EAB Group Plc half-year report 1 January - 30 June 2018 -

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EAB Group Plc half-year report 1 January - 30 June 2018 - Business performed favourably, assets under management grew 12%, and operating margin in line with expectations

EAB Group Plc, Company Announcement, 24 August 2018, 9:00 a.m. (EET)

EAB Group Plc half-year report 1 January - 30 June 2018 - Business performed favourably, assets under management grew 12%, and operating margin in line with expectations

EAB Group's January-June 2018 in brief (comparison with the financial period 1-6/2017) (The figures are unaudited)

  • Group's comparable turnover grew by 20.3% and amounted to EUR 9.6 (EUR 8.0 million).
  • Group's reported turnover grew by 11.4% and amounted to EUR 9.8 (EUR 8.7 million).
  • Comparable turnover from ongoing contracts was approximately EUR 8.4 million, or 86% of total turnover (75%).
  • Group's operating profit before depreciation and amortisation (operating margin) grew by 220.6% and amounted to EUR 2.09 million (EUR 0.65 million).
  • Profit for the period grew by 405.8% and amounted to EUR 1.1 (EUR 0.2 million).
  • Profit for the period was affected by costs from the integration of Alfred Berg's Finnish operations extending into January-April, impact of MiFID II implementation on customer acquisition after the turn of the year, expenses related to new businesses and depreciation of goodwill from investments made in earlier periods.
  • Earnings per share were EUR 0.07 (EUR 0.01).
  • Outlook: operating margin around EUR 5 million in 2018 (previously: EUR 5-6 million).
  • Client and insurance assets (incl. investment commitments) under management grew by 12.4%, amounting on 30 June 2018 to EUR 3,160 million (EUR 2,811 million on 31 December 2017).

Key figures (figures are shown in more detail in the appendix)

Key figures 1-6/2018 1-6/2017 Change % 1-12/2017
Comparable* turnover, EUR 1,000 9,639 8,015 20.3 16,021
Turnover, EUR 1,000 9,750 8,749 11.4 17,059
Operating profit before depreciation and amortisation (operating margin), EUR 1,000 2,090 652 220.7 1,085
Operating profit, EUR 1,000 1,052 208 406.9 -211
Profit for the period, EUR 1,000 886 142 523.2 1,303
Earnings per share, € 0.07 0.01 395.9 0.11
Assets under management, MEUR 3,160 1,643 92.3 2,811

* Comparable turnover is based on net fees pertaining to funds administered on behalf of external parties, whereas reported revenues show these fees in gross terms.

Review by Daniel Pasternack, CEO

The business of EAB Group Plc ("EAB Group", "Company") performed favourably and as planned during the period. Assets under management increased over 12%, particularly reflecting launches of new private equity funds and generally good institutional sales. Changes required by MiFID II regulation entering into force at the beginning of the year slowed down asset acquisition from private customers early in the year, but sales have regained speed since then.

The integration of Alfred Berg's Finnish operations was successfully completed in main respects, but systems integration, among other things, took a few months longer than expected and caused some EUR 0.5 million of additional license and service costs. From May 2018 onwards, our result will no longer be burdened by integration costs.

Our increased size as well as the investments made in service development and digitalisation will enable faster organic growth as well as stronger profitability in the medium term. This is also reflected in our updated financial targets adopted by the Board of Directors.

Financial targets

EAB Group Plc's Board of Directors has established new financial targets for the company for the next 3-5 years:

  1. Average organic sales growth 15% / year
  2. Average non-organic sales growth 10% / year
  3. In total, doubling of the business in 5 years in terms of turnover
  4. Improvement of profitability to over 35% of comparable turnover (currently 20-25%) at EBIT level.

Operating environment

In the first half of 2018, economic growth remained on a par with last year, but there was more variation across different markets. In particular, Europe and Japan are expected to face somewhat decelerating growth in 2018 as a whole, which is balanced by expectations of faster growth in the United States and emerging markets. Growth and the economic situation continue to have a positive foundation, and economic uncertainty is mainly due to political uncertainty and the impacts of a winding-down of expansionary policies by central banks. The Federal Reserve hiked its policy rates twice during the first year-half, and markets are still expecting to see two more raises in 2018. Meanwhile in Europe, monetary policy is now expected to tighten later than before in the course of 2019.

