INTERIM REPORT OF NORVESTIA FOR JANUARY–SEPTEMBER 2016

Helsinki, Finland, 2016-10-27 08:00 CEST (GLOBE NEWSWIRE) --  

Norvestia Oyj        Interim Report      27 October 2016 at 9:00

INTERIM REPORT OF NORVESTIA FOR JANUARY–SEPTEMBER 2016

In January–September 2016, the result of the Group amounted to EUR 12.9 million (EUR 10.1 million in the same period previous year).
Earnings per share was EUR 0.84 (0.66).
Investment income was EUR 17.5 million (12.8).
Net Asset Value (dividend-adjusted) increased during the period by 8.0% (6.8%).
Dividend of EUR 0.79 per share was paid in March for 2015 (0.30).

CAPITAL MARKETS

The third quarter of the year was good for equity investors, even though the result of the Brexit vote organized in Britain in the end of June was a disappointment for investors. At the same time, it was somewhat of a relief that the uncertainty related to the vote was temporarily removed from daily discussion. After the vote, share prices rose especially in July, and for example, the value of the OMX Helsinki CAP Yield Index increased by nearly 10% in total during the third quarter of the year.

Towards the end of the summer, stock markets calmed down and price volatility decreased. An indication of this was that the value of VSTOXX Index measuring the volatility of European shares sank to almost the lowest level in two years in August, and still remains close to that level.

The state of the Eurozone economy has hardly improved during the summer. The European Central Bank’s (ECB) highly accommodative monetary policy has not worked very well, and the Eurozone economy has not seen the desired growth. The ECB’s interest policy has pressed the risk-free interest level into negative territory in many euro countries. A demonstration of the absurdness of the current economic situation is that in September the State of Finland issued a seven-year bond with a 0.22% negative yield for the first time in its history. Consequently, the State earned money by borrowing it. The current negative time value of money causes peculiar phenomena and cannot be sustainable in the long term.

The currently calm situation in the market can change quickly. One sign of the structural tensions in the Eurozone is that there continue to be significant differences in interest rates between Germany and certain euro countries, such as Greece. The alternative that Greece cannot repay its debts is reflected in interest rates.

According to the latest forecasts, the Eurozone economy will grow by 1.5% this year and by 1.3% in 2017, while the Finnish economy is expected to grow by 1.0% in both 2016 and 2017. The global economy is expected to grow by 2.9% this year and by 3.1% in 2017. During the current presidential election year, the US economy is expected to grow by 1.5% and in 2017 by 2.2%.

Index yields on various exchanges for the first nine months of 2016 were as follows:

NORVESTIA’S INVESTMENTS

Norvestia’s twofold investment strategy consists of market investments and Growth Equity. Market investments are made primarily in Nordic listed shares, funds and bonds. Growth Equity investments are made in unlisted companies, growth-oriented listed companies and private equity funds.

Norvestia’s investments excluding cash and other liquid assets were 89% (83%) of total assets at the end of September. The fair value breakdown of the investments was as follows:

* of which share funds EUR 15.2 million (13.1).

83% of the Group’s assets were in euros, 10% in Swedish krona, 6% in US dollars and 1% in other currencies.

The value of Norvestia’s market portfolio developed well during the third quarter of the year with total return for the portfolio after hedging reaching EUR 7.9 million. An individual share worth a special mention is Nordea. The Nordea share benefitted especially from the decrease in general market risks, and its price increased by nearly 30% from the rock bottom of early July. In Norvestia’s portfolio, this corresponded to a return of EUR 0.8 million during the third quarter. Also the values of funds developed favorably. Didner & Gerge Aktiefond offered the best yield.

The return on Norvestia’s Net Asset Value fluctuated less month on month than the stock market in general. During the third quarter, the portfolio was hedged, according to hedging policy, with Euro Stoxx Index futures. Approximately half of the Swedish krona currency risk was hedged with a currency future.

