.9	23%	41.1
Liquid assets, MEUR	12.8	22.3	-43%	12.8	22.3	-43%	43.8
Private equity and real estate fund investments, MEUR	17.3	19.0	-9%	17.3	19.0	-9%	16.8
Interest-bearing liabilities, MEUR	0.0	0.0	0%	0.0	0.0	0%	0.0
Assets under management excluding reporting services, EUR billion	9.9	9.3	7%	9.9	9.3	7%	9.7
Assets under management, EUR billion	12.8	12.0	7%	12.8	12.0	7%	12.6

Mikko Koskimies, CEO

The central themes of the first half of 2023 were inflation and the pressure to raise central bank rates as well as the problems of banks. Bank fears began from the smallest banks in the US and spread momentarily to Europe as well. The quick reaction of central banks and above all the stricter regulations that had already been introduced in Europe calmed down the market rapidly, however. Inflation remained high, but the price of energy already began to cut down inflation. The central banks in both the US and Europe continued with interest rate rises during the first half of the year. The Fed no longer raised its key interest rate in June 2023 but stated that it would follow up the impacts that the already made rises would have on the economy. The ECB, on the other hand, raised interest rates by 0.25 per cent in June as well, and the market expect that interest rates would still increase by at least 0.25 per cent.

Despite the interest rate increases, economic growth continued in both the US and Europe, and particularly the employment situation remained strong in both areas. In China, economic growth picked up as COVID restrictions were removed, but private consumption has remained weaker that hoped. The growth of Chinese exports has also been a disappointment, as Western countries have tried to cut down their dependence on China.

As a whole, the equities market gave a very good return. Regional differences were large, however, and above all in the US, the share prices of some AI-related companies went up sharply. This also gave a boost to the Taiwanese stock exchange, for instance. The largest price rise during the six-month period was seen in the US, where share prices measured by the S&P 500 Index rose by no less than 16.6 per cent calculated in dollars and by 14.1 per cent in euros. Share prices rose by 11.1 per cent in Europe, by 10.5 per cent in Japan and by 2.6 per cent in emerging markets. The Finnish stock exchange fell by 2.8 per cent, on the other hand.

Fixed income investments gave a good return during the first half. The best return came from Euro High Yield loans, which gave a return of 4.4 per cent at index level. Euro government bonds gave a 2.1 per cent return and Euro IG loans a 2.0 per cent return. Emerging market euro-hedged corporate loans gave a 1.6 per cent return.

eQ’s profit for the period fell

eQ’s profit for the period fell in the challenging operating environment. The net revenue of the Group during the period under review was EUR 35.7 million and the operating profit was EUR 19.8 million. Operating profit fell by 27 per cent from the previous year.

The growth of eQ Asset Management’s management fees continued

The management fees of eQ Asset Management grew 5 percent despite the weak operating environment. Performance fees, on the other hand, fell by 68 cent from last year’s EUR 10.4 million to EUR 3.3 million. During the period under review, the net revenue of the Asset Management segment fell by 14 per cent to EUR 34.4 million. The operating profit of the period fell by 19 per cent to EUR 21.2 million. The assets managed by eQ Asset Management grew by 2 cent to EUR 12.8 billion during the period under review.

As for traditional investments, the returns of client portfolios were positive in the first half in line with the market. Of the funds that eQ manages itself, 77 per cent surpassed their benchmark indices, and during a three-year period the corresponding figure was no less than 85 per cent. The returns of the discretionary asset management portfolios were also positive in the first half in line with the market. The returns of private equity funds were slightly positive during the six-month period. The returns of the real estate funds were slightly negative for the first time, on the other hand, due to the increase of the yields resulting from the strong increase in the interest rate level.

As for sales, the beginning of 2023 was good in private equity asset management. In 2023, private equity assets are raised to the eQ PE XV US fund, which makes investments in Northern America. In the third closing, which took place in June, its size already grew to USD 263 million.

Advium had a quiet beginning of the year

Advium’s net revenue during the period under review was EUR 0.9 million (EUR 2.9 million) and operating profit EUR -0.7 million (EUR 1.0 million).

During the period, the value of corporate acquisitions fell clearly from the year before globally. The value of real estate transactions in Finland was EUR 1.4 billion during the half-year period, which is about 70 per cent less than the year before. Towards the end of the second quarter, activity increased in the real estate market. There are several processes going on in the market, but their realisation is uncertain.

During the period under review, Advium acted as advisor in one assignment: Otava’s mandatory public offer for shares in Alma Media Corporation.

The operating profit of Investments fell

The operating profit of the Investments segment was EUR 0.1 million (EUR 1.2 million) and the net cash flow was EUR -0.2 million (EUR 1.0 million). The balance sheet value of the private equity and real estate fund investments was EUR 17.3 million at the end of the period (EUR 16.8 million on 31 Dec. 2022). At the beginning of the year, eQ Plc made a USD 1 million investment commitment in the eQ PE XV US Fund.

Outlook

As for sales, the year 2022 was very good for eQ Asset Management. In June 2023, the eQ PE XV US private equity fund grew to USD 263 million in its third closing. This strengthens our view that demand will continue to be strong among investor, above all for private equity investment products. The returns of real estate funds are linked to the development of yields. Due to the rise of the yields, no performance fee is expected to accrue from the real estate funds from the year 2023. The performance fees of private equity funds will, on the other hand, be at the same level due to the catch up accrual.

Consequently, we expect the net revenue and operating profit of the Asset Management segment in 2023 to be at the same level as last year. In accordance with our disclosure policy, we do not issue profit guidance for the Corporate Finance and Investments segments. The results of these segments are highly dependent on factors that are not dependent on the company. Therefore, their operating profits may vary considerably and are difficult to foresee.

***

eQ’s interim report 1 January to 30 June 2023 is enclosed to this release and it is also available on the company website at www.eQ.fi.

eQ Plc

Additional information:
Mikko Koskimies, CEO, tel. +358 9 6817 8799
Antti Lyytikäinen, CFO, tel. +358 9 6817 8741

Distribution: Nasdaq Helsinki, www.eQ.fi, media

eQ Group is a group of companies specialising in asset management and corporate finance business. eQ Asset Management offers a wide range of asset management services (including private equity funds and real estate asset management) for institutions and individuals. The assets managed by the Group total approximately EUR 12.8 billion. Advium Corporate Finance, which is part of the Group, offers services related to mergers and acquisitions, real estate transactions and equity capital markets. More information about the Group is available on our website www.eQ.fi.

Attachment

• eQ Plc Half Year Financial Report 2023