Helsinki, Finland, 2016-04-20 08:15 CEST (GLOBE NEWSWIRE) --
Norvestia Oyj Interim Report 20 April 2016 at 9:15
INTERIM REPORT OF NORVESTIA FOR JANUARY–MARCH 2016
In January–March 2016, the result of the Group amounted to EUR 4.1 million (EUR 12.7 million in the same period previous year). Earnings per share was EUR 0.27 (0.83). Investment income was EUR 5.4 million (15.8). Net Asset Value (dividend-adjusted) increased during the period by 2.4% (8.6%). Dividend of EUR 0.79 per share was paid for 2015 (0.30).
VOLUNTARY CHANGE IN ACCOUNTING PRINCIPLE
Norvestia’s Board has decided to apply the venture capital organization exemption of the IAS 28 standard and to value associates and joint ventures at fair value through profit or loss in Norvestia’s consolidated IFRS financial statements according to the IAS 39 standard from 1 January 2016. As a result, all Norvestia’s investments will be valued at fair value through profit or loss. Norvestia considers the valuation of investments at fair value to give more meaningful information about the real value of investments and to better describe the company’s business, the company’s way of reviewing its investments and making decisions relating to them.
Similarly, investments in unlisted private equity funds previously booked as available-for-sale financial assets will be reclassified as financial assets at fair value through profit or loss. Thus, in future any change in value will be recognized directly in profit or loss, and not in the statement of comprehensive income. Norvestia believes that classifying investments as assets at fair value through profit or loss better describes their nature and the accumulation of returns taking into account the company’s business.
The change in question is a voluntary change in accounting principle according to the IAS 28 standard which requires that comparative figures be presented retrospectively according to the new accounting principles, including the balance sheet at the beginning of the first comparative period. Norvestia published 14 April 2016 a separate stock exchange release in which the comparative periods have been adjusted.
CAPITAL MARKETS
The capital markets began 2016 in rather uncertain mood. Share prices declined sharply in January–February on all the main stock exchanges. Some of the shares on the Helsinki stock exchange declined by over 30% during the first weeks of the year, representing one of the worst ever drops in the history of the Helsinki stock exchange. Towards the end of February share prices rallied, and the index yields for the first quarter turned out to be almost normal. The OMX Helsinki CAP Yield Index dropped by just 3.3% during the first quarter, recovering from its mid-February low, when it was almost 15% off. This sharp drop and recovery is indeed exceptional.
Behind this volatility lie the same factors that have been shaking share prices for several years now. The European economy has long been suffering from slow growth, and the first quarter of this year was no exception. The economic problems of the Eurozone are many, and high unemployment rate is one of the most severe of these. The refugee crisis has further exacerbated the situation in Europe. The problems of the Eurozone are clearly visible in the poor growth figures of the Finnish economy. The European Central Bank (ECB) has tried various support measures to initiate economic growth in the Eurozone, but with little success.
Apart from the Eurozone, concern over the development of the Chinese economy has further increased turbulence on the stock markets. China has been the engine of the world economy for several years but now there are signs of Chinese economic growth slowing down. This will negatively impact economic growth globally. The poor outlook for economic growth has also depressed commodity prices to record lows. This in turn has increased pressure on the stock market as low commodity prices are thought to indicate poor future economic growth. Crude oil is now cheaper than it was a decade ago. This gloomy situation is almost darkly comical, as for years the high price of oil was said to be constraining global economic growth, whereas now it is the low price of oil that is said to be hampering development.
Index yields on various exchanges for the first three months of 2016 were as follows:
| Finland/OMX Helsinki Index | -6.9% |
| Finland/OMX Helsinki CAP Yield Index | -3.3% |
| Sweden/OMX Stockholm Index | -4.3% |
| Norway/OBX Index | -4.1% |
| Denmark/OMX Copenhagen Index | -6.2% |
| USA/Nasdaq Composite Index | -2.7% |
| USA/S&P 500 Index | 0.8% |
| Bloomberg European 500 Index | -7.7% |
| MSCI World Index | -0.9% |
| Japan/Nikkei 225 Index | -12.0% |
| Norvestia’s share price (dividend-adjusted) | 9.1% |
| Norvestia’s Net Asset Value (dividend-adjusted) | 2.4% |
NORVESTIA’S INVESTMENTS
Norvestia’s twofold investment strategy consists of market investments and Growth Equity. Market investments are made primarily in Nordic listed shares, funds and bonds. Growth Equity investments are made in Nordic unlisted companies, growth-oriented listed companies and private equity funds.
Norvestia’s investments excluding cash and other liquid assets were 94% (92%) of total assets at the end of March. The fair value breakdown of the investments was as follows:
| 31/3/2016 | 31/3/2015 | |||
| MEUR | % | MEUR | % | |
| Listed shares and share funds* | 87.4 | 50.5% | 97.1 | 58.3% |
| Growth Equity | 41.6 | 24.1% | 16.6 | 10.0% |
| Bonds and bond funds | 17.3 | 10.0% | 21.0 | 12.6% |
| Hedge funds | 15.6 | 9.0% | 18.5 | 11.1% |
| Cash and other liquid assets | 11.0 | 6.4% | 13.3 | 8.0% |
| In total | 172.9 | 100.0% | 166.5 | 100.0% |
* of which share funds EUR 13.8 million (15.0).
