Finnvera plc Telephone: Internet:

Transcription

1 Finnvera plc Telephone: Internet:

2 Finnvera s Report on Operations and Financial Statements for 2004 are published in Finnish, Swedish and English. The Interim Report covering the period from 1 January 2005 to 30 June 2005 will be published on 31 August 2005, also in three languages. The Report on Operations and Financial Statements are available in Finnish, Swedish and English on Finnvera s Web site, at The Finnish and English versions can also be ordered from Finnvera s Corporate Communications, tel , fax , kaisa.sailas@finnvera.fi

3 Contents Finnvera in Brief 2 President s Review 4 Finnvera in Finnvera s Business Operations 7 Domestic Financing 9 Export Credit Guarantees 13 Impacts of Finnvera s Activities 18 Employment 18 Enterprise 18 Industrial and Regional Policies 18 Exports 20 Subsidiaries 23 Finnish Export Credit Ltd 23 Veraventure Ltd 24 Matkailunkehitys Nordia Oy 24 Spikera Oy 25 Risk Management 26 Corporate Social Responsibility 28 Socially Responsible Approach 28 Ethical Issues 31 Environmental Responsibility and Publicity Policy 33 Corporate Governance 35 Statistics 42 Key Indicators 48 Financial Statements nnvera.fi /Company presentation/financial info The Financial Statements 2004 are published as a separate document. Report on Operations

4 Finnvera in Brief F innvera plc is a specialised financing company owned by the State of Finland. By providing loans, guarantees and export financing services, Finnvera supplements the financial market and improves the range and versatility of financing options available to Finnish enterprises. Finnvera has three basic tasks: Provision of risk financing for, and development of, SMEs Promotion of the internationalisation and exports of enterprises Implementation of the government s industrial policy and regional policy measures. Finnvera s financing can be used at all stages of an enterprise s development, from establishment to changes of generation, for internationalisation and for ensuring the competitiveness of Finnish enterprises on the export market. When an enterprise s own resources or collateral are not sufficient to finance growth or to increase profitability, Finnvera provides financing for operations that are based on a good business idea and meet the criteria of sound business. The fact that Finnvera s owner, the State of Finland, helps cover some of the company s credit losses, enables Finnvera to finance higher enterprise risks than those financed by operators working on market terms. Alternatively, Finnvera can share risks with other financiers. In domestic financing, Finnvera s clients are entrepreneurs and founders of enterprises, as well as SMEs in the phases of start-up, growth and internationalisation. In the financing of exports, the clients are Finnish enterprises as well as banks and financial institutions in Finland and abroad. Finnvera is Finland s official Export Credit Agency (ECA). Responsibility for Finnvera s guarantee commitments rests with the State of Finland. Finnvera s values Finnvera s value statement, An Expert Esteemed by Clients, characterises the company s way of acting. The central elements of the company s value base are trust and Total projects made possible by Finnvera's financing, MEUR Total projects Share of Finnvera's financing Loans, domestic guarantees, and export and special guarantees granted, MEUR Loans Domestic guarantees Export and special guarantees Impacts of Finnvera s operations Number of jobs created with the help of Finnvera s financing Financing granted/new job, EUR Number of new enterprises created with the help of financing Financing granted in developing areas, MEUR Financing of exports Guarantees granted, MEUR SMEs Major companies Guarantees that came into effect, MEUR SMEs Major companies Exports covered by export credit guarantees, % (Finnvera and the State Guarantee Fund) - share of Finland s total exports share of exports to countries with political risk Report on Operations 2004

5 Foreign risk-taking Exports covered by guarantees, by region, MEUR Foreign risk-taking Guarantees granted, by region, MEUR Asia CIS Central and Eastern Europe Latin America Middle East and North Africa Sub-Saharan Africa Industrialised countries Asia CIS Central and Eastern Europe Latin America Middle East and North Africa Sub-Saharan Africa Industrialised countries honesty, benefits to clients, being a forerunner, profitability and effectiveness, and constant development of competence. Vision In 2010 Finnvera shall be a public specialised financier of the highest international standard, providing its clients with internationally competitive specialised financing services. The personnel s skills and knowledge management shall be at a level that ensures the effectiveness of operations in view of industrial policy and appropriate risk management. Strategic areas of focus Finnvera has selected three strategic areas of focus: Benefits to clients Maintaining and developing a competitive export financing system In domestic financing, focusing on starting enterprises and innovative growth enterprises Personnel as a resource Development of strategic skills Effectiveness of operations Increasing risk-taking while taking profitability into account. Risk-taking is increased especially in financing solutions for starting enterprises and innovative growth enterprises. Practical application of steering by the owner An industrial policy actor The Ministry of Trade and Industry steers the company s operations by setting ownership and industrial policy goals. These goals include self-sustainability in the long term, implementation of the government s regional and industrial policy goals, and offsetting deficiencies in the operation of the financial market. The goals and their implementation are presented in more detail at: presentation. The State of Finland is responsible for the liabilities and commitments pertaining to Finnvera s domestic financing. In addition to the share capital invested, the State s responsibility derives from the State s commitments to compensate for credit and guarantee losses and to provide interest support. Finnvera acquires the funds needed for granting credits to SMEs from the financial market. One of the major lenders is the European Investment Bank. The company receives interest support from the State Budget on regional and industrial policy grounds. Some of Finnvera s financial products targeted at SMEs may also include interest support from the European Regional Development Fund. The State compensates Finnvera for some credit and guarantee losses. The compensation is gradated depending on the geographical region in question; the average compensation has been approximately 50 per cent. The State Guarantee Fund is responsible for the commitments arising from export credit guarantees and special guarantees. The State Guarantee Fund is presented on page 46. In accordance with the principle of self-sustainability set for Finnvera, the company strives to cover the expenses incurred in its operations with the income gained from operations. During Finnvera s history, the cost per new job for the State has been about EUR 3,300. This sum includes the interest subsidies and compensations for loss paid by the State to Finnvera and passed on by Finnvera to enterprises. Report on Operations

6 President s review I n many ways, the year 2004 was a successful one both for our clients and for us. At Finnvera, we met all our central goals concerning effectiveness and performance. In 2004 the total value of applications for export credit guarantees pertaining to foreign risk-taking was the highest ever in Finnvera s history, totalling EUR 6.5 billion. A substantial proportion of the applications came from the shipyard industry. If the projected transactions materialise and the export credit guarantees come into effect, demand for labour both at shipyards and among their subcontractors will amount to a good number of person-years. It seems that exportation of mobile telephone networks has also picked up after a couple of quieter years. That, too, will create more jobs for both export enterprises and their Finnish subcontractors. Last year the total value of Finnvera s export credit guarantees granted for exports to Russia rose markedly and was the third highest among all countries. Guarantee offers and commitments for exports to Russia were almost five times greater than the year before, totalling EUR 400 million at year s end. It is worth noting that the number of guarantee decisions concerning smaller transactions was considerably higher last year than previously, although a few major transactions associated with infrastructure projects still had the greatest effect on the total value of guarantees. Demand for domestic financing was also exceptionally brisk last year. The total value of financing granted was record high, nearly EUR 900 million. The revived interest of SMEs in investments was obvious; more than half of the financing granted by Finnvera was used for investments. This change is important; at the turn of the millennium, most financing was still used for working capital. Another positive feature is that investments accounted for a higher percentage of financing within both industry and services to business. It can also be seen that increasingly often SMEs invest in intangible production factors, in various development projects and in developing their competence. Some SMEs expanded outside Finland s borders, mostly to Russia and to other adjacent areas. This, in turn, was reflected in the demand for internationalisation financing offered by Finnvera. A strong industrial policy actor During the six years of Finnvera s operations, an average of 10,000 new jobs have been created annually; the financing granted by Finnvera has been, on average, EUR 70,000 per one new job. Last year the number of new jobs reached a new record, 11,500. For the State, the cost per one new job has been about EUR 3,300. A fairly reasonable investment by the State has thus had an important leverage effect: thanks to one euro of support from the State, Finnvera has been able to grant approximately 20 euros of financing and the enterprise has been able to carry out a project of about 50 euros. One of Finnvera s basic tasks is to encourage new enterprise by means of financing. Approximately 3,000 new enterprises began operations with the help of Finnvera s financing; this is clearly more than the year before. The financing granted to areas eligible for support on regional policy grounds was also record high when compared to previous years. In fact, about half of the new jobs were created in these areas. When seen against Finland s total exports, the share of exports guaranteed by Finnvera nearly doubled on the previous year. Improved conditions for operations The international evaluation of Finnvera s activities, commissioned by the Ministry of Trade and Industry, was completed in February The evaluation showed that we have succeeded well in our basic tasks. The evaluation report also contained some proposals for developing Finnvera s activities. These proposals were investigated during the year and, for instance, the company s management was streamlined according to the recommendations. Towards the end of the year, our possibilities of providing financing for growth enterprises at the start of their operations improved considerably when the Government decided to raise its compensation for credit and guarantee losses with respect to these enterprises. Thus we will be able to contribute to the establishment and growth of enterprises during their initial stages. Another project intended to improve the growth potential of innovation enterprises is the Quartet, i.e. a joint project set up by four public-service organisations the Employment and Economic Development Centres, Tekes, Finpro and Finnvera in order to develop a joint customer service model for growth enterprises. Co-operation between various actors also strengthens Finnvera s potential to provide financing for growth enterprises. The prerequisites for regional venture capital investments were improved through a legislative amendment towards the end of the year; accordingly, venture capital investments became one of the types of financing provided by Finnvera. Veraventure Ltd, Finnvera s subsidiary that was established in 2003 for regional venture capital investments, strengthened its role as a developer of funds organised as limited companies and as source of capital for them. However, Veraventure would need additional capital so that we could make an even more efficient contribution to the seed financing of starting innovative enterprises and to the revision of service systems. Committed clients and motivated personnel According to our client benefit surveys, our clients in both domestic financing and 4 Report on Operations 2004

7 the financing of exports see Finnvera as a reliable and professional co-operation partner. Our contribution to the total financing of enterprises is considered to be very import ant. Besides enterprises, banks also value Finnvera s participation in risksharing. The quality of Finnvera s operations as an export credit agency has been rated high on the international market. Last year, the readers of the Global Trade Finance Review voted Finnvera the world s second best export credit agency. According to our personnel surveys, committed personnel who see their work as goal-oriented and meaningful have been our strength throughout the company s history. The survey conducted last year revealed that Finnvera employees place particular value on the independence of their work, on smooth co-operation within the company, and on a good working atmosphere. The ratings given for supervisors work and for co-operation with interest groups, which had previously been deemed to need development, had also improved. A quality project has been under way in Finnvera since the company s first year of operations. Quality thinking is an integral element of the company s annual planning and strategy work. During these years, the quality project has pinpointed certain areas of development, which have been organised into quality improvement projects, for instance, to further the smooth running of financing processes and customer service. Financial performance The company s financial performance continued to improve in 2004 and was the best in Finnvera s history. The main factors affecting performance were the excellent result for export credit guarantee activities and the fact that credit losses in domestic financing remained at an exceptionally low level. In the financing of exports, risk concentrations specific to individual regions or countries, or to individual sectors and enterprises, continued to grow as in previous years. Nevertheless, the claims paid by virtue of export credit guarantees remained at a very low level, and the funds recovered exceeded the claims paid. Future prospects The positive results achieved by the company in the past years gives Finnvera more leeway in its risk-taking in the near future. In domestic operations this means better opportunities to help starting and growing enterprises and to promote various ownership arrangements. In the financing of exports, the trend foreseen for the next few years is that the size of individual export transactions will keep increasing. This will mean more risk concentrations as concerns both commercial and political risks. This trend is seen especially in the telecommunications sector and in ship financing. From the geographical perspective, Finnvera s future operations are likely to involve countries with increasingly high risks. The rise of Russia as Finland s trading partner will also be visible in Finnvera s figures. I d like to express my warmest thanks to our clients, co-operation partners and Finnvera s personnel for the record-high results achieved in 2004 and for our rewarding co-operation. Finnvera s performance shows that the company has secured a distinct and important role for itself in Finnish business and in the field of financing. I believe that these special and important tasks will remain with Finnvera in the coming years as well. Markku Mäkinen Report on Operations

