LHV Group unaudited financial results for Q4 and the 12 months of 2019
In Q4 2019, AS LHV Group earned a consolidated net profit of EUR 6.4 million: the bank earned a net profit of EUR 5.7 million and AS LHV Varahaldus earned a net profit of EUR 0.9 million. The pre-tax rate of return on equity capital owned by the shareholders of LHV Group was 12.8% in Q4.
The consolidated net profit of LHV Group in Q4 2019 was EUR 1.6 million lower compared to Q3 and EUR 0.3 million lower compared to the same period a year earlier. Loan discounts were made in the amount of EUR 1.5 million in Q4.
The volume of LHV Group’s assets exceeded the EUR 3 billion threshold for the first time. In Q4, the Group’s consolidated loan portfolio increased by EUR 465 million (+37%; +EUR 104 million in Q3), to EUR 1,687 million. A total of EUR 393 million of that growth was due to the take-over of Danske Banks’s Estonian private client loan portfolio. In Q4, the Group’s consolidated deposits increased by EUR 166 million (+7%; +EUR 451 million in Q3), to EUR 2,701 million. At the same time, deposits by regular clients increased by EUR 218 million, while deposits associated with payment intermediaries decreased by EUR 43 million. The volume of funds managed by LHV increased by EUR 46 million during the quarter (+3%; +34 million in Q3), to EUR 1,374 billion.
The consolidated net profit of AS LHV Group in 2019 was EUR 27.1 million, i.e. EUR 0.1 million less than in 2018 (-0%). LHV Pank earned a profit of EUR 22.1 million, and AS LHV Varahaldus earned a profit of EUR 6.1 million. The comparison with the previous year was affected by the one-off revenue from the sale of the Lithuanian business unit in 2018, as well as the costs associated with the Danske transaction in 2019 and the decline in the management fee for pension funds. In 2019 the pre-tax return on the equity owned by LHV Group shareholders was 16.2%, while the return on equity based on net profit was 14.0%. We exceeded the financial plan from July by EUR 1.5 million.
The volume of LHV Group’s assets grew by EUR 1.35 billion (+81%). The consolidated loan portfolio of LHV Group increased by EUR 768 million year on year (+84%) and deposits increased by EUR 1,279 million (+90%). The volume of the funds managed by LHV grew by EUR 160 million (+13%) year on year.
Comment by Madis Toomsalu, CEO of LHV Group, on the results:
"We ended 2019 with a strong quarter and our business is growing. During Q4, the number of the bank’s clients increased by nearly 13,100, to 202,000 clients. In addition to the strong growth of business volumes, activity indicators for several areas reached record levels, including salary receipts, the number of customers with assets and payments, the use of cards, the acceptance of card payments and the number of new investment contracts.
LHV earned a profit of EUR 6.4 million in Q4. Profit for the quarter was negatively impacted by the discounts that accompanied the acquisition of Danske’s private loan portfolio and one-time transaction costs in the form of state and notary fees. Interest income associated with Danske’s portfolio was added from the last week of November. Profits for the quarter were positively influenced by income from institutional banking.
In summarising the successful year, we can say that LHV’s business volumes nearly doubled in 2019. The volume of the Group’s assets grew to EUR 3 billion and our bank's market share increased by one-tenth, making us the third largest bank in Estonia in daily banking. More than 41,000 new bank clients, recognition of the best service and the selection of LHV as Estonia’s best bank by several prestigious financial magazines, prove that our efforts have been noticed.
The most important event of the past year was the purchasing of Danske’s private client portfolio in Q4. There were other important activities affecting customers, from the expansion of the ATM network to significant developments in LHV's mobile app. In addition to becoming a client, you can also invest in securities, apply for a loan, sign loan agreements and order bank cards via the mobile app.
In the United Kingdom we technically joined the pound payment system in the middle of last year, but we were able to open real-time payments to clients in the beginning of this year. Along with the previously implemented real-time euro payments, this makes LHV Connect one of the most attractive application programming interfaces for financial technology companies. By the end of the year, we were providing banking infrastructure and services to more than 100 clients who are payment intermediaries. Including, among others, TransferWise, Coinbase, Paysafe, and Trustly.
