Finnvera Group's Half-Year Report 1 January-30 June 2018

Strong demand for financing has raised export financing exposures

CEO Pauli Heikkilä:

“The world economy has boosted the growth of the Finnish economy. Strong demand for financing, especially in the cruise ship sector and telecommunications, has raised Finnvera’s export credit guarantee and special guarantee exposures to more than EUR 23 billion, of which drawn guarantees amount to EUR 10 billion. The undrawn guarantees, EUR 13 billion, are associated with future deliveries. However, during the first half of this year, the number of new major export projects entering the pipeline was lower than last year.

In the first six months of the year, the volume of loans and guarantees granted by Finnvera to SMEs and midcap enterprises was slightly lower than last year. Banks are largely taking care of corporate financing at the moment, and Finnvera’s role is to supplement the financial markets. Financing offered by the European Fund for Strategic Investments (EFSI) has proved to be easily found by Finnish enterprises, which in part replaces the financing provided by Finnvera. One of the positive developments that we have witnessed is that a greater share of SME and midcap financing granted by Finnvera is targeted at investments and export projects. Our goal is to accelerate investments and export projects with the aid of advisory services, together with other providers of financing and credit insurers. Impact is one of the key indicators of our success, and we provide advisory services to promote the growth and internationalisation of enterprises in a new way.

The Group’s profit for the first six months of the year was EUR 49 million. The profit was lower than in the corresponding period last year. The goal of self-sustainability set for Finnvera is that the income received from the company’s operations must, in the long run, cover the company’s operating expenses. Finnvera continuously develops its operations and risk management through reinsurance, among other means.”

Finnvera Group, business operations and the financial trend

H1/2018 (H1/2017)

• Loans and guarantees granted: EUR 0.4 billion (EUR 0.5 billion), change -3%
• Export credit guarantees and special guarantees granted: EUR 1.4 billion (EUR 6.3 billion), change -77%
• Export credits granted: EUR 1.1 billion (EUR 5.7 billion), change -80%
  • One of the factors behind the year-on-year decrease in the amount of export credit guarantees and export credits was that last year, there were certain major tenders in shipping and telecommunications.

30 June 2018 (31 December 2017)

• Exposure, loans and guarantees for SMEs and midcap enterprises: EUR 2.1 billion (EUR 2.1 billion), change -3%
  • Authorisation pursuant to law: EUR 4.2 billion, of which EUR 2.1 billion (EUR 2.1 billion) is used
• Exposure, export credit guarantees and special guarantees, including SME and midcap export credit guarantees: EUR 23.3 billion (EUR 22.6 billion), change 3%, of which drawn guarantees amount to EUR 10.0 billion (EUR 9.1 billion), change 9%
  • Authorisation pursuant to law: EUR 27.0 billion, of which EUR 18.8 billion (EUR 18.7 billion) is used
• Exposure, export credits: EUR 5.6 billion (EUR 4.8 billion), change 17%
  • The credit risk for Finnish Export Credit Ltd’s export credits is covered by the parent company Finnvera plc’s export credit guarantee.
  • Authorisation pursuant to law: EUR 22.0 billion, of which EUR 11.8 billion (EUR 11.2 billion) is used

The targeted cumulative self-sustainability has been achieved, and Finnvera's operations have been self-sustainable throughout the company's nearly 20 years of operation.
Net interest income and net fee and commission income H1/2018: 88 MEUR (H1/2017: 90), change -2%	Net impairment loss on financial assets H1/2018 15 MEUR (H1/2017: 9), change 68%	Profit for the period H1/2018 49 MEUR (H1/2017: 57), change -14%
Balance sheet total 30 Jun 2018 12.3 Billion EUR (31 Dec 2017: 10.3), change 19%	Non-tied capital and The State Guarantee Fund 30 Jun 2018 1.8 Billion EUR (31 Dec 2017: 1.7), change 1%	Average number of employees H1/2018 376 (H1/2017: 381), change -1%
Equity ratio 30 Jun 2018 10.2% (31 Dec 2017: 12.7)	Capital adequacy, Tier 1, domestic operations 30 Jun 2018 25.8% (31 Dec 2017: 25.3)	Expense-income ratio H1/2018 28.1% (H1/2017: 25.4)

