eQ Plc interim report
23 April 2024 at 8:00 AM
January to March 2024 in brief
- During the financial period, the Group's net revenue totalled EUR 16.5 million (EUR 17.7 million from 1 Jan. to 31 Mar. 2023). The Group's net fee and commission income was EUR 16.0 million (EUR 17.5 million).
- The Group's operating profit fell by 12% to EUR 8.8 million (EUR 10.0 million).
- The Group's profit was EUR 7.0 million (EUR 7.9 million).
- The consolidated earnings per share were EUR 0.17 (EUR 0.20).
- The net revenue of the Asset Management segment decreased by 11% to EUR 15.1 million (EUR 17.1 million) and the operating profit by 18% to EUR 8.9 million (EUR 10.7 million). The management fees of the Asset Management segment fell by 10% to EUR 14.0 million (EUR 15.6 million) and the performance fees fell by 17% to EUR 1.4 million (EUR 1.6 million). Assets under management increased by 3% to EUR 13.3 billion during the period under review (EUR 12.9 billion 31 Dec 2023).
- The net revenue of the Corporate Finance segment was EUR 0.8 million (EUR 0.5 million) and the operating profit was EUR 0.1 million (EUR -0.4 million).
- The operating profit of the Investments segment was EUR 0.2 million (EUR -0.1 million).
- The net cash flow from the Group's own private equity and real estate fund investment operations was EUR 0.1 million (EUR 0.3 million).
| Key ratios | 1-3/24 | 1-3/23 | Change | 1-12/23 |
| Net revenue, Group, MEUR | 16.5 | 17.7 | -7% | 70.9 |
| Net revenue, Asset Management, MEUR | 15.1 | 17.1 | -11% | 66.9 |
| Net revenue, Corporate Finance, MEUR | 0.8 | 0.5 | 79% | 3.9 |
| Net revenue, Investments, MEUR | 0.2 | -0.1 | 357% | -0.6 |
| Net revenue, Group administration and eliminations | ||||
| MEUR | 0.3 | 0.3 | 0.6 | |
| Operating profit, Group, MEUR | 8.8 | 10.0 | -12% | 39.7 |
| Operating profit, Asset Management, MEUR | 8.9 | 10.7 | -18% | 41.4 |
| Operating profit, Corporate Finance, MEUR | 0.1 | -0.4 | 119% | 0.7 |
| Operating profit, Investments, MEUR | 0.2 | -0.1 | 357% | -0.6 |
| Operating profit, Group administration, MEUR | -0.4 | -0.3 | -1.7 | |
| Profit for the period, MEUR | 7.0 | 7.9 | -12% | 31.5 |
| Key ratios | 1-3/24 | 1-3/23 | Change | 1-12/23 |
| Earnings per share, EUR | 0.17 | 0.20 | -12% | 0.78 |
| Equity per share, EUR | 1.25 | 1.23 | 2% | 1.85 |
| Cost/income ratio, Group, % | 46.6 | 43.6 | 7% | 43.8 |
| Liquid assets, MEUR | 34.9 | 51.6 | -32% | 33.4 |
| Private equity and real estate fund investments, MEUR | 16.7 | 16.5 | 1% | 16.6 |
| Interest-bearing liabilities, MEUR | 0.0 | 0.0 | 0% | 0.0 |
| Assets under management excluding reporting services, EUR billion | 10.2 | 9.9 | 4% | 10.0 |
| Assets under management, EUR billion | 13.3 | 12.7 | 4% | 12.9 |
Mikko Koskimies, CEO
In 2022-23 reference rates of central banks in Europe rose from zero to 4 per cent and in the United States from zero to 5.5 per cent. In early 2024 the markets expected that interest rates could be lowered both in the US and in Europe in the first quarter of 2024, and that interest rates as a whole would be lowered as much as 1.5 percentage points in 2024.
Expectations of interest rate cuts proved too optimistic because economic growth in the US, in particular, continued strong while inflation remained higher than anticipated. The outlook for growth in Europe diminished instead, and growth forecasts had to be lowered close to zero. Rate-cut expectations were postponed to the summer of 2024 while the anticipated number of rate cuts for the whole year decreased clearly from 1.5 percentage points.
In the big picture, however, stronger than anticipated growth in the US and improved results had a larger impact than the postponement of rate-cut expectations, and share prices rose strongly in the first quarter. The most intense rise in share prices in the first quarter was seen in Japan where the MSCI Japan climbed 13.0 per cent. In the US, measured with the S&P 500 Index, share prices also rose by 13.0 per cent in euros and by 10.4 per cent in dollars. In Europe share prices climbed by 7.6 per cent and in the emerging stock markets by 4.4 per cent. The Finnish stock exchange remained weak in proportion to others, with a rise of only 0.3 per cent.
The change in rate-cut expectations in the first quarter was clearly reflected on the fixed income markets. The return of the Euro Government Bond Index during the quarter remained 0.7 per cent in the negative, as the expectation for a reduction of the reference rates had to be changed. Interest spreads were somewhat bridged, and the return of Investment Grade loans was 0.4 per cent, High Yield loans gave a 1.7 per cent return and emerging market corporate loans a 1.1 per cent return.
eQ's profit fell
eQ's profit for the period under review fell. The net revenue of the Group during the review period was EUR 16.5 million and the operating profit was EUR 8.8 million. Operating profit fell by 12 per cent from the previous year.
eQ Asset Management's assets under management increased
eQ Asset Management's net turnover in the review period fell by 11 per cent to EUR 15.1 million. The operating profit of the period fell by 18 per cent to EUR 8.9 million. The assets managed by eQ Asset Management grew by 3 per cent to EUR 13.3 billion during the period under review and are at a record level.
As for traditional interest and equity investments, the returns of client portfolios in the first quarter were very good. Of the funds that eQ manages itself, 77 per cent surpassed their benchmark indices, and during a three-year period the corresponding figure was 62 per cent. Also, the eQ Finland fund received the award for the best fund from Morningstar.
As for sales, the year 2024 has begun 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 as high as EUR 240 million in total at the end March. At the same time, fundraising continues for the eQ VC II fund, which makes Venture Capital investments and which was started with the first closing of EUR 20 million last October.
Advium's operating environment remained quiet
During the period under review, Advium's net revenue totalled EUR 0.8 million (EUR 0.5 million). Operating profit was EUR 0.1 million (EUR -0.4 million).
In the first quarter activity in mergers and acquisitions remained low. During the review period an M&A transaction was completed where Advium served as Aspo Plc's advisor regarding a minority investment by OP Suomi Infra.
The number of real estate transactions in Finland also remained extremely low in the first quarter. In the review period Advium acted as an advisor in one real estate transaction where the eQ Commercial Properties fund sold a commercial building in Espoo to an international investor.
The operating profit of Investments increased
The operating profit of the Investments segment was EUR 0.2 million (EUR -0.1 million), and the net cash flow was EUR 0.1 million (EUR 0.3 million). The balance sheet value of the private equity and real estate fund investments at the end of the period was EUR 16.7 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 31 March 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.
