eQ Plc’s interim report Q3 2023 – eQ’s profit in the review period fell
eQ Plc interim report
24 October 2023, at 8:00 AM
*January to September 2023 in brief *
· The Group's net revenue during the period was EUR 52.3 million (EUR 64.2 million from 1 Jan. to 30 September 2022). The Group’s net fee and commission income was EUR 51.5 million (EUR 62.8 million).
· The Group’s operating profit fell by 24% to EUR 30.0 million (EUR 39.5 million).
· The Group’s profit was EUR 23.8 million (EUR 31.4 million).
· The consolidated earnings per share were EUR 0.59 (EUR 0.79).
· The net revenue of the Asset Management segment decreased by 14% to EUR 50.3 million (EUR 58.6 million) and the operating profit by 17% to EUR 31.7 million (EUR 38.4 million). The management fees of the Asset Management segment grew by 2 per cent to EUR 46.8 million (EUR 45.6 million) and the performance fees fell by 71 per cent to EUR 3.9 million (EUR 13.3 million).
· The net revenue of the Corporate Finance segment was EUR 1.2 million (EUR 4.3 million) and the operating profit was EUR -0.9 million (EUR 1.5 million).
· The operating profit of the Investments segment was EUR 0.4 million (EUR 1.4 million).
· The net cash flow from the Group’s own private equity and real estate fund investment operations was EUR 0.2 million (EUR 2.3 million).
*July to September 2023 in brief*
· In the third quarter, the Group’s net revenue totalled EUR 16.6 million (EUR 20.1 million from 1 July to 30 September 2022). The Group’s net fee and commission income was EUR 16.2 million (EUR 19.9 million).
· The Group’s operating profit fell by 18% to EUR 10.2 million (EUR 12.4 million).
· The Group’s profit was EUR 8.1 million (EUR 9.8 million).
· The consolidated earnings per share were EUR 0.20 (EUR 0.24).
Key ratios 1-9/23 1-9/22 Change 7-9/23 7-9/22 Change 1-12/22
Net revenue, Group, MEUR 52.3 64.2 -18% 16.6 20.1 -18% 77.8
Net revenue, Asset Management, MEUR 50.3 58.6 -14% 15.9 18.5 -14% 71.8
Net revenue, Corporate Finance, MEUR 1.2 4.3 -72% 0.3 1.4 -77% 5.4
Net revenue, Investments, MEUR 0.4 1.4 -71% 0.3 0.2 8% 0.7
Net revenue, Group administration and
eliminations, MEUR 0.4 -0.1 0.1 0.0 -0.1
Operating profit, Group, MEUR 30.0 39.5 -24% 10.2 12.4 -18% 45.7
Operating profit, Asset Management, MEUR 31.7 38.4 -17% 10.5 12.1 -14% 45.9
Operating profit, Corporate Finance, MEUR -0.9 1.5 -158% -0.2 0.5 -140% 1.7
Operating profit, Investments, MEUR 0.4 1.4 -71% 0.3 0.2 8% 0.7
Operating profit, Group administration, MEUR -1.3 -1.9 -0.4 -0.5 -2.6
Profit for the period, MEUR 23.8 31.4 -24% 8.1 9.8 -18% 36.3
Key ratios 1-9/23 1-9/22 Change 7-9/23 7-9/22 Change 1-12/22
Earnings per share, EUR 0.59 0.79 -25% 0.20 0.24 -19% 0.91
Equity per share, EUR 1.65 1.89 -13% 1.65 1.89 -13% 2.02
Cost/income ratio, Group, % 42.6 38.4 11% 38.5 38.3 1% 41.1
Liquid assets, MEUR 22.4 31.6 -29% 22.4 31.6 -29% 43.8
Private equity and real estate fund investments, MEUR 17.1 18.0 -5% 17.1 18.0 -5% 16.8
Interest-bearing loans, MEUR 0.0 0.0 0% 0.0 0.0 0% 0.0
Assets under management excluding reporting services, EUR billion 9.9 9.4 5% 9.9 9.4 5% 9.7
Assets under management, EUR billion 12.8 12.3 4% 12.8 12.3 4% 12.6
*Mikko Koskimies, CEO*
The central themes of the third quarter of 2023 continued to be inflation, economic growth and the interest policies of central banks. Economic growth in the US remained surprisingly strong, led especially by the service sector, despite rising interest rates. However, Europe got more data that interest rate rises would begin to clearly slow down economic growth. The outlook for economic growth in China deteriorated and concerns regarding the real estate sector, in particular, grew. China has not suffered from similar inflation pressures as Western countries.
