- Q1 20 revenues up 9% year-on-year, to EUR 383 million
- Business Income rose 15% to EUR 321 million
- Banking and Other Income decreased 14% to EUR 62 million
- Operating costs up by 4% to EUR 213 million, in line with expectations
- Net profit was up 29% to EUR 127 million
- Dividend approval to be postponed to Q4 2020 in light of recent ECB guidance
- Liquidity initiative stopped due to current uncertain environment
- COVID-19 outlook: business income evolution uncertain; interest-related income hit by interest rate cuts
Business and financial update – Q1 2020
Global markets are exceptionally volatile as participants attempt to understand the wide-ranging implications of COVID-19. During this time, our key priorities are the welfare and wellbeing of our people, whilst ensuring business resilience in our critical role as financial market infrastructure, and continuing to safeguard both our clients’ and Euroclear’s assets.
In seeking to protect the health and safety of our people, we moved to wholesale homeworking, with nearly all our people working remotely. We have taken several other initiatives to support staff wellbeing during this difficult period.
Our Business Continuity Plan is working well to support our customers’ needs even with the exceptional settlement volumes experienced in the first quarter across the financial markets. Sustained investment over recent years in new technologies, cyber security and optimising our ways of working has helped to minimise operational risk and build a more resilient business, allowing us to support our customers and our people through this difficult time.
The strong performance in business income at the end of 2019 continued into the first months of 2020, before the recent heightened volatility, seen across markets, resulted in much greater activity. As a result, the group delivered exceptionally strong growth in business income during the first quarter, above our long-term, through-the-cycle growth trajectory. This activity has recently begun to normalise, with volumes reverting towards more typical levels. Lower market valuations are expected to impact our revenue performance in certain asset classes, such as equities, balancing the overall full year performance.
Central banks lowered policy rates in response to the economic crisis and that has reduced our interest-related income in the quarter. We expect that an ongoing lower interest rate environment will continue to substantially impact Banking and Other Income over the coming quarters, with a yearly decline of approximately 50% anticipated in 2020, compared to 2019 results.
We have a strong balance sheet and capital position. Given our disciplined risk management, limited leverage and prudent liquidity position, the Board remains confident in Euroclear’s financial strength.
However, in light of recent guidance from the European Central Bank (ECB) and the National Bank of Belgium (NBB) regarding dividend distribution policy in the context of the COVID-19 crisis, the Board has taken the decision to postpone its approval of the dividend announced in February, until Q4 2020.
In December 2019, the Board completed the study phase of the process to find a liquidity solution for the benefit of all of our shareholders. Given the current uncertain environment, the Board has decided to stop all work on a tentative liquidity initiative, and wait until economic activity and market stability has been restored in a sustained way to consider the matter again.
“The Euroclear group continues to demonstrate exceptional levels of robustness and resilience as we support global financial markets during a period of great strain.
On behalf of the Board, I would like to express gratitude to our people from across every entity of the group for how they have responded to the COVID-19 crisis. Thanks to their dedication we have been able to maintain services of the highest quality and security to all clients.”
“This year has already proven to be challenging for the financial markets, with recent events demonstrating the need for a strong and adaptable market infrastructure.
Our business, people and systems have shown resilience, and their proven robustness, to support the financial market ecosystem in these unprecedented times. Thanks to all our staff’s efforts, we remain focused on delivering for our stakeholders while monitoring the COVID-19 situation very closely.
In recognition of the important responsibility we have to society and our local communities, we have made a donation of EUR 1 million to charities that are tackling the COVID-19 crisis. The donation will be allocated to local charitable causes, such as hospitals and vaccination research, in each of the main countries where Euroclear operates.”
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Euroclear group is the financial industry’s trusted provider of post trade services. At the core, the group provides settlement, safe-keeping and servicing of domestic and cross-border securities for bonds, equities and derivatives to investment funds. Euroclear is a proven, resilient capital market infrastructure committed to delivering risk-mitigation, automation and efficiency at scale for its global client franchise.
The Euroclear group includes Euroclear Bank - which is rated AA+ by Fitch Ratings and AA by Standard & Poor’s - as well as Euroclear Belgium, Euroclear Finland, Euroclear France, Euroclear Nederland, Euroclear Sweden and Euroclear UK & Ireland. The Euroclear group settled the equivalent of EUR 837 trillion in securities transactions in 2019, representing 239 million domestic and cross-border transactions and held an average of EUR 30.1 trillion in assets for clients.