BRUSSELS, Oct. 28, 2022 /PRNewswire/ -- Euroclear today provides an update on its performance to the end of the third quarter 2022.
Financial Summary
Euroclear continued to deliver a strong financial performance to the end of the third quarter 2022, with the underlying business performing well and benefitting from its diversified, resilient business model.
The group also reported higher interest earnings due to rising interest rates on cash balances as well as increased cash balances from frozen assets due to Russian sanctions.
At the end of the third quarter, 2022 net profit increased 95% to EUR 667 million, of which EUR 426 million resulted from the strong underlying business performance.
Euroclear Holding |
||||||
(€ m) |
YTD |
YTD |
Russian |
YTD |
Underlying |
|
Operating income |
1,199 |
1,725 |
335 |
1,390 |
191 |
16 % |
Business income |
1,133 |
1,202 |
-5 |
1,208 |
74 |
7 % |
Interest, banking & other income |
65 |
522 |
340 |
182 |
117 |
179 % |
Operating expenses |
-723 |
-824 |
-13 |
-811 |
-88 |
-12 % |
Operating profit before Impairment |
476 |
901 |
322 |
579 |
103 |
22 % |
Impairment |
-16 |
-13 |
-1 |
-12 |
4 |
|
Pre tax profit |
460 |
888 |
321 |
567 |
107 |
23 % |
Tax |
-118 |
-221 |
-80 |
-140 |
-22 |
-19 % |
Net profit |
342 |
667 |
241 |
426 |
84 |
25 % |
EPS |
110.3 |
211.9 |
135.5 |
|||
Business income operating margin |
36.2 % |
31.5 % |
32.9 % |
|||
EBITDA margin (EBITDA/oper.income) |
46.2 % |
57.0 % |
47.5 % |
|||
Note: 2021 figures (except for EPS) have been restated to include |
Year-to-date operating income was up 44% year-on-year to EUR 1,725 million.
An increase of 92% in earnings per share to EUR 211.9 per share, reflected the increase in net profit.
Underlying Business Performance & Highlights
Excluding the impact of frozen assets due to the Russian sanctions, Euroclear's underlying business continues to perform strongly. Adjusted net profit rose by 25% to EUR 426 million.
Business income was up 7% to EUR 1,208 million, reflecting continued solid growth of Euroclear's business lines. The diversification of the business has provided a hedge against market volatility over recent months. Interest, banking, and other income increased by 179% to EUR 182 million.
Operating Expenses increased to EUR 811 million, up 12% compared to the prior year, as Euroclear continued to invest in its technology and service offering, as well as being impacted by inflation.
Inflationary pressures on costs, as well as the broader impact of the macro-economic environment, are monitored at the level of each of operating entity. Only Euroclear Bank benefits directly from the compensating effect of higher interest rates.
Overall, Euroclear expects expenditure to remain above its "through-the-cycle" target of 4-6% p.a. in 2023 as a result of accelerating investment in both its strategy and the resilience of the business, coupled with continued inflationary pressures on the cost base. However, profitability is expected to rise as inflation headwinds are more than offset by higher net interest income from subsequent rate increases.
The key operating metrics, shown below, underpinned the strong business performance during the period.
- Market volatility remains high, driving transaction volumes to record levels.
- Equity market valuations have fallen significantly during 2022 which has led to declines in assets under custody and fund asset under custody during the period.
- The impact of lower equity markets is mitigated by the group's diversified and subscription-like business model. Approximately three quarters of the group's business income is decoupled from financial market valuations.
- Euroclear sees sustained demand for collateral management and lending services from a broad range of market participants as they seek to reduce credit risk in volatile financial market conditions.
Q3 YTD 2022 |
Change vs Q3 YTD 2021 |
|
Assets under Custody |
EUR 34.9 trillion |
-3.5 % |
Number of Transactions |
229 million |
+4.3 % |
Turnover |
EUR 791.8 trillion |
+8.1 % |
Fund Assets under Custody |
EUR 2.8 trillion |
-2.7 % |
Collateral Highway |
EUR 1.9 trillion |
+7.5 % |
In the third quarter, Euroclear outlined its updated strategic vision and targets to its investors. Through its strategy, the group will continue to focus on meeting the evolving needs of all financial market participants from issuers to investors.
In addition, Euroclear will increase its focus on ESG, data-driven and digital innovations and expanding its global reach.
Illustrating this strategic focus, Euroclear enhanced its offering in sustainable finance through an investment in Impact Cubed, a leading provider of ESG tech-enabled analytics and data science solutions. This investment complements Euroclear's investment in Greenomy, a provider of data and reporting for issuers to comply with EU sustainable finance legislation.
International investor appetite for global market access as part of their diversified holdings remains robust and issuers continue to seek to benefit from an international investor base. Euroclear's strategic focus on meeting these demands continued to deliver growth, despite the headwinds resulting from the Russia's invasion of Ukraine. Assets under custody from international and emerging markets were up 18% year-on-year to EUR 1.7 trillion.
One year ago, Euroclear acquired MFEX as part of its expanded funds platform. Considerable progress has been made to integrate MFEX and enhance the group's end-to-end funds offering. This is reflected through the new MFEXbyEuroclear branding for all group funds solutions.
Implications of Russian sanctions
The sanctions imposed by the US, the EU, and other jurisdictions, as well as Russian countermeasures, resulted in a loss of Russia-related business income which was more than compensated by increased interest income.
