Ahead together

Finnvera Group, Stock Exchange Release 22 August 2018, Half-Year Report H1/2018, at 12:30Strong 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 trendH1/2018 (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 troughout the company's nearly 20 years of operation. Net interest income and net fee and commision income H1/201888 MEUR (H1/2017: 90), change -2% Net impairment loss on financial assetsH1/201815 MEUR (H1/2017: 9), change 68% Profit for the periodH1/201849 MEUR (H1/2017: 57), change -14% Balance sheet total30 Jun 201812.3 Billion EUR (31 Dec 2017: 10.3), change 19% Non-tied capital and The State Guarantee Fund 30 Jun 20181.8 Billion EUR (31 Dec 2017: 1.7), change 1% Average number of employeesH1/2018 376 (H1/2017: 381), change -1% Equity ratio30 Jun 201810.2% (31 Dec 2017: 12.7) Capital adequacy, Tier 1, domestic operations 30 Jun 201825.8% (31 Dec 2017: 25.3) Expense-income ratioH1/201828.1% (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 GroupFinancial trend H1/2018MEUR H1/2017MEUR ChangeMEUR Change% 2017MEUR 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 financingIn 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 2400Ulla Hagman, CFO, tel. +358 29 460 2458Appendices:Half-year report 1 January–30 June 2018 (PDF)Distribution:NASDAQ Helsinki Ltd, London Stock Exchange, the principal media, www.finnvera.fiFrom 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

The minimum Finnvera Guarantee amount will rise to EUR 10,000 and the minimum Finnvera Loan amount to EUR 30,000 starting from 1 September 2018.In line with its strategy, Finnvera is shifting the focus of financing granted increasingly to guarantees. The change is driven by the diversification of the corporate financing market, brought along by new operators and new forms of financing.Finnvera’s primary product for the financing of an SME start-up is the Start Guarantee. With the Start Guarantee, an enterprise can get bank financing for its various investment and working capital needs. The entrepreneur agrees on the financing amount and other terms and conditions with their bank, and the bank also applies for a Start Guarantee from Finnvera on behalf of the entrepreneur. The minimum Start Guarantee amount is EUR 5,000 and the maximum amount is EUR 80,000.If the SME was registered in the Trade Register more than three years ago, the Start Guarantee cannot be used. Instead, the enterprise can apply for loan or guarantee financing directly from Finnvera. In this case, the financing products used are mostly the Finnvera Guarantee or the Finnvera Loan. Starting from 1 September, the minimum Finnvera Guarantee amount is EUR 10,000 and the minimum Finnvera Loan amount is EUR 30,000. Applications for financing should be submitted through the online service.Read more about the Start Guarantee

There is strong demand for Finnish health technology around the world: last year, the sector’s exports grew to EUR 2.2 billion. One of the newcomers is Elers Medical Finland, led by CEO Niklas Elers, who is determined to defeat hospital-acquired infections.According to Finnvera’s Finance Manager Laura Laine, Elers Medical Finland is a good example of Finnish health technology know-how. The enterprise already has global networks, invests in product development, possesses high-level expertise and is working to solve a major problem.“There is a global search for solutions for the prevention of illnesses, personalised health care and bacterial resistance as well as generally more cost-efficient operating models. There is still plenty of potential for growing exports,” says Laine.The Ministry of Social Affairs and Health has estimated the potential to amount to EUR 10–20 billion.Last year, health technology exports grew faster than the global markets, by 5.3 per cent. The export figures do not include pharmaceuticals or well-being business. The largest target markets are the United States and the European Union.“Large corporates act as drivers in this sector and use a lot of subcontracting in innovation activities. They could do even more to help smaller enterprises in sales and marketing. Especially opening the doors is important,” explains Laine.According to her, exports by health care enterprises can also be seen at Finnvera, even though there are no sector-specific statistics. The product development cycle is long as the sector is strictly regulated. It takes a lot of financing to get to the marketing authorisation phase.“In product development, the role of equity is crucial. After that, our financing contributes to working capital, investments and export trade transactions. Enterprises also use credit insurance and buyer financing. Especially the first deals are tough for the cash position as the enterprise has to wait for the money for a long time,” comments Laine.As a solution, she brings up the leasing model. In public procurement, products could be leased instead of being sold; in other words, the use of the product could be sold as a service. This would accelerate decision making and generate continuous cash flow for the enterprise.Controlling hospital-acquired infectionsElers Medical Finland is only three years old but the turnover of the fast-growing group of companies will already exceed EUR 2 million this year.Elers Medical has invested strongly in product development. The products developed by it help to prevent the spread of hospital-acquired infections. The group company Gabriel Scientific has patented filter-ventilated cushioning products.“At the moment, we manufacture and distribute patented hygienic pillows, duvets and mattresses and antibacterial hospital curtains for hospital patient rooms. Product groups are exported to approximately 40 different countries. The World Health Organization has calculated that in the USA and the EU alone, more than 100,000 people die of hospital-acquired infections,” says CEO Niklas Elers.For the manufacture of antibacterial curtains, Elers Medical has established a factory in China. China was selected as the manufacturing site on the basis of the geographic location of raw materials and subcontractors. In the future, Elers Medical intends to invest in curtain production in Finland, too.The international growth of this Helsinki-based company is boosted by a significant retail agreement with an English company. The agreement period is two years.“Our goal is to become the principal of EUR 10–50 million retailers. Well, the English company is in the billion category.”Elers himself has a commercial background. His career has given him a good overall picture of how things work in the hospital world.Networking and international operations are key factors. The enterprise’s management is based not only in Helsinki but also in Ireland, Scotland and China. In addition, there are altogether nearly 30 employees in China and Estonia. In product development alone, work has been outsourced to three engineering offices.Elers Medical also has an American venture capital investor as a minority shareholder. The venture capital investor came in in connection with Team Finland’s R&D project a year ago.“At their highest, product development costs have been EUR 300,000 per year. Now the products are ready, even though we of course think about new products, too. Luckily, we have had the right people and an existing global network. If we had had to start from scratch, we would never have seen the light of day,” notes Elers.Exporting requires moneyIt is not cheap to build an international enterprise.Elers calculates that the personal savings he has used amount to a six-figure sum. In addition, investors have provided financing. Finnvera, Business Finland and OP Corporate Bank plc have provided Elers Medical with, for instance, a Start Guarantee, an R&D loan, internationalisation and trade fair grants, a loan guarantee for exports and various loans. “We get money from the client gradually. Either after 60 days if the product has arrived at the destination or at the latest after 80 days. Taking risks does not feel so bad when there is demand for products anyway,” says Elers.Finnvera’s Laine urges also other SMEs seeking international growth to take the preparation of financial and cash flow calculations seriously.“Enterprises must know the market and calculations have to be realistic. Financing must be considered as part of the growth plan. At the same time, it is good to identify the risks. The protection of sales receivables is one of the most important tasks in an enterprise,” says Laine.