8 Finnvera in 2004 The revised Buyer Credit Guarantee terms corresponding to the Basel II Framework were adopted on 1 March On 19 May 2004, Finnvera plc adopted a new environmental policy in export credit guarantee activities. As of 15 July 2004, Finnvera plc has been able to provide domestic financing for enterprises in all business sectors, except for developers in the construction business and for forestry and agriculture proper. On 21 July 2004, the European Commission decided that the Joint European Venture Initiative, which had been set up to promote the establishment of joint ventures among European SMEs, would be terminated at the end of The revised Finance Guarantee terms were adopted on 6 December On 16 December 2004, the Government decided to continue the interest support granted to SMEs on regional and industrial policy grounds, and the partial compensation for credit and guarantee losses incurred by Finnvera plc. This commitment is valid until the end of On 16 December 2004, the Acts on Finnvera were amended so that venture capital investments were added to the range of financing provided by the company. On 21 December 2004, the Act on the State s Ship Guarantees was amended so that a guarantee can also be granted for other types of financing besides credits. The Act came into effect at the beginning of The host country system applied to Finnvera s internationalisation financing changed as of 1 January Now all countries in Finnvera s country categories 0 4 are eligible for financing; the previous system had been limited to the EEA countries and Russia. The most important new country encompassed by the revised system is China. Finnvera s fi nancing contributed to the creation of about 11,500 new jobs and 3,000 starting enterprises. Risk fi nancing granted to SMEs reached a new record, EUR million (EUR million). The value of export credit guarantee applications concerning foreign risk-taking rose higher than ever before in Finnvera s history, to EUR 6.5 billion, and demand for guarantees for exports to Russia was fi ve times higher than the year before. Evaluation The report on the international evaluation of Finnvera plc was published on 13 February The evaluators concluded that Finnvera had succeeded relatively well in attaining the goals set for the company. However, the synergy benefits brought by the merger were not quite up to expectations. For this reason, the evaluation report included recommendations concerning revision of the company s organisation and some of its modes of operation. The Ministry of Trade and Industry appointed a working group to draft proposals for measures recommended by the evaluation report. The working group published its report on 31 August Both the Ministry of Trade and Industry and Finnvera were represented in the working group. Key indicators showing the Group s financial trends The working group proposed that Finnvera should be exempted from taxes. The cross subvention problem should be eliminated. In order to improve the transparency of operations, separate profit and loss accounts should be drawn up for domestic operations and for operations involving export credit and special guarantees. It was proposed that the State s contribution included in interest subsidy be shifted towards compensation for credit and guarantee losses. Steering at the level of norms should be reduced, and more activities should be steered through the Ministry s industrial policy goals. Labour market organisations should be represented on the Supervisory Board, not on the Board of Directors. The working group was not in favour of the organisation model proposed by MEUR Turnover Operating profit or loss % of turnover Profit or loss before appropriations and taxes % of turnover Return on equity % Return on assets % Equity ratio % Capital adequacy ratio Income-expense ratio Report on Operations 2004

9 the evaluators, i.e. a parent company plus separate subsidiaries for domestic operations and for export credit and special guarantee operations. Instead, the working group brought forward two models: a separate subsidiary for export credit and special guarantee operations, and development of operations on the basis of the existing organisation. It was decided that operations should be developed on the basis of the current organisation model. Corporate governance On 24 November 2004, the Supervisory Board of Finnvera plc approved the company s new organisational structure, effective as of 1 January Finnvera decided to merge its two subsidiaries providing services for export financing: Fide Ltd and Finnish Export Credit Ltd. The merger took place on 31 December Co-operation agreements On 9 January 2004, Finnvera plc, Finnish Industry Investment Ltd and the Ministry of Trade and Industry signed a cooperation agreement on the development of regional venture capital investment activities. On 5 May 2004, a bilateral reinsurance agreement was signed with the Export Guarantee and Insurance Corporation (EGAP) of the Czech Republic. On 14 October 2004, a bilateral reinsurance agreement was signed with Nippon Export and Investment Insurance of Japan. On 26 October 2004, Finnvera plc signed a co-operation agreement with two Russian banks: Vneshekonombank and Roseximbank. International co-operation Assistant Director Pekka Karkovirta was appointed Chairman of a Technical Subcommittee within the Berne Union. Readers of Global Trade Review, an international export finance magazine published in London, voted Finnvera plc the second best export finance agency. Finnvera s Business Operations I n 2004, the Finnish economy grew slightly more rapidly than had been expected at the beginning of the year. It is estimated that total production increased by about 3.7 per cent during the year. The volume of Finnish exports rose by about one per cent in However, owing to falling prices, the value of exports fell by a couple of per cent. In 2004, the value of exports stood at 5 per cent higher than the year before. The stronger euro and the world economy s slower growth rate weighed down the increase in exports. Investments in real property have been falling in the past few years, although public investments and investments in housing have increased. However, in 2004, investment in real property rose by about 4 per cent on the previous year. Investments picked up both in industry and in the service sector during In 2005 investments are predicted to increase by nearly as much as in Despite the rapidly growing economy, the unemployment rate remained more or less unchanged during The fall in the employment rate levelled off in The number of jobs increased both in private services and in the public sector. Employment is expected to improve moderately in the coming years. According to the SME barometer survey published by Finnvera and the Federation of Finnish Enterprises in October 2004, the economic expectations of SMEs improved slightly on the previous year. On the whole, SMEs believed that their turnover would grow. Expectations concerning profitability were also high. Reviews of business sectors are available at: under Company presentation/annual Report World economy trends American consumers spurred the US economy to a growth rate of a good four per cent in Owing to several years of debt-driven consumption and economic growth in the United States, the world economy has come to an exceptional state of imbalance. The value of the dollar has fallen, and the current account of the United States shows a deficit. At the same time, the current accounts of the developing markets in Asia are showing a surplus, and their currency reserves have doubled since the turn of the millennium. The American growth policy favouring consumption has given many Asian countries the opportunity to increase their exports to the United States. Asian countries whose currencies are linked with the dollar need to introduce changes in their currency policies and to revalue their currencies. The European Union especially the euro area dependent on exports has suffered from the American economic deficits. For several years, more rigid economic structures, slower productivity growth and, recently, the strengthening of the euro against the dollar have slowed down economic growth in the euro area considerably when compared to the United States. In 2004, the economies of the euro area are estimated to grow by two per cent, which is only half the growth rate in the United States. Because of the sluggish growth, the European Central Bank has not followed suit when the US Federal Reserve has raised interest rates. During 2004 the target federal funds rate was raised by a total of 1.25 percentage points, which meant that the federal funds rate rose 0.25 percentage points higher than the European rate for main refinancing operations. The target federal funds rate is now 2.25 per cent, which is still considerably lower than the neutral interest rate. Reviews on the world economy and on individual countries are available at: under Company presentation/annual Report Report on Operations

10 Finnvera s Business Operations Financing granted, by sector 1 Jan 31 Dec 2004 Total MEUR % 15.6% 15.3% Financing granted, by enterprise size MEUR Micro-enterprises Other SMEs Major companies and other business Total % 61.9% Rural trades Industry Tourism Services to business Trade and consumer services Financing granted, by sector MEUR Rural trades Industry Tourism Services to business Financing granted, industry 1 Jan 31 Dec 2004 Total MEUR % 3.7% 20.6% 10% Trade and consumer services Total Outstanding commitments, by enterprise size MEUR % Micro-enterprises Other SMEs % 43.6% Major companies and other business Total Manufacture of foods Manufacture of textiles, clothing and leather products Manufacture of wood-based products Manufacture of chemical, rubber and plastic products Manufacture of metal products Electrical and electronics industry Other industry Outstanding commitments, by sector MEUR Rural trades Industry Tourism Services to business Trade and consumer services Total Report on Operations 2004

11 Finnvera s Business Operations DOMESTIC FINANCING Since spring 2004, once the amendment to the Act on Finnvera took effect, Finnvera has also been able to offer all of its financial products to service enterprises employing more than nine people. According to the new Act, Finnvera can provide financing for enterprises and entrepreneurs in all sectors, with the exception of agriculture and forestry and developers in the construction business. Financing for investments in greater demand The favourable trend on the domestic market was clearly reflected in the demand for Finnvera s financial instruments. The volumes of financing granted for both industry and the service sector were greater than in The liveliest demand was noted in the metals industry and in trade. Domestic risk financing granted by Finnvera in 2004 reached a record-high level of EUR million. This was EUR million, or 15 per cent, more than in Altogether 87 per cent of financing went to micro-enterprises and to SMEs. The financing granted in 2004 exceeded the sums in 2003 in nearly all regions. The greatest increases were recorded in the Helsinki area, in Southwestern Finland, in Southern Savo, in Central Ostrobothnia and in Central Finland. The volume of financing granted annually varies from year to year, depending on the financing and investment needs of enterprises in each area. Some individual major projects may mean considerable changes to the regional breakdown of financing at the annual level. Brisk demand for entrepreneur loans and micro-financing products The volume of entrepreneur loans granted in 2004 was record high: EUR 28.5 million (EUR 24.2 million), or 18 per cent more than the year before. The loans were used for subscribing and purchasing stock and partners shares and for raising share capital in SMEs. In all, 29 per cent of entrepreneur loans were granted to starting enterprises engaged in new business. The rest were used for various company reorganisations, such as changes of generation and increases in shareholders equity. Demand for entrepreneur loans has been rising for a couple of years. In other words, starting or reorganising an enterprise continues to be popular. Entrepreneur loans have been instrumental in company reorganisations and changes of generation, and many new enterprises would not have been able to start without an entrepreneur loan. Financing granted by Finnvera to micro-enterprises in 2004 totalled EUR million (EUR million). This was 16 per cent higher than the year before and accounted for 28 per cent of the total sum granted. The most popular micro-financing products were microloans and loans to women entrepreneurs. These totalled EUR 53.0 million (EUR 49.0 million). The value of micro-guarantees granted was EUR 20.2 million (EUR 19.2 million) At EUR 22.1 million, the value of loans to women entrepreneurs reached a new record (EUR 18.2 million). A total of 1,417 new jobs (1,200) were created in these enterprises owned by women. The dominant fields in women s enterprises were still consumer services and retail trade. In these sectors it is difficult to obtain outside financing, especially for starting enterprises. According to the SME barometer survey conducted by the Federation of Finnish Enterprises and Finnvera, over 60 per cent of women entrepreneurs considered Finnvera s financing to be very important in relation to the overall financial arrangements of their enterprises. Financing granted, by enterprise size 1 Jan 31 Dec 2004 Total MEUR % Micro-enterprises Other SMEs Major companies and other business 58.3% Financing granted, by product 1 Jan 31 Dec 2004 Total MEUR % 6.0% Loans Domestic guarantees Export guarantees and special guarantees 46.2% 28.2% Report on Operations

