FIM GROUP CORPORATION’S PROFITABILITY IN Q1/07 WAS GOOD
FIM Group Corporation STOCK EXCHANGE RELEASE May 11, 2007
FIM GROUP CORPORATION’S PROFITABILITY IN Q1/07 WAS GOOD
Key figures for January-March 2007 (2006)
Net sales: EUR 23.2 million (21.2)
Growth in net sales: 9% (81%)
Operating profit before non-recurring stock option expenses: EUR 5.7 million (6.2)
Operating profit margin before non-recurring stock option expenses: 25% (29%)
Operating profit: EUR 3.5 million (6.2)
Operating profit margin: 15% (29%)
Net profit: EUR 3.4 million (3.2)
Earnings per share: EUR 0.08 (0.11)
OPERATING ENVIRONMENT
Surging share prices dipped temporarily in February when investors cashed in their profits, prompted by uncertainty about whether the long bullish streak would hold and underlying concerns about the development of the US economy. The global equity index rose by 1.4 percent in euro terms in Q1, and the equities index for the world’s emerging countries increased by 0.6 percent. Price trend on the OMX Helsinki Stock Exchange was considerably stronger. The OMX Helsinki Cap Index had risen by 8.7 percent by the end of Q1.
Also, the European economy saw robust development in Q1. The slight dip in the stock markets temporarily slowed the growth of long interest rates. However, when the situation subsided, European rates headed upward again. The improvement in the economic outlook of the euro zone has supported the exchange rate of the euro against the USD.
Trade volume on the OMX Helsinki Stock Exchange continued to soar. In Q1, trade volume grew by 27 percent compared with the corresponding period of 2006 and amounted to about EUR 97 billion (77). Average intra-day volume grew to over EUR 1.5 billion.
In the first months of the year, the structured products markets were generally very brisk and strong growth was seen.
INCOME AND FINANCIAL PERFORMANCE IN JANUARY-MARCH 2007
(comparison figures are for January-March 2006)
FIM Group's total income in January-March grew by 9 percent to EUR 23.2 million (EUR 21.2 million in 2006).
FIM has changed its financial reporting from the beginning of 2007. Segment reporting covers the business areas FIM Asset Management and FIM Brokerage. FIM Investment Banking is reported as part of the group Others. The sales of structured products were moved from investment banking division to FIM Asset Management in the beginning of the year. Comparison figures have been adjusted to the new reporting structure.
FIM Asset Management’s total income in January-March was EUR 15.1 million (14.5). FIM Asset Management’s first quarter in 2006 was very strong. During the first months of 2007 the growth decelerated somewhat as the markets turned their focus into lower risk products.
FIM Brokerage’s total income was EUR 8.6 million (7.1). The fee and commission income of FIM Brokerage grew in the positive market environment compared with the corresponding period last year.
The Group’s January-March operating profit from continuous operations was EUR 5.7 million (6.2) and the operating profit margin 25 (29) per cent. FIM Asset Management’s operating profit from continuous operations EUR 4.3 million was clearly less than in the very strong Q1 of 2006 (5.5). Operating profit was burdened by investments in growth and launching of the Russian operations. FIM Brokerage’s operating profit from continuous operations increased in positive market environment to EUR 1.7 million (1.4).
Due to the Glitnir transaction, the option costs for FIM’s both option series that were originally scheduled for 4 years have now been booked in the first quarter of 2007. Operating profit after the booking for the non-recurring option costs was EUR 3.5 million and the operating profit margin 15 per cent. The non-recurring option costs booking in the result totaled EUR 2.2 million. The booking of the option costs does not affect the Group’s shareholders’ equity.
The Group’s Q1 expenses, excluding fee and interest expenses, came to EUR 16.3 million (12.5). Expenses increased by 31 percent compared with the same period of 2006. The greatest single factor behind the growth in expenses was the effect of the Glitnir acquisition – announced in February – on the recognition of stock option expenses.
The Group’s taxes in the January-March period amounted to EUR 0.1 million (2.0). Profit in January-March was EUR 3.4 million (3.2).
Earnings per share for the review period were EUR 0.08 (0.11).
BALANCE SHEET
The Group’s total assets strengthened significantly compared with the corresponding period of 2006, largely thanks to the share issue carried out in April 2006. Total assets as of March 31, 2007 stood at EUR 150.5 million (72.9). Total assets as of December 31, 2006 stood at EUR 142.4 million.