In euro terms, global equity markets performed somewhat positively in the first year-half, partly due to the appreciation of the US Dollar. In late spring, there was increased fluctuation in the investment markets mainly due to the threat of trade wars. However, broad-ranging economic growth continues to support investment in equities. Growth expectations have remained higher than before, both in terms of the real economy and corporate earnings, lending further support to the capital markets in the future. However, European and Japanese economic growth now includes somewhat more uncertainty than anticipated. Likewise, emerging markets involve higher uncertainty than before.

Investors' risk appetite will be tested towards the end of 2018 as the trade war potentially moves from words to actions. However, economic growth has supported the markets, and expectations of an improvement of confidence have strengthened during the summer.

The economic backdrop in the period was reflected in the operations of the EAB Group as somewhat higher investor uncertainty than before, but this did not have a material impact on the acquisition of customer assets. Funds were raised in the first year-half particularly in alternative investments.

Despite stronger economic prospects, market uncertainty about the continuity of growth and monetary policy may have an impact on the Company's growth in the short term. However, the investments made by the Company in the development of its business and alternative investments, in addition to the business acquisitions carried out make up an outstanding foundation for strengthening organic growth in the medium term.

EAB Group's January-June 2018

In the first half of 2018, EAB Group developed its service offering particularly in renewable energy infrastructure projects, real estate investments as well as non-listed equity and debt.

Real estate investments performed favourably, particularly reflecting the launch of Elite Real Estate Fund II and the growth of Elite Rental Yield Fund. In addition, the Company launched a fund of funds in cooperation with Certior Capital investing in European M&A funds. In June, the Company announced the launch of a fund investing in Indian solar energy, in cooperation with Fortum and UK Climate Investments. The new fund acquired a minority interest in Fortum's solar plant portfolio in India, producing clean electricity corresponding to the needs of 315,000 households.

At the beginning of 2018, the Group adopted Elite Alfred Berg as its marketing name, and in April, Elite Asset Management Plc changed its name into EAB Group Plc. These changes reflected the transaction completed in August 2017, in which the Company acquired Alfred Berg's Finnish operations from BNP Paribas Asset Management. Following the transaction, BNP, the world's fifth-largest banking group, became a minority shareholder in the Company, and the Company became the only provider of BNP's investment products in Finland.

In January-June, the integration of Alfred Berg's Finnish operations was completed as planned with respect to information systems and administration, and the Company achieved cost savings in line with the initial plans. Achievement of the savings was delayed from the original plan by 3-4 months, which caused some EUR 0.5 million of additional costs burdening the result for the first year-half. However, the savings will improve the Group's result in full from May 2018 onwards.

During the first year-half, efforts to simplify the group structure continued in order to achieve cost savings and efficiency improvements. As a result, Alfred Berg Asset Management Ltd merged into EAB Fund Management Ltd on 31 December 2017. In addition, the Company carried out the transfer of its investment firm business into its 100%-owned subsidiary EAB Asset Management Ltd (former Alfred Berg Asset Management Finland Ltd). The transfer was completed as a business transfer, in the context of which the parent company gave up its authorisation as an investment firm. In addition, there are subsidiary mergers in progress (EPL Funds Ltd, Elite Law Ltd and Elite Life Ltd, which will form EAB Service Ltd), leading to a reduction in the number of subsidiaries towards the end of 2018.

At the beginning of June, the Company concluded a market-making agreement for the its B share with Lago Kapital Ltd. Market making under the agreement commenced on 5 June 2018.

During the first year-half, EAB Group continued significant investment in IT systems, which will enable efficiency improvements in administration and sales as well as cost savings. The new systems were implemented towards the end of 2017 and in early 2018. A digitalisation project promoting internal efficiency was mainly completed in early 2018, and the previous systems are intended to be given up entirely by the end of 2018.

