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The Supervisory Board of AS LHV Group (‘LHV Group’) decided on the increase of the company’s share capital by issuing new ordinary shares and on the preliminary terms of the public offer. The company plans to raise 25 million euros in additional capital from investors. The right of the Supervisory Board to increase the share capital stems from the Articles of Association as amended by the resolution of the Annual General Meeting of LHV Group held on 30 March 2022.

The execution of the offer is subject to the registration by the Estonian Financial Supervision and Resolution Authority of the prospectus for the public offer, listing, and admission to trading of the additional shares (‘prospectus’), which will be published on the websites of LHV Group and the Financial Supervision Authority at fi.ee and investor.lhv.ee, respectively, after the approval by the Financial Supervision Authority and before the announcement of the offer.

The Supervisory Board of LHV Group decided:

1. To increase the share capital of LHV Group by 694,444 euros, which can be increased to 972,222 euros. As a result, the new nominal amount of share capital will be between 31,264,675 euros and 31,542,453 euros, depending on the final size of the issue. The plan of the company is to raise from investors 25 million euros, with the possibility to increase the offer size to 35 million euros.
2. To issue a minimum of 694,444 and a maximum of up to 972,222 new LHV Group ordinary shares with a nominal value of 1 euro per share. The new shares are issued at a premium. One share is subject to a nominal value of 1 euro and a premium of at least 35 euros, the higher of which may be determined by the Supervisory Board of LHV Group at the beginning of the subscription, at the latest. If the Supervisory Board decides to establish a higher premium, the Supervisory Board shall also decide accordingly on the number of new ordinary shares to be issued to increase the share capital and on the ratio between the number of shares and the number of preferential rights to be granted to shareholders entitled to pre-emptive subscription rights.
3. The group of persons entitled to pre-emptive subscription rights (shareholders) will be determined as at the close of business on the Nasdaq CSD settlement system on 13 May 2022.
4. The public offer of shares is planned to be carried out through the exercise of subscription rights (rights-issue). LHV Group shareholders entered in the list of shareholders as at the record date will be granted subscription rights in respect of existing shares according to the ratio of shares to preferential rights, which depends on the subscription price. In the event that the Supervisory Board does not exercise its right to set a premium above the above-mentioned lower limit, the shareholders entitled to pre-emptive subscription rights will be granted one pre-emptive subscription right for every 44 shares in existence. However, a shareholder holding less than one share will have zero pre-emptive subscription rights, i.e., they will not be entitled to pre-emptive subscription rights. The precise principles for the granting of pre-emptive subscription rights will be set out in the prospectus.
5. Trading in the pre-emptive subscription rights is expected to take place in accordance with the procedures established in the prospectus between 18 May 2022 and 30 May 2022.
6. Subscription for the new shares and payment for the new shares is expected to take place in accordance with the procedures established in the prospectus between 18 May 2022 and 1 June 2022.
7. The new shares will be allotted on a guaranteed basis to investors with pre-emptive subscription rights as of the close of business on the Nasdaq CSD settlement system on 1 June 2022, and in the event of an increase in the volume of the offer, shares will also be allotted to investors without pre-emptive subscription rights. The exact principles for the allotment of new shares will be estab-lished in the prospectus.
8. The allotment of the subscribed shares, the subscription results, the size of the issue, and the final extent of the share capital increase resulting from the above, including the number of new shares to be issued and the new size of the share capital, will be determined by the Supervisory Board of LHV Group after the end of the subscription period. The Supervisory Board of LHV Group has, inter alia, the right to cancel over-subscribed shares, and the Management Board of LHV Group has the right, in the event that not all new shares have been subscribed for by the end of the subscription period for the shares specified in the prospectus, to extend the subscription period or to cancel shares that have not been subscribed for during the subscription period.
9. The new shares to be issued will entitle the holder to a dividend from the financial year 2022.

LHV Group is raising capital to finance planned investments and increase the capital buffers of LHV Group’s companies. The majority of the additional funding will be used to capitalise the new bank to be set up in the UK once it is licensed as a credit institution. The size of the additional issue will represent between 2.3% and 3.2% of the existing share capital.

LHV Group is the largest domestic financial group and capital provider in Estonia. LHV Group’s key subsidiaries are LHV Pank, LHV Varahaldus, and LHV Kindlustus. LHV employs over 700 people. As at the end of March, LHV’s banking services are being used by 337,000 clients, the pension funds managed by LHV have 135,000 active clients, and LHV Kindlustus is protecting a total of 147,000 clients. LHV’s UK branch offers banking infrastructure to 200 international financial services companies, via which LHV’s payment services reach clients around the world.

Important information

This information does not constitute an offer or an invitation to buy shares in AS LHV Group. The offer is subject to the approval of the prospectus by the Financial Supervision Authority. The prospectus will be made available after the approval of the prospectus and before the announcement of the offer on the websites of the Financial Supervision Authority and AS LHV Group at fi.ee and investor.lhv.ee, respectively. Investors should read the information in the prospectus before making an investment decision in order to understand all the facts related to the investment. The approval of the prospectus by the Financial Supervision Authority does not constitute an approval of AS LHV Group or the securities offered.

In Q1 2022, AS LHV Group earned a total of EUR 12.4 million in consolidated net profit. Within the quarter, AS LHV Bank earned EUR 14.9 million in net profit, including EUR 2.7 million from servicing clients related to the United Kingdom branch. During Q1, AS LHV Varahaldus generated EUR 0.6 million in net loss, and AS LHV Kindlustus generated EUR 0.5 million in net loss. LHV UK Limited had a loss of EUR 1.6 million. The Group’s return on equity in Q1 was 14.7%.