12 10 Report on Operations 2004

13 Finnvera s Business Operations In 2004 Finnvera received 4,510 new clients (4,039). At the end of 2004, Finnvera had 26,111 (25,401) clients, of which 21,131 (20,626) were micro-enterprises (fewer than 10 employees), 4,664 (4,420) were small and medium-sized enterprises, and 316 (355) were large enterprises or clients engaged in other business operations. The number of clients increased the most rapidly in the Regional Offi ces of Kajaani and Uusimaa. Clients, by enterprise size 31 Dec 2004 Total % 1.2% Micro-enterprises Other SMEs Major companies and other business 80.9% Clients, by sector 31 Dec 2004 Total % 27.7% 36.3% 23.4% 11.3% Rural trades Industry Tourism Services to business Trade and consumer services New clients, by enterprise size 1 Jan 31 Dec 2004 Total % 0.3% JUHANA BLOMSTEDT, from the series Möbius : BIRTH (1062), Oil on canvas, 32.5 x 40 cm. Micro-enterprises Other SMEs Major companies and other business 85.6% Report on Operations

14 Finnvera s Business Operations Outstanding commitments, by sector 31 Dec 2004 Total MEUR % 12.6% 20.5% 57.6% 8.4% Rural trades Industry Tourism Services to business Trade and consumer services Outstanding commitments continued to rise In 2004, Finnvera s outstanding commitments increased in all enterprise size categories. At year s end, Finnvera s outstanding commitments for domestic financing stood at EUR 2.3 billion (EUR 2.1 billion), or a good 8 per cent higher than the year before. Outstanding guarantees increased by 15 per cent and outstanding loans by 6 per cent. The volume of outstanding guarantees has increased rapidly in recent years, and the share of guarantees out of total outstanding commitments will continue to rise. At year s end, loans accounted for 60 per cent (61) of total outstanding commitments, while guarantees accounted for 37 per cent (36). In relative terms, outstanding commitments increased the most in Uusimaa, Kainuu, Central Finland and Northern Savo. A slight decline was recorded in Southern Karelia and in Southern Ostrobothnia. Among the various sectors, outstanding commitments rose particularly rapidly in consumer services, in trade sectors and in the metals industry. Outstanding commitments, industry 31 Dec 2004 Total MEUR % 6.3% 3.6% 15.2% Financing granted, by regional office 2002 total MEUR total MEUR total MEUR % 6.4% % 90 Manufacture of foods Manufacture of textiles, clothing and leather products Manufacture of wood-based products Manufacture of chemical, rubber and plastic products Manufacture of metal products Electrical and electronics industry Other industry Outstanding commitments, by enterprise size 31 Dec 2004 Total MEUR % 27.8% 0 Helsinki Joensuu Jyväskylä Kajaani Kuopio Lahti Lappeenranta Mikkeli Oulu Pori Rovaniemi Seinäjoki Tampere Turku Uusimaa Vaasa 55.2% Micro-enterprises Other SMEs Major companies and other business 12 Report on Operations 2004

15 Finnvera s Business Operations EXPORT CREDIT GUARANTEES Applications reached a new record During 2004, the total value of guarantee applications submitted by exporters and financiers for export transactions that would involve foreign risk-taking came to EUR 6.5 billion (EUR 3.7 billion). Altogether 304 applications were received (314). The value of the applications was the highest in Finnvera s history. In 2004, the highest numbers of guarantee offers concerned exports to industrialised countries, Latin America and Russia. Of the guarantees that came into effect, Brazil accounted for 17 per cent, Russia for 16, Poland for 13, Iran for 11 and China for 10 per cent. Of the outstanding commitments, slightly over one third pertained to industrialised countries and a little less than one third to Latin America. Greatest demand for guarantees in telecommunications and shipbuilding As in 2003, telecommunications and the shipbuilding and shipping industries were the sectors where guarantees for financing were in the most demand. Together, these sectors accounted for 81 per cent of the guarantees granted in Foreign risk-taking Guarantees granted, by country risk category, 1 Jan 31 Dec 2004 Total MEUR % 7.8% 32.1% 8.5% Category 0 Category 1 Category 2 Category 3 Category 4 Category 5 Category 6 Category % 14.8% 4.5% Foreign risk-taking Finnvera's country risk classification 31 Dec Excellent credit quality 1 Very good credit quality 2 Good credit quality 3 Adequate credit quality 4 Decreased credit quality 5 Questionable credit quality 6 Poor credit quality 7 Very poor credit quality 7 Only short-term guarantees 7 Off cover Report on Operations

16 Finnvera s Business Operations In telecommunications, Latin America, Russia and Asia dominated the demand for guarantees. The biggest export credit guarantee projects concerned Nokia s GSM network supplies. Citibank International plc and ING Bank N.V. have arranged three credits covered by export credit guarantees for OJSC MegaFon (MegaFon), Russia s third largest mobile telephone operator. The total sum of these credits is USD million. The export credits have been organised as three separate credit arrangements. Besides Finnvera, the other participants are the export credit agencies of Sweden and Germany. The credit guaranteed by Finnvera is USD million. The export credit guaranteed by EKN of Sweden totals USD 53.5 million, while that guaranteed by Euler Hermes of Germany is EUR 75.6 million. Finnvera bears the highest individual risk in this financial arrangement. At the end of March 2004, MegaFon had roughly 7.7 million mobile telephone subscribers. In February and August, Finnvera and ABN Amro Bank N.V. signed guarantee agreements worth a total of USD 160 million. These agreements are used to finance Nokia s network exports to the Brazilian operator Telemar. The export credits, guaranteed 100 per cent by Finnvera, are part of an earlier arrangement, worth in total USD 1.4 billion. Finnvera has provided substantial support for Telemar and Nokia by guaranteeing credits worth in total USD 320 million. With its over 20 million customers, Telemar is one of the biggest telephone operators in Brazil. In 2004, Finnvera and ABN Amro Bank N.V. signed three guarantee agreements that are used to finance Nokia s network exports to Latin America and India. The total value of the deals is USD 273 million. The guarantee of USD 95 million granted on financial arrangements made for Bharti Tele-Ventures Ltd of India is the first guarantee that Finnvera has given to Nokia for supplies to India. The global economic boom in the shipyard industry that had started in 2003 continued, although the number of new orders was not as high as in the previous year. The falling trend in new orders is predicted to continue this year. European shipyards accounted for about 20 per cent of the tonnage delivered in 2003; the market share is estimated to remain steady for the next two years. European shipyards did best as suppliers of passenger vessels, ferries and container vessels. During the year under review, Finnish shipyards received six new orders for vessels. The value of pre-delivery guarantees granted for shipyards totalled EUR million. The shipyards delivered four vessels. The MS Color Fantasy, the world s largest cruise vessel equipped with car decks, was delivered by the Turku shipyard of Aker Finnyards Inc. in December The purchase price of the vessel, ordered by Color Line AS of Norway, is about EUR 300 million. Finnvera s contribution to the vessel s financing was a Buyer Credit Guarantee given as security for a credit of EUR 172 million granted on the OECD terms. In the energy sector, Finnvera participated in the financing of the biggest oilfired power plant delivered by Wärtsilä. This power plant was commissioned in Honduras in January Finnvera s risktaking totals about EUR 100 million. The guarantee arrangement is one of the biggest in the energy sector. The export credits guaranteed by Finnvera were transmitted to Honduras through two banks operating in Central America. By means of Finnvera s Buyer Credit Guarantee, Nordea and Société Générale of France arranged a credit of USD 87 million to the Central American Bank for Economic Integration (CABEI). In addition, by means of Finnvera s Buyer Credit Guarantee, Bayerische Hypo- und Vereinsbank AG of Germany arranged a credit of USD 13 million for Primer Banco de Istmo S.A. of Panama. Both CABEI and Banistmo granted a credit to the Honduran buyer, Luz y Fuerza de San Lorenzo Foreign risk-taking Guarantees granted, by region 1 Jan 31 Dec 2004 Total MEUR % 13.3% 10.1% 4.3% 23.1% Asia CIS Central and Eastern Europe Latin America Middle East and North Africa Sub-Saharan Africa Industrialised countries 19.3% Foreign risk-taking Guarantees granted, by buyer's sector 1 Jan 31 Dec 2004 Total MEUR % 6.1% 4.7% Foreign risk-taking Guarantees granted, by product 1 Jan 31 Dec 2004 Total MEUR % 8.3% Telecommunications Wood processing Power generation Shipping companies Other 10.9% 69.6% Buyer Credit Guarantee Credit Risk Guarantee Letter of Credit Guarantee 55.8% 14 Report on Operations 2004

17 Finnvera s Business Operations S.A. de C.V (Lufussa), thereby bearing the country and project risks in Honduras. The most guarantees granted for buyer credits The revised Buyer Credit Guarantee terms were adopted on 1 March The terms correspond to the revised Basel II Framework for the capital adequacy of credit institutions, which will come into effect in The framework will mean that credit institutions need to examine risks even more carefully. It will also set additional requirements for guarantees granted by export credit agencies. The purpose of the revision is to ensure that Buyer Credit Guarantees granted by Finnvera will be weighted at zero risk in the capital adequacy calculations of credit institutions even when the Basel II accord comes into effect. Other important guarantee products include the Credit Risk Guarantee, granted to exporters, and the Letter of Credit Guarantee, which is granted to banks confirming Letters of Credit. In total 135 Credit Risk Guarantees, 52 Buyer Credit Guarantees and 37 Letter of Credit Guarantees were granted in The value of the export transactions covered by means of Buyer Credit, Credit Risk and Letter of Credit Guarantees totalled EUR 1,156.3 million (EUR million). Buyer Credit Guarantees also for concessional credits By virtue of the Act that came into effect in 2001, Finnvera serves as the guarantor of concessional credits granted by the Ministry for Foreign Affairs for projects in developing countries. Finnvera also participates in assessment of the eligibility of projects for guarantees and interest support. The Ministry for Foreign Affairs assesses the projects and decides whether interest support is granted. During the year under review, Finnvera received 16 applications for concessional credits (14). The total value of these applications was EUR million (EUR 73.5 million). The applications pertained to transactions planned to take place in Asia, the Middle East and sub-saharan Africa. Concessional credits can be arranged by all credit institutions operating in the European Economic Area. Export credit guarantee clients At the end of 2004, Finnvera s financing of export clients, i.e. exporters or their financiers, totalled nearly 240. Client means an enterprise or a financier whose application for an export credit guarantee is being processed by Finnvera, who has received a guarantee offer, or whose export credit guarantee has come into effect once the export transaction has materialised. Applications and guarantees During 2004, exporters and financiers submitted a total of 304 (314) guarantee applications pertaining to export transactions that would involve foreign risk-taking; their value came to EUR 6,479.8 million (EUR 3,688.0 million). At the annual level, this was the highest figure in Finnvera s history. At year s end, Finnvera had altogether 104 (78) guarantee applications under processing; their total value was EUR 5.6 billion (EUR 4.4 billion). The number of new guarantee offers was 224 (267) and their value totalled EUR 2,209.4 million, or slightly less than the year before (EUR 2,311.0 million). The highest guarantee sums were granted for exports to Russia, the United States, Mexico, Brazil, and Canada, in this order. As in previous years, the highest number of guarantees was granted for exports to Russia. The value of guarantees that came into effect was almost the same as the year Foreign risk-taking Guarantees that came into effect, by region 1 Jan 31 Dec 2004 Total MEUR % 26.1% 1.7% 6.7% 12.7% 21.4% Asia CIS Central and Eastern Europe Latin America Middle East and North Africa Sub-Saharan Africa Industrialised countries 16.5% Foreign risk-taking Guarantees that came into effect by buyer's sector 1 Jan 31 Dec 2004 Total MEUR % 17.9% 8.6% Foreign risk-taking Guarantees that came into effect, by product 1 Jan 31 Dec 2004 Total MEUR % 12.7% Telecommunications Wood processing Power generation Shipping companies Other 35.3% 61.9% Buyer Credit Guarantee Credit Risk Guarantee Letter of Credit Guarantee 60.6% Report on Operations

