ANNUAL FINANCIAL REPORT 2016

Transcription

1 immigon portfolioabbau ag ANNUAL FINANCIAL REPORT 2016 immigon portfolioabbau ag A-1090 Vienna, Peregringasse 2

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3 KEY FIGURES OF immigon portfolioabbau ag Euro million 31 Dec Dec Dec 2014 Statement of financial position Total assets 2,355 3,840 15,125 Loans and advances to customers 565 1,109 4,134 Amounts owed to customers ,825 Debts evidenced by certificates 786 1,175 3,296 Subordinated liabilities Income statement Net interest income Risk provisions Net fee and commission income Net trading income General administrative expenses Restructuring cost Other operating result Income from financial investments Income from companies measured at equity Income from discontinued operation Result before taxes Income taxes Result after taxes Non-controlling interest Consolidated net income Key ratios 1) Operating cost-income-ratio 235.4% 147.9% 98.9% ROE before taxes -6.1% 30.0% -20.5% ROE after taxes -6.5% 29.0% -21.9% ROE consolidated net income -7.5% 33.3% -28.4% Resources 1) Staff average ,675 of which domestic ,073 of which abroad Dec Dec Dec 2014 Staff at end of period ,317 of which domestic ,035 of which abroad Number of sales outlets of which domestic of which abroad ) The operating cost-income-ratio is the ratio between net interest income, net fee and commission income, net trading income and general administrative expenses. All ratios were displayed without including discontinued operation or disposal group.

4 2 Annual Financial Report 2016 CONTENTS immigon portfolioabbau ag GROUP MANAGEMENT REPORT 4 Introduction from the Chief Executive Officer 5 Report of the Supervisory Board 6 The Managing Board 8 Corporate Governance 8 Corporate Governance Code 10 The Managing Board 11 The Supervisory Board 14 Remuneration report 18 Report on business development and the economic situation 18 Economic environment in Business orientation 19 Restructuring and significant events during the business year 20 Business development 22 Report on branch establishments 22 Financial and non-financial performance indicators 23 Events of particular importance after the balance sheet date 23 Report on the company s future development and risks 23 Economic environment in Expected development 24 Essential risks and uncertainties 24 Report on the portfolio as well as on the acquisition and disposal of treasury stocks 25 Report on research and development 25 Report on significant features of the internal control and risk management system with a view to the accounting process 25 Control environment 25 Risk assessment 26 Control measures 26 Information and communication 26 Monitoring

5 Annual Financial Report CONSOLIDATED FINANCIAL STATEMENTS 30 Statement of comprehensive income 31 Statement of financial position 32 Changes in the Group s equity 33 Cash flow statement 34 Table of contents Notes 36 Notes to the consolidated financial statement 118 Statement of all legal representatives INDIVIDUAL FINANCIAL STATEMENTS 126 Statement of financial position as at 31 December Income statement 130 Notes 156 Management report 172 Statement of all legal representatives 173 Auditor s report OFFICERS AND ADDRESSES 182 immigon portfolioabbau ag 183 Subsidiaries 184 Imprint 119 Auditor s report

6 4 Annual Financial Report 2016 INTRODUCTION FROM THE CHIEF EXECUTIVE OFFICER The year 2016 was the first full business year of immigon portfolioabbau ag after the demerger of its predecessor Österreichische Volksbanken Aktiengesellschaft in July As a wind-down company according to section 162 (1) BaSAG, the purpose and mission of immigon is to proactively dispose of its assets on the best possible terms and to use the proceeds obtained to redeem its liabilities as scheduled. This wind-down process was already spurred on very emphatically in As is evident from the present report, immigon has continued its mission in a focused, consistent manner and with success in the past business year. Stephan Koren CEO and Chairman of the Managing Board The total assets of the immigon group have decreased from euro 3.8 billion at the end of 2015 by some 39% to euro 2.4 billion in the past business year. In the individual financial statements, prepared in line with Austrian business law and (to the extent applicable) banking law provisions, the reduction was even more substantial at a rate of approx. 42% to total assets of even less than euro 2.0 billion. In this context, it must be considered in particular that this amount includes cash reserves of euro 1.1 billion held by immigon with Oesterreichische Nationalbank and other highly liquid funds in the amount of euro 0.1 billion held with various banks and/or in the form of securities. This massive further wind-down of assets was implemented in the course of more than 60 individual transactions. They concerned, in particular, disposals of real estate and/or real estate portfolios, the sale and/or early repayment of financing transactions, the further wind-down of the leasing portfolio, but also the sale of participations such as that of VB Factoring Bank AG. Moreover, the major part of derivative financial transactions was liquidated and the trading book was discontinued. Accordingly, the wind-down order was consistently continued also on the liabilities side of the balance sheet, especially by carrying out some programmes for the voluntary buyback of various liabilities as well as the early termination of a bond loan. Obviously, the income statement of immigon is not characterised by income and expenses from operations, but essentially by non-recurring income from the wind-down process. The annual surplus of the UGB financial statements of immigon portfolioabbau ag after taxes amounts to euro 90 million, with this positive result essentially being due to the successful wind-down process. In many cases, sales proceeds exceeded the carrying amounts. Even the general impairment allocated in the individual financial statements under UGB, in addition to the individual impairments in the course of the demerger, could be released in part owing to a favourable market environment. General provisions were not allowed to be formed in the IFRS consolidated financial statements. This explains to a great extent, why the IFRS group result after taxes is clearly different at euro -51 million. However, the decisive criterion for the success of a wind-down entity is whether it manages to maintain sufficient equity after full settlement of all liabilities. At the end of the 2016 business year, the equity of immigon portfolioabbau ag amounts to euro 420 million, accordingly exceeding the comparative figure at the end of 2015 by euro 90 million. After adjustment for minority interests, the IFRS consolidated balance sheet reports equity in the amount of euro 713 million, after euro 726 million at the end of In the name of the Managing Board, I want to thank all colleagues for their highly professional work in the challenging environment of a wind-down entity, thus enabling the wind-down plan to be implemented successfully. Due to the continuous reduction of assets and liabilities, the headcount also had to be reduced substantially in parallel with the wind-down of the business. Even if this is effected by mutual agreement and within the scope of a redundancy programme agreed with the employee representatives for the major part by far, this kind of situation always constitutes a heavy burden on the individuals concerned. The aim for the 2017 business year is to conclude the wind-down of assets to the greatest possible extent. One important step towards realisation of that aim was the successful sale of RBI shares in March Additionally, preparations and planning activities for a near-term start of formal liquidation of immigon portfolioabbau ag in the current business year are going to be increasingly important. Vienna, April 2017 Stephan Koren CEO and Chairman of the Managing Board