The Group’s shareholders’ equity at the end of the fiscal period was EUR 99.9 million (29.8), or EUR 2.34 per share (0.82). The acquisition of minority interests that was carried out through exchanges of shares during 2006 was made at fair values, and thereby brought a significant increase in the share premium reserve. For this reason, goodwill of EUR 41.2 million was recorded in the consolidated balance sheet. The annualized return on equity was 13.6 percent (55.1).
The Group’s equity ratio was 66.4 percent (40.8) and the Tier 1 ratio was 103.6 percent (62.8).
FIM’s derivatives exposure at the end of the reporting period consisted mainly of equity derivatives held for trading. The value of the underlying assets of equity derivatives was EUR 37.1 million and they had a fair value of EUR -0.8 million. In addition, receivables denominated in foreign currency were hedged with forward exchange contracts, the underlying assets of which had a value of EUR 14.8 million, their fair value being EUR 0.3 million.
INVESTMENTS
The Group’s investments in tangible and intangible assets during the review period came to EUR 0.8 million (1.1).
PERSONNEL
The number of employees has grown greatly in recent years. In January-March 2007, the Group had an average payroll of 291 employees (235). The number of employees at the end of March was 299 (244).
At the end of the review period, the personnel were divided by business area as follows: FIM Asset Management, 141 persons, FIM Brokerage, 101 persons. The number of employees working in Finland was 262, with 33 employees in Russia and 3 in Sweden. Personnel figures are stated converted to full-time staff.
CHANGES IN THE COMPANY'S MANAGEMENT
FIM Group Corporation’s Board of Directors appointed Mr. Timo T. Laitinen, M.Sc. (Eng.), as the CFO of the FIM Group as of February 15, 2007. Until that date, the CFO was Niklas Geust, M.Sc. (Eng.), who went on his planned sabbatical on March 1, 2007.
GLITNIR BANKI HF. ACQUIRES MAJORITY STAKE IN THE FIM GROUP
In February 2007, Glitnir banki hf. of Iceland announced its intention to acquire the shares and stock options issued by FIM by launching a public tender offer. In accordance with the agreement made by Glitnir and FIM Group Corporation’s 11 largest shareholders, Glitnir banki hf. acquired 68.1 percent of the shares in FIM Group Corporation by means of transactions consummated on March 16, 2007. The public tender offer period commenced on April 25, 2007
FIM AFTER THE GLITNIR ARRANGEMENT
The Glitnir transaction will open up new growth opportunities for FIM. Being part of Glitnir enables FIM to accelerate some of its previously started growth initiatives as well as seek for new growth both in Finland and abroad.
FIM Asset Management will continue to expand its product offering in Finland as well as to build up asset management operations in Russia. New growth opportunities after Glitnir transaction comprise of selling FIM’s fund products to other Glitnir countries and increasing investments in international sales of spearhead FIM funds.
FIM Brokerage will continue to build up the Russian brokerage operations based on a broader Nordic and international client base. Given that FIM-Glitnir is the third largest broker in the Nordic countries, FIM Brokerage will participate in developing a Glitnir-wide business model in the future.
FIM Investment Banking will benefit from becoming part of Glitnir’s Nordic team.
Since Glitnir is active and has capabilities in several business lines which FIM has not traditionally been active in, several efforts have been launched to assess whether all or some of these Glitnir business lines should be expanded to Finland and potentially to Russia.
RESOLUTIONS OF FIM GROUP CORPORATION’S ANNUAL GENERAL MEETING
FIM Group Corporation’s Annual General Meeting, held on March 15, 2007, adopted the 2006 financial statements and discharged the members of the Board of Directors and the President and CEO from liability. The Annual General Meeting decided on the payment of dividends, the composition of the Board of Directors and the election of the auditor.
It was resolved that a dividend of EUR 0.14 per share would be paid as proposed by the Board of Directors, to a total of EUR 5.97 million. The dividend was paid out on March 27, 2007.
