ABC Arbitrage SA: 2021 Interim Report

FIRST SEMESTER FINANCIAL REPORT 30-06-2021

ABC arbitrage		Contents

Management Report at 30 June 2021	> 3
Consolidated financial statements at 30 June 2021	> 5
Notes to the consolidated financial statements	> 9
Statutory auditors' review report	> 21
Statement by the person responsible for the	> 24
First-Half Financial Report 2021

Disclaimer

This first semester report and its constituent parts have been

translated from the original French versions. For the purposes of interpretation, the French originals will take precedence over the English translation.

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1. Business review

Key consolidated figures for the first half of 2021 are presented below:

In EUR million	30/06/2021	30/06/2020	Change	31/12/2020
IFRS	IFRS	IFRS
Advisory revenues	-	-	na	-
Investment Services Fees*	46.6	11.7	299.9%	22.5
Net gains at fair value through profit or loss**	(11.5)	33.1	-134.7%	46.3
Net revenues	35.1	44.8	-21.7%	68.8
Payroll costs	(11.1)	(15.2)	-27.2%	(25.9)
Occupancy costs	(0.8)	(0.7)	2.1%	(1.4)
Other expense	(3.2)	(2.8)	15.4%	(5.9)
Other taxes	(0.2)	(0.1)	213.7%	(0.1)
Total costs	(15.2)	(18.8)	-19.0%	(33.4)
Income before tax	19.9	26.0	-23.5%	35.4
Net income attributable to equity	16.8	25.7	-34.4%	35.1
holders

*Management fees include services invoiced by the Group's management companies to Quartys Limited and ABCA Funds Ireland Plc. In addition, due to the application of IFRS 15 (as of January 1, 2018), management fees do not include performance fees not crystallized - i.e. neither invoiced nor collected - as of June 30. As a result, €0.7 million was not recognized as income for the first half of 2021 (compared to €5.3 million for the first half of 2020).

• The group has agreed with the French tax authorities (as stated in the press release of June 4, 2021) to modify the characteristics of its Transfer Pricing Policy ("TPP"). This modification of the TPP has the effect of complicating the comparison of net gains on financial instruments measured at fair value through profit or loss and management fees in the income statement between the first half of 2021 and the first half of 2020. The additional billing for services rendered in the years 2015 to 2020 will increase the Management fees item by €34.6 million and reduce the Net gains on financial instruments measured at fair value through profit or loss by the same amount.

In accordance with IFRS standards, consolidated net revenue at 30 June 2021 came to €35.1 million and consolidated net income amounted to €16.8 million, in decrease (-34%) compared to 1st half 2020. This basis for comparison, which is historic for the group, was established in a particular context linked to the shock of the COVID 19 pandemic, where volatility and volumes reached historic highs, requiring a necessary step back in the conclusions of the first half of 2021. The observation of an increase of almost 100% compared to H1 2019 and a slightly higher result than H1 2016 despite significantly higher investments show a first half 2021 among the best of the ABC arbitrage group.

Net return (ROE) reached 10.8% for the first half of 2021 alone, representing an annualized ROE of about 21.7%, compared to 33% at the end of H1 2020, and 12% at the end of H1 2019.

Following a 2020 year strongly influenced by the economic consequences of the pandemic, H11 2021 has gradually returned to a central bank paradigm with a significant decline in volatility and volumes throughout the half year. US and European volatility has steadily declined during H1 2020 returning to levels close to H1 2019. This calmer environment has allowed M&A deals to see significant activity after a challenging 2020. The pace of announcements in terms of number of new deals is back to at 2016 highs . The number of Corporate Actions remains at low levels, barely at 30% 2015 levels, confirming the persistent strong influence of "negative" rates on these activities. The half-year ended with record valuations of listed companies, for example as observed through the level of the S&P500 index; records that were again broken during the summer. Concerns about the development of new variants and China's political and financial decisions did not reverse this historic rise, whilst creating local unrest.

In this context, all of the Group's businesses saw their activity increase:

• ABC arbitrage Asset Management SA and ABC arbitrage Asset Management Asia Pte Ltd continued to collect assets under management, although below the targets set by the group, and maintained their management fees at a high level.
• ABCA Funds Ireland Plc, an Alternative Investment Fund, had €332 million in assets on 30 June 2021 compared with €289 million on 31 December 2020:

