Finnvera attained its principal goals

Financial statements of Finnvera plc for the period 1 January - 31 December 2003 In 2003 Finnvera plc attained most of its central goals pertaining to the volume and profitability of operations and to ownership and industrial policy. Finnvera plc’s profit for the financial year 1 January–31 December 2003 totalled EUR 29.8 million (EUR 22.0 million), of which EUR 9.4 million was earned from extraordinary premature repayment of credits. At year’s end, the outstanding commitments of Finnvera plc amounted to EUR 5,619.9 million (EUR 4,633.5 million). Clients numbered nearly 25,700 at year’s end (26,000). Through its financing schemes, Finnvera contributed to the creation of about 9,700 new jobs (9,500).

During the period under review, the risk financing granted by Finnvera plc to enterprises operating in Finland totalled EUR 770.8 million (EUR 770.2 million), while offers for guarantees associated with foreign risk taking totalled EUR 2,311.0 million (EUR 1,708.8 million).

Domestic financing focused on domestic guarantees and guarantees for exports. They accounted for 53 per cent of the total amount of domestic financing granted (54).

During 2003, the total value of guarantee applications submitted by exporters and financiers for projected export transactions that would involve foreign risk-taking came to EUR 3.7 billion (EUR 5.2 billion). Once the enterprises had carried out their export transactions, the value of guarantees that came into effect in 2003 totalled EUR 995.1 million (EUR 745.5 million). The one-third increase in the amount of guarantees that came into effect stemmed from a cruise vessel order secured by the shipyard industry.

During the period, the parent company had on average 403 employees (402).

Positive economic development continued

The Finnvera Group’s profit for the year 2003 was EUR 25.5 million, while the profit for the previous year had been EUR 16.2 million. The Group companies and associated companies had an effect of EUR -4.3 million on the profit. The associated company Finnfund (EUR 1.2 million) and the subsidiary Fide Ltd (EUR 0.2 million) had the greatest positive impact on the Group’s performance. The sale of Start Fund of Kera Oy and its removal from the Group decreased the Group’s profit by EUR 4.2 million.

The parent company’s profit was EUR 29.8 million, as against EUR 22.0 million in 2002. In particular, exceptionally high premium income from export credit guarantees boosted the result, owing to premature repayment of credits.

The interest subsidy from the State and from the European Regional Development Fund (ERDF) totalled EUR 22.2 million (EUR 22.8 million), of which the interest subsidy passed on directly to clients accounted for EUR 18.0 million.

Commissions income include EUR 46.9 million in fees received by the parent company for export credit guarantees and special guarantees. Of this sum, EUR 11.7 million resulted from exceptional premature repayment of credits. Other guarantee commissions amounted to EUR 12.5 million, while the handling fees on loans and guarantees totalled EUR 5.1 million and other fees on lending EUR 1.4 million. The above-mentioned premature repayment of credits increased commissions expenses by EUR 2.3 million; thus, the net effect on Finnvera’s performance was EUR 9.4 million. The Group’s commissions income totalled EUR 66.8 million. This was EUR 12.5 million more than in the previous year.

The Group’s administrative expenses came to EUR 34.5 million (EUR 31.9 million), of which personnel expenses accounted for 67.1 per cent. The parent company’s administrative expenses amounted to EUR 33.7 million (EUR 31.4 million), of which personnel expenses accounted for 67.1 per cent. For the first time, the personnel expenses include a provision for bonuses to be paid on profit made in 2003. Other operating expenses are costs for business premises.

At the end of the year, Finnvera’s outstanding credits totalled EUR 1,247.9 million. Credits increased by EUR 30.7 million during 2003. Guarantees increased more briskly than credits, by EUR 68.2 million. At the end of 2003, domestic guarantees totalled EUR 691.5 million. The book value of the liability, as referred to in the Act on the State’s Export Credit Guarantees, totalled EUR 2,738.1 million (EUR 2,192.9 million). Outstanding commitments arising from export credit guarantees and special guarantees (current commitments and offers given) totalled EUR 3,680.5 million (EUR 2,793.0 million).

No significant increase in credit and guarantee losses

Credit and guarantee losses continued to be reasonably low. The parent company’s credit and guarantee losses totalled EUR 29.4 million (EUR 28.1 million). Compensation by the State totalled EUR 14.4 million.

