PR98535

BRUSSELS, October 28, 2022 /PRNewswire=KYODO JBN/--

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

                                       YTD     YTD     Russian    YTD Sept      Underlying

       (€ m)                        Sept    Sept   sanctions        2022              vs

                                        2021    2022    impacts    Underlying        2021

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 MFEX pro forma, in order to allow like-for-like comparison.                

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:

Photo: https://mma.prnewswire.com/media/1932189/Euroclear_chart_1.jpg

Photo: https://mma.prnewswire.com/media/1932190/Euroclear_chart_2.jpg

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 market valuation. An

increasing interest rate environment has impacted Euroclear Investment’s

intra-group loans (assets), recognised at fair market value in line with IFRS

9. Liabilities have not been impacted, due to being recognised at acquisition

cost, in line with accounting standards. As a result, Euroclear Investments

demonstrates a significant loss on non-trading financial assets for Q3 2022

compared to Q3 2021, resulting in a negative operating profit. This accounting

treatment has no impact on Euroclear group’s earnings capacity nor on the

ability for Euroclear Investments to reimburse its debt.

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.

Logo: https://mma.prnewswire.com/media/832898/Euroclear_Logo.jpg

Source: Euroclear