7 Annual Financial Report REPORT OF THE SUPERVISORY BOARD of immigon portfolioabbau ag acc. to section 96 Aktiengesetz (AktG; Stock Corporation Act) for the 2016 business year In the course of meetings during the 2016 business year, as well as by way of written reports and personal contacts with the Managing Board, the Supervisory Board of immigon portfolioabbau ag and its committees have informed themselves timely and comprehensively about all relevant issues, about the legality, expediency and efficiency of the management as well as about the situation and development of the company, and the proposed business strategy. On that basis, the members of the Supervisory Board have been able to comprehensively fulfil the supervisory functions incumbent upon them under the law, the articles of association and the Corporate Governance Code, to satisfy themselves of the correctness of the management, and to make informed decisions regarding the proposals submitted to them that are subject to approval by the Supervisory Board according to the law, the articles of association and the bylaws. Apart from the regular reports under section 81 AktG and the reports by Internal Audit and Risk Management, the following topics were dealt with in the six Supervisory Board meetings in particular: fulfilment of the officially approved wind-down plan, the wind-down of assets and the buyback of liabilities, the return of the asset guarantee of the Republic of Austria, the liquidity situation and preparation of the company s liquidation, as well as associated company-specific topics of a wind-down entity under BaSAG (Bundesgesetz über die Sanierung und Abwicklung von Banken; Federal Act on the Reorganisation and Liquidation of Banks) while maintaining safe and efficient operations. The committee chairpersons reported on the topics dealt with in the respective committees. Franz Zwickl Chairman of the Supervisory Board The Supervisory Board of immigon had set up the following committees: Audit Committee and HR Committee. The Audit Committee held two meetings in In these meetings, apart from the year-end audit and the audit of the consolidated financial statements, the internal control system, the internal audit system, and the risk management system were discussed, in particular. The HR Committee held three meetings in 2016, where it discussed the advertisement and filling of a position at the Managing Board in each case and recommended the re-appointment of Mr. Michael Mendel to the Supervisory Board, in recognition of the successful wind-down process. Again in 2016, the Supervisory Board carried out an efficiency examination through self-evaluation to review its organisation and functioning. The analysis of the self-evaluation and efficiency review was performed by an external body. The results of the self-evaluation were discussed, and proposals for improvement were implemented accordingly. The annual financial statements of immigon as at 31 December 2016 with notes and including the management report, and the consolidated financial statements as at 31 December 2016, including the group management report, were each audited by KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft ( KPMG ) and were given an unqualified auditor s certificate, as no reasons for objections were found. KPMG representatives have attended the meetings of the Audit Committee and of the Supervisory Board, where the annual financial statements were dealt with, and have explained the audit activities. LeitnerLeitner Audit Partners GmbH certified public accountants were instructed to audit the Corporate Governance Report. In its final result, this audit has not revealed any reason for significant objections. The Supervisory Board has acknowledged the report submitted by the Managing Board on the annual financial statements and has thoroughly examined and discussed the annual financial statements including the management report as well as the consolidated financial statements including the group management report and the Corporate Governance report under section 96 (1) Aktiengesetz upon previous involvement of the Audit Committee. This review by the Supervisory Board did not result in any objections. Moreover, the Supervisory Board also concurs with the results of the year-end audit. Therefore, the Supervisory Board approved the annual financial statements including the management report, which means that they have been adopted under section 96 (4) Aktiengesetz. The consolidated financial statements including the group management report and the Corporate Governance report were acknowledged. As no net profit for the year is reported in the annual financial statements, the proposal for the appropriation of profits is omitted. Our special thanks go to Mr. Klaus Liebscher for his prudent work and essential contributions to the restructuring of immigon; he has resigned from office upon expiry of the ordinary general meeting for He had been a member of the Supervisory Board since 2012 and Chairman since 25 September In his stead, Ms. Birgit Noggler was delegated to the Supervisory Board with effect from 01 June The Supervisory Board expresses its gratitude and appreciation to the Managing Board and all employees for their personal commitment and the success achieved during wind-down of the portfolio. Vienna, March 2017 For the Supervisory Board of immigon portfolioabbau ag: Franz Zwickl, born 11 November 1953 Chairman of the Supervisory Board

