Report of the Board of Directors and Financial Statements 2022

Finnvera Group, Stock Exchange Release 16 February 2023

Report of the Board of Directors and Financial Statements 2022

Finnvera’s domestic and export financing reached a high level despite uncertainty in the operating environment – the Group result was EUR 55 million

Finnvera Group, summary, year 2022 (vs. 2021)

• Result 55 Me (153) – The loss provisions for exposure in Russia remained unchanged, the loss provisions made in the cruise shipping sector were reduced and the loss provisions for the domestic financing increased in the last quarter of the year.
• Result by segment: result of the parent company Finnvera plc’s SME and midcap business stood at MEUR -54 (34) and that of Large Corporates business at MEUR 78 (73). The subsidiaries’ impact on the Group’s profit was MEUR 32 (45).
• The parent company Finnvera plc’s result for domestic operations was MEUR -25 (33) including a profit of MEUR 8 from the merger of the subsidiary Veraventure Ltd. The separate result for the parent company’s export credit guarantee and special guarantee operations MEUR 56 (79).
• Total liabilities of the parent company Finnvera plc increased by 4% to EUR 26.6 bn (25.6).
• Balance sheet total EUR 12.6 bn (12.2) increased by 3%.
• Contingent liabilities EUR 16.6 bn (15.9) increased by 4%.
• Non-restricted equity and the State Guarantee Fund (the buffer reserves) increased by 4% to EUR 1.4 bn (1.4) in total.
• Expected credit losses on the balance sheet EUR 1.5 bn (1.4) increased by 10%.
• Equity ratio improved by 0.1 pp to 7.2% (7.1).
• The expense-income ratio improved by 2.8 pp to 20.7% (23.5).
•  The NPS index improved by 5 points to 72 (67).

Finnvera Group, year 2022 (vs. 2021)
Result for the period 55 MEUR (153), change -64%	Balance sheet total EUR 12.6 bn (12.2), change 3%
Total exposure, the parent company’s domestic, export credit guarantee and special guarantee operations EUR 26.6 bn (25.6), change 4%	Non-restricted equity and The State Guarantee Fund after result for the period EUR 1.4 bn (1.4), change 4%
Expense-income ratio 20.7% (23.5), change −2.8 pp	Equity ratio 7.2% (7.1), change 0.1 pp
NPS index (net promoter score) 72 (67), change 5 points	Expected credit losses based on the balance sheet items EUR 1.5 bn (1.4), change 10%

CEO Pauli Heikkilä:

“Despite the impacts of the coronavirus pandemic, the war launched by Russia and the uncertain operating environment as well as inflation, Finnish companies were very active in 2022, and the demand for Finnvera’s financing remained at a high level. The reasons for this include Finnish industry’s focus on investments and the post-cyclical response of Finnish economy. Companies continued to carry out ongoing large-scale projects.

Finnvera granted domestic loans and guarantees amounting to EUR 1.0 billion (1.5). More than 90% of the financing was allocated to Finnvera’s strategic priorities, that are start-ups, companies aiming for growth and internationalisation and, for example, transfers of ownership. The level of financing remained higher than in the pre-pandemic era or at any time in the 2010s. Finnvera financed large corporates in Finland within the framework of the European Investment Bank’s EGF guarantee programme.

Finnvera granted EUR 5.9 billion (4.6) in export credit guarantees and special guarantees, and EUR 0.9 billion (0.7) in export credits. The largest individual financing projects concerned forest sector deliveries to Brazil and telecommunications sector deliveries to the United States and Japan. The annual volume of export financing is always influenced by the timing of individual major export transactions. No new vessel orders were made in cruise shipping. The German shipyard MV Werften and its owners were placed in liquidation. In 2019, Finnvera guaranteed the deliveries made by Finnish companies to the shipyard, and Finnvera has paid a total of EUR 100 million in compensation for liabilities at the beginning of February 2023. The final amount of Finnvera’s losses will be determined later. However, it is estimated that, due to the loss provisions in place, the losses will no longer have a profit impact. Globally, however, there are signs of recovery in the cruise shipping sector.