The Group’s profit for January–June was EUR 49 million (EUR 57 million), showing a year-on-year decrease of 14 per cent. The most significant factors behind the decrease were the year-on-year increase in the parent company Finnvera plc’s loan impairment in SME and midcap financing as well as guarantee losses and loss provisions. Introduced at the beginning of 2018, the State’s lower credit and guarantee loss compensation in SME and midcap financing (50 per cent) increased the amount of losses for which the Group is liable. Furthermore, the IFRS 9 Financial Instruments standard entered into force at the beginning of 2018, which influenced the January–June impairment and loss provision entries and decreased retained earnings on the balance sheet. The standard’s impacts on the profit may also be significant in the future, especially in export financing.

Finnvera Group Financial trend	H1/2018 MEUR	H1/2017 MEUR	Change MEUR	Change %	2017 MEUR
Net interest income	23	23	-1	-3%	46
Net fee and commission income	65	66	-1	-2%	127
Gains and losses from financial instruments carried at fair value through P&L	0,1	3	-2	-95%	1
Administrative expenses	-23	-22	1	4%	-43
- of which personnel expenses	-14	-15	-0,1	-1%	-29
Gross impairment loss on financial assets	-27	-20	7	38%	-41
Credit loss compensation from the State	13	11	2	14%	23
Operating profit	51	60	-9	-15%	109
Profit for the period	49	57	-8	-14%	107

Outlook for financing

In June, the Bank of Finland raised its growth forecast for the Finnish economy: according to them, GDP will grow by 2.9 per cent this year. During the first half of the year, the share of investments in SME and midcap enterprise projects partially financed by Finnvera grew by nearly 6 percentage points year on year. In the good economic situation, investment activity and growth are likely to continue. We expect that this year, demand for Finnvera’s financing and the amount of financing granted by Finnvera, both measured in euros, remain at the same level as last year. In line with our strategy, we target SME and midcap financing at the early stages of business operations, growth, internationalisation and transfers of ownership, which altogether currently account for 86 per cent of the financing provided by us.

During the first six months of the year, export financing granted to SMEs and midcap enterprises increased by 17 per cent year on year and the share of export financing in all SME financing grew. The increasing of SMEs’ exports and their export trade financing knowledge is an important focus area that will be promoted in the coming year through an extensive financier cooperation network and advisory services. We expect that this will increase demand for export financing in the future. The acceleration of transfers of ownership continues and related demand for financing will probably remain at the same level as in the previous years.

Demand for export financing by large corporates for trade to industrialised Western countries is likely to remain strong. However, when it comes to Russia, one of Finnvera’s largest country exposures, we expect exposure to continue decreasing. Demand is weak and enterprises postpone their investment decisions due to the increasing uncertainty of the business environment. Of Finnvera’s large country exposures, Brazil is facing problems in administration that create uncertainty, but the country’s economy is expected to grow and demand for guarantees is anticipated to gradually take an upward turn. The largest projects are in the wood processing sector, with demand in smaller projects probably spreading more extensively across different sectors. Finnvera’s exposure in China has remained low for a long time, but a slight increase in demand is in sight. Nevertheless, the possibility of increasing protectionism increases uncertainty. For the time being, the favourable economic situation improves enterprises’ opportunities of acquiring financing but, due to increasing political uncertainty, it is difficult to anticipate future development.

Further information:
Pauli Heikkilä, CEO, tel. +358 29 460 2400
Ulla Heikkilä, CFO, tel. +358 29 460 2458

Appendices:
Half-Year Report 1 January-30 June 2018 (PDF)

Distribution:
NASDAQ Helsinki Ltd, London Stock Exchange, the principal media, www.finnvera.fi

From now on, the Finnvera Group’s half-year report only contains information about the Group. Previously, the half-year report contained information about both the Group and the parent company. The half-year report is available in Finnish and English at www.finnvera.fi/financial_reports