eQ Plc interim report

22 October 2024 at 8:00 AM

January to September 2024 in brief

During the period under review, the Group's net revenue totalled EUR 50.9 million (EUR 52.3 million from 1 Jan. to 30 Sept. 2023). The Group's net fee and commission income was EUR 49.8 million (EUR 51.5 million). The Group's operating profit fell by 8% to EUR 27.6 million (EUR 30.0 million).The Group's profit was EUR 21.9 million (EUR 23.8 million). The consolidated earnings per share were EUR 0.53 (EUR 0.59).The net revenue of the Asset Management segment decreased by 10% to EUR 45.5 million (EUR 50.3 million) and the operating profit by 15% to EUR 26.9 million (EUR 31.7 million). The management fees of the Asset Management segment fell by 10% to EUR 42.0 million (EUR 46.8 million) and the performance fees increased by 3% to EUR 4.0 million (EUR 3.9 million). During the review period, the assets managed by eQ Asset Management grew by 3% to EUR 13.3 billion (EUR 12.9 billion on 31 Dec. 2023).The net revenue of the Corporate Finance segment was EUR 4.3 million (EUR 1.2 million)

 and the operating profit was EUR 1.5 million (EUR -0.9 million). The operating profit of the Investments segment was EUR 0.5 million (EUR 0.4 million). The net cash flow from the Group's own private equity and real estate fund investment operations was EUR 0.7 million (EUR 0.2 million). July to September 2024 in brief

In the third quarter, the Group's net revenue totalled EUR 16.7 million (EUR 16.6 million from 1 July to 30 Sept. 2023). The Group's net fee and commission income was EUR 16.6 million (EUR 16.2 million). The Group's operating profit fell by 6% to EUR 9.6 million (EUR 10.2 million).The Group's profit was EUR 7.6 million (EUR 8.1 million). The consolidated earnings per share were EUR 0.18 (EUR 0.20). Key ratios1-9/241-9/23Change7-9/247-9/23Change1-12/23Net revenue, Group, MEUR50.952.3-3%16.716.61%70.9Net revenue, Asset Management, MEUR45.550.3-10%15.215.9-4%66.9Net revenue, Corporate Finance, MEUR4.31.2251%1.30.3300%3.9Net revenue, Investments, MEUR0.50.415%-0.10.3-133%-0.6Net revenue, Group administration and eliminations, MEUR0.70.4 0.20.1  0.6        Operating profit, Group, MEUR27.630.0-8%9.610.2-6%39.7Operating profit, Asset Management, MEUR26.931.7-15%9.410.5-10%41.4Operating profit, Corporate Finance, MEUR1.5-0.9265%0.5-0.2331%0.7Operating profit, Investments, MEUR0.50.415%-0.10.3-133%-0.6Operating profit, Group administration, MEUR-1.1-1.3 -0.3-0.4 -1.7        Profit for the period, MEUR21.923.8-8%7.68.1-6%31.5        Key ratios1-9/241-9/23Change7-9/247-9/23Change1-12/23Earnings per share, EUR0.530.59-9%0.180.20-8%0.78Equity per share, EUR1.641.65-1%1.641.65-1%1.85Cost/income ratio, Group, %45.742.67%42.838.511%43.8        Liquid assets, MEUR29.022.429%29.022.429%33.4Private equity and real estate fund investments, MEUR16.517.1-4%16.517.1-4%16.6Interest-bearing loans, MEUR0.00.00%0.00.00%0.0        Assets under management excluding reporting services, EUR billion10.49.94%10.49.94%10.0Assets under management, EUR billion13.312.84%13.312.84%12.9 Mikko Koskimies, CEO

Before the summer, it was expected that the Federal Reserve would not be able to cut its reference rate until late 2024 or in 2025. However, this view changed in early August, when labour market data was clearly weaker than expected. Strong fears emerged in the markets that the central bank acted too late when cutting interest rates and that the economy was at risk of a recession. Interest rate markets immediately anticipated that the Federal Reserve would cut its reference rate exceptionally quickly and sharply. Stock markets fell. Market positions were unwound at a rapid pace, resulting in Japanese yen's sharp value increase and the Japanese stock market's steep decline.

Economic data released in the following weeks showed that market reactions had been disproportionate. However, the increased risk of recession was reflected in the Federal Reserve cutting its reference rate by 0.5 percentage points in September. The European Central Bank had already cut its reference rate in the summer and implemented another 0.25 percentage point cut in September. In Europe, economic growth differentials are exceptionally high, complicating the ECB's monetary policy stance. Towards the end of the third quarter, China announced larger economic policy measures to boost growth. This led to a sharp rise in share prices at the very end of the quarter.