18 Finnvera s Business Operations before, or EUR million (EUR million). Some of the guarantees granted in 2004 will come into effect in Out of the guarantees that came into effect, Brazil accounted for 17 per cent, or EUR million; Russia for 16 per cent, or EUR million; Poland for 13 per cent, or EUR million; Iran for 11 per cent, or EUR million; and China for 10 per cent, or EUR million. The guarantees cover political and/or commercial risks pertaining to 43 (42) countries. Telecommunications accounted for 61 per cent, or EUR million (283.1 million); power generation for 18 per cent, or EUR million (119.6 million); and the wood-processing industry for 9 per cent, or EUR 84.8 million (25.8 million). The highest outstanding commitments concerned exports to the United States, Mexico, Russia and the Philippines. In the Middle East and North Africa, the highest outstanding commitments concerned exports to Turkey. At year s end, altogether EUR 155 million of the risks of export credit guarantees was covered through reinsurance and other similar arrangements (EUR 201 million). No new reinsurance agreements were signed in 2004 (14). The average project size of capital goods transactions is continually rising. This means major challenges for the management of risk concentrations that arise in guarantee operations. By virtue of an agreement made with the Ministry of Trade and Industry, since 1 January 1999, Finnvera has managed the old guarantee stock of the State Guarantee Fund, against a fee. The management fees Finnvera received from the Fund came to EUR 0.9 million. Of this sum, financing of exports accounted for EUR 0.6 million and domestic financing for EUR 0.3 million. The total sum and the breakdown of the old guarantees are presented in more detail on pages Few claims The guarantee premiums and handling fees collected through foreign risk-taking totalled EUR 32.9 million (EUR 38.1 million). The claims paid by virtue of foreign risk-taking totalled EUR 1.6 million (EUR 2.2 million). They all pertained to commercial risks that had materialised. Recovery costs in connection with claims totalled EUR 0.06 million (EUR 0.07 million). A claims provision that had been made previously in connection with a buyer risk in Poland was reduced from EUR 3.0 million to EUR 2.0 million during the year because of a fall in commitments. EUR 1.7 million of claims paid was recovered during the year. As in previous years, the amount of claims paid during the year was small when seen against the volume of operations. JUHANA BLOMSTEDT, from the series Möbius : MORNING (1067), Oil on canvas/oil on canvas, 180 x 200 cm. 16 Report on Operations 2004

19 Report on Operations

20 Impacts of Finnvera s Activities Aspecialised State-owned financier, Finnvera supplements the financing offered by banks. By virtue of the State s commitment to compensate for credit and guarantee losses, Finnvera can take considerably higher risks in the financing of starting and growing enterprises, and can promote the establishment and growth of these enterprises in accordance with the government s industrial policy goals. EMPLOYMENT In 2004, SMEs were more interested in making investments than they had been the year before. Of the total value of projects financed by Finnvera, 54 per cent was used for various investments and 38 per cent was used for working capital. The value of investments financed by Finnvera increased by 38 per cent on the previous year. Apart from investments and the related working capital, Finnvera provided financing for numerous changes of generation and other company reorganisations. In 2004, Finnvera s financing contributed to the creation of about 11,500 (9,700) new jobs. Of the new jobs, 58 per cent were created in enterprises operating in trade and in the service sector, while 42 per cent were created in industry. In all, 54 per cent of the new jobs were created in micro-enterprises employing fewer than 10 people. The effect that the financing of exports has on employment and on the creation of new enterprise activities is seen as investments made by major export companies and their contract manufacturers and subcontractors. In this way, the effect also reflects on the number of jobs kept or created. ENTERPRISE In 2004 Finnvera participated in the financing of approximately 9,400 projects. The total sum of financing needed for these projects was EUR 2.4 billion. On average, Finnvera provided 38 per cent of the financing for these projects. Finnvera s share of the financing is greater in small projects, which usually do not involve sufficient collateral to obtain financing on market terms. Finnvera s financing plays a crucial role in the establishment of new enterprises. Financing by Finnvera is often a precondition for the starting of an enterprise, because starting SMEs do not often get any other outside financing. In 2004, financing was granted to 2,956 (2,576) enterprises at the start of operations. For several years now, Finnvera has provided financing for about 10 per cent of all new enterprises established in Finland each year. INDUSTRIAL AND REGIONAL POLICIES Financing granted on regional policy grounds creates prerequisites for the growth of enterprises in developing areas. In 2004, Finnvera granted more financing in areas eligible for national regional aid than ever before, in total EUR million (EUR million). Of this sum, EUR million was regional interest-subsidised loans (EUR million). Financing granted in developing areas accounted for 49 per cent of all domestic financing granted by Finnvera. In relative terms, the share of financing granted in developing areas is clearly higher than the share of undertakings in these areas (39 per cent). Thanks to regional interest-subsidised loans, enterprises in developing areas have the opportunity to secure financing on more advantageous terms for their investments and working capital. The credit and guarantee loss compensation gradated on regional policy grounds also makes it possible for Finnvera to take higher risks, especially in the least developed areas. The financing granted on Number of clients, by enterprise size Micro-enterprises Other SMEs Major companies and other business Total Number of clients, by sector Rural trades Industry Tourism Services to business Trade and consumer services Total Report on Operations 2004

21 Impacts of Finnvera s Activities regional policy grounds promotes balanced regional development and the prerequisites for growth among enterprises in developing areas. Enterprises financed by Finnvera accounted for the highest percentages of all enterprises in the regions of Kainuu, Satakunta and Lapland. The lowest percentages were in Uusimaa and especially in the Helsinki area. Regional capital investment activities were developed Implementation of the outlines drawn by the Ministry of Trade and Industry in 2003 with respect to the reorganisation of regional venture capital investment activities was brought to conclusion during 2004 as concerns venture capital investment activities carried out by limited companies. Within the Finnvera Group, ownership of 11 regional funds organised as limited companies is concentrated in Veraventure Oy a fund of funds established in April 2003 and owned 100 per cent by Finnvera plc. During the year, the company continued in its important role as a developer and provider of capital for regional funds organised as limited companies. In addition, Veraventure participated in developing the revision strategy concerning the seed funding and service system applied to starting innovative enterprises. As part of the development of regional venture capital investment activities, Finnvera plc raised the share capitals of both Matkailunkehitys Nordia Oy and Veraventure Oy in Following this arrangement, Finnvera s holding in Matkailunkehitys Nordia Oy will rise to 63.5 per cent in early In autumn 2004, the Acts on Finnvera were amended so that venture capital investments were added to the range of financing provided by the company. The amendments came into effect at the beginning of Financing granted to areas eligible for national regional aid, MEUR Aid area 1 Aid area 2 Aid area 3 The rest of Finland ERDF financing transmitted to the EU Objective regions, MEUR Eastern Finland, Objective 1 region Northern Finland, Objective 1 region Western Finland, Objective 2 region Southern Finland, Objective 2 region Areas eligible for national regional aid Ou The EU Objective regions Aid area 1 Aid area 2 Aid area 3 Objective 1 region Objective 2 region Region of transitional arrangements Report on Operations

22 Impacts of Finnvera s Activities Clients, by enterprise size Support from the EU for new enterprises and jobs SME co-operation in nearby areas of Russia Number of new jobs Micro-enterprises Other SMEs Major companies and other business Starting enterprises Finnvera acts as an intermediary for the support programmes of the European Regional Development Fund (ERDF). This support is included in loans for investments and working capital and in entrepreneur loans, microloans and loans for women entrepreneurs in Objective 1 regions of Eastern and Northern Finland, in Objective 2 regions of Western and Southern Finland, and in regions of transitional arrangements. The interest subsidy granted by the State of Finland and the ERDF reduce SMEs financing costs in the Objective regions. The ERDF loans can be used for the establishment of enterprises and for improving the prerequisites for their growth, for raising the competitiveness of enterprises, for increasing the number of jobs and for making enterprise activities more international. In 2004, these interest-subsidised loans to SMEs totalled EUR 94.8 million (EUR 94.6 million), of which EUR 58.7 million (EUR 54.9 million) was granted to enterprises in Eastern and Northern Finland. Partly thanks to Finnvera s ERDF financing, 597 (683) new enterprises were started and about 3,500 (3,100) jobs were created or kept in the Objective regions. To cover some of the financing granted to SMEs, Finnvera can apply for a portfolio guarantee from the European Investment Fund (EIF). In that case, the guarantee commission is lower than normally. The total value of growth guarantees granted in 2004 was EUR 80.3 million (EUR 66.6 million). In line with the agreement signed by Finnvera and the Ministry for Foreign Affairs at the beginning of 2003, Finnvera has served as an expert in the application for, and selection of, SME projects carried out in Russian areas adjacent to Finland with the help of an allocation from the Ministry. Based on proposals made by Finnvera, the Ministry for Foreign Affairs allocated altogether EUR 373,071 for 22 projects in The projects are undertaken by Finnish SMEs investigating possibilities to expand their operations in Russia or to train and develop the personnel of an already existing joint venture. The most common sectors have been subcontracting for industry, the wood product industry, and building. In March, to promote public funding for Russian projects and to advance cooperation between financial institutions, the St Petersburg office of Finnvera and Finpro, together with Finnfund, the Finnish Ministry of Trade and Industry, Nefco and Nopef, arranged a seminar on financing for Finnish enterprises operating in the area of St Petersburg. Finnvera continued its co-operation with the Russian Federal Fund for Small Business Support and its regional funds. This co-operation dates back to EXPORTS Finnvera strives to secure the competitiveness of Finnish enterprises on the export market by offering them various arrange Number of new clients Micro-enterprises Other SMEs Major companies and other business Total Report on Operations 2004