82% of the Group’s assets were in euros, 12% in Swedish krona, 5% in US dollars and 1% in other currencies.
During the first quarter of the year Norvestia traded shares actively and intended to take advantage of falling share prices. During the period under review shares with strong dividend yields in particular were added to the portfolio.
Norvestia’s Net Asset Value fluctuated less month on month than the stock market in general. The company hedged its investments from time to time by selling Euro Stoxx Index futures. Approximately half of the Swedish krona currency risk was hedged with a currency future.
GROWTH EQUITY
In March Norvestia’s associate Coronaria Hoitoketju Oy sold the majority of Touhula Varhaiskasvatus Oy’s share capital to EQT Mid Market fund. Along with the trade the fair value of Coronaria Hoitoketju on Norvestia’s balance sheet increased by approximately EUR 5 million. In connection with the transaction Norvestia invested EUR 4 million in Touhula in April and thus continues as a minority owner in the company.
Investments in unlisted companies belong to Norvestia’s Growth Equity portfolio, which is administered by Norvestia’s subsidiary Norvestia Industries Oy. The aim of Norvestia’s Growth Equity activities is to find interesting companies with strong growth potential, the long-term and active development of which can yield significant increases in value and thereby return to Norvestia’s shareholders. In accordance with its investment strategy, Norvestia aims to find target companies that operate in sufficiently large markets and have the opportunity to take advantage of their service and solution innovations both in Finland and internationally.
Norvestia invests in minority shares or can be in the majority together with another investor. At the end of March 2016, the Growth Equity portfolio consisted of five unlisted companies: Aste Holding which offers media production and consulting, Coronaria Hoitoketju which offers health care and wellbeing services, Fluido which offers cloud services consulting, Idean Enterprises which offers customer experience design services and Polystar Instruments which develops telecommunications business intelligence software solutions. The total fair value of the interests in these companies amounted to EUR 35.2 million.
Growth Equity also includes investments in private equity funds. Norvestia has committed itself to investing EUR 2.0 million in the Amanda V East Ky private equity fund, of which EUR 1.1 million is now invested; EUR 2.0 million in Lifeline Ventures Fund I Ky, of which EUR 1.4 million is now invested; EUR 5.0 million in Lifeline Ventures Fund III Ky, of which EUR 0.1 million is now invested and EUR 3.0 million in Open Ocean Fund 2015 Ky, of which EUR 0.0 million is now invested. In addition, Norvestia has invested EUR 0.1 million in Lifeline Ventures Fund III AB.
FUTURE PROSPECTS
It is likely that sentiment on the capital markets will remain uncertain during the second quarter of the year. It is currently much easier to list threatening factors than positive opportunities for the economy. Despite the ECB’s extensive attempts to reflate the economy the Eurozone shows no clear signs of growing any time soon. This is particularly concerning as the ECB’s supply of support measures is rapidly running out. The European banking system still has its own inherent risks although they haven’t been much discussed lately. In Italy in particular the amount of banks’ nonperforming assets is very large. The Greek economy and fears of its complete collapse have caused great concern for the European decision-makers during recent summers, and it seems that they will once again be forced to deal with Greece’s situation this summer.
Eurozone-wise the greatest concern this coming summer will be Britain’s referendum on European Union membership. If the Brits decided to exit the EU it would be a major setback to the entire EU and its future. It is yet difficult to predict everything that might result from a Brexit.
From Norvestia’s perspective the situation is interesting. Uncertain market sentiment often leads to excesses which can offer opportunities for a fast moving investor such as Norvestia. In addition, we believe that the development of Growth Equity investments will remain positive and that rapid price changes on the capital markets will not directly affect their valuations.
In this sensitive investment environment, Norvestia aims to take into account various possible scenarios in the economy and on the stock market, based on the latest economic figures. According to the chosen strategy, the amount of Growth Equity investments will be increased during 2016–2018. Otherwise investment levels between shares, funds and interest-yielding investments will be assessed on the basis of the prevailing situation.
KEY FIGURES
| 1/1-31/3/ | 1/1-31/3/ | 1/1-31/12/ | |
| 2016 | 2015 | 2015 | |
| Earnings per share, EUR | 0.27 | 0.83 | 1.63 |
| 31/3/2016 | 31/3/2015 | 31/12/2015 | |
| Equity ratio, % | 92.4 | 94.5 | 96.6 |
| Shareholders’ equity per share, EUR | 10.52 | 10.53 | 11.04 |
| Net Asset Value per share, EUR | 10.52 | 10.53 | 11.04 |
| Net Asset Value, EUR million | 161.1 | 161.3 | 169.1 |
| Share price, EUR | 7.93 | 7.83 | 7.99 |
| Number of shares | 15,316,560 | 15,316,560 | 15,316,560 |
DISCLOSURE PROCEDURE
This stock exchange release is a summary of Norvestia's January-March 2016 Interim Report. The full Interim Report including tables is attached to this release and available on Norvestia’s web pages at www.norvestia.fi/reports.
The interim financial information is unaudited.
Helsinki 20 April 2016
NORVESTIA OYJ Board of Directors
On behalf Juha Kasanen Managing Director Tel. +358-9-6226 380
DISTRIBUTION Nasdaq Helsinki Main media www.norvestia.fi