Equity markets fluctuated in line with the recession, but as predictions of the economy's soft landing returned, third-quarter returns turned clearly positive. At the beginning of the year, the US was the frontrunner, with the S&P 500 index returning as much as 21.7% in dollars (20.5% in euros). The rise of US share prices continues to be driven by a few technology companies. MSCI Europe had risen 11.6% since the beginning of the year. The Finnish stock market rose rapidly in the third quarter, up 8.8% from the start of the year. In emerging markets, share prices rose by 15.7% at the start of the year.

eQ's operating profit EUR 27.6 million

The net revenue of the Group during the review period was EUR 50.9 million and the operating profit was EUR 27.6 million. Operating profit fell by 8 per cent from the previous year.

eQ Asset Management's assets under management increased

eQ Asset Management's net revenue in the review period fell by 10 per cent to EUR 45.5 million. The operating profit of the period fell by 15 per cent to EUR 26.9 million. The assets managed by eQ Asset Management grew by 3 per cent to EUR 13.3 billion during the period under review.

As for traditional interest and equity investments, the returns of client portfolios in the first half were very good. Of the funds that eQ manages itself, 38 per cent surpassed their benchmark indices, and during a three-year period the corresponding figure was 62 per cent. During the review period eQ's funds also received awards from both Morningstar and Lipper.

As for sales, the year 2024 has gone well especially in Private Equity asset management. In 2024, Private Equity assets are raised to the eQ PE XVI North and eQ PE SF V funds, which make investments in Northern Europe. Their sizes increased to almost EUR 300 million in total at the end September. At the same time, the size the eQ VC II fund, which makes Venture Capital investments and which was started with the first closing of EUR 20 million last October, grew to 49 million dollars.

Advium's profit grew

During the period under review, Advium's net revenue totalled EUR 4.3 million (EUR 1.2 million). Operating profit was EUR 1.5 million (EUR -0.9 million).

M&A activity in the third quarter of the year has remained at the same level as at the beginning of the year, but at a clearly lower level compared to the longer-term average. Volumes of the real estate transaction market are also still significantly below the long-term average.

During the first nine months of 2024, Advium advised on four M&A transactions and one real estate transaction: Advising Aspo Plc on its minority investment in OP Suomi Infra, advising the eQ Commercial Properties fund on the sale of the Bredis retail park, advising an acquiring consortium on the public offer for Purmo Group, advising Innofactor Board of Directors on public cash offer for the company and advising Forcit on its agreement to acquire part of Orica's Finnish and Swedish businesses.

Jacob af Forselles was appointed as the Managing Director of Advium Corporate Finance Ltd and as a member to eQ Group's Management Team. He started in his position at the beginning of August.

The operating profit of Investments increased slightly

The operating profit of the Investments segment was EUR 0.5 million (EUR 0.4 million), and the net cash flow was EUR 0.7 million (EUR 0.2 million). The balance sheet value of the private equity and real estate fund investments at the end of the period was EUR 16.5 million (EUR 16.6 million on 31 Dec. 2023). During the period, eQ Plc made a EUR 1 million investment commitment in the new eQ PE XVI North fund.

Outlook

The asset management market in Finland has grown strongly, and eQ's growth has outpaced the market. We estimate that the long-term outlook for growth in the asset management market and for eQ in Finland is still good.

For eQ's real estate funds, 2023 was a difficult year due to an increase of the yields resulting from a strong rise in the interest rate level. As yields rose, values of properties clearly declined. Also, net subscriptions in funds were negative. The limited availability of real estate financing also contributed to a significant decrease in real estate transactions. With regard to the real estate funds, we expect 2024 to be a challenging year, although the long-term outlook for growth is good. Sales of eQ's Private Equity products has continued to be strong, and the desire of Finnish asset management clients to increase Private Equity allocations in their portfolios will continue to support the growth of eQ's Private Equity products. We also anticipate a growth in performance fees from 2025 onwards, due to the transfer of several Private Equity products to a performance fee stage. eQ's competitive position in traditional asset management products and discretionary asset management is good thanks to excellent returns on investments. We believe that traditional asset management has great potential for growth in future years, considering however its characteristic short-term variation according to market conditions.

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eQ's interim report 1 January to 30 September 2024 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 that concentrates on 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 private individuals. The assets managed by the Group total approximately EUR 13.3 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 interim report Q3 2024