The separate result of export credit guarantee and special guarantee activities shows a loss of EUR 4.7 million (EUR 3.2 million).

Capital adequacy and fund-raising

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 2003 was 15.83 per cent (14.62). The Group’s own assets stood at EUR 332.6 million, while the risk-weighted receivables, investments and commitments outside the balance sheet totalled EUR 2,101.2 million.

The capital adequacy ratio of Finnvera plc was 15.65 per cent (14.46) at the end of 2003. The parent company’s own assets stood at EUR 329.4 million, while the risk-weighted receivables, investments and commitments outside the balance sheet totalled EUR 2,104.7 million.

The long-term fund-raising realised by Finnvera amounted to EUR 87.8 million. During the year, Finnvera took out a loan of EUR 50 million from the European Investment Bank and a loan of EUR 37.8 million from Zenkyoren of Japan (National Mutual Insurance Federation of Agricultural Cooperative).

Principal goals pertaining to ownership and industrial policy were met

The Ministry of Trade and Industry has defined ownership and industrial policy goals and indicators for Finnvera; these are used for evaluating the company’s success in achieving its targets.

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. Also monitored is how the government’s regional policy goals are implemented 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. The assumption is that the period constitutes one business cycle. For export credit guarantees and special guarantees, 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 1999–2003.

The impact on the operations of SMEs is measured by means of employment effects and the survival rate of enterprises. In 2003 Finnvera’s financing contributed to the creation of some 9,700 jobs (9,500). Out of the new enterprises financed by Finnvera in 1998–2002, altogether 79.3 per cent were still in operation. The corresponding figure for all enterprises during their first five years in the whole of Finland is about 50 per cent.

The target in meeting the government’s regional policy goals was that the sums granted by Finnvera in 2003 to national Aid Areas (1, 2 and 3) should be at least as high as the sums granted in 2002. The financing granted to the national Aid Areas in 2003 totalled EUR 372.1 million (EUR 383.4 million).

Offsetting deficiencies in the operation of the financial market is assessed by following the distribution of Finnvera’s domestic financing into the various risk categories. According to the target, new commitments for enterprises in risk category A should not exceed 25 per cent of the total. In 2003 enterprises in risk category A accounted for 16.4 per cent of all new financing granted.

Exports covered by means of Finnvera’s export credit guarantees accounted for 1.4 per cent of Finland’s total exports (1.7). 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 4.2 per cent (5.6).

Future prospects

Finnvera’s operations in the coming years emphasise three aspects: the promotion of enterprise; ensuring financing for the growth of SMEs; and the competitiveness of the export credit guarantee system. To ensure a favourable economic trend, it is essential to promote exports and to encourage investments within SMEs.

Growth of service enterprises, in particular, will have a positive impact on the number of new enterprises and new jobs. Balanced regional development is a major challenge for Finnvera. Special attention is paid to financing on regional policy grounds and to measures for increasing this financing.

The export figures for the last quarter of 2003 were not yet very encouraging. The high exchange rate of the euro against the US dollar detracts from the competitiveness of Finnish export enterprises. Demand for exports is created by a sustained willingness to make investments. This depends, above all, on economic growth in the United States and in Europe. It is still highly uncertain whether growth will accelerate and continue. However, there are already some signs that the demand for exports has picked up in most of the main export sectors.

Countries involving political risk invest in industrial plants, power generation, the mining sector and in telecommunications networks. This creates demand for Finnish companies engaged in the exports of capital goods, and thereby for Finnvera’s export credit guarantees.

Demand for guarantees is particularly high for exports to Latin American countries. In contrast, demand for guarantees for exports to Asia is slack in early 2004, since the financial arrangements for exports to China – the fastest growing economy – are mostly carried out by local sources. Demand for guarantees for exports to Russia is on the increase. Projects are carried out in more sectors than before, and the average size of projects is rising.

Demand for Finnvera’s export credit guarantees is expected to focus on projects in the telecommunications sector, on power generation, the forest industry, the mining sector, and on the financing of shipbuilding projects that – contrary to other sectors – exist above all in the OECD industrialised countries.

For further information:
Markku Mäkinen, Managing Director, tel. +358 20 460 7226
Aarno Järvinen, Director, Financial Services, tel. +358 20 460 7224