23 Impacts of Finnvera s Activities ments for covering risks arising from export and project financing. These arrangements should be of at least the same standard as those applied in Finland s main competitor countries. Another goal is to promote the investments of enterprises by granting investment guarantees. Promotion of the export efforts of Finnish companies affects both employment and enterprise activities. Export credit guarantees mainly for large projects As in previous years, in terms of the sums involved, guarantees pertained mostly to individual large-scale projects. Guarantees with a value exceeding EUR 100 million accounted for 64 per cent (68) of all export credit guarantees granted and for 34 per cent (53) of the guarantees that came into effect. As companies are increasingly often outsourcing sizable segments of their production, a large part of major projects actually consists of deliveries made by small and medium-sized machine shops and other SMEs. In large-scale projects, risks are often shared between commercial financiers and risk-takers, on one hand, and the official export guarantee and export credit agencies of more than one country, on the other. When implemented, such projects involve either a corporate risk or a project risk. Project risks pertain to projects where loan servicing takes place through the cash flows generated by the investment, and where security arrangements play an important role. Finnvera s outstanding commitments, i.e. offers given and current commitments together, totalled EUR 3.4 billion at the end of the year (EUR 3.1 billion). This is over EUR 0.2 billion more than at the end of Offers accounted for 50 per cent (49) of all commitments; the offers come into effect if the export transactions and financial arrangements encompassed by the offers are carried out. Export credit guarantees accounted for EUR 3,315.5 million (EUR 3,071.1 million) of all outstanding commitments, while raw material guarantees (import guarantees) accounted for EUR 51.6 million (EUR 67.5 million). Guarantees associated with the export projects of the shipyard industry During the year, the total value of Bond Guarantee offers covering domestic risks and pertaining to the export projects of the shipyard industry came to EUR million (EUR 65.9 million). The value of the guarantees that came into effect was EUR million (EUR 59.6 million). Foreign risk-taking Guarantees granted, by buyer's sector, MEUR Telecommunications Wood processing Power generation Shipping companies Other Foreign risk-taking Guarantees that came into effect, by buyer's sector, MEUR Telecommunications Wood processing Power generation Shipping companies Other Ship Guarantees and Environmental Guarantees against domestic risks; Finance Guarantees and Bond Guarantees pertaining to export projects and transactions Guarantees granted Guarantees in effect MEUR Ship Guarantees Environmental Guarantees Finance Guarantees Shipyard industry Other Total Bond Guarantees Shipyard industry Other Total Report on Operations

24 Impacts of Finnvera s Activities The Finance Guarantees granted amounted to EUR million (EUR 90.0 million), but no guarantees came into effect during the year (EUR million). The general terms of the Finance Guarantee were revised in Whenever applicable, the new terms follow the general terms of the Buyer Credit Guarantee. The new terms were adopted on 6 December On 31 December, Finnvera s current pre-delivery commitments in the shipyard industry totalled EUR million (EUR million). Offers for pre-delivery guarantees totalled EUR million (0). During the year, no Ship Guarantees were granted for financing Finnish shipyards and shipowners (EUR million). The value of Ship Guarantees that came into effect totalled EUR million (EUR 23.3 million). An amendment was made to the Act on Ship Guarantees; besides guarantees for conventional credits, guarantees can now also be granted for other types of financing generally used for ships and shipbuilding. Moreover, a Ship Guarantee can also be given as some other commitment besides an absolute guarantee. Sharp increase in the demand for guarantees for exports to Russia Guarantee offers and commitments for exports to Russia were five times higher than in By volume, the biggest guarantees were granted to banks that provide financing for the exports of Finnish enterprises. Among the sectors that received guarantees were telecommunications, the paper and forest industries and the basic metals industry. In 2004, the number of guarantee decisions concerning transactions of EUR 5 35 million was much higher than before, although the real growth in the total volume of guarantees was attributable to a couple of major transactions. In terms of numbers, most guarantees were short-term credit risk guarantees. In this category, Finnvera guaranteed transactions with altogether 79 Russian buyers. Russia accounted for 16 per cent of guaranteed exports. This is the second highest share, surpassed only by Brazil. Guarantees granted, by buyer s sector MEUR Telecommunications Wood processing Power generation Shipping companies Other Total Guarantees that came into effect, by buyer s sector MEUR Telecommunications Wood processing Power generation Shipping companies Other Total Every third exporter an SME SMEs accounted for a third of Finnvera s export clients. As subcontracting is becoming more common, the number of SMEs benefiting from export credit guarantees is many times greater. During , nearly 110 new SMEs applied for export credit guarantees pertaining to Finnvera s foreign risk-taking. Since one-off transactions, where the period of payment is not longer than a couple of months, are typical of most SMEs, the number of active SME exporters has remained steady. The total value of guarantees associated with the exports of SMEs remained at the same level as the year before. The value came to EUR 18.6 million (EUR 18.4 million), while the value of guarantees that came into effect totalled EUR 16.8 million (EUR 19.3 million). The numbers of guarantees granted and guarantees that came into effect were slightly higher than in Three out of four guarantees pertained to offers made for exports to Russia. In terms of the number of guarantees, Russia was clearly the most interesting target country, accounting for 35 per cent of the total. Credit Risk Guarantees accounted for EUR 7.0 million (4.8 million), Letter of Credit Guarantees for EUR 6.1 million (2.7 million) and Buyer Credit Guarantees for EUR 3.7 million (11.8 million) of the guarantees that came into effect. Guarantees on exports by SMEs, in particular, are restricted by the European Union s rules. Accordingly, when the risk period is under two years, Finnvera can only guarantee exports to countries outside the OECD industrialised countries. For SMEs, the principal export markets are in the EU Member States and in other industrialised countries. 22 Report on Operations 2004

25 Subsidiaries F innvera plc has four subsidiaries: Finnish Export Credit Ltd, Veraventure Ltd and Spikera Oy, owned 100% by Finnvera; and Matkailunkehitys Nordia Oy, in which Finnvera has a 60% holding. FINNISH EXPORT CREDIT LTD Finnish Export Credit Ltd promotes ex - ports by providing export credits in cases where the borrower is a party referred to in tax treaties concluded with certain count ries and the arrangement involves a withholding tax benefit. Finnvera acquired the entire stock of Finnish Export Credit in May Fide Ltd, owned 100% by Finnvera plc, administered the interest equalization system for officially supported export credits and domestic ship fi nancing in accordance with the OECD Arrangement, up to 31 December The interest equalization provided by Fide Ltd im - proved the opportunities of financial institutions to arrange internationally competitive, long-term and fixed-interest financing for exports and domestic ship deliveries. In June 2004, Finnvera plc decided to merge Fide Ltd with and into Finnish Export Credit Ltd. The merger came into effect on 31 December The interest equalization system administered by Fide Ltd was given over to Finnish Export Credit Ltd. The role of Fide Ltd as an internationally recognised, official export credit agency (ECA) was transferred to Finnish Export Credit Ltd. Together with Finnvera, Finnish Export Credit ensures a competitive official export financing system. Tasks In an interest equalization system, a financial institution arranges for its client an export credit based on a fixed commer- cial interest reference rate (CIRR), in compliance with the terms of the OECD Arrangement. The clients are usually buyers of Finnish capital goods or services. The financial institution is respon sible for funding the export credit. The in terest equalization agreement signed by the financial institution with Finnish Export Credit provides the financial institution with a hedge, which converts the fixed CIRR based asset into a floating rate asset. At its discretion, the financial institution can cover the credit risk with Finnvera s export credit guarantee or in some other way. Finnish Export Credit gives interest equalization offers to companies and financial institutions usually prior to the conclusion of the supply contract. Interest equalization agreements are made with investment grade financial institutions having a co-operation agreement with Finnish Export Credit. Business operations At year s end, Finnish Export Credit had co-operation agreements with ten banks and three specialised credit institutions or ECAs. The procedure of interest equalization is based on ISDA (International Swaps and Derivatives Association, Inc.) terms. The State of Finland is responsible for any interest support payable to financial institutions on the basis of interest equalization agreements. Export credits are usually arranged by commercial banks with extensive experience in export and project finance. Based on tax treaties concluded by Finland, Finnish Export Credit enjoys a more favour able tax treatment than commercial banks in many countries. Finnish Export Credit can grant credits to borrowers in these countries, thereby reducing the costs of the financial arrangements. Finnish Export Credit Ltd and Fide Ltd Value of interest equalization agreements as per 31 Dec in MEUR Finnish Export Credit Ltd Outstanding credits as per 31 Dec in MEUR Report on Operations

26 Subsidiaries Veraventure Ltd's holdings in regional funds 31 Dec 2004 Vaasa Pori Turku Tampere Oulu Kuopio Joensuu Jyväskylä Lahti Espoo Kajaani Mikkeli Lappeenranta Oulu Teknoventure Oy 48.39% Kajaani Kainuun Pääomarahasto Oy 49.64% Vaasa Oy Wedeco Ab 39.80% Kuopio Savon Teknia Oy 49.42% Joensuu Karinvest Oy 28.08% Jyväskylä JyväsSeed Fund Oy 40.00% Midinvest Oy 29.23% Mikkeli Etelä-Savon Pääomarahasto Oy 74.40% (ERDF share 49.60%, share of votes 51.5%) Pori Karhu Pääomarahasto Ky 22.60% ERDF holding Tampere Pikespo Invest Oy Ltd 49.00% Lappeenranta Indekon Oy 46.53% Turku Aboa Venture III Ky 2.26% Espoo Spinno-Seed Oy 28.30% The total value of interest equalization offers given in 2004 amounted to EUR 7.6 billion (EUR 4.1 billion). The value of interest equalization commitments made in 2004 on the basis of signed credit agreements totalled EUR 0.7 billion (EUR 0.2 billion). The total value of interest equalization agreements concluded was EUR 297 million (EUR 21 million). At the end of 2004, the value of all interest equalization agreements in force totalled EUR 441 million (EUR 253 million). The maturity of outstanding agreements extends until During 2004, Finnish Export Credit acted as a lender in two new export credit arrangements. VERAVENTURE LTD Veraventure Ltd is Finnvera plc s venture capital investment company, which was founded in April 2003 to manage and develop the investment activities of regional funds operating as limited companies. The company s operations are guided both by the outlines drawn by the Ministry of Trade and Industry concerning regional venture capital investments and by the goals set by the parent company. Tasks In regional venture capital investments, Veraventure s goal is to support and promote regional industrial policy together with local actors, to supplement the financial market in equity investments, to ensure the availability of financing options for potential growth enterprises, and to complement Finnvera s financial instruments and know-how. Operating on the principle of a fund of funds, Veraventure Ltd makes investments in funds, not directly in enterprises. Veraventure operates in close co-operation with Finnvera s Regional Offices, bodies investing in funds, fund manage- ment companies, and other players in the field of enterprise financing. Ownership arrangements in regional funds were carried out in 2004 according to the outlines defined by the Ministry of Trade and Industry, and Veraventure acquired all of Finnvera s holdings in regional funds. Business operations In 2004, Veraventure engaged actively in investment operations. The company decided to participate in raising the share capital of five existing funds, and it also acquired a considerable holding in two new regional funds that were established during the year. The corporate form of one fund was changed, and an ownership arrangement was carried out between two funds. The company has taken an active part in the national development of a revision strategy concerning the seed funding and service system of starting innovation enterprises. MATKAILUNKEHITYS NORDIA OY Matkailunkehitys Nordia Oy is a venture capital investment fund established in Organised as a limited company, it specialises in the travel industry. The company is owned by Finnvera and the Finnish National Fund for Research and Development (Sitra), which has a holding of 40 per cent of the company. Tasks Matkailunkehitys Nordia Oy invests in travel industry enterprises and in enterprises providing services to promote wellbeing, work ability and fitness in cases when these enterprises cannot obtain financing merely on market terms, or when an investment made by Nordia is a precondition for obtaining such financing. Moreover, these growth-oriented enter- 24 Report on Operations 2004