8 6 Annual Financial Report 2016 COMPOSITION OF THE MANAGING BOARD Chairman of the Managing Board: Stephan Koren born 14 December 1957, appointed as of 3 September 2012 until no longer than 30 June 2019 * Division of responsibilities in the Managing Board: Commitee Assistance and Participations Internal Audit Compliance and Prevention of Money Laundering Human Resources Legal and Credit Services Finances Treasury Organisation / IT / Services Supervisory board positions: Wüstenrot Wohnungswirtschaft rgmbh (Member) Österreichische Lotterien Gesellschaft m.b.h., until 31 March 2016 (Member) KA Finanz AG, as of 18 May 2016 (Chairman) * The extended term of office is valid until 30 June 2019, but no longer than the 2019 general meeting, if the latter resolves upon the liquidation of immigon portfolioabbau ag.

9 Annual Financial Report Deputy Chairman of the Managing Board: Michael Mendel born 13 June 1957, appointed as of 1 January 2009 until 31 December 2018 Division of responsibilities in the Managing Board: Non-Core Business Non-Core Business Corporate Real Estate Financing Workout Real Estate Non-Core Participations Risk Management Supervisory board positions: HETA Asset Resolution AG (Chairman) VB-Leasing International Holding GmbH (Chairman)

10 8 Annual Financial Report 2016 CORPORATE GOVERNANCE REPORT of immigon portfolioabbau ag pursuant to section 243b of the Austrian Business Code as well as Rules 60 and 61 of the Austrian Corporate Governance Code Corporate Governance Code The Austrian Corporate Governance Code (hereinafter referred to as CGC ) provides a framework for Austrian stock corporations to manage and supervise their operations. The rules of the CGC are based on the provisions of Austrian stock companies, stock exchanges and capital markets law, on EU recommendations concerning the tasks assigned to supervisory board members and the remuneration of directors, as well as on OECD corporate governance guidelines. They extend beyond the mere statutory requirements for stock corporations. The rules set out in the CGC are subdivided into L rules, which are based on mandatory legal provisions, C rules, which may be deviated from if appropriate justification is provided, and R rules, which constitute recommendations. For non-listed companies such as immigon portfolioabbau ag (immigon), all L rules that are not mandatory must be interpreted as C rules according to the preamble of the CGC. Companies voluntarily undertake to adhere to the CGC. The CGC can be downloaded at Commitment to comply with the rules of the CGC immigon portfolioabbau ag ( immigon, formerly Österreichische Volksbanken-Aktiengesellschaft) has undertaken to comply with the rules of the CGC since 2013, with the aim of creating transparency regarding responsible corporate governance and corporate control based on sustainable added value vis-à-vis shareholders, customers, employees and other stakeholders as well as the general public. An audit of the implementation of and compliance with the individual rules of the CGC is effected by an external institution on a regular basis at least every three years. The most recent evaluation was carried out in 2013, and will be performed by LeitnerLeitner Audit Partners GmbH, certified public accountants, for the 2016 business year. In 2016, immigon has complied with all L rules and C rules except for the C rules stated below and/or the L rules to be interpreted as C rules; as regards justification of any deviations, account should be taken of the fact that immigon has been a wind-down company pursuant to section 162 BaSAG (Federal Act on the Restructuring and Liquidation of Banks) since 04/07/2015. Rule 2: The one share one vote principle is not applied as long as the Republic of Austria (the Austrian federal government) holds registered shares in the company, as it has the right to appoint up to half of the members of the Supervisory Board (shareholder representatives) which right may only be assigned to the federal government s FIMBAG-Finanzmarktbeteiligung Aktiengesellschaft. In the event that the Austrian government transfers the registered shares held by it to FIMBAG, the corresponding right to appoint up to half of the members of the Supervisory Board will also vest in that company. As soon as FIMBAG transfers the registered shares it holds in immigon back to the Republic of Austria (Austrian federal government), its right to appoint up to half of the members of the Supervisory Board will also be transferred (back) to the Republic of Austria (Austrian federal government). Rule 27: In view of its strategic wind-down function, the company has decided that it will not apply the criteria set out in Rule 27 relating to the variable remuneration components of the Managing Board for any immigon Managing Board members.

