Market announcement

Title

LHV Group financial plan 2019 and five-year financial forecast

Message

LHV Group announces its current year financial forecast. According to the
financial plan, the group's revenues will increase by 5% and consolidated net
profit by 1% in 2019. Unlike 2018, LHV does not forecast large one-off revenues
for this year, but instead, a decent growth of ordinary business.

For 2019, LHV estimates a 29% increase of the loan portfolio and 31% increase in
consolidated deposits. LHV expects 16% growth in the volume of managed funds.
The LHV Group's forecast of pre-tax profit for the current year is EUR 32.4
million (+5% compared to 2018).

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  Key figures                             FP2019    2018         ?
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  Loans (EUR million)                       1181     919      +29%
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  Deposits (EUR million)                    1863    1422      +31%
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  Assets under management (EUR million)     1407    1214      +16%
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  Cost/income ratio (C/I)                  49.8%   48.3%   +1.6 pp
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  ROE (pre-tax; attr. To owners)           18.3%   20.9%   -2.6 pp
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  Capital adequacy                         19.0%   19.4%   -0.4 pp
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Comment of Madis Toomsalu, the CEO of LHV Group:
"LHV's rapid growth continues in 2019. According to the financial plan, the
loans will be up by EUR 262 million, deposits by EUR 441 million and funds'
volumes by EUR 193 million. We expect strong growth in the customer base and
improved activity of customers in 2019.

The group's profit will increase by EUR 0.2 million in 2019, compared to 2018,
however as the basis for comparison, last year included several one-off
revenues, which have not been included in the next years' forecasts. At the same
time, the profit for the last year was increased by the sales proceeds of
Mokilizingas in the amount of EUR 2.9 million. Also, the revenues of
institutional banking have been forecast at EUR 1.5 million lower compared to
the previous year and a decrease in the pre-tax profit of LHV Varahaldus in the
amount of EUR 0.8 million resulting from the reduced rates of fees of pension
funds. From the expenditures, we see an increase in advance income tax liability
calculated for the entire year, which in 2018 was only calculated for the last
three quarters, and interest expense related to the increasing volumes of
subordinated debt. Apart from the aforesaid highly extraordinary factors, the
profit of LHV from the remaining business activity will increase in an
approximate amount of EUR 7 million. The latter is the most important indicator
when assessing the substantial and long-term growth of LHV's business.

The main activity in 2019 will definitely be the increase and activation of our
customer base. We want to speak to a growing number of clients, who care about
increasing the share of Estonian capital in the offering of local financial
services. From the other side, we have developed into a company that exports
financial services - our UK business line is profitable.

In Estonia, we are visible in major cities, issuing home loans and adding new
ATMs during the year. We focus on active customers who prioritise electronic
channels. We place more emphasis on young people. We want to see a settled
customer, whose salary is received in LHV and who uses LHV's bankcard for day-
to-day financial operations.

In terms of companies, we will focus on increasing the loan portfolio and the
share of trade finance. We are concentrating on customers, for whom it is
important that the core of their business activity is understood and that the
financing structure is based on it. We continue with a one-step decision-making
process, which means that all decisions are made at the site, fast and flexibly.

In the business line of financial service providers, we will continue with
supplementing the product portfolio. After joining the real-time pound payment
system, LHV will be among the first banks in the world that is able to offer
real-time euro as well as pound payments. We will continue to offer accounts,
payments, acceptance of card payments, loans and currency services. While
increasing our customer base, we continue with offering customer-based
solutions.

In pension funds, our priority is achieving the best rate of return for
customers. We are changing our investment strategy, focussing more than before
on finding private investments. This is facilitated by the new regulation of
pension funds, adopted at the end of last year, which will expand the range of
investment strategies and align the motivation of the pension saver, the state
and the management company, allowing one to only charge the success fee if a
proper annual rate of return is achieved. In our financial plan, we have
forecast a success fee starting from 2020, since estimating the success fee (to
be implemented from September 2019) for this year is complicated due to the
short period of application, as we should precisely forecast both of the
variables - the funds' rate of return for the last four months of the year as
well as the change in the tax revenue from the social tax on pension insurance,
as the reference index."



