A year of reviving demand and new authorisations
The world economy showed some positive signs in 2016, although political events created a degree of uncertainty. Finnish companies also reported greater demand and increasing investments, and individual large export deals gave much-needed impetus to Finland’s otherwise sluggish exports. Owing to the anticipated increase in demand for export financing services, and to respond to higher exposures, Finnvera’s authorisation to provide export financing was raised markedly. In addition, Finnvera received new mandates, such as the Growth Loan for financing projects undertaken by rapidly growing SMEs and midcap companies. New financing solutions relating to the promotion of small export transactions were also introduced on the market during the year.
Business operations and the financial trend
The volume of loans and guarantees offered by Finnvera to SMEs and midcap companies in 2016 was 7 per cent less than in the year before. However, financing for growing and internationalising companies and for transfers of ownership picked up in line with the strategy. Financing offered for growing and internationalising companies rose by 6 per cent from the previous year, while financing for transfers of ownership rose by 21 per cent.
Demand for export credit guarantees and special guarantees increased by 50 per cent in 2016, to EUR 14.6 billion. Demand for export credits rose to EUR 12.5 billion, which was 74 per cent more than a year ago. Although interest in export credit guarantees, special guarantees and export credits perked up, the offers given by Finnvera for export credit and special guarantees and for export credits fell by 34 per cent and 82 per cent, respectively. The reason was that some projects or their credit agreements were still being negotiated at the closing of the financial period.
| Finnvera Group | |||
| 1 Jan–31 Dec 2016 | 1 Jan–31 Dec 2015 | Change % | |
| Offered financing, MEUR | |||
| Loans and guarantees | 845 | 906 | -7 % |
| Export credit guarantees and special guarantees | 4 438 | 6 760 | -34 % |
| Export credits | 760 | 4 131 | -82 % |
| 31 Dec 2016 | 31 Dec 2015 | Change % | |
| Outstanding commitments, MEUR | |||
| Loans and guarantees | 2 261 | 2 285 | -1 % |
| Export credit guarantees and special guarantees | 18 426 | 17 436 | 6 % |
| Export credits | 4 782 | 4 240 | 13 % |
| 1 Jan–31 Dec 2016 | 1 Jan–31 Dec 2015 | Change % | |
| Net interest income and net fee and commission income, MEUR | 194 | 197 | -2 % |
| Operating profit, MEUR | 69 | 114 | -39 % |
| Profit for the period, MEUR | 70 | 111 | -37 % |
| 31 Dec 2016 | 31 Dec 2015 | Change % | |
| Balance sheet total, MEUR | 9 498 | 8 418 | 13 % |
| Equity, MEUR | 1 207 | 1 121 | 8 % |
| -of which non-restricted reserves, MEUR | 955 | 871 | 10 % |
| 31 Dec 2016 | 31 Dec 2015 | Change %-point | |
| Equity ratio, % | 12,7 | 13,3 | -0,6 |
| Capital adequacy, Tier 2 , % | 24,3 | 19,6 | 4,7 |
| Cost-income ratio, % | 27,0 | 28,3 | -1,3 |
The Finnvera Group’s profit for July–December 2016 was EUR 77 million. Financial performance improved by EUR 84 million when compared against the loss of EUR 7 million entered for January–June 2016.
The main reasons for the improvement in financial performance from the first to the second half of the year were the smaller losses from export credit guarantee operations and the smaller provisions for losses recorded by the parent company, Finnvera plc. In July–December, export credit guarantee losses and provisions for losses totalled only EUR 2 million, whereas the losses entered and the provisions made in January–June came to EUR 66 million. During the first half of 2016, a provision of EUR 55 million for guarantee losses was made for Oi S.A. of Brazil when it transpired that the receivables from the company involve an obvious risk.
The profit of the Finnvera Group for 2016 was EUR 70 million (111 million). This was EUR 41 million, or 37 per cent, less than in the previous year. As was pointed out above, the reasons for the weaker performance were the parent company’s export credit guarantee losses as well as provisions for losses that were realised during the first half of the year and were markedly greater than those entered the year before.
