Finnvera´s outstanding commitments kept rising

Financial statements of Finnvera plc for the period 1 January–31 December 2004

In 2004, Finnvera plc exceeded its central goals concerning both the volume and profitability of operations and the company’s ownership and industrial policy. Finnvera plc’s profit for the period 1 January–31 December 2004 amounted to EUR 39.3 million, while the profit for the previous year had been EUR 29.8 million. At year’s end, the outstanding commitments of Finnvera plc amounted to EUR 5,862.1 million (EUR 5,619.9 million). Clients numbered roughly 26,300 at year’s end (25,700). With its financing schemes, Finnvera contributed to the creation of about 11,500 new jobs (9,700).

During the period under review, the risk financing granted by Finnvera plc to enterprises operating in Finland reached a new record, EUR 891.5 million (EUR 770.8 million), while offers for guarantees associated with foreign risk-taking totalled EUR 2,209.4 million (EUR 2,311.0 million).

Domestic financing increased briskly during the period under review. Guarantees accounted for 54 per cent of the total amount of domestic financing granted (53).

During 2004, the total value of guarantee applications submitted by exporters and financiers for projected export transactions that would involve foreign risk-taking came to EUR 6.5 billion (EUR 3.7 billion). Once the enterprises had carried out their export transactions, the value of guarantees that came into effect in 2004 totalled EUR 987.1 million (EUR 995.1 million). Some of the guarantees granted in 2004 will come into effect in 2005.

At year’s end, the parent company had 404 employees (403).

Positive economic development continued

The Finnvera Group’s profit for the year 2004 was EUR 38.4 million, while the profit for the previous year had been EUR 25.5 million. The Group companies and associated companies had an effect of EUR -1.0 million on the profit. Transactions made by Finnvera plc and Veraventure Ltd concerning venture capital investment companies had an effect of EUR -2.3 million on the result, while affiliated companies had an effect of EUR +0.9 million.

The parent company’s profit was EUR 39.3 million, as compared to EUR 29.8 million in 2003. In 2004, The Group’s financial performance continued to improve. The excellent result achieved in export credit guarantee activities and the fact that credit losses in domestic financing remained at an exceptionally low level contributed to the good financial performance.

The interest subsidy from the State and from the European Regional Development Fund (ERDF) totalled EUR 21.7 million (EUR 22.2 million), of which the interest subsidy passed on directly to clients accounted for EUR 18.9 million.

Commissions income include EUR 44.5 million in fees received by the parent company for export credit guarantees and special guarantees. Other guarantee commissions amounted to EUR 14.4 million, while the handling fees on loans and guarantees totalled EUR 5.8 million and other fees on lending EUR 1.5 million. The Group’s commissions income totalled EUR 67 million. This was EUR 0.2 million more than in the previous year.

The Group’s administrative expenses came to EUR 37.9 million (EUR 34.5 million), of which personnel expenses accounted for 67.9 per cent. The parent company’s administrative expenses amounted to EUR 35.8 million (EUR 33.7 million), of which personnel expenses accounted for 69.1 per cent. Other operating expenses are costs for business premises.

At the end of the year, Finnvera’s outstanding credits totalled EUR 1,320.8 million. Credits increased by EUR 72.9 million during 2004. Guarantees increased more briskly than credits, by EUR 101.6 million. At the end of 2004, domestic guarantees totalled EUR 793.1 million. The book value of the liability, as referred to in the Act on the State’s Export Credit Guarantees, totalled EUR 2,886.2 million (EUR 2,728.1 million). Outstanding commitments arising from export credit guarantees and special guarantees (current commitments and offers given) totalled EUR 3,748.2 million (EUR 3,680.5 million).

No rise in credit and guarantee losses

Credit and guarantee losses continued to be reasonably low. The parent company’s credit and guarantee losses totalled EUR 30.0 million (EUR 30.4 million). Compensation by the State and the ERDF totalled EUR 13.5 million.

The claims paid by virtue of export credit guarantees remained at a very low level, and the funds recovered exceeded the claims paid.

Capital adequacy and acquisition of funds

Capital adequacy has been calculated in accordance with the Credit Institutions Act and the regulations issued by the Financial Supervision, even though Finnvera is not governed by the Credit Institutions Act. The capital adequacy ratio of the Finnvera Group as per 31 December 2004 was 16.4 per cent (15.83). The Group’s own assets stood at EUR 380.5 million, while the risk-weighted receivables, investments and commitments outside the balance sheet totalled EUR 2,320 million.

The capital adequacy ratio of Finnvera plc was 16.9 per cent at the end of 2004 (15.65). The parent company’s own assets stood at EUR 403.3 million, while the risk-weighted receivables, investments and commitments outside the balance sheet totalled EUR 2,386.4 million.

Long-term funding consisted of a loan of EUR 50 million granted by the European Investment Bank.

