Financial Statements of the Finnvera Group for the fourth quarter and 1 January–31 December 2014
Finnvera’s possibilities to provide financing improved markedly
The Finnish financial market was marked by diffuse economic prospects and the effects of tightening bank regulation, which were felt, in particular, in the credit terms and credit margins of the weakest borrowers. Demand for financing focused heavily on working capital, and there were very few investment projects. The government greatly improved Finnvera’s possibilities to provide public financing.
The Group’s financial trend
The Finnvera Group’s profit for the year 2014 was EUR 101 million, or 27 million euros more than the year before (75 million). The main factor improving the performance was the decrease of 47 per cent in impairment losses on receivables and in guarantee losses, totalling EUR 34 million (64 million). In addition, financial performance was improved by the reduction of administrative expenses by 5 per cent, to EUR 41 million (43 million) and the increase of 3 per cent in the net value of fee and commission income and expenses, totalling EUR 138 million (134 million). Correspondingly, the performance was encumbered, among other factors, by the lower net interest income, EUR 52 million (56 million), due to a fall in interest levels and in the amount of outstanding credits in SME financing. Moreover, losses on venture capital investments and on the recognition of derivatives and liabilities at fair value totalled EUR 10 million (2 million). The financial performance of the parent company, Finnvera plc, in 2014 came to EUR 94 million (69 million).
The Group’s operating profit amounted to EUR 102 million (75 million) and was broken down as follows: EUR 6 million for SME financing (7 million) and EUR 104 million for export financing (74 million). The operating profit from venture capital investments was EUR 7 million in the red (5 million).
The Finnvera Group’s profit for the last quarter of 2014 was EUR 25 million, or clearly less than for the third quarter (42 million). The main factors affecting the smaller profit were the impairment losses on receivables and guarantee losses, which nearly doubled and were EUR 19 million more than in the third quarter.
Within the past few years, Finnvera’s outstanding commitments and their risk levels have risen significantly. However, in 2014 the outstanding commitments for SME financing fell and the risk level did not rise any longer. The outstanding commitments for export financing increased in 2014 but, as in the case of SME financing, the risk level did not rise. Nevertheless, the risk levels are still high, as evidenced by the considerable impairment losses and guarantee losses in SME financing in recent years, even though the impairment losses on receivables and guarantee losses in 2014 were below the figures for 2013. In export financing, no major losses have been recorded in recent years or in 2014. The estimated provisions for losses in export financing were reduced in 2014 when compared against the provisions for losses in the financial statements for 2013.
The extent and risk level of Finnvera’s outstanding commitments will have a significant impact on its financial performance and long-term economic self-sustainability in the coming years. In examining the financial performance, it is important to note that, at the end of December 2014, Finnvera’s total commitments for export credit guarantees and special guarantees amounted to EUR 12.6 billion and the commitments for credits and guarantees in SME financing, as well as guarantee receivables, stood at EUR 2.4 billion. Seen against these commitments, the net profit building a loss buffer on the balance sheet is now about 0.7 per cent at the annual level and the equity 6 per cent.
The group’s key figures on 31 December 2014 (31 December 2013)
- Capital adequacy, Tier2 18.6% (16.9)
- Cost/income ratio 25.7% (27.0)
- Equity ratio 14.4% (18.4)
Outlook for financing
The U.S. economy has got a foothold on the growth path, but economic growth in the euro area is stagnating. In Russia, the sanctions focusing on the country’s economy, the falling oil prices and the change in the political direction caused financial difficulties for the country in late 2014.
The situation will affect the demand for Finnvera’s export financing and the company’s risk position in an essential way if the current uncertain political and financial situation continues. Finnvera’s financing plays an increasingly central role in the conclusion of export transactions. Despite this, it is expected that the demand for export financing will decrease further from the previous year, as uncertainty keeps the volume of investments small. Finnvera’s possibilities to provide financing for large enterprises’ domestic projects intended for exports will become concrete when Finnvera can participate in investment projects undertaken by the export industry in Finland.
The slow economic growth and the low investment level will keep the demand for SME financing moderate in 2015. However, according to Finnvera’s estimate, the new mandates received by the company and, for its part, the regulation of banks may increase the overall level of demand. Most financing needs are still associated with working capital.
The uncertainty of the economy makes it difficult to predict financial performance. The materialisation of large individual export credit guarantee claims may considerably weaken the projected situation. According to the current estimate, the Finnvera Group’s financial performance for 2015 is likely to be somewhat weaker than that for 2014.
CEO Pauli Heikkilä:
“The government greatly improved Finnvera’s possibilities to provide public financing. Thanks to the amendments made to legislation and commitments, we can increase our risk-taking in both SME financing and export financing. Financing through bonds, guaranteeing large enterprises’ domestic investments relating to exports, and the possibility to provide financing for enterprises larger than the SME definition applied by the EU, diversified our selection of means. Once the bill on the refinancing guarantee is passed, we can state that, in terms of authorisations and financial instruments, we are on the same level as our principal reference countries, such as Sweden and Germany.
One of our goals is to identify growth companies and encourage them to grow internationally. With respect to enterprises operating on the domestic market, our principle is to share risks so that a bank or some other private provider of financing, such as an insurance company, is the principal source of financing. In particular, we focus our financing on situations of change within companies and on the financing needed by start-up enterprises during establishment. We continue our efforts to ensure that our financing has the maximum impact and is allocated to the most important uses in view of industrial policy.
Pauli Heikkilä, Chief Executive Officer, tel. +358 29 460 2400
Ulla Hagman, Senior Vice President, Finances and IT, tel. +358 29 460 2458
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The principal media
Finnvera publishes its Annual Report for 2014 as an electronic document on the company’s website in the week 11 in Finnish, English and as a summary in Swedish. The Annual Report also includes the Corporate Responsibility Report.