Notice on Public Offering of Subordinated Bonds of AS LHV Group

AS LHV Group (register code 11098261, registered address Tartu mnt 2, 10145 Tallinn; hereinafter LHV) hereby announces a public offering of LHV’s subordinated bonds and informs about the contemplated listing and admission to trading of subordinated bonds on the regulated market operated by Nasdaq Tallinn AS (register code 10359206, registered address Tartu mnt 2, 10145 Tallinn).

Public Offering of Subordinated Bonds

LHV offers publicly up to 16,000 subordinated bonds of LHV „LHV Group subordinated bond 28.11.2028” with the nominal value of EUR 1,000, interest rate 6.0% per annum and maturity date 28.11.2028. The Company has the right to increase the offering volume until issue date by EUR 4 million and issue up to 4,000 additional subordinated bonds as a result of which the total number of the bonds offered in the course of the public offering may be up to 20,000 and the total volume of the offering up to EUR 20 million. The public offering is carried out only in Estonia.

The offering is the first part of LHV’s previously approved bond program. Under the program, LHV intends to issue subordinated bonds in a total volume of up to EUR 45 million in the course of several issues.

Subordinated bond represents an unsecured debt obligation of LHV before the investor. The subordination of the bonds means that upon the liquidation or bankruptcy of LHV, all the claims arising from the subordinated bonds shall fall due and shall be satisfied only after the full satisfaction of all unsubordinated recognised claims in accordance with the applicable law.

Subordinated bonds will be issued in a dematerialised book-entry form. Subordinated bonds will be registered in Nasdaq CSD SE under ISIN code EE3300111558.

Subordinated bonds will be offered at a price of EUR 1,000 per one bond.


The time schedule of the offering of the subordinated bonds is as follows:
14.11.2018 at 10.00 - Start of the subscription period for the subordinated bonds
27.11.2018 at 16.00 - End of the subscription period for the subordinated bonds
On or about 28.11.2018 - Disclosing the allocation results of the subordinated bonds
On or about 30.11.2018 - Transfer of the subordinated bonds to investors’ securities accounts
On or about 03.12.2018 - Expected listing of the subordinated bonds and admission to trading on the regulated market operated by Nasdaq Tallinn AS (on the Baltic Bond List of the Nasdaq Tallinn Stock Exchange)


In order to subscribe for the subordinated bonds, an investor has to submit during the subscription period to the custodian who holds the investor’s securities account opened at Nasdaq CSD SE a subscription undertaking, which has to contain the following data:

The subscription undertaking will be forwarded to Nasdaq CSD SE.


Listing and Admission to Trading of Subordinated Bonds

LHV has submitted an application to Nasdaq Tallinn AS for the listing and admission to trading of LHV’s subordinated bonds „LHV Group subordinated bond 28.11.2028” on the regulated market (on the Baltic Bond List of the Nasdaq Tallinn Stock Exchange). The expected date of listing and admission to trading is on or about 03.12.2018.

While every effort will be made and due care will be taken in order to ensure the listing and the admission to trading of the subordinated bonds, LHV cannot ensure that the subordinated bonds will be listed and admitted to trading.

Availability of Prospectus and Final Terms of the Offering

The base prospectus of LHV has been published and can be obtained in electronic format from LHV’s website https://investor.lhv.ee/ and from the website of the Financial Supervision Authority https://www.fi.ee/. Additionally, the prospectus is available through the information system of Nasdaq Tallinn Stock Exchange. The terms and conditions of LHV’s subordinated bonds and final terms of the first offering of LHV’s subordinated bonds have been published and can be obtained in electronic format from LHV’s website https://investor.lhv.ee/.

Before investing into LHV’s subordinated bonds we ask you to acquaint yourself with the whole base prospectus and the final terms of the offering.

Extras:

1 - Põhiprospekt_Prospectus.pdf
2 - Põhiprospekti kokkuvõte_Summary of base prospectus ET.pdf
3 - Allutatud võlakirjade tingimused_Terms and conditions of subordinated bonds.pdf
4 - Allutatud võlakirjade pakkumise lõplikud tingimused (I pakkumine)_Final terms of the offering of subordinated bonds (I offering).pdf
4.1 - Esimese emissiooni kokkuvõte _Summary of the first issue ET.pdf.