GROWTH EQUITY

During the third quarter of the year, the value of Norvestia’s Growth Equity portfolio increased by EUR 1.0 million due the unrealized fair value movements of investments in the portfolio. During the third quarter, Norvestia committed itself to investing approximately EUR 5 million in Hamilton Lane PE IX Fund, which focuses on US and European small- and medium-sized companies.

Investments in unlisted companies belong to Norvestia’s Growth Equity portfolio, which is administered by Norvestia’s subsidiary Norvestia Industries Oy. The aim of Norvestia’s Growth Equity investment activities is to find interesting companies with strong growth potential, the long-term and active development of which can yield significant increases in value and thereby return to Norvestia’s shareholders. In accordance with its investment strategy, Norvestia aims to find target companies that operate in sufficiently large markets and have the opportunity to take advantage of their service and solution innovations both in Finland and internationally.

Norvestia invests in minority shares or can be in the majority together with another investor. At the end of September 2016, the Growth Equity portfolio consisted of six unlisted companies: Aste Helsinki which offers media production and consulting, Coronaria Hoitoketju which offers health care services, Fluido which offers cloud services consulting, Idean Enterprises which offers customer experience design services, Polystar Instruments which develops telecommunications business intelligence software solutions, and Touhula Varhaiskasvatus which offers early childhood and preschool education. The total fair value of the interests in these companies amounted to EUR 28.3 million.

Growth Equity also includes investments in private equity funds. Norvestia has committed itself to investing EUR 2.0 million in the Amanda V East private equity fund, of which EUR 1.3 million is now invested; approximately EUR 5 million in Hamilton Lane PE Fund IX, of which EUR 0.8 million is now invested; EUR 2.0 million in Lifeline Ventures Fund I, of which EUR 1.5 million is now invested; EUR 5.0 million in Lifeline Ventures Fund III, of which EUR 0.4 million is now invested; and EUR 3.0 million in Open Ocean Fund 2015, of which EUR 0.3 million is now invested. In addition, Norvestia has invested EUR 0.1 million in Lifeline Ventures Fund III AB.

FUTURE PROSPECTS

It looks like the US presidential election to be held 8 November will be the most significant factor in the capital markets in the near future. According to opinion polls, the election will be fairly even.

For the capital markets, Clinton represents continuity and visibility. Trump’s political agenda is more unclear and unpredictable. According to many analysts, the election of Trump as President would increase uncertainty and complicate, at least initially, the predictability of the US economy. Typically markets react negatively to increasing uncertainty. Therefore, from the perspective of the capital markets, the election of Clinton would be a better choice.

The European economic environment remains challenging. Despite the ECB’s powerful support purchases and interest stimulus, the euro economy has not taken a proper step towards growth. The overall situation in Europe is made difficult by the fact that Britain’s negotiations to leave the EU are only about to start. It is too early to estimate the impact of Brexit on the European economy, but the impact will nevertheless be negative. In addition to unfavorable economic effects, the result of the Brexit vote has already caused political turmoil in other EU countries, with demands for a similar referendum on EU membership being made in Italy and France, among others. Such referenda would probably be extremely difficult for the future of the EU.

In this sensitive investment environment, Norvestia aims to take into account various possible scenarios in the economy and on the stock market, based on the latest economic figures. According to the chosen strategy, the amount of Growth Equity investments will be increased during 2016–2018. Otherwise investment levels between shares, funds and interest-yielding investments will be assessed on the basis of the prevailing situation.

KEY FIGURES

DISCLOSURE PROCEDURE

This stock exchange release is a summary of Norvestia's January-September 2016 Interim Report. The full Interim Report including tables is attached to this release and available on Norvestia’s website at www.norvestia.fi/reports.

The interim financial information is unaudited.

Helsinki, 27 October 2016

NORVESTIA OYJ
Board of Directors

On behalf Juha Kasanen
Managing Director
Tel. +358-9-6226 380

DISTRIBUTION
Nasdaq Helsinki
Main media
www.norvestia.fi