The profit of the parent company, Finnvera plc, for 2016 stood at EUR 65 million (95 million), of which large corporates business accounted for EUR 33 million (82 million) and SME and midcap business for EUR 32 million (38 million). The performance of the large corporates business declined clearly from the previous year, while the performance of SME and midcap business was at a good level for a second year in a row.
| Finnvera Group | H2/2016 | H1/2016 | Change | H2/2015 | 2016 | 2015 | Change | Change |
| MEUR | MEUR | % | MEUR | MEUR | MEUR | MEUR | % | |
| Net interest income | 24 | 27 | -11 | 28 | 50 | 56 | -6 | -10 |
| Fee and commission income and expenses (net) | 77 | 67 | 16 | 68 | 144 | 141 | 3 | 2 |
| Gains/losses from items carried at fair value | -10 | -10 | 0,3 | -15 | -20 | -21 | -1 | -6 |
| Net income from investments | 0,2 | 0,1 | 16 | 0,4 | 0,3 | 0,1 | 0,2 | 133 |
| Other operating income | 12 | 0,2 | - | 2 | 12 | 2 | 10 | - |
| Administrative expenses | -22 | -22 | -4 | -22 | -44 | -44 | 0,1 | 0 |
| Depreciation and amortization | -2 | -1 | 157 | -1 | -2 | -1 | 1 | 124 |
| Other operating expenses | -2 | -3 | -31 | -3 | -4 | -6 | -1 | -22 |
| Net impairment loss on financial assets | -0,2 | -65 | -100 | -0,2 | -66 | -15 | 51 | 348 |
| Impairment loss on other financial assets | -2 | 0 | - | 0 | -2 | 0 | 2 | - |
| Operating profit | 77 | -7 | - | 58 | 69 | 114 | -44 | -39 |
| Profit for the period | 77 | -7 | - | 57 | 70 | 111 | -41 | -37 |
Outlook for financing
The economic expectations of SMEs have taken a slightly upward turn, which is believed to reflect positively on financing granted by Finnvera to SMEs in 2017. This will probably be seen particularly clearly in financing for growth companies, but the rising trend in financing intended for investments by growing and internationalising enterprises may also continue following the turn that occurred in 2016. It is assumed that financing granted by Finnvera for transfers of ownership will continue at the same solid level as in 2016. It is generally believed that the bond activities of SMEs and midcap companies will gain slightly more momentum and will also be reflected in Finnvera’s financing.
Financing solutions offered to buyers play a pivotal role in exports of capital goods sold by large corporations. Demand for export credit guarantees and export credits is expected to rise from the previous year, but the total amounts depend on the timing of individual large export transactions. Ships, telecommunications and the forest industry are still anticipated to account for the bulk of demand associated with large corporations’ exports. Among the new, opening markets, the greatest demand is likely to focus on Iran and Argentina. Exposures for Russian trade declined in 2016 as buyers postponed investments, but new demand is expected in 2017. Other countries where the demand for Finnvera’s guarantees is expected to rise are India and Mexico. In these countries, reforms associated with the modernisation of infrastructure will provide export opportunities for Finnish companies. In Finland, the progress of large investment projects promoting exports have an impact on the demand for guarantees.
The year 2017 is expected to be a year of growing demand. It is thought that implementation of the strategy throughout the Group will proceed as planned and that operations will be self-sustainable in the current financial period as well. The uncertainty factors associated with economic trends make it difficult to predict financial performance. If more risks materialise than has been anticipated, the situation may weaken considerably from what is projected.
CEO Pauli Heikkilä:
“Finnvera’s year 2016 was driven, above all, by the greater demand for export financing and the substantial increase in transfers of ownership. Development of Team Finland activities continued and as a result of this work, 370 internationalising enterprises received tailored service proposals. The Finnish Parliament’s decisions to raise Finnvera’s authorisations guarantee that we’ll be able to contribute to the success of Finnish enterprises on the international market in the coming years as well.
With regard to the formation of financial performance, the past year stands out among the preceding years. In terms of domestic financing, the structure of the credit portfolio – and hence the financial result – were at a good level. In contrast, with respect to export credit guarantees, the year 2016 saw the realisation of one major risk. A large Brazilian telecommunications company filed for debt restructuring and, for this reason, Finnvera’s performance at the company level was lower than in past years. Finnvera’s statutory mission is to bear some of the credit risks that are inevitable in all export transactions.
It is likely that 2017 will be characterised by increasing demand for Finnvera’s export financing services. In SME financing, transfers of ownership will remain at a high level. Finnvera will serve as an intermediary organisation for the European EFSI financing. The international operating environment will remain uncertain. In order to spur domestic growth, we need long-term improvements in the structure of the Finnish export sector and in cost competitiveness.”
Additional information:
Pauli Heikkilä, Chief Executive Officer, tel. +358 29 460 2400
Ulla Hagman, Senior Vice President, CFO, tel. +358 29 460 2458
Distribution:
NASDAQ Helsinki Ltd
London Stock Exchange
The principal media
www.finnvera.fi
The half-year review is available in Finnish and English at www.finnvera.fi > Finnvera > Publications > Annual Reports and Interim Reports.