27 Subsidiaries prises must have the prerequisites for profitable business. The objective is to invest in enterprises serving as locomotives in their regions. Nordia operates side by side with the entrepreneurs as a temporary minority holder and developer. Investments may be equity investments or external capital investments. Through venture capital investments and participation in the development of the enterprise, Nordia strives to achieve sound, profitable and socially responsible business that has direct or indirect employment effects in the enterprise s operating area. Another goal is to promote the business of enterprises that serve as subcontractors or as other co-operation partners of the travel industry enterprise. Within the investment period agreed, the enterprise should reach a development stage where the fund can give up its investment. Business operations At year s end, Nordia had 17 investment targets, most of them travel industry enterprises. During the year, the fund made one initial investment and one further investment. The fund gave up its investments in two targets. Moreover, at the end of the year, a decision was taken to make another initial investment, which will be carried out in early The representatives of the fund played an active role in the planning and development of operations in the enterprises where investments had been made. The total turnover of the enterprises where the fund had made investments was about EUR 111 million in SPIKERA OY Providing financing for special projects and for short-term investments, the development and investment company Spikera Oy works in close co-operation with the parent company s Regional Offices and with the enterprise development group of domestic financing. Tasks Spikera Oy broadens the range of responses available to Finnvera plc in various situations where claims need to be secured and in other special projects. Investments are equity investments or other forms of financing, made directly in target enterprises. Business operations The company has a holding in five companies engaged in business operations and in eight real-estate companies. In addition, it has invested in companies supporting other operations. The company has no full-time staff. Matkailunkehitys Nordia Oy Investments 31 Dec 2004 Pori Naantali Helsinki Hämeenlinna Sodankylä Jyväskylä Taipalsaari Rovaniemi Kittilä Karstula Naantali Savonlinna Kolari Pori Ähtäri Kittilä Kolari Sodankylä Rovaniemi Karstula Ähtäri Jyväskylä Taipalsaari Hämeenlinna Helsinki Go Finland Oy Holiday Club Finland Oy Kuntokumppanit Oy FTM Incoming Oy Hotelli Luostotunturi Oy Jyväskylän Laajavuori Oy Kiinteistö Oy Saimaan Lomaranta Lomakeskus Saimaanranta Oy Lapin Matkailu Oy Levi Magic Oy Sirkan Tähti Oy Lomakouhero Oy Muumimaailma Oy Savonlinnan Seurahuone Oy Ylläs-Ski Oy Yyterin Kylpylähotelli Oy Ähtärinreitin Loma Oy Report on Operations

28 Clients by risk category Credit and guarantee losses, EUR A1 A2 A3 B1 B2 B3 C Outstanding commitments by risk category, MEUR A1 A2 A3 B1 B2 B3 C Risk Management F innvera s risk management ensures that the risk-taking capacity required in order to achieve the goals set for the company s operations is maintained over the long term. In essence, risk management means controlled taking of credit risks. Other risks are eliminated or measures are taken to hedge against them. is based on the Act on Credits and Guarantees Provided by the State-Owned Specialised Financing Company. Through risk management and similar means, the company should be able to reach economic self-sustainability. The company s profits should cover Finnvera s share of any credit and guarantee losses from one economic cycle to the next. Export credit guarantees are based on the Act on the State s Export Credit Guarantees. As the company s owner, the State gives outlines for operations and monitors and controls the taking of risks. Foreign risk-taking is dimensioned so that Finnvera can offer Finnish exporters export credit guarantees that are competitive as to their risk level and terms, and so that in the long term the profits from operations can cover the expenses and guarantee losses arising from operations. Risk-taking is guided by means of country and guarantee policies. Risk management is controlled and risk management methods are developed by the Risk Management Unit, which is separate from the business units and reports to the President. Business units are responsible for risk-taking and for the associated actions. Risks arising from credits and domestic guarantees Control of credit risks in domestic operations is based on detailed assessment of credits risks, which includes evaluation of the risks associated with an enterprise s operations and collateral. Finnvera s clients in domestic financing are classified according to a risk classification system of eight categories. Each client has been designated a person who is responsible for the client s risk classification when a decision on financing is made. Risk classification is updated at least every second year. The value of any available collateral is assessed and updated in a similar way. Environmental risks are also assessed. Risk-taking is guided by means of office-specific risk-taking goals set for domestic financing. Both the risk arising from an enterprise s operations and the risk arising from its collateral are taken into account when setting these goals. The trend in risk-taking is followed monthly. When setting the goals, attention is also paid to the company s objectives concerning profitability and the effectiveness of operations as derived from its ownership policy. The main indicators in risk management are the distribution of current commitments and the change in commitments by risk category, the risk-taking percentages applied to outstanding commitments and to the financing granted, and the credit losses that were materialised. Risks pertaining to export credit guarantees Foreign risk-taking is guided by means of country and guarantee policies. On the basis of methods used by export credit agencies, and the country risk assessment, countries are classified into eight categories. Since there are considerable differences between individual countries, even within the same category, risk-taking is based on a country policy defined separately. Various factors affect the determination of the country category: an assessment of the country s ability to manage its external liabilities; expectations of the future trend of the country s economy; political stability; and the legislative frame- 26 Report on Operations 2004

29 Risk Management work. The country category affects pricing, the counter-security required, and Finnvera s guarantee policy. The taking of bank risks is based on an assessment of each country s banking system and on the risk analyses and risk classification of individual banks. On the basis of both qualitative and quantitative factors, a risk-taking outline is determined for each individual bank, depending on the risk category. The taking of enterprise risks is based on an analysis of the enterprise s management, business and economy. The analysis can be concise in small and short-term guarantees. The analysis results in an internal risk classification, which partly corresponds to the risk classification method used by international rating agencies. Classification of environmental risks forms part of the evaluation of risks arising from guarantees. The potential environmental impacts of all major guarantee projects are reviewed and an environmental classification is determined for the project. Country classification covers all countries involving a risk. The bank and enterprise risk classification covers over 95 per cent of commercial risks. The thoroughness of the analysis required at any single time is specified in Finnvera s guarantee policy, which also sets limitations to risk-taking in each risk category. Whenever necessary, sectorspecific outlines and limitations are set in order to control excessive concentrations. In addition to outlines, risks are managed through various hedging measures, such as guarantees, reinsurance agreements and credit derivatives. When dimensioning the use of hedging measures, the needs to reduce both individual risks and risk concentrations are considered. To the extent possible, costs are accommodated to the levels of premiums collected. decided by the Board of Directors. Risks are monitored and eliminated using means that, whenever applicable, are the same as those applied by credit institutions supervised by the Financial Supervision. Clients have usually opted for credits linked with a variable reference interest rate (92 per cent of loans are linked with euribor rates). In order to manage the interest rate risk, loans taken by the company are therefore also linked with a variable reference interest rate, when necessary by means of interest rate swaps. Provision has been made for any claims that may need to be paid in US dollars by virtue of export credit guarantees granted. The associated exchange rate risk has been reduced so that a sum corresponding to any foreseen losses in US dollars has been deposited in dollar accounts. Other risks Other risks pertaining to Finnvera s operations are divided into document and product risks and operative risks. The business units and support units are responsible for monitoring and controlling these risks and for implementing the necessary guidelines and procedures. These risks are eliminated, or measures are taken to hedge against them, to the extent possible. Foreign risk-taking Claims paid by virtue of export credit guarantees, EUR Foreign risk-taking Outstanding commitments, by country risk category, 31 Dec 2004 Total MEUR (Finnvera plc and the State Guarantee Fund) 4% 8% 18% 20% Category 0 Category 1 Category 2 Category 3 34% 2% 14% Category 4 Category 5 Category 6 Category 7 Foreign risk-taking Commercial commitments of foreign enterprises and Finnish shipyards, by risk category 31 Dec 2004 Total MEUR (Finnvera plc and the State Guarantee Fund) 3% 2% 1% 2% 14% 16% Foreign risk-taking Banks' commercial commitments, by risk category, 31 Dec 2004 Total MEUR (Finnvera plc and the State Guarantee Fund) 20% 35% 50% Category A1 Category A2 Category A3 Category B1 19% 12% Category B2 Category B3 Category C Category D Not classified 26% Market risks The interest rate and exchange rate risks associated with credit operations are managed in accordance with guidelines Political Commercial Category P1 Category P2 Category P3 Category P4 Category P5 Category P6 Category P7 Not classified Report on Operations

30 Personnel s age distribution 31 Dec 2004 Corporate Social Responsibility 33.7% years years years years 60- years 5.4% 8.2% 36.1% 16.6% Personnel s gender distribution 31 Dec % Women Men 58.2% T he starting point in Finnvera s operations is social responsibility. Finnvera is a specialised financing company and an industrial policy actor owned by the State of Finland. Its tasks are defined in the laws passed when the company was founded in Through financial means, the company shall promote the development of enterprise, regions and exports. Each year the Ministry of Trade and Industry defines goals and indicators for Finnvera; these are used to monitor how well the company has succeeded in its three basic functions. For instance, the following indicators are used: the number of new enterprises created with the help of Finnvera s financing; the number of new jobs in both new and growing enterprises; and the share of financing granted in developing areas out of all financing granted. One of the premises in Finnvera s operations is that, as a provider of financing supplementing the market and owned by the State, the company can take higher risks than financiers operating on market terms. Finnvera provides financing only for enterprises deemed to be profitable on the basis of corporate analysis, for their establishment and for investment, development or export projects. Another reflection of Finnvera s social responsibility is the goal of self-sustainability set for the company and the level defined for the income-expense ratio. Fulfilment of these goals is described at: presentation/annual Report 2004/Corporate governance. Finnvera s objective of being an Expert Esteemed by Clients crystallises the company s value base. When the company was founded, the central elements of this value base were defined as follows: trust and honesty; benefits to clients; being a forerunner; profitability and effectiveness; and constant development of competence. In its vision and strategy, Finnvera has defined the following areas of focus: benefits to clients; development of the personnel s strategic competence; and effectiveness of operations. These definitions require responsible and long-range personnel policy and clear outlines with regard to ethical and environmental issues. The tasks defined for the company call for constant dialogue with stakeholders. SOCIALLY RESPONSIBLE APPROACH Personnel In accordance with Finnvera s personnel strategy, the company has a sufficient number of personnel with appropriate training, adequate experience, and a suitable age and gender distribution. The personnel shall be competent and committed to their work. The personnel policy supports the achievement of the goals set in the company s vision and strategy and in the industrial and ownership policy. Personnel structure Finnvera s personnel are highly educated and have extensive work experience. On average, employment relations last a long time, and personnel turnover is relatively low. At the company level, the personnel s age and gender distribution is relatively even, but among individual personnel categories there are considerable differences. Finnvera has personnel in 15 locations throughout Finland. Personnel development and training Definition of Finnvera s core competence and strategically critical competence areas started in At the end of the year 28 Report on Operations 2004

