LHV Group updated its financial plan for 2020

In relation to the milder than estimated effects of the coronavirus crisis, LHV Group’s real financial results significantly exceed what was forecast previously, which is why AS LHV Group is publishing an updated financial plan for the current year. Compared to the plan that has been in force since April, both forecast revenues and business volumes have increased; at the same time, discounts have decreased – therefore, the profit forecast and efficiency indicators have been significantly raised.

Pursuant to the updated financial plan, this year, the consolidated revenues of LHV Group will increase by 29%, expenses by 11%, and the discounting of loans by 2.7 times. In comparison to the previous year, consolidated net profit will grow by EUR 5.5 million, i.e., 20%. The quality of the loan portfolio is significantly better, compared to the spring-plan. The financial plan that was in effect so far foresaw significantly higher discounts and thereby, a decrease in revenue in the year-on-year comparison.

The updated financial plan also considers the effect of the purchase of the Danske Bank loan portfolio, and therefore, regarding LHV business volumes, estimates the loan portfolio to grow by 32% this year, and deposits to grow by 22%. Pursuant to the updated plan, the volume of managed funds will increase by 11% this year.

Compared to the financial plan that has been in force since April, the Group will earn 70% more in net profit this year, reaching EUR 32.8 million. Of this, EUR 21.8 million has been earned in the first 9 months. At the same time, the financial plan has not estimated the potential earning of a success fee by asset management.

In the updated plan, the company’s cost/income ratio and the return on equity indicators have been corrected, insofar as the growth of business volumes increases revenue; at the same time, expenses have gone down compared to the previous plan. Changes in the bank’s financing structure have also decreased expenses. LHV’s capitalisation and liquidity are still at a strong level.

Comment by Madis Toomsalu, Managing Director of the LHV Group:

“LHV can only be as successful as our clients. In terms of economic sectors, the situation is different, but the economy as a whole has fared better than what was initially forecast. We have continued with our local and open credit policy, and with decisions that support our clients. Through this, our loan portfolio has continued to grow during the crisis as well, and loan discounts have remained significantly lower than what was forecast. The updated forecast takes into account the interest revenues added by the purchase of the Danske portfolio from the beginning of October. The forecast has estimated the capitalisation of LHV Pank and LHV Kindlustus during the current year. In the case of LHV Varahaldus, operating revenues have been taken into account; a potential success fee would be added outside of the forecast, since estimating the inputs that are the basis for the success fee has a high error rate. Besides business in Estonia, we are increasingly focusing on growing the business related to clients in the United Kingdom; from the estimated profit of the Group in 2020 in the amount of EUR 32.6 million, this constitutes EUR 4.8 million in total.”

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 490 people. LHV’s banking services are used by more than 235,000 clients, and pension funds managed by LHV have more than 183,000 active clients. LHV’s UK branch offers banking infrastructure to 130 international financial services companies, via which LHV’s payment services reach clients around the world.

LHV Group will found a new bank in the United Kingdom

AS LHV Group decided to commence operations to establish a bank in the United Kingdom to clearly separate AS LHV Pank’s current business activities in Estonia and in the United Kingdom. Until now, LHV has operated in the UK through a branch.

Separating the business activities allows for better compliance with regulatory and supervisory requirements. Moving forward AS LHV Pank will focus on serving Estonian customers and UK’s bank shall provide banking services to the international payment intermediaries. A clear separation between two businesses will enable to better highlight the financial results and the value proposition of the new bank for investors. The bank will be established in the United Kingdom as a 100% subsidiary of AS LHV Group. The subsidiary will be established in the near future, followed by staffing, capitalisation and application for a credit institution license next year.

AS LHV Pank has been operating in the United Kingdom since the beginning of 2018, when the bank received a license to establish a UK branch. The new bank will be based on the existing branch and its founding will not bring any changes to the existing customers.

Today, AS LHV Pank has around 130 payment intermediary customers, that in turn service over 10 million end customers worldwide. Amongst others the customers include TransferWise, Coinbase, Trustly, Paysafe, Airwallex and TransferGo. The bank provides payment infrastructure to leading fintech companies, all of them characterised by advanced digital solutions, international reach and the pivotal role of payments in their services. A growing number of LHV’s customers also come from the field of e-commerce and FX.

For payment intermediaries, AS LHV Pank predominantly offers settlement services such as accounts, payments, card payments, currency conversion and other similar services. As a direct member of both instant euro and pound payment settlement systems, AS LHV Pank is in a unique position to offer customers real-time payments in both major currencies in Europe. The services are offered to the clients through a fast and functional Application Programming Interface LHV Connect. LHV’s payment intermediary customers make more than 13 million payments a year and have an aggregate account balance of over EUR 500 million. AS LHV Pank earns approximately EUR 7 million in fee income per year from these services, and according to the newly updated financial plan, servicing the segment will generate approximately EUR 4.8 million in net profit this year.

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 490 people. LHV’s banking services are used by more than 235,000 clients, and pension funds managed by LHV have more than 183,000 active clients. LHV’s UK branch offers banking infrastructure to 130 international financial services companies, via which LHV’s payment services reach clients around the world.