The following persons were re-elected as members of the Board of Directors: Niklas Geust, Vesa Honkanen, Antti Kivimaa, Risto Perttunen and Jukka Ylitalo. However, the term of service of these members of the Board of Directors ended when Glitnir banki hf. acquired 68.11 percent of FIM Group Corporation’s shares and voting rights. Due to this change of ownership, the Annual General Meeting elected Bjarni Ármannsson, Frank Ove Reite and Sverrir Örn Thorvaldsson to the Board of Directors as representatives of Glitnir banki hf. as well as re-elected Niklas Geust and Vesa Honkanen. Their term of service started from the transfer of ownership on March 21, 2007. At its organization meeting on March 22, 2007, the Board of Directors elected Frank Ove Reite as the Chairman.
After the change in the ownership, the majority of the members of the company’s Board of Directors do not meet the criteria of independence as set forth in the Corporate Governance recommendation of the Helsinki Stock Exchange, the Central Chamber of Commerce of Finland and the Confederation of Finnish Industries EK.
The Authorized Public Accountants Kim Karhu and Kaija Leppinen were re-elected as the company's auditors. PricewaterhouseCoopers Oy, Authorized Public Accountants, was elected as the deputy auditor, with Authorized Public Accountant Jarmo Álen as chief auditor.
OTHER SIGNIFICANT EVENTS DURING THE REVIEW PERIOD
At its meeting of January 12, 2007, the Board of Directors of FIM Group Corporation decided to begin preparing for the launch of retail banking operations as part of the Group’s expansion of its service offerings. FIM submitted a license application for banking operations to the Finnish Financial Supervision Authority during the review period.
FLAGGING NOTIFICATIONS
On February 5, 2007, FIM Group Corporation received an announcement in which Seppo Sairanen, Markku Kaloniemi, Niklas Geust, Pekka Mölsä, Karri Toivonen, Jussi Seppälä, Jukka Ylitalo, Antti Pohjola, Jan Forsbom, Jussi Hyöty and Janne Holtari stated that they had signed a Commitment Letter to sell all the FIM Group Corporation shares and the securities entitling to them in their ownership to Glitnir banki hf. The sale of shares was carried out on March 16, 2007, after which said persons no longer own FIM Group Corporation shares. This transaction increased Glitnir banki hf.’s holding of FIM Group Corporation’s share capital and voting rights to over 2/3.
On February 26, 2007, the company was informed that Credit Suisse Securities (Europe) Limited’s holding of voting rights in FIM Group Corporation had exceeded one-twentieth (1/20) on February 6, 2007, and that Credit Suisse Securities (Europe) Limited’s holding corresponds to 3.57 percent of the share capital and 5.21 percent of the voting rights of FIM Group Corporation.
On March 7, 2007, the company was informed that Credit Suisse Securities (Europe) Limited’s holding of the share capital of FIM Group Corporation had exceeded one-twentieth (1/20) on March 2, 2007, and that Credit Suisse Securities (Europe) Limited’s holding corresponds to 5.37 percent of the share capital and 7.85 percent of the voting rights of FIM Group Corporation.
SHARES AND SHARE CAPITAL
FIM Group Corporation’s share capital as of March 31, 2007, was EUR 2,813,505. The company’s issued shares consist of one share class that is divided into a total of 42,683,690 shares.
The trade volume of the FIM Group Corporation share on the OMX Helsinki Stock Exchange in the January-March 2007 period was EUR 319.0 million and 39.9 million shares. Trade volume includes the block trade carried out on March 16, 2007, in which 29,071,813 shares were transferred to Glitnir banki hf. The share registered a high of EUR 8.30 in February and a low of EUR 5.86 in January. The volume-weighted average share price was EUR 7.99. At the end of the reporting period on March 31, 2007, the share price was EUR 8.15 and the company had a market capitalization of EUR 347.9 million. The company had in its possession a total of 36,000 treasury shares as of March 31, 2007, and they had a market value of EUR 0.3 million. The nominal value of the treasury shares at the end of the reporting period was EUR 2373. The share of all shares and votes was below 0.1 per cent.
RISK MANAGEMENT
Risk management is an essential part of internal control, and its aim is to reduce the probability of unforeseeable losses or a threat to the reputation of FIM. Risk management covers all material risks connected with FIM’s operations, such as operational risks, market risks, liquidity and financing risks, credit risks and strategic risks.