The net profit for Q1 was EUR 1 million higher than Q1 a year ago (+8%), and EUR 7 million lower than in 2021 Q4 (-36%), when the profit also included the success fee related to managing pension funds. The Group’s consolidated revenue in Q1 was EUR 34.8 million, i.e. EUR 6 million more than a year earlier (+21%) and EUR 7.9 million less than in Q4 (-18%). At the same time, the Group’s expenses for Q1 increased by EUR 5.1 million (+37%) year-on-year and by EUR 0.6 million (+3%) compared to Q4.

LHV Group’s consolidated assets stood at EUR 6.52 billion as at the end of March. The Group’s consolidated deposits decreased by EUR 397 million to EUR 5.41 billion over Q1 (+7%; +EUR 351 million in Q4). The decrease in deposits is due to a planned reduction of around EUR 400 million in deposits from payment intermediaries. The volume of the consolidated loan portfolio increased by EUR 75 million over the quarter (+3%; +EUR 128 million in Q4). Corporate loans increased by EUR 32 million and retail loans by EUR 43 million.

The total volume of funds managed by LHV increased by EUR 13 million to EUR 1.36 billion (+1%; +EUR 65 million in Q4). The number of processed payments from financial intermediaries amounted to 6.6 million in Q1 (-10% compared to 7.3 million payments in Q4).

By the end of Q1, LHV was behind in its financial plan for 2022, published in February, by EUR 2.6 million in profit.

The results at the beginning of the year were impacted by lower activity from clients related to the Russian-Ukrainian war, a donation of EUR 500,000 to the Estonian Refugee Council and also, as a specific item, a EUR 1.4 million negative revaluation on the value of bonds in the liquidity portfolio.

The Bank was active at the beginning of the year. More than 16,000 new bank clients joined LHV during the quarter (+5%). During the quarter, the bank launched a new virtual bank card, which will add speed and convenience to client payments. Cryptocurrency trading was added to the Internet Bank, and more tradable currencies were added. Regarding home loans, the conditions for families with many children were renewed from March, they can apply for a home loan with 5% co-financing with a guarantee from KredEx. At the end of March, LHV opened a new client office in the Graf Zeppelin building, in Pärnu. The bank now has three offices in Estonia. Once again, LHV’s service was rated the best among Estonian banks, and it was also voted the best employer in Estonia in a CV-Online survey.

In the context of a tense international situation, LHV has begun to apply international sanctions. This has led to restrictions for some clients. Refugees who have arrived in Estonia are also interested in opening bank accounts. LHV has simplified the account opening process for them. We have also abolished the service fee on payments to Ukraine. The impact of the war has not been felt in the loan portfolio, which has remained strong overall and the share of overdue loans is very low.

Q1 was successful for the funds actively managed by Asset Management, as these were the best performing funds on the market, with the rate of return of M, L and XL pension funds being 2.0%, 3.8% and 2.3%, respectively, in the quarter. However, the quarter presented more of a challenge for the pension funds Index and Green, as their share values fell by 3.6% and 5.0%, respectively. The number of active Pillar II clients fell by 3,000 (-2%) over the quarter, while market share remained at the same level.

The number of insurance clients increased by 3,000 (+2%) over the quarter. There has been a steady increase in the interest of insurance intermediaries, and business volumes are growing. For the convenience of clients, insurance contracts were added to the LHV Internet Bank and mobile app. Client satisfaction with claims handling remains at a high 97% level. However, the insurance surplus continued to be negatively impacted by the high number of COVID losses in travel insurance.

In other significant events in Q1, AS LHV Group acquired EveryPay, a platform for accepting payments. The transaction will help LHV to grow in the strategically important area of payments, both in Estonia and internationally. During Q1, LHV UK Limited also submitted an application for a banking licence to the UK regulator, which is expected to be approved later this year. In the UK, recruitment and preparations continue. AS LHV Group also announced that it plans to raise capital this year for the upfront capitalisation of its UK business line. AS LHV Group is also in the process of applying to the Financial Supervision Authority for a financial holding company licence, which is currently pending.

Comment by Madis Toomsalu, the CEO of LHV Group:

"The first quarter was dominated by the impact of the war and the difficult international situation. Client activity fell somewhat, but despite the stormy weather we remain open to clients.

Estonia’s open economy is moving in an amplified way with European trends. Inflation is higher and the risk of recession is real. The likelihood of stagflation has increased, with the outcome depending mainly on the ability of companies to cope with wage growth expectations. However, the inflationary environment, combined with rising interest rates, has typically meant higher revenues and profits for banks.

LHV is carried forward by our ambition to build good and lasting long-term relationships with our clients, the people who work for LHV, and our shareholders. It is a pleasure to be able to provide a professional relationship and a sense of value to all. I believe that we will be able to achieve our planned results for the year as a whole. We have a clear outlook for revenue growth in the second half of the year. To confirm this, we plan to raise new capital later this year. Although the specific conditions in this respect have yet to be decided. The capital we need is mainly to capitalise our UK business. Similarly, we plan to make a smaller follow-up investment in Bank North, assuming the company is able to raise capital from other investors."

AS LHV Group reports are available at: https://investor.lhv.ee/en/reports/.

LHV Group is the largest domestic financial group and capital provider in Estonia. LHV Group’s key subsidiaries are LHV Pank, LHV Varahaldus, and LHV Kindlustus. LHV employs over 700 people. As at the end of March, LHV’s banking services are being used by 337,000 clients, the pension funds managed by LHV have 135,000 active clients, and LHV Kindlustus is protecting a total of 147,000 clients. LHV’s UK branch offers banking infrastructure to 200 international financial services companies, via which LHV’s payment services reach clients around the world.