(Información remitida por la empresa firmante)
The diversification of our business provided a hedge against market volatility. 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. In addition, interest, banking and other income increased by 289% to EUR 348 million on an underlying basis, benefitting from rising interest rates.
Underlying operating expenses increased to EUR 1,133 million, up 15% compared to the prior year, partly due to inflation on costs but also as Euroclear continued to invest in its technology and service offering. As well as enhancing Euroclear’s client proposition and resilience, the investments in Euroclear’s technology are expected to increase efficiency through standardisation and modernisation.
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.
Euroclear continues to expect expenditure to remain above its “through-the-cycle” target of 4-6% p.a. in 2023, due to 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.
Implications of Russian sanctions
Russia’s invasion of Ukraine resulted in market-wide application of international sanctions, which had a material impact on Euroclear’s financial market infrastructure.
As a regulated entity with a critical role in the operation of global financial markets, Euroclear takes its responsibility of complying with sanctions very seriously. Well established processes are in place which have allowed the group to implement the sanctions while maintaining the normal course of business.
There is, however, additional complexity because the package of sanctions is wide-ranging and, moreover, Russia does not recognise the international sanctions and has implemented its own economic countermeasures. Euroclear maintains regular dialogue with clients and other impacted stakeholders in managing the market issues and implication of Russian countermeasures.
The international sanctions and Russian countermeasures resulted in a loss of activities from sanctioned clients and Russian securities which impacted business income. It is more than offset by increased interest income.
The cash on the balance sheet has increased as blocked coupon payments and redemptions accumulate. At the end of December 2022, Euroclear Bank’s balance sheet increased by EUR 99 billion year-on-year to a total of EUR 124 billion.
As per Euroclear’s standard process, which is the same for any client’s long cash balances, the cash balances arising from the sanctions are invested to minimise credit risk. Over 2022, interest arising on cash balances from Russia-sanctioned assets was EUR 821 million.
Future earnings linked to the sanctions will continue to depend on the prevailing interest rate environment and the evolution of the sanctions. The Board expects interest income to continue to grow as blocked payments and redemptions continue to accumulate, albeit at a slower pace during 2023.
As previously outlined, while the Russian sanctions materially impact the balance sheet, the impact on the group’s capital ratios is not expected to be significant. Euroclear maintains a strong capital position.
The nature of the activities undertaken as a financial market infrastructure has led various parties to contest the sanctions and countermeasures, as well as their application, with legal proceedings ongoing in both the European Union and Russia. While not presently considered a material risk and having limited financial impact, the probability has increased that financial impacts arise, which may result in a possible post balance sheet event. As such, the Board considers it necessary to separate the sanction-related earnings from the underlying financial results when assessing the company’s performance and resources.
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, as well as a more uncertain risk environment. Euroclear continues to act in a transparent manner with all authorities involved. The Board will continue to act cautiously by not distributing any profits related to the Russian sanctions until the situation becomes clearer.
Responsibility to our people and society
The newly articulated corporate purpose and strategy recognises Euroclear’s responsibilities to its communities and society. Management and the Board would like to thank colleagues for the way in which they responded to the challenges of the past year, while also adapting to a new hybrid way of working.
Having established a group sustainability office in 2021, this year Euroclear set out a pathway to reach its net zero science-based targets. This includes setting near term 2030 goals to cut absolute Scope 1 and 2 greenhouse gas emissions by 55%, from a 2019 base year.
Shareholder returns
The Board considers the core of the group’s performance to be the underlying business performance and shareholder returns are assessed on this basis.
Underlying EPS increased by 30% to 191.7 per share, reflecting growth in net profit after adjusting for results related to the implementation of international sanctions.
The Board signals its intention to pay dividend per share to EUR 115.5 in the third quarter. This represents an increase of 31% and maintains the payout ratio at 60% of the underlying earnings, in line with last year.
Commenting on the results
Lieve Mostrey, Chief Executive Officer, Euroclear
“Throughout 2022, Euroclear has continued to innovate to bring safety, efficiency and connections to the financial markets for sustainable economic growth.
I would like to extend my gratitude to our people, together with our clients and partners, for their continued efforts in navigating the extraordinary circumstances that we faced last year. Our business has once again demonstrated its robust model, internal structures and processes, and agility when facing new challenges.
Looking forward, I am encouraged by the progress already made in implementing our new business strategy, which gives us confidence as we strive towards our long-term aim to become a digital and data-enabled financial market infrastructure.”
Logo — https://mma.prnewswire.com/media/832898/Euroclear_Logo.jpg
View original content:https://www.prnewswire.co.uk/news-releases/euroclear-group-delivers-another-record-year-301741362.html