STOCK EXCHANGE RELEASE 21 June 2018, at 11:45Finnvera issued on 20th June 2018 a USD 1 billion five year bond. The order book exceeded USD 1.6 billion with more than 40 investors participating.The transaction maturing in June 2023 represents Finnvera’s second bond issue this year.Lead managers for the issue were Citi, Goldman Sachs, HSBC and TD Securities. The greatest demand came from Europe, followed by the Americas and Asia.The bond was issued under Finnvera’s EMTN (Euro Medium Term Note) programme. Bonds issued under the programme are guaranteed by the Republic of Finland and their rating corresponds to the rating assigned to the Republic of Finland for its long-term liabilities. The rating given by Moody’s to Finnvera is Aa1 and that given by Standard & Poor’s is AA+.Additional information:Ulla Hagman, CFO, tel. +358 29 460 2458Mikael Nordgren, Head of Treasury, tel. +358 29 460 2467

Finnvera Plc Stock Exchange Release 15.6.2018 at 15:13On 15 June 2018, Commercial Councellor Tomi Lounema was appointed to Finnvera’s Board of Directors as a new member and as First Vice Chairman. The appointment was made by the State of Finland as the only shareholder of Finnvera Plc. The former First Vice Chairman Pekka Timonen was appointed as The Permanent Secretary of the Ministry of Justice since 1 June 2018. His membership in Finnvera’s Board of Directors ended on his own request on 31 May 2018.Pentti Hakkarainen, Member of the Supervisory Board, ECB Banking Supervision, will continue as Chairman and Terhi Järvikare, Director General, as Second Vice Chairman of Finnvera's Board of Directors. The following persons will continue as Board members: Kirsi Komi, LL.M.; Ritva Laukkanen, MBA; Pirkko Rantanen-Kervinen, B.Sc (Econ.); and Antti Zitting, Enterprise Councellor, Chairman of the Board.Futher information:Risto Huopaniemi, Senior Vice President, Administration, Legal Affairs and Administration tel. +358 29 460 2520