• H1 = First semester

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• • ABCA Opportunities fund, designed to be partially disconnected from volatility, performed better than expected in 1st half 2021, with a rate of +6.45% over S1 2021. This was mainly due to a favorable environment, with a high rate of new contract announcements and a more stable economic context. The Event Driven strategy was one of the drivers of outperformance in April and May. ABCA Opportunities has delivered a steady performance every month since the beginning of the year thanks to the diversification effect of its strategies.
  • ABCA Reversion fund, designed to take advantage of volatility, had a first quarter below expectations. ABCA Reversion had to operate in particularly unfavorable conditions combining low volatility across regions and major decorrelation in Asia. Although ABCA Reversion's performance remained slightly negative over the half year (-2.19%), it was positive in June (+0.49%) in a market context comparable to previous months, which validates the fund's highly defensive profile for downside protection in unfavorable market environments.
• Quartys Limited, a financial instruments trading company, ended the first half of the year with a net loss of 12 million euro, compared with a net profit of 33 million euro in the first half of 2020. This difference is entirely due to the change in transfer pricing policy mentioned in §1, Highlights of the consolidated financial statements (exceptional event) communicated on 4 June by the group. Excluding the exceptional event, Quartys Limited posted a pro forma profit of around €22 million, demonstrating its agility in this market environment.

2. Dividend Policy

On the proposal of the Board of Directors, the General Meeting voted to pay two interim dividends (one to be paid before October 31, 2021, the other before December 31, 2021) of €0.10 per share each, to be taken, in order of priority, from the "retained earnings" account, the "other reserves" account and the "share premium" account. This decision has been taken in recognition of the fact that this will in no way hinder the group's development needs.

Taking into account the shares comprising the share capital existing on the date of the Board of Directors' meeting called to approve the half-year financial statements, these payments each represent a maximum total sum of 5,932,804 euros. These two distributions will be made from the "share premium" account, which will therefore initially be reduced to an amount of €40,918,230. These payments, which are proposed to be made in cash only, will, due to the deduction from the share premium account, have the fiscal nature of a reimbursement of contributions within the meaning of Article 112 1° of the French General Tax Code.

The schedule for the first payment is as follows:

• date of detachment: Tuesday, October 12, 2021,
• payment: Thursday, October 14, 2021.

The schedule for the second payment is as follows:

• date of detachment: Tuesday, December 7, 2021,
• payment: Thursday, December 9, 2021.

The sum of these two amounts is identical to the payment made at the end of the year for many years. Identified as a high-yield stock, the distributions during the year 2021 will represent a return of nearly 6.6% based on the share price as of December 31, 2020.

3. Outlook

Following on from 2020, the central banks have reassured the markets on numerous occasions in 2021, allowing the main world indices to break records since the last low point in March 2020. The latest speeches by various central bankers confirm the relative sustainability of the programmes underway for the next two years.

This context already experienced by the Group in particular since the end of 2016 has formed an important part of the Group's strategic planning. In particular, this type of context, favorable to calm periods followed by significant market shocks, confirms the strategic choices of the ABC 2022 plan presented in 2020. The Group is therefore continuing to invest in R&D to develop capacity strategies and to build the resources needed to grow assets under management, without neglecting development in its historical know-how, which is a source of significant gains in turbulent periods. Halfway through its strategic plan, the ABC arbitrage Group continues to structure its ambitions by balancing the development of its equity capital and the pursuit of its distribution policy for the benefit of its shareholders and its medium and long-term projects.

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ABC arbitrage Consolidated financial statements

Balance sheet - assets

In EUR thousand	Note	June 30, 2021 IFRS	Dec. 31, 2020 IFRS
Intangible assets	3.1	83	126
Right-of-use assets - IFRS 16	3.1	440	932
Property and equipment	3.1	1,254	1,392
Non-current financial assets	3.2	622	625
Deferred tax assets		88	113
Total non-current assets		2,487	3,188
Financial assets at fair value through profit or loss	3.4	118,819	150,319
Other accounts receivable	3.6	31,080	10,569
Current tax assets		-	215
Cash and cash equivalents		30,680	8,767
Total current assets		180,579	169,870
TOTAL ASSETS		183,066	173,057

Balance sheet - liabilities

In EUR thousand	Note	June 30, 2021 IFRS	Dec. 31, 2020 IFRS
Paid-up share capital		936	936
Additional paid-in capital		46,851	47,517
Retained earnings		90,930	70,484
Interim dividend		-	-
Net income		16,839	35,093
Total equity attributable to equity holders	3.3	155,555	154,031
Provisions	3.7	-	-
Lease liability - IFRS16		591	1,148
Non-current financial liabilities		-	-
Deferred tax liabilities		-	-
Non-current liabilities		591	1,148
Financial liabilities at fair value through profit or loss	3.4	1	1
Other liabilities	3.6	24,036	17,878
Taxes payable		2,882	-
Short-term debt		-	-
Total current liabilities		26,919	17,879
TOTAL EQUITY AND LIABILITIES		183,066	173,057

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