The Finnvera Group’s result for 2022 was EUR 55 million (153). The result was impacted by changes in the amounts of credit and guarantee loss provisions, in particular. The business outlook of cruise shipping companies has improved, and the credit risk of Finnvera’s liabilities is believed to have decreased. On these grounds, EUR 150 million of the extensive loss provisions for export guarantee and special guarantee operations made in 2020 were reduced. Due to the war and arrangements necessitated by sanctions, Finnvera’s exposure relating to Russia more than halved to EUR 422 million during the year, but the credit risk and the need for loss provision are not expected to have decreased significantly. The result for domestic financing in 2022 showed a loss as a result of the State’s credit and guarantee loss compensation being reduced back to 50% from the beginning of 2023. In the early stages of the coronavirus pandemic in 2020, this compensation was temporarily increased to 80%.

Finnvera has achieved cumulative self-sustainability, taking into account the assets of the State Guarantee Fund accumulated by Finnvera’s predecessor organisations. However, the buffer for covering potential future losses has been reduced significantly. The task of the State Guarantee Fund is to cover Finnvera’s losses from export credit guarantee and special guarantee operations if the reserve on the company’s balance sheet is not sufficient.

In line with our strategy, we are diversifying our financing solutions in support of business growth and promote exports through our financing. Sustainability and especially climate change mitigation are at the centre of our strategy. We develop our operations and bring new financing solutions available to companies, including direct export credits for foreign buyers intended for accelerating export transactions as well as a climate and environment loan and a digitalisation and innovation loan backed by the InvestEU Programme.”

Finnvera Group

Financing granted in 2022 (vs. 2021)

• Domestic loans and guarantees granted: EUR 1.0 bn (1.5), change -32%
• Export credit guarantees and special guarantees granted, incl. SME and midcap export credit guarantees: EUR 5.9 bn (4.6), change 29%
• Export credits granted: EUR 0.9 bn (0.7), change 35%
  • The credit risk for Finnish Export Credit Ltd’s export credits is covered by the parent company Finnvera plc’s export credit guarantee.
  • The fluctuation in the amount of export credit guarantees and export credits is influenced by the timing of individual major export transactions.

Exposure, 31 December 2022 (vs. 31 December 2021)

• Exposure, drawn domestic loans and guarantees: EUR 2.7 bn (3.0), change -10%
• Exposure, export credit guarantees and special guarantees, incl. SME and midcap export credit guarantees: EUR 23.9 bn (22.6), change 6%
  • Drawn exposure: EUR 14.1 bn (12.1), change 16%, of which Large Corporates’ cruise shipping exposure EUR 6.6 bn (5.4)
  • Undrawn exposure: EUR 7.9 bn (7.4) and binding offers EUR 1.9 bn (3.1), in total EUR 9.8 bn (10.5), change -7%, of which Large Corporates’ cruise shipping exposure in total EUR 6.1 bn (6.4).
• Exposure, export credits drawn: EUR 7.5 bn (7.9), change -6%

Finnvera Group Financial performance	Q4/2022 MEUR	Q4/2021 MEUR	Change %	1-9/ 2022 MEUR	2022 MEUR	2021 MEUR	Change %
Net interest income	19	15	27%	50	69	55	24%
Net fee and commission income	49	49	0%	155	204	167	22%
Gains and losses from financial instruments carried at fair value through P&L and foreign exchange gains and losses	-10	0	-	3	-6	2	-
Other operating income	-41	4	-	42	0	4	-94%
Operational expenses	-14	-14	1%	-35	-49	-46	8%
Other operating expenses and depreciations	-1	-2	-24%	-5	-6	-8	-27%
Realised credit losses and change in expected credit losses, net	74	-2	-	-222	-148	-11	-
Operating profit/loss	76	51	50%	-12	64	164	-61%
Profit/loss for the period	75	47	60%	-19	55	153	-64%

Financial performance

The Finnvera Group’s result for January–December 2022 was EUR 55 million (EUR 153 million). The result was affected by the fact that the extensive loss provisions for export credit guarantee and special guarantee operations relating to cruise shipping made in 2020 were reduced by EUR 150 million in the last quarter of the year. While shipping companies’ business outlook has improved and the credit risk of Finnvera’s exposure is expected to have decreased, significant risks persist. Total exposure relating to Russia decreased from EUR 977 million to EUR 422 million due to arrangements made during the year and repayments, but the credit risk of these liabilities and the need for loss provisions are not believed to have decreased significantly. No significant individual final credit losses were realised in 2022.