Arranging financing for a foreign buyer is often an important element of export trade negotiations, in both small and large transactions. Buyer financing increases the competitiveness of the offer and improves the opportunities of closing the deal in a competitive market. Foreign buyers’ interest in the arrangement of financing has also increased in recent years. Buyer financing played a key role in Raumaster’s and Konecranes’ trade transactions in Thailand.Export trade transactions are often the sum of many parts. The buyer may already have financing in place but could still be interested in other financing options, too.“Foreign buyers’ interest in the arrangement of financing has increased in recent years, perhaps due to enterprises’ balance sheet thinking. They pursue a position in which they do not need to use existing bank limits but can seek alternative ways to arrange financing. Secondly, the low interest rate level of the euro also makes buyer credit an attractive option, although in that case, the buyer takes a currency risk,” says Vesa Kalenius, Vice President, Trade & Export Finance at Handelsbanken.He points out that especially for smaller export companies, the use of buyer credit is a major advantage that transfers the credit risk involved in export trade away from the company. In addition, it is worth noting that buyer credit does not protect against pre-delivery risks. That protection can be achieved with a pre-delivery credit risk guarantee or documentary credit granted by Finnvera – especially when manufacturing customised goods.“The use of buyer credit brings security into export trade transactions and is a reasonably inexpensive form of financing. In general, the arrangements are actively used by large enterprises, even if you would think that a single loss would not have a big impact on them. On the other hand, small enterprises rarely use them even though they are more extensively affected if losses occur,” Kalenius comments.The arrangement of financing might be crucial for SMEs’ export efforts or minor export trade transactions.“We started developing buyer credit for minor export trade transactions, ranging approximately from EUR 2 million to EUR 20 million, and created a simplified loan agreement, in which terms, conditions and documentation are condensed into a couple of appendices.It proved to be well-functioning in Sweden and was piloted in Finland, too, when there were inquiries for financing in small projects. The up side is that the loan agreement is easy to understand and accept. The down side is that it is a standardised package with only a little flexibility. However, it is generally functional in minor export trade transactions,” says Kalenius.An export company salesperson’s toolbox should always contain a financing option The arrangement of buyer financing came up when Raumaster Paper, a company from Rauma specialising in material handling systems, conducted trade negotiations with Hiang Seng Fibre Container Company, located in Thailand and manufacturing paper, board and cardboard packaging and boxes. The 2,000-employee plant expanded its operations and needed new machinery. Raumaster Paper was selling a conveyor system for the plant, for taking reels of board from the slitter to the automated warehouse.Financing was arranged by Handelsbanken, with a guarantee from Finnvera.“We had used buyer credit arrangements in 2006 in a transaction in Turkey. In that case, we had Italian competitors who used a similar arrangement. Finnvera gave a guarantee to a German bank and we won the deal. The need for buyer financing depends on the client,” says Kaarlo Talvinen, Sales Director at Raumaster Paper.The lifting equipment manufacturer Konecranes delivered an automated paper warehouse crane to the same plant in Thailand and also utilised buyer financing, a financial instrument that is very familiar to Konecranes. Matti Malminen Director, Trade & Export Finance at Konecranes, says that buyer credit is well suited to both large corporates and SMEs involved in exports, for small and large transactions alike. Not all transactions are worth tens or hundreds of millions. He praises Handelsbanken’s flexibility in arranging buyer financing. “Often the buyer asks early on about financing possibilities or whether we can grant a certain payment period to the buyer. We tell them that we are a crane manufacturer, not a bank, but we know good third parties who can help them,” Malminen says.According to Malminen, certain buyers want to use buyer credit for transparency’s sake, for instance. As the buyer pays all expenses, the costs are fully known.“We would like to encourage the SME sector to use various forms of export financing. You can get help from Finnvera and banks once you dare to take the first step. The goal is to boost Finland’s growth with export trade and, in that sense, it is great that various financing possibilities are available to SMEs, too.”Malminen emphasises that an export company salesperson’s toolbox should always contain at least the basic information about different financing options as often competitors from different countries can offer financing to the buyer.“Without financing, you might lose deals and never find out why.”Joint efforts to export Finnish know-howTuula Jermilä, Finance Manager at Finnvera, says that export trade arrangements require a long-term approach and financing arrangements are not necessarily easy when there are several parties involved. Export trade is team play, in which the provider of financing should be involved as early as possible to make the process easier for the exporter.In small export trade transactions, the exporter conducts preliminary negotiations about financing with the buyer, the bank takes care of the actual credit negotiations and Finnvera’s role is to cover the credit risk related to the buyer’s ability to pay. Often Finnvera makes the decision about accepting the credit risk already after the exporter’s preliminary contact.When the financing bank has been found, negotiations continue with the credit terms and conditions. These negotiations may take a long time and the terms and conditions are often specified in further detail only when trade negotiations proceed. In practice, the bank always acquires approval from Finnvera for the key credit terms and conditions during the negotiations. The buyer may have several financing options and, in the end, it is the buyer who decides which financing option to choose. “The most important thing is that the exporter wins the deal,” says Jermilä.Buyer credit gives security to the exporterThe length of the trade negotiations surprised Raumaster’s Kaarlo Talvinen. However, the duration depends on many factors, not only on phases related to financing and credit. In any case, Talvinen is satisfied with the successful closing of the deal. He believes that on a case-by-case basis, buyer financing will be useful in the future, too.“The buyer credit arrangement provides us with security, too: the bank makes the scheduled payments after the advance payment directly to us against our invoices and documents received from the client.”Currently, Raumaster’s operations focus increasingly on Europe. The boom is on and there are a lot of offer-related inquiries. Orders placed extend well into the next year. However, the company’s market area is the whole world. Talvinen says that in negotiations, you must always be familiar with the local culture and know the rules and conventions with regard to the proper moment to start discussing financing. Achieving trust is important in the long term.“Our goal is to establish a long-term relationship with the client, not to conduct individual trade transactions.”Read more:Finnvera and the Chamber of Commerce: Finnish enterprises fail to close deals in export trade – financing options not well-knownFinancing for the buyerWatch the video to see how buyer financing is used in export trade transactions (in Finnish)