31 Corporate Social Responsibility under review, the survey had been completed almost throughout the company. The purpose of the competence development project is to ensure that resources are directed at strategically important areas. These are: competence in financing; management of credit risks; competence in customer work; management of one s own work; and observation of deficiencies in the operation of the financial market. Strategic competence areas and the needs for developing the personnel s skills are discussed annually in connection with definition of the business strategy. The management tools used by the company are the balanced scorecard, self-assessment of quality (EQM), and performance discussions. Development and training programmes focus on the needs to strengthen and develop competence that arise in these contexts. During 2004, in total EUR 860,000 was spent on personnel training. This sum does not include the costs of salaries. Inhouse training included 1,520 classroom days. Training days numbered 2,300 or about 5.7 training days for each Finnvera employee. Incentives and commitment In 2002, the company started experimental use of a profit-sharing scheme, which encompasses all staff members. In 2004, altogether 15 Regional Offices and 7 units reached the level entitling them to a bonus. Experience gained of the profitsharing experiment will be assessed in spring Based on this assessment, the system will be developed further. The profit-sharing scheme, based on the company s result and on the individual units performance, emphasises targets, results and co-operation. Finnvera applies its own companyspecific labour agreement, which defines the negotiation system, the pay system and the general conditions of employment contracts. Finnvera s personnel are organised, for instance, under Trade Union Suora, the Finnish National Union of State Employees and Special Services VAL, and under the Delegation of Professional and Managerial Employees YTN. As an employer, Finnvera is organised under the Employers Association of the Special Branches. The term of the labour agreement concerning Finnvera extends from 16 February 2004 to 30 September The agreement complies with the content of the collective bargaining agreement signed by the central labour market organisations. Age management In 2004, the Corporate Management of Finnvera approved the proposal on the principles of age management to be applied to the company. Within Finnvera, age management refers to an approach that helps create and maintain a balanced age structure in the various professional groups and units. Age management is also used to affect the company s management practices so that people of different ages can influence the content, organisation and amount of their work and their careers in accordance with their personal needs and life situations. Finnvera applies an extensive range of actions associated with age management, such as flexible working times (e.g. flexible working hours, leaves on familypolicy grounds, part-time work, and individual working hours), comprehensive medical checkups, and proactive measures in collaboration with the occupational health care system. Finnvera supports independent studying financially or by granting study leaves, and invests in professional training when duties or needs change. A distance work experiment was carried out in Supervisor training has improved readiness to work as a supervisor for employees of different ages. In connection with the annual budget, and for a period of three years at a time, the company makes preparations for pensions starting in the next few years. Personnel s education 31 Dec % 28% 11% 6% University Polytechnic College Senior secondary school Other 51% Average length of employment 31 Dec % 12% 18% 11% Under 6 years 6-10 years years years years years Over 30 years 18% 15% 18% Predicted number of employees who will retire Report on Operations

32 Corporate Social Responsibility Sum spent on occupational health care per person EUR Total (scale on the left) Euros/person (scale on the right) Sum spent on recreational activities per person EUR Total (scale on the left) Euros/person (scale on the right) Recreational activities = free-time activities + events for the personnel Six persons retired during 2004 (1.5 per cent of the personnel), and six new employees were hired by the company for specialist tasks. Equality plan The labour protection committee, comprised of representatives of various personnel groups and trade organisations, drew up an equality plan in The plan analysed the current equality situation in the company and presented an action plan. The equality plan is updated as part of the company s annual planning. The labour protection committee is responsible for implementation of actions and for monitoring of the attainment of equality goals. Results will be reported to co-determination bodies, personnel and management, following the same practice as for other performance goals and their realisation. During 2005, on the basis of the equality plan, the working group will draw up guidelines in keeping with the Equality Act. The guidelines will present the requirements set by the Equality Act and by Finnvera s equality plan for supervisors, and will define the sanctions that follow if the guidelines are breached. Personnel well-being Finnvera carries out regular personnel surveys monitoring the personnel s views on several issues: the meaningfulness of the work; how target-oriented and open the work community is; the quality of one s own input; and the supervisors activities and management. According to the survey conducted in 2004, Finnvera s strength lies in its targetoriented approach. The staff members feel that they get enough information about the targets of Finnvera s operations and feedback about the results achieved. The personnel have a positive attitude to their work and feel that the atmosphere is constructive. The personnel s development and coping with the work are supported and working is perceived as being independent. Staff members feel that their own resources are sufficient for coping with the work. The results improved in all areas that were surveyed. The grades given for managers activities improved clearly. In , Finnvera s entire supervisory staff participated in an extensive supervisory training programme. The personnel see Finnvera as a good employer and believe in the company s continued success. Overall satisfaction, when measured on the grading scale of 4 10 applied in Finnish schools, has improved in recent years. In the survey of 2004, the average grade was 8.22 (8.19). For their part, performance discussions are also meant to improve the personnel s well-being. To the extent possible, the opinions presented during these discussions are taken into account in practical work. Finnvera has provided its personnel with comprehensive occupational health care. Activities supporting work ability have been arranged in co-operation with occupational health care stations. Finnvera also supports the personnel s physical exercise and recreational activities. Relations with stakeholders Finnvera s industrial policy mission calls for systematic monitoring of changes in the operating environment, as well as interaction with various stakeholders in society and in the international community. Domestic interest groups Finnvera s Board of Directors includes representatives of the Ministry of Trade and Industry, the Ministry of Finance, the Ministry of Labour and the Ministry for Foreign Affairs, as well as representatives of various enterprise, business and interest organisations. The Supervisory Board consists of political decision-makers and 30 Report on Operations 2004

33 Corporate Social Responsibility representatives of interest organisations. Finnvera is represented on the Board of the Finnish Fund for Industrial Cooperation Ltd (Finnfund). Finnfund promotes the economic and social development of developing countries by providing financing for private enterprise in these countries on a self-sustaining basis. Finnvera also engages in environmental co-operation with Finnfund. The operating environment is charted by means of sector-specific questionnaires. Together with the Federation of Finnish Enterprises, Finnvera produces the SME Barometer. In collaboration with other public enterprise service organisations, Finnvera participates in the activities of planning groups that promote enterprise and develop service concepts. For its own part, Finnvera has implemented the Government s enterprise programme. The Quartet project, launched in 2004 by four public enterprise service organisations, aims at the identification of growth enterprises and at the creation of a joint service concept for these enterprises. Information on the needs and expectations of clients, both at the company level and regionally, is obtained at a regular basis from Committees, which had already been active in Finnvera s predecessor, Kera Corporation. The Committee of the Head Office and the Export Finance Committee work at the company level, while the Regional Committees operate regionally. Regional co-operation is carried out within various provincial collaboration groups and with local financiers and other co-operation partners, such as entrepreneurs organisations and Enterprise Agencies. Responsibility for co-operation rests with the Regional Offices. Each year Finnvera makes an important contribution to the National Enterprise Days. At the regional level, Finnvera contributes to events and seminars arranged by organisations promoting enterprise. International co-operation Finnvera is active in several European networks and associations set up by financial institutions for SMEs, such as - NEFI (Network of European Financial Institutions for SMEs) - ISLTC (Institutions in the European Union Specialising in Long-Term Credit) - EAPB (European Association of Public Banks) - AECM (European Mutual Guarantee Association - EURADA (European Association of Development Agencies) - EMN (European Microfinance Network). Through this co-operation, Finnvera can contribute to the development of prerequisites for small and medium-sized enterprises within the EU and can obtain valuable information for the development of its own operations. For instance, cooperation within NEFI has resulted in joint opinions on SME financing and on its development, which have been submitted to the European Commission. The most important objective of international co-operation in the sector of export credit guarantees is to prevent competition by means of officially supported export credit terms and to promote sound principles for guarantee activities. In addition, Finnvera has signed bilateral co-operation and reinsurance agreements with many individual guarantee agencies. As Finland s official Export Credit Agency, Finnvera participates in the activities of the following working groups and co-operation bodies: - European Council Working Group on Export Credits; - Working Party on Export Credits and Export Credit Guarantees under the OECD Trade Committee; - Participants to the Arrangement on Guidelines for Officially Supported Export Credits; - Berne Union the co-operation body of export credit agencies; - Co-operation among the Nordic export credit agencies; and - The Paris Club a forum for public creditors. Thanks to its extensive international co-operation, Finnvera can take an active part in the discussion and preparation of both ethical and environmental views concerning export credit guarantees. Implementation of the OECD Recommendation on Common Approaches on Environment and Officially Supported Export Credits began in Assistant Director Pekka Karkovirta of Finnvera s Export Credit Guarantees Unit continued to chair the meetings of export credit agencies environmental specialists. At the Berne Union Annual General Meeting in October 2004, Finnvera was among the first export credit agencies to sign the Value Statement, which can be seen to embody the Union s values. The signatories are committed to responsible export credit practices that take into account economic, ethical and environmental viewpoints. The Berne Union s Value Statement will mean that private export credit and investment guarantee agencies must also consider these issues in their operations. ETHICAL ISSUES The legislation on Finnvera sets down the principles for responsible operations. Moreover, Finnvera s mission, vision and strategy, as well as the definition of the company s values, are based on the concept of responsibility. Finnvera promotes responsible export credit activities; thus, no guarantees are granted for export projects secured by means of bribery. In December 2000, the OECD Working Party on Export Credits and Credit Guarantees adopted an Action Statement on Bribery and Officially Supported Export Credit, which was based on the OECD Anti-Bribery Convention that took effect on 13 February Report on Operations

34 32 Report on Operations 2004

35 Corporate Social Responsibility The starting point in Finnvera s operations is social responsibility. Finnvera is a specialised fi nancing company and an industrial policy actor owned by the State of Finland. Its tasks are defi ned in the laws passed when the company was founded in Through fi nancial means, the company shall promote the development of enterprise, regions and exports. JUHANA BLOMSTEDT, from the series Möbius : FOETUS (1061), Oil on canvas, 40 x 50 cm. Committed to implementation of the measures specified in the Action Statement, Finnvera requires that, in connection with the guarantee application, exporters assure that they have not been guilty of bribery during the project in question. Exporters shall also pledge to repay any indemnity received if they are found to be guilty of giving bribes. If the guarantee-holder is a financier, the financier must also assure that no bribery is involved in the project. In addition, Finnvera is committed to drawing exporters attention to the OECD Guidelines for Multinational Enterprises. In summer 2001, the OECD Export Credit Group approved a Statement of Principles concerning official export credit support to heavily indebted poor countries (HIPCs). The Statement of Principles is intended to ensure that export credits are not used to support capital goods exports that do not contribute to the social and economic development of the poorest nations. The Statement of Principles is consistent with the Heavily Indebted Poor Countries Debt Initiative led by the World Bank. It attempts to lower the debts of poor countries to sustainable levels. In keeping with the Statement of Principles, Finnvera is committed to directing guarantees granted for exports to the poorest countries so that they are used for productive projects. Finnvera participates in the meetings of the Paris Club, the forum for public creditors. The Paris Club discusses public debt servicing problems experienced by countries in financial difficulties. If necessary, the Club also takes decisions on rescheduling the countries debts. In 2004 Finland participated in re - scheduling decisions concerning Ghana, Ethiopia and Iraq. In the rescheduling decision concerning Kenya, Finland participated as an observer because Finland s receivables were below the minimum level for rescheduling. Finland has decided to cancel all its bilateral credits to HIPCs, if this kind of cancellation of debts Report on Operations