Principal goals pertaining to ownership and industrial policy were exceeded

The Ministry of Trade and Industry defined ownership and industrial policy goals and indicators for Finnvera; these are used for evaluating how the company has succeeded in achieving its targets. The goals are set annually.

The attainment of industrial policy goals is measured using the following indicators: the self-sustainability of Finnvera’s domestic financing and activities involving export credit guarantees and special guarantees; Finnvera’s success in offsetting deficiencies in the operation of the financial market; and Finnvera’s impact on the operations of small and medium-sized enterprises and on the internationalisation and exports of companies. Moreover, it is followed how the government’s regional policy goals are met in the company’s operations. Attainment of the goal of economic self-sustainability is assessed in domestic financing over the review period of 1999–2004. It is assumed that the period constitutes one business cycle. For export credit guarantees and special guarantees, the attainment of the goal of self-sustainability is assessed over a period of 10 to 20 years, during which the cumulative result should be zero. The cumulative results of both domestic financing and export credit guarantee operations have shown a surplus in 1999–2004.

The impact on the operations of SMEs is measured by means of employment effects and the survival rate of enterprises. In 2004 Finnvera’s financing contributed to the creation of some 11,500 jobs (9,700). Out of the new enterprises financed by Finnvera in 1999, altogether 79.1 per cent were in business after the first five years of operation.

The target in meeting the government’s regional policy goals was that the sums granted by Finnvera in 2004 to areas eligible for national regional aid (1, 2 and 3) should be at least as high as the sums granted in 2003. The financing granted to these areas in 2004 totalled EUR 433.9 million (EUR 372.1 million). The rise is partly explained by the fact that Finnvera’s authorisation to grant financing was raised in 2004.

Offsetting deficiencies on the financial market is assessed by following how the financing granted by the company for domestic operations is distributed into risk categories. According to the target, new commitments for new enterprises in risk category A should not exceed 25 per cent of the total. The figure for the year was 12.7 per cent (18.07). In 2004 enterprises in risk category A accounted for 12.9 per cent of Finnvera’s total outstanding commitments (17.4).

Exports covered by means of Finnvera’s export credit guarantees accounted for 2.4 per cent of Finland’s total exports (1.4). As concerns exports to countries with political risks, the ratio between exports covered with export credit guarantees and the total volume of Finland’s exports to these countries was 5.7 per cent (4.2).

Changes in the Group structure

In connection with reorganisation of regional venture capital fund activities in April 2004, Finnvera sold all of its venture capital funds organised as limited companies to Veraventure Ltd, owned 100% by Finnvera. Likewise in June, Finnvera sold three funds organised as limited partnerships to Veraventure Ltd. In connection with these transactions, the share capital of Veraventure Ltd was raised correspondingly; the new shares were subscribed by Finnvera.

By virtue of a decision made by the Government of Finland on 29 April 2004, Finnish Export Credit Ltd was transferred from under the State’s direct ownership to become a subsidiary of Finnvera plc. The transfer was carried out in May 2004. The interest equalization company Fide Ltd was merged with the Finnish Export Credit Ltd on 31 December 2004.

Future prospects

This year, Finnvera’s activities will emphasise the promotion of enterprise and the development of increasingly efficient financing for the growth of SMEs. In particular, Finnvera will focus on ways of securing the financing of starting, growth-seeking and innovative SMEs. Innovative business ideas and the growth of SMEs help ensure that jobs stay in Finland despite global competition.

Most new enterprises and jobs are created in the sectors of trade and services. Industry’s investments improve the competitiveness of enterprises and create new jobs. The financing granted by Finnvera on regional policy grounds promotes balanced regional development and the prerequisites for growth among enterprises in developing areas.

At the beginning of 2005, the Government of Finland revised its commitments to Finnvera with respect to interest subsidies and compensation for losses. In consequence, Finnvera can take higher risks than before when providing financing for starting and growth-seeking enterprises. In this way, Finnvera wants to foster their growth.

Exports of capital goods picked up slightly in 2004. This has increased demand for export credit guarantees; the demand is expected to be the liveliest for exports to Russia and to Latin America. Measured by the number of guarantees, Russia has been the most active market for several years; this trend is likely to continue.

In the financing of shipbuilding and shipping, industrialised countries are still expected to dominate risk-taking. When exports of telecommunications networks, machinery and equipment for the metals industry, and power plants are covered by export credit guarantees, the main export markets are countries involving political risk. The large size of individual projects inevitably leads to many significant risk concentrations.

Despite the current upswing in exports, there is reason to be concerned about the competitiveness of the Finnish export industry. Production is constantly being moved to other countries. There are signs that the number of major capital goods exporters is shrinking.

For further information:

Markku Mäkinen, President and CEO, tel. +358 20 460 7226
Aarno Järvinen, Executive Vice President, Corporate Services, tel. +358 20 460 7224

Annual Report 2004