LHV Group’s third quarter and 9 months unaudited financial results

The three quarters of this year have earned AS LHV Group a net profit of EUR 6.2 million. The bank’s profit shaped to EUR 4.4 million and the asset management’s to EUR 2.1 million.

The return on equity belonging to LHV’s shareholders was 15.9% in Q3. Compared to Q2 of 2018 the consolidated profit declined by EUR 3.9 million. The reason for this was that Q2 results included the sale income of share in Mokilizingas and a larger income from advising an institutional banking transaction. Compared to Q3 2017, the groups net profit increased by EUR 0.7 million. Loan impairments were made in the amount of EUR 1.9 million in Q3 and the payment of advance income tax amounted to EUR 0.5 million.

The group’s consolidated net loan portfolio grew by EUR 3.5 million (+5%; +EUR 11 million in Q2) and reached EUR 812 million. Consolidated deposits increased by EUR 95 million (+6%; -EUR183 million in Q2) to EUR 1,638 million. And at that the deposits related to payment intermediates increased by EUR 41 million. During Q3 the volume of funds managed by LHV rose by EUR 37 million (+3%; +EUR 40 million in Q2) and reached EUR 1,204 million.

In the 9 months of 2018, AS LHV Group posted a consolidated net profit of EUR 20.5 million: the bank earned EUR 13.1 million and the asset management EUR 4.9 million. In comparison with 2017, the 9 month net profit this year was EUR 5.1 million higher.

Comments by Madis Toomsalu, CEO of LHV Group:

„In terms of growing activity of customers, but also the activities of LHV itself, the third quarter was significantly strong. Our business is growing. Over the three quarters of the year, more than 20,000 new customers joined LHV Pank. Several activity indicators, including salary receipts, number of customers with assets and payments, use of cards, acceptance of card payments and number of new investment contracts reached record levels in Q3.

The group’s quarterly profit of EUR 6.2 million was positively influenced by income related to transaction advisory services in the amount of EUR 0.7 million and negatively by specific allowances of EUR 1.2 million. The credit portfolio remains strong, and together with growing volumes, interest income is also increasing, all be it the allowance related to one client has influences this year’s profit.

Out of the activities of the bank I would emphasise

the launch of Youth Bank offer in the end of August. In addition to young people, our new micro investment offer is also targeted to all other clients, who are looking to start investing and saving without much effort. The launch of micro investment brought an exponential growth of new investment contracts. As a major change, we implemented e-identification at the end of the quarter, which enables one to open a bank account without leaving home.

To improve the financing structure of LHV Bank, we concluded an agreement with the leading European deposit marketplace platform Raisin that now enables the bank to accept new deposits both from the German and Austrian market.

When it comes to our financial intermediates’ business line, we are concentrating on finding new partnerships and developing our service portfolio. The interest of financial service providers in banking services is strong and the number of new clients is expanding continuously.

The total volume of funds managed by LHV grew by EUR 37 million over the quarter, however at the same time the number of active clients of the 2nd pillar decreased by 300.

During the quarter, we focussed more on the long-term strategy of LHV. According to this, our home market is Estonia, where we focus on offering a rate of return of the bank of service and pension funds. We want to address a growing number of clients, who care about increasing the share of Estonian capital in the offering of local financial services. We try to run our business in a way that the ever increasing efficiency is reflected in the declining cost/income ratio and the shareholders are guaranteed a 20% rate of return before taxes. On the other hand, we are also looking for business on foreign markets and have become a company exporting financial services. We have made a very strong start in the UK business line, where our activity has already yielded profit.

In terms of long-term economic outlook, the biggest concern is the variance of speed in different European regions and overregulation causing stagnation. According to the basics of the market economy, there is no income without risk; accordingly, progressive banning of risk-taking and bureaucratisation also decreases potential development and income. The concern will only get worse, if development in the US and China appears to be faster than that of in Europe.

Focussing on a period of a couple of years, the main scenario is still growth of the economy in the Eurozone by a couple of percentage points a year. LHV’s growth trends are also supported by the Estonian business environment. The credit market has remained strong. As the main risks, we could point out high dependence on the external environment, rather low private sector investments and labour shortage.

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

To present the interim results LHV will hold an investor meeting, that will take place on 23 October 2018 6.00 p.m. in LHV Tallinn client office (Tartu mnt 2, CityPlaza building, 1st floor). The presentation will be made in Estonian. All participants please register at https://fp.lhv.ee/academy/517. The investor meeting will be live streamed on LHV’s Facebook page.