36 Corporate Social Responsibility receives wide support within the EU. In addition to the rescheduling agreed in the Paris Club, Finland has consequently cancelled all of Ghana s and Ethiopia s debts. The Paris Club also discussed Russia s proposal to repay some of its debts prematurely. However, Russia has indicated that it wants to put off these negotiations until a later date. In January 2005, Paris Club creditors reported that they were willing to postpone the debt payments of countries affected by the tsunami in December. The preconditions are that these countries have requested debt relief and that the IMF and the World Bank have made an assessment of their reconstruction and financing needs. In practice this would mean that Finland would grant a period of grace to Indonesia for the principal and interest payments of its debt of about USD 2.2 million. ENVIRONMENTAL RESPONSIBILITY AND PUBLICITY POLICY In domestic financing, Finnvera complies with Finland s environmental legislation. Moreover, through its environmental loans and guarantees, Finnvera encourages Finnish SMEs to invest in environmental protection. Finnvera s environmental policy in activities involving export credit guarantees is based on the company s role as Finland s official export credit agency, its goal being to promote and develop exports and internationalisation benefiting the Finnish economy. According to the Recommendation on Common Approaches on Environment and Officially Supported Export Credits, issued by the OECD in 2003, all projects that are financed by official export credit or guarantee agencies and that can be considered to have reasonably or considerably extensive environmental impacts must conform to international environmental standards. At Finnvera, the environmental classification of export credit guarantee projects has been in systematic use since the beginning of Assessment of the total risk of projects guaranteed by Finnvera includes the project s environmental impact. Finnvera s environmental policy was reviewed in spring 2004 on the basis of the Recommendation on Common Approaches on Environment and Officially Supported Export Credits, issued by the OECD in Accordingly, Finnvera s Web site contains environmental information on projects classified into environmental category A. Projects in this category are expected to have the most environmental impacts. Finnvera constantly develops its environmental policy and environmental review methods. The company trains its personnel to identify environmental issues that are essential for export credit projects. Publicity policy Publicity provisions concerning Finnvera are included both in the Act on the State- Owned Specialised Financing Company (443/1998) and in the Act on the State s Export Credit Guarantees (422/2001), which came into effect in As the State s specialised financing company, Finnvera adheres to as high confidentiality requirements as credit institutions. In keeping with the principle of confidential bank information, no information that would make it possible to identify a client is made public without the client s permission. Finnvera s export credit guarantee activities are guided both by the Act on the Publicity of the Authorities Actions and by the obligation to maintain confidentiality, which is defined in the Act on Finnvera. The documentation and any appended information pertaining to the granting of credits and guarantees are not public documents. The company does not give information about export credit guarantees or about its clients without the client s consent. Since the beginning of 2003, Finnvera has published basic information about the most important export credit guarantee projects once the delivery and guarantee agreements have been signed, with the consent of the parties; this means that exporters competitive position is not endangered. The decision pertains to medium and long-term export credit guarantees in cases when the share of the credit principal covered by Finnvera exceeds EUR 10 million. The following information is published: exporter, lender, buyer s country, exported goods/project, guaranteed amount, and environmental classification. In summer 2001, a number of civil society organisations launched the Finnish Export Credit Campaign, with the aim of increasing transparency in the operations of export credit agencies. The campaign publicly questioned the responsibility of Finnvera s export credit activities. Since Finnvera is a State-owned, public provider of financing, the campaign demanded that Finnvera make information on certain export credit guarantee projects available to the campaign. Finnvera cannot relinquish this information without its clients approval. The Finnish Association for Nature Conservation appealed the case to the Supreme Administrative Court. The court has not yet given its decision. More detailed information on Finnvera s policies concerning the environment and publicity is available at: under Export/Finnvera an export credit agency. 34 Report on Operations 2004

37 Administration T he State of Finland owns the entire stock of Finnvera plc. Within State administration, Finnvera is included in the administrative sector of the Ministry of Trade and Industry. The State s role as the owner The responsibility of the State of Finland for the liabilities and commitments of Finnvera plc derives from the share capital invested in the company by the State. In addition, the State gives commitments to compensate for credit and guarantee losses and to provide interest support and grants guarantees for the acquisition of funds. In addition, through the State Guarantee Fund, the State is responsible for the export credit guarantees given. The commitments given by the State enable Finnvera to apply a higher risktaking level in domestic financing than that applied by commercial financial institutions. During the year under review, 51.9 per cent of Finnvera s credit losses were covered with compensations paid by the State and the European Regional Development Fund (ERDF) (52.6). The liability based on the current commitments to compensate for credit and guarantee losses amounted to EUR 1,234.8 million as per 31 December The commitments to provide interest support totalled EUR million. The total sum of guarantees granted by the State for Finnvera for the acquisition of funds was EUR million at the end of The purpose of the State Guarantee Fund is to ensure that Finnvera can meet the obligations of the export credit guarantees and other guarantees and commitments referred to in 4 of the Act on the State Guarantee Fund. If the separate result calculated annually for export credit guarantees and special guarantees shows a deficit, the corresponding sum is transferred from the State Guarantee Fund to Finnvera. If the separate result shows a surplus, the State Guarantee Fund can require that Finnvera pay a refund to the Fund until all previous transfers have been paid back. At the end of 2004, Finnvera had no outstanding payments to the State Guarantee Fund. The State Guarantee Fund serves as a buffer between the State Budget and any deficit that might arise annually from Finnvera s export credit and special guarantee activities. Defined in 4 of the Act on the State Guarantee Fund, this deficit is ultimately the State s responsibility. These export credit guarantees and special guarantees constitute an element of Finnvera s business. The Fund s assets are used to manage income and expenses arising from the guarantees and other commitments given by Finnvera s predecessor, the Finnish Guarantee Board, and before that the Export Guarantee Board and the State Guarantee Board. These commitments (the old liability) are not included in Finnvera s business, but the State Guarantee Fund pays Finnvera a fee for the management of this liability. The old liability under the State Guarantee Fund s responsibility totalled EUR million as per 31 December Ownership policy 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. In line with the industrial policy goals, Finnvera shall strive to reach economic self-sustainability in the long term. For its part, the company shall offset any deficiencies in the operation of the financial market, shall promote and develop the activities of small and medium-sized enterprises and shall advance the internationalisation and exports of enterprises. Finnvera shall promote fulfilment of the government s regional policy goals. As concerns the ownership policy, the goals apply to the efficiency of the company s operations and to capital adequacy. Efficiency is evaluated primarily by means of cost-effectiveness. Capital adequacy must be sufficient in order to ensure the company s ability to bear risks and to keep the costs of funding reasonable. In 2004, Finnvera met both its ownership policy and industrial policy goals. These goals are presented in more detail at presentation/annual Report Corporate Governance The goal of good corporate governance, as practised by Finnvera, is to ensure transparency at all levels of the organisation. Finnvera complies with the Finnish law on companies and bookkeeping and, whenever applicable, with the recommendations issued by HEX plc, the Central Chamber of Commerce, and the Confederation of Finnish Industries concerning the administration and steering systems of listed companies. Finnvera s annual reports and interim reports, as well as the press releases on financial statements, meet the requirements of the Finnish law and are published in Finnish, Swedish and English. According to the current plans, the International Financial Reporting Standards (IFRS) will be adopted in Administrative bodies of Finnvera plc The corporate organs responsible for Finnvera s administration and operations are the General Meeting of Shareholders, the Supervisory Board, the Board of Directors and the President and Chief Executive Officer (CEO). General Meeting of Shareholders In addition to the tasks determined by the Finnish Companies Act for general meetings, the General Meeting may also decide Report on Operations

38 Administration on the fund reimbursement referred to in the Act on the State Guarantee Fund (444/1998), provided that the Board of Directors of the State Guarantee Fund has presented the company with a proposal to this effect. The Annual General Meeting is held yearly, by the end of June. Supervisory Board The Supervisory Board supervises the company s administration by the Board of Directors and the CEO. It presents the Annual General Meeting with its statement on the financial statements and the auditors report, and decides on issues that concern considerable reduction or expansion of the company s operations or substantial reorganisation of the company. The Supervisory Board s duty is to provide the Board of Directors with guidelines in matters that have far-reaching consequences or are otherwise important as questions of principle. The Supervisory Board selects the members and deputy members of the Board of Directors and the Chairman and Vice Chairman of the Board of Directors, and convenes a General Meeting. According to the Articles of Association, the Supervisory Board is comprised of a minimum of eight and a maximum of eighteen members. The General Meeting of Shareholders elects the members of the Supervisory Board for a term of one year. A person who is 65 years old or older cannot be elected a member of the Supervisory Board. In 2004 the Supervisory Board had 18 members (see p. 38) and met eight times. Board of Directors The Board of Directors is responsible for the company s administration and for the proper organisation of operations, including the supervision of accounting and funding. Separate agreement has been made on the division of operative duties and business-related decision-making be tween the Board of Directors, the President and Chief Executive Officer (CEO) and other management. The Board decides matters of importance and questions of principle, such as important individual cases of financing. The Board appoints and dismisses the company s President, the President substitute and other members of the upper management. For operative management, the company has Management Groups on Financing. The Board decides on the number of Management Groups on Financing in the company, as well as on their tasks and powers, and confirms the regulations of each group. The Board also appoints the members of the Management Groups on Financing. According to the Articles of Association, the company s Board of Directors is comprised of a minimum of six members and a maximum of nine members plus two deputy members. One Board member is elected among candidates named by the Ministry of Trade and Industry, one among candidates named by the Ministry of Finance, one among candidates named by the Ministry of Labour, and one among candidates named by the Ministry for Foreign Affairs. The Board of Directors has two deputy members, of whom the first is elected among candidates named by the Ministry of Trade and Industry and the second among candidates named by the Ministry of Finance. Having discussed the actions recommended by the international evaluation of Finnvera, the Finnvera 2004 Working Group has proposed some changes to the Board s composition. The members and deputy members of the Board are elected for a term of one year. The term ends at the closing of the Supervisory Board s meeting where a new Board has been selected. A person who is 65 years old or older cannot be elected a member of the Board of Directors. A member or a deputy member of the Board may not hold a seat in the administrative bodies of another business enterprise, unless permitted to do so by the Board. The Board of Directors meets every second week. In 2004 the Board had eight members (see p. 39) and met 27 times. The President and Chief Executive Officer (CEO) The CEO is responsible for the company s operative administration in keeping with the guidelines and regulations issued by the Board of Directors. In management of the tasks specified in the Companies Act, the CEO is assisted by the Management Group on Financing and the Corporate Management. The Management Group on Financing prepares decisions on financing before they are presented to the Board of Directors, and handles other matters pertaining to the company s financing operations. The Management Group on Financing also takes up issues to be decided by the CEO, as well as other issues to be decided by the Executive Vice Presidents on domestic financing and on export credit guarantees in cases when the CEO considers discussion on these issues necessary within the Management Group on Financing. By decision of the Board of Directors, the Management Group on Financing is comprised of the CEO, the Executive Vice Presidents on domestic financing and on export credit guarantees, and the Senior Vice President responsible for corporate planning and capital investments. Moreover, the Senior Vice President, Legal Affairs participates in the Group s meetings in the capacity of expert and secretary. The Management Group on Financing meets every second week. The members of the Corporate Management and their areas of responsibility are presented on page 40. Salaries and fees The fees paid to the members of the Supervisory Board and the Board of 36 Report on Operations 2004

39 Administration Directors are in agreement with the recommendation issued by the Ministry of Trade and Industry on fees paid to the administrative bodies of State-owned companies. The Board of Directors decides on the salaries paid to the CEO, the Executive and Senior Vice Presidents and to other Directors appointed by the Board, as well as on the bonus to be paid to the CEO (see presentation/annual Report 2004/Financial Statements/Notes to the accounts/note 34). Risk management JUHANA BLOMSTEDT, from the series Möbius : RÉVERENCE (1055), Oil on canvas, 60 x 90 cm. The objective of Finnvera s risk management is to ensure that the risk-taking capacity required in order to achieve the goals set for the company s operations is maintained over the long term. The company s risk management principles are based on the Act on Credits and Guarantees Provided by the State-Owned Specialised Financing Company and on the Act on the State s Export Credit Guarantees. Risk management is controlled and risk management methods are developed by the Risk Management Unit, which is separate from the business units and reports to the CEO. Business units are responsible for risk-taking and for the associated actions. More about risk management on page 26. Internal auditing Internal auditing is part of Finnvera s management system, and is a tool used by the management for monitoring, evaluating and promoting internal control. Internal auditors report to the CEO, to the bodies audited and, at least once a year, to the Board of Directors. Internal auditors inspect and evaluate the extent, sufficiency, efficiency and economy of internal control the working of risk management systems Report on Operations