11 Annual Financial Report Rule 65: immigon is a wind-down company within the meaning of section 162 BaSAG (Federal Act on the Restructuring and Liquidation of Banks) and manages the wind-down process in line with an officially approved and published wind-down plan. Efficiency, thrift and cost effectiveness are an absolute must for any successful wind-down process and also for any audit of operations by the Rechnungshof (Austrian court of audit). In that sense and due to the low added value of information from interim reports, the company has decided to desist from publishing interim reports. Rule 83: The company has decided to have no external audit performed in The reliability of the risk management system of the wind-down entity was audited externally in the 2015 business year, and a corresponding report was submitted to the Supervisory Board in March The previous year s audit did not result in any statements or recommendations. The essential risks of a wind-down company with limited operations arise from implementation of the wind-down plan. Said plan must contain risk management measures, with credit risk, liquidity risk and operational risk being essential risks that need to be taken into account. As compared to the previous year, the risk situation has essentially remained the same, except for the effects from reduction of the business volume in line with the wind-down order. The Managing Board regularly looks into the most significant areas of risk in detail, through risk management reports. By way of the quarterly reports, the Supervisory Board obtains an adequate picture of the efficiency of the risk management function. The year-end audit and audits performed by Internal Audit adequately deal with the reliability of the risk management system.

12 10 Annual Financial Report 2016 INFORMATION ON THE MANAGING BOARD Composition of the Managing Board, as well as Supervisory Board positions or similar functions held by Managing Board members in other domestic and foreign companies not included in the consolidated financial statements (C Rule 16, CGC) Supervisory Board positions or similar functions Managing Board Initial End of held in other domestic and foreign companies member appointment mandate not included in the consolidated financial statements Stephan Koren 3 September August 2017 Wüstenrot Wohnungswirtschaft rgmbh, Member Chairman Österreichische Lotterien Gesellschaft m.b.h., born 14 December 1957 until 31 March 2016, Member KA Finanz AG, as of 18 May 2016, Chairman Michael Mendel 1 January December 2018 HETA Asset Resolution AG, Chairman Deputy Chairman born 13 June 1957 Working procedures of the Managing Board The cooperation among the members of the Managing Board is governed by the rules of procedure for the Managing Board. The allocation of responsibilities adopted by the Managing Board is subject to approval by the Supervisory Board. The rules of procedure govern the responsibilities and regulations relating representation for members of the Managing Board and the areas where approval must be obtained from the Supervisory Board pursuant to a list of transactions requiring approval. In winding down the portfolio, the Managing Board members must act with honesty, integrity and professionalism with a view to liquidating the assets on the best possible terms. Within the scope of the measures taken by management, conflicts of interest must be avoided. Where a conflict of interest is unavoidable, this must be reported to the Supervisory Board immediately. A management measure involving a conflict of interest must not be implemented without the consent of the Supervisory Board. The Managing Board holds a regular (weekly) meeting, where members report on current business performance, adopt resolutions and make decisions on matters of strategic importance to the company. In addition, in between meetings, members will share information about relevant events on an ongoing basis. The Managing Board provides the Supervisory Board with regular, timely and comprehensive information on all matters relevant to business development, including the Group s risk position and risk management. The Chairman of the Supervisory Board is also in regular contact with the Chairman of the Managing Board to discuss the company s strategy, business development and risk management. Allocation of responsibilities within the Managing Board (C Rule 16, CGC) Stephan Koren, Chairman of the Managing Board Committee Assistance and Participations Internal Audit Compliance and Prevention of Money Laundering Human Resources Legal and Credit Services Finances Treasury Organisation / IT / Services Services Investment Products Michael Mendel, Deputy Chairman of the Managing Board Non Core Business Non-Core Business Corporate Real Estate Financing Workout Real Estate Non-Core Participations Risk Management

13 Annual Financial Report INFORMATION ON THE SUPERVISORY BOARD Composition of the Supervisory Board, as well as other supervisory board positions or similar functions of the Supervisory Board members in domestic and foreign listed (C Rule 58, CGC) During the business year, the following persons were Supervisory Board members: Supervisory board positions or similar functions in other Supervisory Board Initial End of domestic and foreign member appointment mandate Function listed companies Klaus Liebscher 28 December June 2016 Chairman none until 1 June 2016 born 12 July 1939 Franz Zwickl 25 August 2015 until further Deputy Chairman none notice until 1 June 2016, born 11 November 1953 (delegated) Chairman as of 1 June 2016 Birgit Noggler 1 June 2016 until further Deputy Chairperson none notice born 10 September 1974 (delegated) Martha Oberndorfer 25 August 2015 until further Member none notice born 9 May 1962 (delegated) Edwin Reiter 24 May 2006 AGM 2017 Member none born 6 May 1962 Delegated by the Employee Council: Wolfgang Agler 24 September 2015 until further Member none born 11 May 1957 notice Sabine Römer 24 September 2015 until further Member none born 27 March 1966 notice No Supervisory Board member is a member of the managing board of a listed company. Membership of the Supervisory Board committees including (deputy) chairpersons (C Rule 39, CGC) Name Audit Committee 1) HR Committee Klaus Liebscher Member until 1 June 2016 Chairman until 1 June 2016 Franz Zwickl Chairman until 1 June 2016 Deputy Chairman until 1 June 2016 Member as of 1 June 2016 Chairman as of 1 June 2016 Birgit Noggler Chairperson as of 1 June 2016 Deputy Chairperson as of 1 June 2016 Martha Oberndorfer Deputy Chairperson Edwin Reiter Member Wolfgang Agler Member Sabine Römer Member 1) All Supervisory Board members are also members of the Audit Committee.

