Financial performance

IFRS 9

Our financial performance as per 2018 is not fully comparable with previous years due to the implementation of IFRS 9 - a new reporting standard for financial instruments. IFRS 9 impacts the results from the private equity portfolio as it requires fair value changes (including foreign exchange results) to be recorded in the profit and loss account. Previously, such changes were recognised in the available for sale reserve and exit results were recorded in the profit and loss account.

Most of our private equity investments are denominated in foreign currencies (mainly US dollars), while our financial results are reported in euros. Therefore, fluctuations in the EUR-USD exchange rate may have a sizeable positive or negative impact on our reported financial results. Taking into account that our private equity portfolio is central to our business, and that hedging the private equity investments is less effective because of the uncertainty in the size and the timing of the cash flows for these investments, we have decided to accept the higher reported earnings volatility.

For 2018 the exchange rate results on our private equity results amounted to a gain of €44 million. When excluding these results, the underlying net profit is €108 million and return on shareholders’ equity amounts to 3.7%.

Profit & loss account

Our operating income in 2018 amounted to €286 million, which is below the target of €370 million. The performance is mainly explained by lower results from equity investments and lower results from financial transactions.

Results from equity amounted to €41 million, consisting of €44 million foreign exchange gains, €1 million capital gains and a net loss of €4 million on exits. Results from equity investments were mainly below budget due to lower capital gains related to a loss on several investments in a fund manager with multiple funds under management.

Net profit in 2018 amounted to €151 million, down from €255 million in 2017. The difference is mainly explained by the same effects as for the operating income. Net profit was positively influenced by a limited level of impairments (2018: €12 million vs 2017: €62 million). The return on shareholders’ equity amounts to 5.2% (2017: 9.1%).

Operating expenses amounted to €107 million, an increase of €8 million compared to 2017, but below budget for 2018. The increase is to a large extent explained by the autonomous increase in staff cost, higher regulatory expenses, and additional staff and investments to support the execution of our 2025 strategy.

In € million unless stated otherwise

Balance sheet

FMO’s total assets amounted to €8.5 billion per December 2018, up from €8.3 billion in 2017. The increase mainly follows from the development of the loan and equity portfolio, which increased from €5.9 billion to €6.6 billion. Shareholders’ equity increased by €154 million to €3.0 billion, mainly due to the inclusion of the net profit of 2018.

Other financial ratios

Non-performing loans (NPL) increased to 8.1% (year-end 2017: 5.6%) due to a number of factors including additional NPLs, relatively fewer write-offs, and an adjustment of the non-performing definition in preparation for the EBA Guideline on Management of Non-Performing and Forborne Exposures. Over half (53%) of total NPLs remain concentrated in the Infrastructure, Manufacturing and Services sectors, for which activities were terminated during 2017 following a strategic reorientation. The NPL level also reflects to some extent the long recovery period inherent to our markets.

The Common Equity Tier 1 (CET-1) ratio remained stable at 24.6% as the inclusion of net profit of the first half of 2018 in eligible capital was offset by the increase in risk weighted assets caused due to the appreciation of the US dollar versus the euro and the general increase of the portfolio.

For more information on our financial performance and risk management please refer to our Annual Accounts.