Long-term forecast - the next 5 years

AS LHV Group also discloses the financial plan for the next five years.
According to the forecast, the group's revenues will increase by 20% over the
next five years on average, while the expenses will increase on average by 11%
in a year. Based on the forecast, LHV's consolidated net profit will reach EUR
74 million by 2023.

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  Key figures                      FP2019   FP2020   FP2021   FP2022   FP2023
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  Pre-tax profit                     32.4     42.4     54.8     67.0     86.7
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  Loans                              1181     1448     1786     2094     2409
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  Deposits                           1863     2195     2561     2951     3313
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  Assets under management            1407     1663     1946     2261     2609
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  Cost/income ratio                 49.8%    45.8%    42.5%    40.0%    36.2%
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  ROE (pre-tax; attr. To owners)    18.3%    20.8%    22.8%    23.5%    25.4%
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  Capital adequacy                  19.0%    18.9%    19.1%    19.3%    20.0%
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(* Business volumes shown in EUR million)

Comment of Madis Toomsalu, the CEO of LHV Group:
"We have prepared five-year forecasts on a regular basis, however this is the
second year of us disclosing them. We are aware that the company or the
environment affecting it may change a lot during a five-year period, but as we
have managed to exceed our forecasts so far, it gives us assurance to still
disclose the forecast. Above all, the announcement of a long-term forecast gives
the investors an idea on how we see the long-term trends and results.

One of the assumptions of a five-year financial forecast is continued modest
economic growth. Not estimating the turn of the economic cycle does not mean
that we neglect the risks. Our credit decisions and different stress tests
consistently consider abrupt stress scenarios; similarly, we consider their
potential impact when determining capital buffers. From other main assumptions,
we could highlight the growth of business volumes, growing proportion of
financial intermediaries business line, rising Euribor based on market
forecasts, stable dividend policy, impact of advance income tax and achievement
of the success fee of Varahaldus starting from 2020. When considering the
revenues of Varahaldus, it is important to stress that in the future, we will
recognise the success fee at the end of the year, when we have reasonable
assurance about achieving the annualised success fee.

If we point out the more clearly distinguishable three-year forecast, the loan
and deposit volumes will double in this period and the funds' volume will
increase one-and-a-half times. The estimates of the fourth and fifth year
foresee keeping the three-year trend.

We forecast the pre-tax consolidated return on equity of the next five years to
be at least 20%, except for in 2019, when the return amounts to 18%, as we have
not estimated any success fee of Varahaldus for the last four months. The
capitalisation of LHV remains strong; the forecast assumes maximum issue of
bonds within the EUR 45 million bond programme."



LHV Group will change the financial plan 2019 if a difference between the
planned net profit and the financial plan of more than 10% becomes probable. The
company will update the five-year plan again at the beginning of 2020 or, if
necessary, together with the changes made to the financial plan of 2019.

To introduce the financial plans to the press, LHV organises a press briefing at
11:00 on 12 February, at the Tallinn office of LHV. Live streaming of the
presentation is available on LHV's Facebook page at
https://www.facebook.com/LHVPank/.

LHV Group is the largest domestic financial group and capital provider in
Estonia. LHV Group's key subsidiaries are LHV Pank and LHV Varahaldus. LHV
employs over 390 people, and more than 164,000 customers use LHV's banking
services. Pension funds managed by LHV have more than 177,000 active clients.



Priit Rum
Communication Manager
Phone: +372 502 0786
Email: [email protected] (mailto:[email protected])





Attachment

  * LHVGroup Finantsplaan 2019 EN (https://ml-
    eu.globenewswire.com/Resource/Download/638d6af5-9f81-474b-a4eb-b43653a8d8f7)