eQ Plc’s interim report Q1 2023 – eQ group's result fell

eQ Oyj

eQ Plc interim report
25 April 2023, at 8:00 A.M.

January to March 2023 in brief

• The Group's net revenue for the period was EUR 17.7 million (EUR 21.7 million from 1 Jan. to March 2022). The Group’s net fee and commission income was EUR 17.5 million (EUR 21.4 million).

• The Group’s operating profit fell by 23 per cent to EUR 10.0 million (EUR 13.0 million).

• The Group’s profit was EUR 7.9 million (EUR 10.3 million).

• The consolidated earnings per share were EUR 0.20 (EUR 0.26).

• The net revenue of the Asset Management segment fell by 13 per cent to EUR 17.1 million (EUR 19.6 million) and the operating profit by 15 per cent to EUR 10.7 million (EUR 12.6 million). The management fees of the Asset Management segment grew by 6 per cent to EUR 15.6 million (EUR 14.6 million) while the performance fees fell by 68 per cent to EUR 1.6 million (EUR 5.1 million).

• The net revenue of the Corporate Finance segment was EUR 0.5 million (EUR 1.8 million) and the operating profit was EUR -0,4 million (EUR 0.7 million).

• The operating profit of the Investments segment was EUR -0.1 million (EUR 0.4 million).

• The net cash flow from the Group’s own private equity and real estate fund investment operations was EUR 0.3 million (EUR 0.3 million).

Key ratios	1-3/23	1-3/22	Change	1-12/22
Net revenue, Group, MEUR	17.7	21.7	-18%	77.8
Net revenue, Asset Management, MEUR	17.1	19.6	-13%	71.8
Net revenue, Corporate Finance, EUR	0.5	1.8	-75%	5.4
Net revenue, Investments, MEUR	-0.1	0.4	-123%	0.7
Net revenue, Group administration and
eliminations, MEUR	0.3	-0.1		-0.1
Operating profit, Group, MEUR	10.0	13.0	-23%	45.7
Operating profit, Asset Management, MEUR	10.7	12.6	-15%	45.9
Operating profit, Corporate Finance, MEUR	-0.4	0.7	-154%	1.7
Operating profit, Investments, MEUR	-0.1	0.4	-123%	0.7
Operating profit, Group administration, MEUR	-0.3	-0.7		-2.6
Profit for the period, MEUR	7.9	10.3	-24%	36.3
Key ratios	1-3/23	1-3/22	Change	1-12/22
Earnings per share, EUR	0.20	0.26	-25%	0.91
Equity per share, EUR	1.23	1.28	-4%	2.02
Cost/income ratio, Group, %	43.6	40.0	9%	41.1
Liquid assets, MEUR	51.6	19.5	164%	43.8
Private equity and real estate fund investments, MEUR	16.5	19.0	-13%	16.8
Interest-bearing loans, MEUR	0.0	0.0	0%	0.0
Assets under management excluding reporting services, EUR billion	9.9	9.4	5%	9.7
Assets under management, EUR billion	12.7	12.0	6%	12.6

Mikko Koskimies, CEO

The major theme of the first quarter of 2023 was inflation and uncertainty about how much interest rates should still be raised in Western countries in order to slow down inflation. Economic growth in both Europe and especially in the US remained stronger than feared, and at the same time, the pace of inflation remained clearly higher than the goals of central banks. In China, economic growth started to recover, when the service sector as well began to pick up due to the country’s revised corona policy.

At the beginning of March, worrying news emerged about severe liquidity problems of some US banks, and soon after that Credit Suisse, one of the largest banks in Switzerland, faced difficulties and was merged with another Swiss bank. In this operation, fixed income investors also suffered losses. As usual, such problems cast a big question mark on the entire banking sector, and above all finance sector shares fell steeply. Market interest rates also began to fall clearly. Despite bank problems, both the Fed and European central banks raised their policy rates in March, the Fed by 0.25 per cent and the ECB by 0.50 per cent. The interest rate market began pricing in the turnaround of the central banks’ interest rate policy and the fall of interest rates already during 2023.

Share prices rose at the beginning of the quarter but started to decline in March due to problems in the banking sector. When central banks rapidly came to aid and, as usual, began to calm down the market with different support measures and promises, share prices quickly went up again. The returns of the whole quarter were good. The best return came from MSCI Europe, 8.6 per cent. The return of the S&P 500 Index was 7.4 per cent in dollars and 5.5 per cent in euros. The return of the Finnish Stock Exchange was 2.1 per cent during the first months of the year. The emerging market index return was 2.1 per cent, but there were very large differences between countries. The clearly best return came from Taiwan and the poorest performer was India, which showed a clearly negative return.

Pricing in inflation and interest increase expectations and, in March, the pricing in of the likelihood of a bank crisis led to unexceptionally strong fluctuations in the interest rate market. As for the entire quarter, the best returns in Europe came from European high yields loans, which gave a return of 3.0 per cent. Euro government bonds gave a 2.0 per cent and European investment grade loans a 1.6 per cent return. The return of emerging market loans was 1.5 per cent.

eQ’s result for the first quarter fell

eQ’s result for the period fell in the challenging operating environment. The net revenue of the Group during the period under review was EUR 17.7 million and the operating profit was EUR 10.0 million. Operating profit fell by 23 per cent from the previous year.

The growth of eQ Asset Management’s management fees continued

The management fees of eQ Asset Management continued to grow despite the weak operating environment. On the other hand, performance fees decreased by 68 per cent to EUR 1.6 million. During the period under review, the net revenue of the Asset Management segment fell by 13 per cent to EUR 17.1 million. The operating profit fell by 15 per cent to EUR 10.7 million. The assets managed by eQ Asset Management grew by 1 per cent to EUR 12.7 billion during the period under review.

As for traditional investments, the returns of client portfolios were positive in the first quarter in line with the market. Of the funds that eQ manages itself, 52 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 quarter in line with the market. The returns of real estate and private equity funds were slightly positive.

As for sales, the beginning of 2023 was good, above all 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 second closing of the fund, which took place in April, the size of the fund already grew to USD 231 million.

Advium completed no transactions during the first quarter

Advium’s net revenue for the period under review was EUR 0.5 million (EUR 1.8 million) and operating profit EUR -0.4 million (EUR 0.7 million).

In the first quarter of the year, the value of mergers and acquisition fell considerably from the previous year world-wide, and the slower market was clearly visible in Finland as well. The volume of real estate transactions has fallen to its lowest level since 2012, and even though there are several processes going on in the market, their realisation is uncertain. Due to the low market activity, no transactions where Advium acted as advisor were completed in the first quarter.

The operating profit of Investments fell

The operating profit of the Investments segment was EUR -0.1 million (EUR 0.4 million) and the net cash flow was at last year’s level, i.e. EUR 0.3 million (EUR 0.3 million). The balance sheet value of the private equity and real estate fund investments was EUR 16.5 million at the end of the period (EUR 16.8 million on 31 December 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 April 2023, the eQ PE XV US private equity fund grew to USD 231 million in its second 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 and, their possible performance fees for 2023 involve uncertainty. 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 are specifying the outlook and 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 31 March 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 12.7 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 Q1 2023