The Federal Reserve in the US kept interest rates unchanged in the third quarter of the year. The European Central Bank (ECB), on the other hand, kept raising interest rates and the deposit rate rose by 0.25 per cent to 4.0 per cent. In their comments, both central banks emphasised that future attention would be on economic data which determines whether further interest rate hikes are required.
The atmosphere in stock exchanges varied according to economic data and ensuing expectations of interest rate increases. For the return of the equities market as a whole, the third quarter of the year was slightly negative with the exception of Japan. Since the beginning of 2023 the best returns have come from the US, where the euro-denominated return of the S&P 500 Index was 13.6 per cent. European shares returned 8.8 per cent since the start of the year, whereas the return in emerging markets remained sluggish due to problems in China, for instance, with a return of 2.6 per cent. The return of the Finnish market was as much as -6.6 per cent in the negative, on the other hand.
Long interest rates began to climb when the ECB further raised its rates the third quarter of the year, and both central banks communicated that interest rates could stay high for a fairly long time. As a result, the yield of the Euro Government Bond Index remained 0.4 per cent in the negative, measured from the beginning of 2023. From the start of the year, Investment Grade corporate loans gave an index return of 2.3 per cent, High Yield loans gave a 6.2 per cent return and emerging market euro-hedged corporate loans a +0.0 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 52.3 million and the operating profit was EUR 30.0 million. Operating profit fell by 24 per cent from the previous year.
*eQ Asset Management’s performance fees declined*
The management fees of eQ Asset Management grew by 2 per cent despite the weak operating environment. Performance fees, on the other hand, fell by 71 per cent to EUR 3.9 million from last year’s EUR 13.3 million. During the period under review, the net revenue of the Asset Management segment fell by 14 per cent to EUR 50.3 million. The operating profit of the period fell by 17 per cent to EUR 31.7 million. The assets managed by eQ Asset Management grew by 2 per cent to EUR 12.8 billion during the period under review.
As for traditional investments, the returns of client portfolios were positive in the review period in line with the market. Of the funds that eQ manages itself, as much as 85 per cent surpassed their benchmark indices, and during a three-year period the corresponding figure was also 85 per cent. The returns of the discretionary asset management portfolios were also positive in the first nine months in line with the market. The returns of private equity funds were slightly positive as well. 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 year 2023 has been 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 fourth closing, which took place in September, its size already grew to USD 277 million.
*Advium had a quiet operating environment*
Advium’s net revenue during the period under review was EUR 1.2 million (EUR 4.3 million) and the operating profit EUR -0.9 million (EUR 1.5 million).
During the year, the value of corporate acquisitions fell clearly from the year before globally. The value of real estate transactions in Finland was EUR 2.1 billion, which is about 70 per cent less than the year before. However, activity in the real estate market has increased somewhat in spite of uncertainties relating to valuation levels.
During the period under review, Advium acted as advisor in two assignments: Advium acted as advisor in Otava’s mandatory public offer for shares in Alma Media Corporation. In addition, Advium represented the global fund manager Schroders which sold an office building in central Turku to the Niamin Core Plus II fund.
*The operating profit of Investments fell*
The operating profit of the Investments segment was EUR 0.4 million (EUR 1.4 million) and the net cash flow was EUR 0.2 million (EUR 2.3 million). The balance sheet value of the private equity and real estate fund investments was EUR 17.1 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 2023 has been good in private equity asset management. In September 2023, the eQ PE XV US private equity fund grew to USD 277 million in its fourth closing. This strengthens our view that demand will continue to be strong among investors, 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 specify our outlook and estimate the net revenue of the Asset Management segment in 2023 to be approximately EUR 67 million and the operating profit around EUR 41–42 million. 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 September 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 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 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 Interim Report Q3 2023