14 12 Annual Financial Report 2016 Independence of the Supervisory Board (C Rule 53, CGC) Following the introduction of the CGC, the immigon Supervisory Board has determined criteria for the independence of its members based on Appendix 1 of the CGC: Guidelines for independence A member of the Supervisory Board is deemed to be independent if he or she has no business or personal relationship with the company or its Managing Board that constitutes a material conflict of interest and might therefore influence the behaviour of said member. The Supervisory Board member should not have been a Managing Board member or executive employee of the company or a subsidiary of the company during the past five years. The Supervisory Board member should have no business relationship with the company or a subsidiary that is of importance to the Supervisory Board member, or have had any such relationship in the previous year. This also applies to business relationships with companies in which the Supervisory Board member has a significant business interest, but not to positions on Group management bodies. The approval of individual transactions by the Supervisory Board acc. to L Rule 48 does not automatically result in the latter being classified as non-independent. The Supervisory Board member should not have been an auditor of the company or an investor in or employee of the audit firm in the last three years. The Supervisory Board member should not be a Managing Board member in any other company in which a Managing Board member of the company is a Supervisory Board member. Supervisory Board membership should not exceed 15 years. This shall not apply to Supervisory Board members who are shareholders with entrepreneurial interests or who represent the interests of such shareholders. The Supervisory Board member should not be a close relative (direct descendant, spouse, partner, parent, uncle, aunt, sibling, niece, nephew) of a Managing Board member or of people holding any of the positions described above. Members to be considered independent (C Rule 53, CGC) Based on the aforementioned criteria, all elected members of the Supervisory Board and those delegated by a shareholder have declared their independence. Information about the self-evaluation of the Supervisory Board (C Rule 36, CGC) In November 2016, the Supervisory Board evaluated the efficiency of its activities, in particular its organisation and working procedures, with the help of LeiterLeitner Audit Partners GmbH, certified public accountants; the results of this self-evaluation were discussed in the Supervisory Board meeting held on 15 December The Supervisory Board will use the results of this self-evaluation as input for its activities in Information on the working procedures and activities of the Supervisory Board and its committees Number of Supervisory Board meetings in the 2016 business year and report on its activities (C Rule 36, CGC) The Supervisory Board is required to carry out its activities in accordance with the law, the articles of association and the rules of procedure. It is responsible for monitoring the activities of the Managing Board, in particular whether the activities of the Managing Board fulfil the company s purpose of managing its assets so as to ensure the orderly and active disposal of the assets on the best possible terms (portfolio wind-down). The Supervisory Board convened six times during the 2016 business year. One member missed one meeting, one member missed two meetings. The Managing Board provided the Supervisory Board with comprehensive and timely information on business development and the company s situation, including its risk position and risk management. The Supervisory Board discussed the verbal and