Events after the end of the period

As part of the simplification of group structure, the Company concluded in August an agreement with minority shareholders owning 25% of Elite Palkitsemispalvelut Oy enabling the minority shareholders to request redemption of their shares with certain economic terms (the price based on business profitability) at the latest in June 2021 and providing the Company the right to redeem the minority shareholders' shares at the earliest in June 2021. If the abovementioned transaction on the minority shares is carried out, the consideration will be paid in the Company's listed B shares. If the arrangement is carried out, it will improve the Group's result, but on the basis of the current scope of business of Elite Palkitsemispalvelut Oy, the improvement will not be significant.

The Extraordinary General Meeting held on 25 June 2018 decided to file an application with the Financial Supervisory Authority (FIN-FSA) to give up the Group's parent company's authorisation as part of the transfer of the investment firm business into the subsidiary EAB Asset Management Ltd. On 9 July 2018, the FIN-FSA cancelled the parent company's authorisation as per the Company's request, and the parent company continues its operation as the Group's administrative parent company. The Group's investment firm operations continue unchanged, now carried out by EAB Asset Management Ltd.

In accordance with a decision made by EAB Group Plc's Board of Directors on 25 June 2018, the company repaid EUR 750,000 to the shareholders from the reserve for unrestricted equity on 11 July 2018.

In August, the Company's Board of Directors decided on new financial targets for the period 2019-2023. According to the targets, the Company seeks to double the size of its business by turnover by the end of the period. Growth will be sought on average by 15% organic growth and 10% non-organic growth on an annual basis. In addition, the Company seeks to improve its level of profitability from 20-25% to over 35% of turnover at EBIT level.

Outlook

In connection with the financial statements release, the Company estimated that its operating margin in 2018 would amount to approximately EUR 5-6 million. Due to additional costs of approximately EUR 0.5 million resulting from delays in the integration of Alfred Berg's Finnish operations and a temporary slowdown in the acquisition of new customer assets within the private customer business caused by MiFID II implementation, the Company revises its assessment and now estimates that operating margin for 2018 as a whole will be around EUR 5 million.

The significant growth of the Company's business due to the acquisitions carried out will strengthen its capacity to improve its operating margin in the medium term considerably from the around EUR 5 million anticipated for 2018.

The Company's business risk mostly consists of a potential unexpected deterioration in the general development of the capital market. This would reduce the current level of ongoing fees due to a decrease in the value of client assets and difficulties in new sales. EAB Group Plc seeks to further increase the amount of assets managed by the Company. This will reduce business risk as ongoing fees will account for an increasing share of the Company's fee income.

Capital adequacy

EAB Group Plc's capital adequacy ratio (calculated for consolidated group consisting of EAB Group Plc, EAB Asset Management Ltd and EAB Fund Management Ltd), at 13.77% was 1.15 percentage points higher than at year-end. This is mainly explained by a moderate growth in own funds due to the previous year's profit.

In calculating the capital adequacy indicators, the Company has not included the profit accrued during the financial period and deductions as indicated in the report in Common Equity Tier 1 capital.

Publication of the financial statements release

EAB Group Plc's financial statements release for the financial period 1 January - 31 December 2018 is expected to be published on or around 22 February 2019.

EAB GROUP PLC Board of Directors

Further information: EAB Group Plc

Daniel Pasternack, CEO +358 50 569 3416 daniel.pasternack@eabgroup.fi

Kari Juurakko, Chairman of the Board +358 50 582 7411 kari.juurakko@eabgroup.fi

Certified Advisor Merasco Ltd Telephone: +358 9 6129 670

EAB Group offers versatile and high-quality asset management services for private investors, institutions and professional investors. T he Group's parent company EAB Group Plc is listed on the First North Finland market maintained by NASDAQ Helsinki Oy (Helsinki Stock Exchanges). EAB Group uses the name Elite Alfred Berg as its marketing name. The Group companies include EAB Asset Management Ltd offering asset management activities, and EAB Fund Management Ltd offering investment fund activities. The Groups' customer base consists of individuals and corporations that are served nationwide in 15 different locations. The Group employs more than 100 investment professionals, and over 25 tied agents provide its services . On behalf of its clients, the Group manages assets of over EUR 3 billion in total. Check out EAB Group's services at www.eabgroup.fi.

DISTRIBUTION: NASDAQ Helsinki Oy The main news media www.eabgroup.fi

Appendix to the half-year report: Report in PDF format including tables and key figures

Attachment

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