Finnvera Group's Report of the Board of Directors and Financial Statements for 2018

The result was clearly positive – self-sustainability has been attained throughout Finnvera’s 20-year history

CEO Pauli Heikkilä:

“Demand for Finnvera’s export financing remained high in 2018 due to long credit periods in the exports of capital goods. The volumes of export credit guarantees, special guarantees and export credits granted to large corporates’ export trade transactions were lower than in the previous year but, then again, 2017 was a record-breaking year in Finnvera’s history. The availability of SME and midcap financing and the increased use of the European Fund for Strategic Investments (EFSI) reduced demand for Finnvera’s SME and midcap financing. In line with our strategy, the focus of the financing granted by us was increasingly on start-ups, enterprises seeking growth, internationalisation and change, and transfers of ownership.

The Finnvera Group’s result was EUR 98 million (EUR 107 million). The result for the SME and midcap business operations, EUR -4 million (EUR 30 million), showed a loss, mainly due to the lower level of the State’s credit loss compensation and the adoption of the IFRS 9 standard. The result for export financing was clearly positive, EUR 103 million (EUR 71 million), which increases reserves for the future.

Demand for export credits has increased in recent years. At the same time, our need for funding has increased and, in 2018, a total of EUR 2.4 billion was acquired from the capital market. To balance funding and asset management, Finnvera prepaid loans associated with the temporary export credit system of 2009–2012 to the State, amounting to EUR 1.5 billion.

Finnvera’s total exposure at the end of 2018 was EUR 25.6 billion, of which drawn guarantees and credits accounted for EUR 12.2 billion. Approximately half of the exposure relates to binding financing offers or agreements that are related to future deliveries by export companies, and thus they do not create credit risks for Finnvera yet. These arrangements typically consist of buyer financing for cruise ships, the delivery times of which are long. In the long term, the drawn exposure will remain clearly below our total exposure. For potential future losses, we have so far accumulated EUR 1.8 billion reserves as the result of our operations.

Finnvera’s operations are guided by self-sustainability, which is ensured with risk management, careful risk analysis and reinsurance, among other means. In line with our targets, our business operations have been cumulatively self-sustainable since the founding of Finnvera, 20 years ago this year.”

Finnvera Group, business operations and the financial performance

1–12/2018 (1–12/2017)

• Loans and guarantees granted: 765 MEUR (782), change -2%
• Export credit guarantees and special guarantees granted: 3,145 MEUR (7,693) , change -59%
• Export credits granted: 2,197 MEUR (6,555), change -66%
  • The timing of individual large export transactions has a major impact                  on the annual variation in financing volumes.

31 Dec. 2018 (31 Dec. 2017)

• Exposure, drawn loans and guarantees for SMEs and midcap enterprises: 1,974 MEUR (2,129), change -7%
• Exposure, export credit guarantees and special guarantees, incl. SME and midcap export credit guarantees: 23,631 MEUR (22,562), change 5%
  • of which drawn guarantees amount to 10,275 MEUR (9,137), change 12%
• Exposure, export credits: 5,981 MEUR (4,758), change 26%
  • The credit risk for Finnish Export Credit Ltd’s export credits is covered by the parent company Finnvera plc’s export credit guarantee.

Finnvera Group, year 2018 (vs. 2017)
Profit for the period 98 MEUR (107), change -8%	Balance sheet total EUR 11.0 bn (10.3), change 7%
Non-restricted equity and The State Guarantee Fund EUR 1.8 bn (1.7), change 4%	Number of employees 360 (383), change -6%
Equity ratio 12.3% (12.7%)	Expense-income ratio 29.3% (27.2%)
Change in the focus of financing: 87% (80%) of SME and midcap financing focused on start-ups, enterprises seeking growth, internationalisation and change, and transfers of ownership.	Net promoter score index 70 (66) Clients are willing to recommend Finnvera

The Finnvera Group’s profit for H2/2018 was EUR 49 million. This was at the same level as in H1/2018 (EUR 49 million). The result of the entire year 2018 was EUR 98 million (EUR 107 million), 8 per cent less than in the previous year. The most significant reasons for the weaker result included the decrease in the net interest income, the increase in losses associated with items recognised at fair value through profit or loss, the year-on-year increase in realised credit losses, and expected losses in SME and midcap financing, due to the lower level of the State’s credit loss compensation and the adoption of the IFRS 9 standard.

Finnvera Group Financial performance	H2/2018 MEUR	H1/2018 MEUR	Change %	H2/2017 MEUR	2018 MEUR	2017 MEUR	Change %
Net interest income	19	23	-16%	23	42	46	-10%
Net fee and commission income	70	65	7%	61	135	127	6%
Gains and losses from financial instruments carried at fair value through P&L	-9	0.1	-	-2	-9	1	-
Administrative expenses	-23	-23	0%	-21	-46	-43	6%
Realised and expected credit losses, gross	-18	-28	-35%	-22	-45	-42	8%
Credit loss compensation from the State	11	13	-14%	12	24	23	3%
Operating profit	49	51	-4%	49	100	109	-8%
Profit for the period	49	49	0%	50	98	107	-8%

Outlook for financing

The growth of the Finnish economy is expected to slow down in 2019, and according to the Bank of Finland’s forecast, GDP will grow by 1.9 per cent this year.

We expect that the availability of financing will remain good in the SME and midcap sector. Finnvera’s goal is to keep the focus of SME and midcap financing firmly on enterprises seeking growth, internationalisation and change, in addition to transfers of ownership and start-ups. In line with the strategy, the aim is to increase the number of SME clients involved in exports as well as the offering of SME advisory services related to financing export trade transactions and preparing for risks. We expect that this will increase demand for export financing this year. The acceleration of transfers of ownership continues, and we expect demand for financing for transfers of ownership to remain high as in previous years.

In 2018, demand for export financing was very high, as in the previous year, which is an indicator of the outlook for financing for this year. We expect demand for export credit guarantees and export credits to remain strong in 2019 and to focus on cruise shipping, telecommunications and pulp and paper sectors. As in previous years, the overall demand is affected by the realisation of individual major projects. Regionally, the strongest demand is anticipated to occur in the United States and Latin America and, to an increasing extent, in other emerging markets. Financing solutions offered to buyers play a pivotal role in the export trade of capital goods sold by large corporates.

The strategy is implemented throughout the Group as planned in 2019 and we expect that operations will be self-sustainable in the current financial period as well. The realised and expected credit losses involve some uncertainty, which can have a significant effect on the financial perfomance.

Further information:

Pauli Heikkilä, CEO, tel. +358 29 460 2400
Ulla Hagman, CFO, tel. +358 29 460 2458

Report of the Board of Directors and Financial Statements H2/ 2018 and 1 January–31 December 2018 (PDF)
Statement on the Corporate Governance and Steering System 2018 (PDF)
Annual Review and Corporate Responsibility 2018 (PDF)

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

The financial statements are available in Finnish and in English at www.finnvera.fi/financial_reports