15 Annual Financial Report written reports provided by the Managing Board, both in its meetings and in its committees. The Supervisory Board was able to fulfil its duties under the law, the articles of association and the rules of procedure on the basis of the information provided, satisfying itself of the proper management of the business. Apart from regular reports pursuant to section 81 AktG (Stock Corporations Act), the reports of Internal Audit and of Risk Management, the topics dealt with in the six Supervisory Board meetings were, in particular, fulfilment of the officially approved wind-down plan, the wind-down of the assets and the buyback of liabilities, the return of the asset guarantee provided by the Republic of Austria, the liquidity situation and preparation of the liquidation of the company, as well as associated company-specific topics of a wind-down company pursuant to BaSAG, while maintaining the safe and efficient operation of the business. The committee chairpersons reported on the topics dealt with in the respective committees. The Supervisory Board has adopted two circular resolutions. One concerned the consent to the sale of a portfolio, the other the external support associated with self-evaluation. Number and type of the committees and their decision-making powers as well as number of committee meetings in the 2016 business year and report on their activities (C Rule 34, CGC) (C Rule 39, CGC) The Supervisory Board has set up two committees: the Audit Committee and the HR Committee. The committees have decision-making power within the sphere of competence allocated to them. The Audit Committee is responsible for: a) monitoring the accounting process and issuing recommendations or proposals with respect to ensuring the reliability of this process; b) monitoring the effectiveness of the internal control system, the internal audit system and the risk management system; c) monitoring the audit of the financial statements and of the consolidated financial statements, taking into account findings and conclusions in reports that are published by the regulatory authority for year-end auditors; d) verifying and monitoring the independence of the auditor of the (consolidated) financial statements, especially with respect to additional services performed for the company and/or the Group; e) reporting on the result of the year-end audit to the Supervisory Board and explaining how the audit has contributed to the reliability of financial reporting, as well as the role of the Audit Committee in this respect; f) reviewing the annual financial statements and preparing their approval, reviewing the proposal for the allocation of profits, reviewing the management report and corporate governance report, as well as reporting the results of the audit to the Supervisory Board; g) if applicable, reviewing the consolidated financial statements and the Group management report, the consolidated Corporate Governance Report, and reporting the respective results to the Supervisory Board; h) carrying out the procedure for the selection of the auditor (group auditor) considering the appropriateness of fees, and submission of a relevant recommendation to the Supervisory Board; i) approval of other than auditing services provided by the auditor; j) preparing all the control and budgeting matters to be discussed by the Supervisory Board and discussed said matters in two meetings in 2016, adopting the required resolutions. The HR Committee is responsible for handling all HR-related matters in respect of Managing Board members from a company and employment law perspective and for making decisions on their remuneration and the related bonus system. In the three meetings held in 2016, the HR Committee has dealt with the advertisement of Managing Board positions, a hiring recommendation to the Supervisory Board, as well as the conclusion of an employment contract, and has passed a written resolution approving the minutes of meetings. As for information about the activity of the Supervisory Board and its committees, reference is also made to the report by the Supervisory Board. Commitment to promoting women in board and management positions The size of the workforce of immigon, as a wind-down company, will exclusively be reduced in coming years in line with progress in winding down the portfolio; accordingly, setting and monitoring future quotas for women on the Managing Board, Supervisory Board and in other managerial positions is no longer necessary.

16 14 Annual Financial Report 2016 As at 31/12/2016, the proportion of women on the Supervisory Board was 50%. The female proportion on the Managing Board remained unchanged (100% male). The proportion of women in managerial positions at the first and second reporting levels (divisional and departmental management) remained constant in 2016, at over 20%. Commitment to fighting corruption The Managing Board of immigon is firmly committed to fighting corrupt practices and reports annually to the Supervisory Board on the precautions taken at immigon to fight corruption within the company. Based on the auditing competence of the Austrian court of audit, a work standard ( Code of Ethics of immigon ) was put into effect for immigon and Group companies in March The topics treated in this document are, among others, the auditing competence of the Austrian court of audit, the office-holder capacity of employees and executive bodies, the prevention of corruption, anti-corruption provisions, the granting and acceptance of benefits, conflicts of interest, additional occupations, dealing with suppliers, service providers and contractual partners for work and services as business partners. The employees have received department-specific training in this respect. In all cases of doubt or borderline cases (prevention), the Compliance Office of immigon is available. In the VB Leasing Group, a separate work standard ( Code of Ethics of VBLI ) adjusted to the requirements was implemented that also applies to the subsidiaries in Slovenia, Croatia, Bosnia and Serbia. immigon has implemented a comprehensive structured internal control system. Since February 2014, all employees at immigon have been able to report legal relevant irregularities (e.g. corrupt or fraudulent practices) anonymously using an internet platform (whistleblowing system). Disclosure of information on the remuneration of the Managing Board and Supervisory Board Remuneration of Managing Board members (C Rule 30 and 31, CGC) Remuneration for the 2016 business year in euros: Fixed remuneration Other remuneration Variable remuneration Total remuneration Stephan Koren 549, , , Michael Mendel 2) 475, , , ) The information provided refers to the term of office until 31/12/2016. The Managing Board members do not receive any success- or performance-based remuneration. The item Other remuneration includes contributions to pension and annuity insurance funds, contributions to the employee provident fund (under the Abfertigung Neu severance payment system) as well as various benefits in kind. There is no stock option or share transfer scheme for Managing Board members. Principles and prerequisites of the corporate pension scheme: The pension scheme is a defined contribution scheme for all members of the Managing Board. The collective pension fund agreement for commercial credit cooperatives was made applicable to members of the Managing Board. All members of the immigon Managing Board who have a valid contract and a mandate to serve on the Board are eligible to join the scheme. Principles governing prospective entitlements and claims of the Managing Board in the event of termination of office: The contracts of all members of the Managing Board are subject to the Abfertigung Neu severance payment system. Mr. Mendel s contract includes a provision carried forward from prior contracts stipulating a voluntary severance payment in the amount of three monthly gross salaries for termination in certain cases (illness, death or non-renewal). The obligations and guidelines of Rule 27a of the Corporate Governance Code and the appendix to section 39b of the Austrian Banking Act are complied with. The contracts of Managing Board members include tie-in clauses if they are removed from their position as board members under the Austrian Corporation Act for the termination of the management contracts under the law of obligations.