The management of operational risks is part of the FIM Group’s overall risk management, and it generally involves minimizing risks. In addition to preventive work that is carried on to avert operational risks, the FIM Group seeks to maintain sufficient insurance coverage for the purpose of compensating, say, loss or damage resulting from malfeasance, intrusion into information systems, or other criminal actions. Continuity plans have been put in place to cope with major disturbances to operations.
Limits and other operational instructions have been set for the taking of market risks, bearing in mind the sufficiency of equity and capital adequacy planning within the FIM Group.
To support liquidity management, FIM Securities Ltd has the possibility, in the form of credit extended by customers (so-called cash account customers), to improve its liquidity, and, additionally, the company has credit facilities that have been agreed with banks and can be drawn down as the need arises. In practice, despite the increase in trading, it has been possible to attend to liquidity management mainly without having recourse to bank credit facilities.
Across FIM units, the contractual counterparties in accordance with the adopted definition of credit risk are customers and other trading counterparties as well as other partners in cooperation. In line with the lending policy approved by the Board of Directors, FIM carries on only lending activities in which risk-taking can be limited to a small amount and the risk is manageable. Lending is primarily to private individuals.
EVENTS AFTER THE REPORT PERIOD
Due to trades concerning the shares of FIM Group Corporation executed on March 16, 2007, Glitnir banki hf. is obligated to make a public tender offer for FIM Group Corporation’s shares and options. The tender offer is made for all shares issued by FIM that are not owned by FIM or any company belonging to the FIM group of companies.
On April 23, 2007, the Finnish Financial Supervision Authority approved the tender offer document relating to the tender offer. The tender offer document is available in Finnish at FIM Securities Ltd, Pohjoisesplanadi 33 A, 00100 Helsinki, on April 25, 2007 or from the Internet address http://ostotarjous.fim.com. In addition to this the offer document is available at OMX Way, Fabianinkatu 14, 00130 Helsinki.
The tender offer will be valid from April 25, 2007 at 10.00 am (Finnish time) until May 16, 2007 at 4.30 pm (Finnish time), during which period FIM’s shareholders and holders of option rights may accept the tender offer unless the offer period is extended or the extended period discontinued as set forth in the offer terms.
The offeror reserves the right to extend the offer period. The offer period may be no longer than 10 weeks unless applicable legislation provides otherwise. The offeror will release information about the extension of the offer period no later than on the first banking day following the expiration of the offer period.
NEAR-TERM OUTLOOK
FIM Asset Management’s assets under management on April 30, 2007, totalled about EUR 3 179 million, an increase of 2 percent since April 30, 2006.
FIM Brokerage’s market share of euro-denominated trade volume on the OMX Helsinki Stock Exchange was 3.8 percent in January-April. Based on the number of trades, the market share was 3.4 percent.
FIM’s and Glitnir’s brokerage operations’ combined market share in April of euro-denominated trade volume on OMX Helsinki Stock Exchange was 5.7 per and of number of trades 6.1 per cent.
The trend in FIM’s operations during the first months of 2007 has proceeded as expected and the growth in full-year net sales is expected to reach the long-term growth target of 20 percent. Full-year operating profit is estimated to exceed that reported for 2006.
Cyclical sensitivity is typical of investment service operations and FIM’s business operations are also characterized by a marked dependence on the trend in the global securities markets. In the short term, performance fees in discretionary asset management are the type of income that is the most sensitive of all to both positive and negative moves in the market.
The full report including tables can be downloaded from the enclosed link.
FIM Group Corporation
Risto Perttunen
CEO
For additional information, please contact:
Risto Perttunen, CEO, tel. +358 9 6134 6303
Timo T. Laitinen, CFO, tel. +358 9 6134 6525
Distribution:
Helsinki Stock Exchange
The main media
www.fim.com
FIM is a growing investment services group that offers asset management, brokerage and investment banking services for private individuals and organizations. Since March 2007 FIM is part of Icelandic financial group Glitnir (www.glitnirbank.com). In addition to the head office in Helsinki, FIM has regional offices in Espoo, Jyväskylä, Kuopio, Lahti, Oulu, Riihimäki, Tampere, Turku and Vaasa. FIM also operates in Stockholm and Moscow. The company had net sales in 2006 of EUR 82.0 million, and it posted operating profit of EUR 19.1 million. FIM had a payroll of 284 employees at the end of 2006. www.fim.com