LHV Group 2022 financial plan and 5-year financial forecasts

0

AS Group LHV

According to LHV’s financial plan for 2022, the consolidated revenues of the AS LHV group will increase this year by 19% to 166.8 million euros, expenses by 29% to 83.9 million euros and the net result by 2 % to 61.5 million euros. 2022 will be a year of investment for LHV – while the company expects significant growth in business volumes and revenues, more will be spent to grow the international business going forward.

Key indicators

FF2022

2021

pre-tax profit

73.7

71.2

+3%

net profit

61.5

60.3

+2%

Loans

3097

2677

+16%

Deposits

6109

5808

+5%

Fund size

1389

1349

+3%

Number of payments linked to financial intermediaries (millions)

38

27

+37%

Cost/revenue ratio

50.3%

46.4%

+3.8pp

RE (before taxes; owners’ share)

19.4%

26.0%

-6.5pp

ROE (net profit; owners’ share)

16.7%

22.0%

-5.3pp

Capital adequacy

20.5%

19.0%

+1.5 point

* Calculated on the basis of the average equity balances at the end of the month
Business volumes have been presented in millions of euros

According to the financial plan, the Group’s consolidated loans will increase by 420 million euros to 3.1 billion euros (+16%) this year, with real estate loans increasing by 183 million euros and bank loans to companies by 170 million euros.

In terms of deposits, the financial plan foresees an increase of 302 million euros to 6.11 billion euros (+5%). Deposits from retail customers represent the bulk of the increase, while deposits from financial intermediaries are expected to stabilize at EUR 2 billion.

The volume of funds managed by LHV is expected to grow this year, with the company expecting an increase of 40 million euros to 1.39 billion euros (+3%). At the same time, the number of active clients in pension pillar II will further decrease by 6% as a result of the pension reform. The company’s profitability is negatively impacted by the non-monetary additional costs linked to customers leaving the II pillar. No performance fees should be collected by pension funds in 2022.

LHV Kindlestus’ business volumes are growing, with gross insurance premiums reaching €11.5 million (+71%) in 2022. Launched last year, the company is helping to drive business growth, but the financial plan does not yet show a profit for the year.

The LHV Group’s return on equity (ROE) ratio will remain at 16.7% in 2022 and the company expects a cost/income ratio of 50.3%. The costs will be inflated by investments of 10 million euros to obtain a banking license for LHV UK Limited and to start the activity, as well as by higher personnel costs for the group as a whole.

Comment from Madis Toomsalu, CEO of LHV Group:
“For LHV, 2022 is the year of investments. We continue to grow well in the Estonian market and aim to become the largest bank in ten years and the second in five years. With a strong performance in Estonia, we can do a leap forward in our international business. We hope to obtain a banking license in the UK by the end of the year, and in parallel we are working on setting up the organization. This means that at Going forward, subject to regulatory approval, LHV Group will own two separate banks.

In Estonia, we focus on home and business loans. We would like to serve customers all over Estonia and we will open an office in Pärnu. Furthermore, we attach particular importance to being the market leader in investment services. Strong growth translates into continued customer growth, as well as increased revenue and loan volumes. The increase in costs is due to investments in services to financial intermediaries, risk control systems and the introduction of the IRB approach to lending. In addition, we took into account that the best employer pays fair compensation to the best employees.

In the case of pension funds, we focus on rates of return and implement an investment strategy focused on direct investments, which stands out in our market. In the field of insurance, we want to develop the activity by handling claims with the greatest satisfaction of our customers.

Internationally, we continue to be the most competent partner for financial intermediaries. Commercially, we will focus on customer growth, new products and customer segments, expand payment services and create a new bank in the UK. At the same time, we will continue to recruit and staff development units in Leeds.

We strive to ensure that LHV has the strongest possible offering, the best service and dedicated people to ensure growth. In the longer term, our activities will result in a doubling of the loan portfolio in five years, a return on equity of 20% and a 2.5 times increase in profits.”

Financial forecasts for 2022-2026

The AS LHV group also unveils its financial forecasts for the next five years. According to forecasts, the Group’s revenues will increase by 17% over the next five years on average, while expenses will increase by 12% per year, on average. Based on forecasts, the consolidated net profit of LHV will be almost 155.8 million euros by 2026, taking into account an average annual growth of 21%.

Key indicators

FF2022

FP2023

FP2024

FP2025

FP2026

pre-tax profit

73.7

92.8

114.1

147.9

178.4

net profit

61.5

79.0

98.2

128.5

155.8

Loans

3097

3674

4296

4905

5520

Deposits

6109

6841

7504

8301

8912

Fund volume

1389

1522

1675

1793

1935

Number of payments linked to financial intermediaries (millions)

38

59

80

101

132

Cost/revenue ratio

50.3%

47.2%

44.3%

39.5%

36.9%

RE (before taxes; owners’ share)

19.4%

20.2%

20.8%

22.3%

22.3%

ROE (net profit; owners’ share)

16.7%

17.8%

18.5%

20.1%

20.2%

Capital adequacy

20.5%

19.7%

19.4%

19.0%

19.8%

* Calculated on the basis of the average equity balances at the end of the month
Business volumes have been presented in millions of euros

The company expects organic growth in all key business volumes over the next five years. Compared to the end of 2021, the Group’s consolidated loan portfolio will double in five years to reach 5.52 billion euros, while deposits will be multiplied by 1.5 to reach 8.91 billion euros. The company sees the volume of funds managed by LHV return to its previous peak in 2024 and reach 1.94 billion euros in 2026.

According to the five-year forecast, revenue growth should be significantly faster than cost growth. In terms of costs, one of the determining factors is the increase in labor costs. By 2026, the LHV Group forecasts a drop in the cost/income ratio to 36.9%. Return on equity based on net profit attributable to shareholders is expected to reach the 20% target in 2025.

The forecast is based on the assumption that the business and economic environment could change significantly over the next five years. The 5-year forecast is based on assumptions of an end to the health crisis, an increase in activity volumes, a future rise in key rates and a positive 6-month Euribor from mid-2025, as well as continued company dividend policy. Varahaldus’ five-year financial forecast takes into account the possibility of earning performance fees from 2023. The revenues generated by LHV UK Limited as well as the total amount of its costs have not been included in the forecast, which assume the availability of a banking license.

The LHV Group will modify the financial plan for 2022 if it becomes probable that the forecast net result will deviate by more than 10% from the financial plan. The company will update the five-year plan in early 2023 or, if necessary, together with changes to the 2022 financial plan.

To present the financial plan, LHV will host an investor meeting on February 15 at 9:00 a.m. via Zoom, the webinar environment. Investors and interested persons are invited to register on: https://lhvbank.zoom.us/webinar/register/WN__jnZ8h-kQTe_uHe0nFzFgA.

LHV Group is the largest domestic financial group and capital provider in Estonia. The main subsidiaries of the LHV group are LHV Pank, LHV Varahaldus and LHV Kindlustus. LHV employs over 670 people. As of January, LHV’s banking services are used by 327,000 customers, the pension funds managed by LHV have 135,000 active customers and LHV Kindlestus protects a total of 145,000 customers. LHV’s UK branch provides banking infrastructure to 180 international financial services companies, through which LHV’s payment services reach customers worldwide.

Priit Rum
LHV communication officer
Telephone: +372 502 0786
E-mail: [email protected]

Attachment

Share.

About Author

Comments are closed.