17 Annual Financial Report Publication of the remuneration paid to each Supervisory Board member in euros in the 2016 business year (C Rule 51, CGC) The sum of euro 101,000 (not including attendance fees and daily allowances) was set for the remuneration of Supervisory Board members by resolution of the Annual General Meeting on 24 May This amount has not been raised since, partly in view of the restructuring of immigon. The remuneration framework for the Supervisory Board is as follows: Chairperson EUR 25,000. Deputy Chairperson EUR 12,500. Committee chairperson EUR 7,000. Ordinary members EUR 6,000. The remuneration is paid out to Supervisory Board members retrospectively after the Annual General Meeting for the previous business year (pro rata according to length of mandate). The following attendance fees, daily allowances and remuneration were paid to Supervisory Board members in 2016: Attendance fee Supervisory Board and daily allowance 3) remuneration 4) Total Liebscher , , Zwickl , , Noggler , , Oberndorfer , , Reiter , , Wolfgang Agler Sabine Römer Total 3, , , ) Attendance fee and daily allowance was paid out in ) Supervisory Board remuneration will be paid out after the 2017 Annual General Meeting. Basically, no stock option plans for members of the Supervisory Board have been provided for. D&O Insurance immigon maintains a directors and officers liability insurance for the Managing Board, the management, the Supervisory Board, and executive employees of immigon and subsidiaries in which immigon directly or indirectly holds a majority share or which immigon directly or indirectly manages or controls. The costs are borne by immigon. Vienna, March 2017 The Managing Board Stephan Koren Chairman Michael Mendel Deputy Chairman

18 16 Annual Financial Report 2016 GROUP MANAGEMENT REPORT

19 Annual Financial Report Report on business development and the economic situation 18 Economic environment in Business orientation 19 Restructuring and significant events during the business year 20 Business development 22 Report on branch establishments 22 Financial and non-financial performance indicators 23 Events of particular importance after the balance sheet date 23 Report on the company s future development and risks 23 Economic environment in Expected development 24 Essential risks and uncertainties 24 Report on the portfolio as well as on the acquisition and disposal of treasury stocks 25 Report on research and development 25 Report on significant features of the internal control and risk management system with a view to the accounting process 25 Control environment 25 Risk assessment 26 Control measures 26 Information and communication 26 Monitoring

20 18 Annual Financial Report 2016 GROUP MANAGEMENT REPORT Report on business development and the economic situation Economic environment in 2016 The assets of the immigon group essentially consist of investments in the countries stated below. The general trends with respect to markets, interest rates and the economy in these countries have an influence on the performance and saleability of these assets and accordingly also on the wind-down objectives. In 2016, Austria s gross domestic product has grown by 1.5% year-on-year according to an estimate made in December by the Austrian Institute of Economic Research (WIFO). This constitutes a noticeable increase of the growth dynamics as compared to It means that the growth gap in relation to the euro zone, which had still amounted to one percentage point in 2015, should have decreased to 0.1 to 0.2 percentage points. Growth was primarily due to domestic demand through private consumption and investments. In spite of accelerated growth, the unemployment rate in Austria has slightly increased over the past year, while it has continually improved in the euro zone overall starting out from much higher levels decreasing from 10.4% at the beginning of the year to 9.8% in November. According to the Harmonised Index of Consumer Prices, the Austrian inflation rate fluctuated between 0.6% and 1.6% in As in previous years, this made Austria one of the countries with the highest inflation rate in the euro zone. In the common currency zone, the inflation rate was still partly negative in the first half of the year and only increased appreciably towards the end of the year (December: 1.1%). The main driver of the price increase in 2016 was the oil price. Even during the phase of decreasing inflation rates, the European Central Bank (ECB) reduced its main refinancing rate from 0.05% to 0.00% in March The interest rate on the prime refinancing facility went down from 0.30% to 0.25%, while the deposit rate was reduced by 10 basis points to -0.40%. In March, the ECB also decided to increase its monthly securities purchases from euro 60 billion to euro 80 billion, and to issue a second tranche of its targeted long-term refinancing operations (TLTRO2). Both money market interest and the returns on the capital market declined. In the fourth quarter in line with higher European inflation rates and monetary tightening in the USA, part of this trend was compensated again in the sphere of yields. Overall, the yield of the ten-year government bond in Austria decreased from 0.85% to 0.43% in The 3-month EURIBOR kept decreasing continually throughout the year, going down from -0.13% at the beginning of the year to -0.31% at the end of the year. In Hungary, according to an estimate of the European Commission from November, the gross domestic product has grown by 2.1% over the past year, against the background of booming private consumption (+5%) and a strong contribution by foreign trade (exports: +7%). Accordingly, the current account surplus increased to 4% of the gross domestic product. In 2016, the high debt level for the region was seen alongside a relatively low level of new indebtedness of presumably 1.5%. Dependency on capital imports has decreased, and the forint has strengthened somewhat against the euro. According to an estimate by the European Commission, economic output in the Czech Republic has increased by 2.2% in 2016, in spite of declining investments. This was driven by the favourable development of the two other domestic components of gross domestic product public and private consumption. But foreign trade also contributed substantially to growth. This was enough to reduce the current account deficit to below 1% of the gross domestic product. In 2016, the currency was stable at the exchange rate targeted by the Central Bank of around 27 CZK per euro. In the past year, Romania achieved the highest growth rate since the end of the financial crisis. The European Commission estimates that the gross domestic product increased by 5.2% in Very high increases in domestic demand were responsible for that private consumption increased by 9%, government spending and investments by 5% and 6%, respectively. Nevertheless, the inflation rate remained negative. The contribution of foreign trade to growth was negative. In the past year, the budget deficit reached a level of 2.8% of gross domestic product. According to the European Commission, Poland s economy has grown by 3.1% over the past year. Private consumption and government spending have increased by approx. 4% each. Foreign trade registered very high dynamics and a positive contribution to growth. Exports and imports grew by some 8% respectively. On the other hand, gross investments have decreased as compared to the previous year. In 2016, Poland s budget deficit amounted to approx. 2.4% of the gross domestic product. With a growth rate of 2.6%, according to an estimate by the EU Commission, Croatia has been able to continue the recovery started in the previous year. Domestic economy components of the gross domestic product contributed positively to growth,