The volume of LHV's pension funds grew to almost EUR 1.4 billion by the end of the year. The year for pension funds was characterised by changes to regulations. In September, lower fixed management fees entered into force, although in the case of a strong return, it is possible to earn a success fee. Although we failed to do so in 2019, our expectation regarding the rate of return for investments has grown and we believe that we will earn the success fee over the long term. In light of the pension reform approved by the Riigikogu at the end of January, market participants are changing their investment strategies and reducing the amount of illiquid investments in Estonia. At LHV, we are trying to find the middle ground, to continue making Estonian investments with higher expected returns while ensuring the necessary liquidity.
We financed the growth of business volumes last year by raising capital. In total, we raised EUR 65 million in capital through three different instruments over the course of the year. Investor confidence is marked by the successful performance and oversubscription of all issues. These transactions certainly contributed to the increase in the number of LHV investors as well, with approximately 7,000 shareholders and 3,000 bond investors having invested in LHV as at the end of the year.
We outperformed our July financial plan by EUR 1.5 million, mainly due to lower-than-planned discounts, lower costs for the Danske transaction, and higher revenues associated with organising the issuing of clients’ securities.”
|Income statement, EUR thousand||Q4-2019||Q3-2019||12 months 2019||12 months 2018|
| Net interest income||13 270||11 546||47 388||38 151|
| Net fee and commission income||6 427||6 412||25 677||25 045|
| Net gains from financial assets||170||119||670||443|
| Other income||58||33||84||862|
|Total revenue||19 925||18 111||73 818||64 501|
| Staff costs||-5 236||-4 593||-19 266||-15 756|
| Office rent and expenses||-277||-229||-959||-1 830|
| IT expenses||-861||-641||-2 771||-2 322|
| Marketing expenses||-443||-471||-2 089||-2 023|
| Other operating expenses||-4 543||-3 465||-14 182||-10 212|
|Total operating expenses||-11 361||-9 399||-39 266||-32 143|
|EBIT||8 564||8 711||34 552||32 358|
|Earnings before impairment losses||8 564||8 711||34 552||32 358|
| Impairment losses on loans and advances||-1 546||-15||-3 209||-4 879|
| Income tax||-586||-701||-4 250||-3 614|
|Net profit for the reporting period from continued operations||6 432||7 995||27 092||23 865|
|Profit/-loss from discontinued operations||0||0||0||3 324|
|Net profit||6 432||7 995||27 092||27 189|
| Profit attributable to non-controlling interest||713||706||2 296||1 953|
| Profit attributable to share holders of the parent||5 719||7 289||24 797||25 236|
|Balance sheet, EUR thousand ||Dec 2019||Sept 2019||Dec 2018|
| Cash and cash equivalents||1 271 153||1 468 510||682 658|
| Financial assets||40 962||124 035||47 153|
| Loans granted||1 693 138||1 233 626||929 037|
| Loan impairments||-6 104||-11 561||-10 276|
| Receivables from customers||3 551||33 491||3 721|
| Other assets||29 212||28 700||24 807|
|Total assets||3 031 912||2 876 800||1 677 100|
| Demand deposits||2 189 478||2 005 227||1 304 265|
| Term deposits||511 437||529 442||117 933|
| Loans received||25 647||28 640||21 584|
| Loans received and deposits from customers||2 726 562||2 563 309||1 443 782|
| Other liabilities||24 321||39 524||24 655|
| Subordinated loans||75 000||75 000||50 900|
|Total liabilities||2 825 883||2 677 833||1 519 337|
|Equity||206 028||198 967||157 763|
| Minority interest||5 218||4 505||4 123|
|Total liabilities and equity||3 031 912||2 876 800||1 677 100|
AS LHV Group reports are available at https://investor.lhv.ee/en/reports/.
LHV is organising an investor meeting, to introduce the financial results, on 4 February, at 18.00 in LHV’s Tallinn Office (Tartu mnt 2, Ground Floor). The meeting will be carried out in Estonian. To participate, please register at the addresshttps://fp.lhv.ee/academy/598. A real-time video broadcast of the investor meeting will take place on LHV’s Facebook page www.facebook.com/LHVPank.
LHV Group is the largest domestic financial group and capital provider in Estonia. LHV Group's key subsidiaries are LHV Pank and LHV Varahaldus. LHV employs over 430 people. LHV’s banking services are used by 202,000 clients, and pension funds managed by LHV have 177,000 active clients.
Phone: +372 502 0786