The result for domestic financing in 2022 showed a loss as a result of the State’s credit and guarantee loss compensation being reduced back to 50% as from 1 January 2023. In the early stages of the coronavirus pandemic in 2020, this compensation was temporarily increased to 80%. An exception to this rule in the new credit and guarantee loss compensation commitment that entered into force on 8 December 2022 is financing granted on special industrial policy grounds, in which the loss compensation rate may still be 80% by decision of the Ministry of Economic Affairs and Employment.

The net interest income and net fee and commission income improved in January–December compared to the previous year and also compared to the pre-pandemic years. The net interest income was EUR 13 million higher than in the previous year, especially as a result of increase in the market interest rate and investment position. Correspondingly, net fee and commission income increased by EUR 37 million compared to the previous year, in particular due to the fee and commission income from arrangements made and recognition of guarantee premiums received in advance from early repayments of liabilities.

Taking into account the result for 2022, Finnvera’s domestic and export financing reserves for covering potential future losses amounted to a total of EUR 1,260 million (1,224) at the end of December. The non-restricted equity for domestic financing was EUR 374 million (399) and the non-restricted equity for export credit and special guarantee financing as well as assets in the State Guarantee Fund for covering a loss-making result totalled EUR 886 million (825). The domestic and export financing reserves can not subsidise each other.

Outlook for financing

The uncertain economic outlook may affect the demand for Finnvera’s financing and, in particular, the financing of SME investments in 2023. Finnvera will be able to meet the financing needs of companies within its financing authorisations. Finnvera has prepared for a need for flexibilities and instalment-free arrangements arising from the challenges in the operating environment for companies that have the prerequisites for profitable business.

Rising energy prices and interest rates will affect both consumers and companies, especially from the perspective of domestic financing. Banks have access to a higher number of EU financial instruments than before, which may reduce demand for domestic financing from Finnvera. Backed by the InvestEU guarantee programme, Finnvera will introduce a new climate and environment loan as well as a digitalisation and innovation loan for companies’ sustainability and business development projects in the first half of 2023. Through our financing, we encourage companies to seize the business opportunities created by climate action.

By diversifying the financing offered, we will strengthen further the support we are providing for the establishment, transfers of ownership, growth and internationalisation of Finnish companies. In particular, direct export credits intended to accelerate SMEs’ exports and smaller export transactions will improve the availability of financing for export transactions worth less than EUR 20 million. The overall demand for export credit guarantees and export credits is expected to remain at previous years’ levels.

The overall demand will be affected by the realisation of individual major projects. It is likely that the challenges in the operating environment will appear in different ways in the financing situation of different sectors, and geographically, the tougher financing situation will probably have a particular impact on emerging markets. The focus of demand for export financing will probably be on the forest and telecommunications sectors. The outlook for cruise shipping and the demand for export financing are strongly influenced by how the shipping companies recover from the impacts of the coronavirus pandemic.

While no material individual export credit guarantee losses were realised in 2022, the Finnvera Group’s credit risk level remains very high due to the unstable geopolitical situation and uncertain economic outlook. In particular, cruise shipping and exposure relating to Russia are associated with uncertainties, causing significant uncertainty to Finnvera Group’s result development in 2023. The Group’s profit or loss will be determined by realised credit losses and changes in loss provision amounts.

Further information:

Pauli Heikkilä, CEO, tel. +358 29 460 2400

Ulla Hagman, CFO, tel. +358 29 460 2458

Finnvera publishes the Report of the Board of Directors and the Financial Statements as an XHTML file according to the European Single Electronic Format (ESEF) reporting. Authorised Public Accountant company KPMG Oy has provided an independent auditor’s reasonable assurance report on Finnvera’s ESEF financial statements. The XHTML file is available in Finnish and English. In addition, Finnvera publishes the Report of the Board of Directors and the Financial Statements as a pdf report.

ESEF report: 743700T69OBBJO7TCA15-2022-12-31-en.zip

Finnvera Group’s Report of the Board of Directors and Financial Statements 1 January – 31 December 2022 (PDF)

The documents and the Annual Report are available in Finnish and English at www.finnvera.fi/financial_reports

Distribution:

NASDAQ Helsinki Ltd, London Stock Exchange, the principal media, www.finnvera.fi/eng

Finnvera publishes quarterly reports.