The cash on the balance sheet has increased as blocked coupon payments and redemptions accumulate. At the end of September, Euroclear Bank's balance sheet increased by €88.7 billion year-on-year to a total of EUR 119.9 billion.
As per Euroclear's standard process, the cash balances arising from the sanctions are invested which, depending on the prevailing interest rates, results in interest income. Over the nine months, revenues on cash balances arising from sanctions on Russia was EUR 340 million.
With the growth of sanctioned liabilities and the increase of interest rates, the materiality of revenues on cash balances arising from sanctions on Russia on the group's financial results is unprecedented. As such, the Board considers it necessary to separate these earnings from the underlying financial results when assessing the company's performance and resources.
The Board expects interest income to continue to grow materially as blocked payments and redemptions continue to accumulate in a rising interest rate environment.
As previously outlined, while this is expected to have an impact on the balance sheet, it should not result in material change in credit risk profile and therefore will not have a meaningful impact on the group's capital ratios.
The Board recognises that the unexpected profit should be managed prudently, in line with its corporate purpose and considering its responsibilities towards stakeholders and society. Euroclear continues to act in a transparent manner with all authorities involved. The Board will continue to act cautiously by retaining any profits related to the Russian sanctions until the situation becomes clearer.
Commenting on the results
Lieve Mostrey, Chief Executive Officer
"Despite an extraordinary context, we continued to deliver an excellent business performance, with financial results above our strategic 'through-the-cycle" targets.
The group benefits from a diversified business model which allows us to focus on supporting clients through these uncertain times, providing robust infrastructure and fulfilling our duties with respect to the sanctions on Russia.
Our results show that we are on the right path. We are now accelerating investments to deliver on our long-term strategy and drive value for all our stakeholders."
Annexes
Interest income is driven by the prevailing interest rates in each currency of the cash balances held by the group. As at 30 September 2022, cash balances totaled EUR 111.7 billion, of which EUR 85.8 billion related to the sanctions on Russia.
The proportion of cash balances by currency is as follows:
Euroclear Bank and Euroclear Investments are the two group issuing entities. The summary income statements and financial positions at Q3 YTD for both entities are shown below.
Q3 2022 |
Q3 2021 |
Variance |
||||||
Euroclear Bank Income Statement |
||||||||
Net interest income |
550.9 |
69.3 |
481.6 |
|||||
Net fee and commission income |
771.2 |
686.7 |
84.5 |
|||||
Other income |
-12.5 |
7.2 |
-19.7 |
|||||
Total operating income |
1,309.6 |
763.2 |
546.4 |
|||||
Administrative expenses |
-485.2 |
-440.8 |
-44.4 |
|||||
Operating profit before impairment and taxation |
824.4 |
322.4 |
502.0 |
|||||
Result for the period |
618.4 |
244.2 |
374.3 |
|||||
Euroclear Bank Statement of Financial Position |
||||||||
Shareholders' equity |
2,424.2 |
1,924.7 |
499.5 |
|||||
Debt securities issued and funds borrowed (incl. subordinated debt) |
5,191.8 |
6,869.7 |
-1,678.0 |
|||||
Total assets |
119,887.7 |
31,209.1 |
88,678.6 |
|||||
Euroclear Investments Income Statement |
||||||||
Dividend |
313.4 |
540.1 |
-226.7 |
|||||
Net gains/(losses) on non trading financial assets at FVPL |
-473.6 |
-43.5 |
-430.1 |
|||||
Other income |
2.9 |
1.4 |
1.6 |
|||||
Total operating income |
-157.3 |
498.0 |
-655.3 |
|||||
Administrative expenses |
-3.4 |
-1.1 |
-2.3 |
|||||
Operating profit before impairment and taxation |
-160.7 |
496.9 |
-657.6 |
|||||
Result for the period |
-42.9 |
507.3 |
-550.3 |
|||||
Euroclear Investments Statement of Financial Position |
||||||||
Shareholders' equity |
460.8 |
757.3 |
-296.6 |
|||||
Debt securities issued and funds borrowed |
1,654.7 |
1,653.3 |
1.5 |
|||||
Total assets of which |
2,116.0 |
2,449.1 |
-333.1 |
|||||
Loans and advances at amortised cost (excluding intercompany) |
85.9 |
55.8 |
30.1 |
|||||
Fair Value through Other Comprehensive Income (FVOCI) financial assets |
299.0 |
311.1 |
-12.1 |
|||||
Intercompany loans (at amortised cost and FVPL) |
853.4 |
1,275.9 |
-422.5 |
|||||
Note: At the end of Q3, Euroclear Investments received a dividend from Euroclear SA which was more than offset by unrealised fair |
Note to editors
Euroclear group is the financial industry's trusted provider of post trade services. Guided by its purpose, Euroclear innovates to bring safety, efficiency and connections to financial markets for sustainable economic growth.
Euroclear provides settlement and custody of domestic and cross-border securities for bonds, equities and derivatives, and investment funds. As a proven, resilient capital market infrastructure, Euroclear is committed to delivering risk-mitigation, automation and efficiency at scale for its global client franchise.
The Euroclear group comprises Euroclear Bank, the International CSD, as well as Euroclear Belgium, Euroclear Finland, Euroclear France, Euroclear Nederland, Euroclear Sweden, Euroclear UK & International, and MFEXbyEuroclear.
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