21 Annual Financial Report the budget deficit amounted to 2.1% of the gross domestic product. After many years of weakness, the kuna has stabilised somewhat in relation to the euro. Solid domestic demand and the favourable development of net exports caused the economy of Slovenia to grow by 2.2% over the past year, according to an estimate by the European Commission. The budget deficit amounted to 2.4% of the gross domestic product. In Serbia, the economy grew by 2.7% in 2016, according to a European Commission estimate. The main driver of that growth was an increase in domestic demand, with investments and government spending developing particularly well. The budget deficit amounted to 2.1% of the gross domestic product. The dinar only marginally depreciated in relation to the euro. According to an estimate by the International Monetary Fund of October, the gross domestic product of Bosnia-Herzegovina grew by 3.0% in There was increasing demand in the real estate markets of central and eastern Europe. According to CBRE reports, the region (including Russia) saw investments of approx. euro 17.9 billion in 2016, that is euro 4 billion more than in the previous year and even more than in the 2007 record year (to date). As in previous years, with a volume of investments of euro 4.7 billion, Poland was the strongest market. In the Czech Republic, euro 3.8 billion were invested in real estate in Since 2012, the real estate market in Hungary has grown continually, registering a volume of transactions of approx. euro 1.7 billion in However, demand in the office market in the capital cities of the CEE region has dropped slightly. Within the region, the level of top office rentals is highest in Warsaw, at euro 23.00/m²/month, but Budapest has caught up again in this respect, following hard on the heels of the Polish capital. Business orientation immigon portfolioabbau ag (immigon) is a wind-down entity acc. to section 162 (1) of the Federal Act on the Reorganisation and Liquidation of Banks (BaSAG) and the parent company of subsidiaries operating in Austria and internationally. Until 4 July 2015, the company traded under the name of Österreichische Volksbanken-Aktiengesellschaft (VBAG). The web address of immigon is Apart from the publication of ad hoc announcements and reports relating to the respective business year, there is a compliance statement regarding the Austrian Corporate Governance Code issued by the Managing Board and the Supervisory Board of immigon in December 2016, on the website in the Investor Relations section in a separate Corporate Governance menu item. Restructuring and significant events during the business year Ever since its partial nationalisation in April 2012, the company has been undergoing a transformation process based on a restructuring plan and subject to requirements laid down by the European Commission and the Republic of Austria. The Annual General Meeting of VBAG held on 28 May 2015 finally approved the spin-off for absorption of the central organisation and central institution function of VBAG, as the transferor company, and its transfer to Volksbank Wien-Baden AG (now VOLKSBANK WIEN AG) as the transferee company. The transfer took place with retrospective effect based on the closing balance sheet at the effective spin-off date of 31 December 2014, with continuation of the transferor company against a grant of shares. A reduction in share capital and participation capital to cover losses was resolved upon at the same time. In its decision issued on 2 July 2015, the Austrian Financial Market Authority authorised the company to operate as a wind-down entity within the meaning of section 162 of the BaSAG, subject to entry of the demerger in the Companies Register. Upon entry of the demerger in the Companies Register on 4 July 2015, the company ceased to be a credit institution. The name of the company was changed to immigon portfolioabbau ag on 4 July Ever since that date, immigon has been a wind-down entity acc. to section 162 (1) BaSAG. The company s purpose pursuant to section 2 of the articles of association stipulates that the company s assets and liabilities are to be managed in such a way as to ensure that they can be actively liquidated in an orderly fashion and on the best possible terms. Accordingly, the company must comply with a wind-down plan that envisages the elimination of the major risk-bearing assets by the end of The company is rated by Moody s Investors Service, but only on a non-participating basis. Moreover, immigon considers the issuer rating of B1 (upgraded since 28 June 2016) to be too pessimistic. This rating was confirmed by Moody s Investors Service on 20 February Fitch Ratings withdrew the rating already with effect from 26 August 2015.