FimBank posts modest profit in tough environment

FimBank published its 2009 financial results on March 16 and the financial statements revealed a modest profit of US$1.6 million. While this represents a substantial decline from the US$24.8 million registered in 2008, the sale of their shareholding in the Indian joint-venture factoring company Global Trade Finance Ltd in 2008 had contributed US$23.8 million of this record profit.

The 2009 financial performance must also be seen in the light of the very tough environment which characterised most of the year following the international financial crisis which commenced in the fourth quarter of 2008.

FimBank's president Margrith Lutschg-Emmenegger presented these results to stockbrokers on March 22 and also provided a detailed insight into the immediate and long-term strategy of the group.

During 2009 net interest income declined by 38 per cent to US$8.8 million in part due to the interest payable on the new bond issue.

On the other hand, however, it is encouraging to note that despite the challenging business environment, FimBank managed to increase its net fee and commission income by seven per cent to US$20.2 million reflecting the ability of the group to maintain a consistent flow of fee-driven transactions, mainly through the fully owned subsidiary London Forfaiting Company.

FimBank's financial results in the last two years were impacted by the volatility in the investment portfolio and by fair value adjustments to forfaiting assets in the books of London Forfaiting Company.

While some of the unrealised impairments in the bond book mainly taken during the fourth quarter of 2008 were reversed in 2009, FimBank suffered new adjustments to the fair value of forfaiting assets during the last twelve month period under review.

This is evident from the financial performance of London Forfaiting Company detailed in the presentation made by FimBank's president to the financial community.

LFC registered a strong increase in net fee and commission income (+68 per cent) but recognised total unrealised impairments of US$7 million. However, the London-based forfaiting specialist still posted an encouraging profit of US$1.4 million in 2009.

These unrealised mark-downs should continue to recover in 2010 as market conditions improve.

As seen in various other companies' financial statements, the challenging business environment also led to a stricter focus on cost control by FimBank.

The FimBank Group's administrative expenses declined by 13.6 per cent to US$20.8 million mainly on lower staff numbers as some senior staff positions that had become vacant were not immediately filled and lower discretionary expenses.

The favourable exchange rate environment also helped as most costs are in EUR and GBP while FimBank's reporting currency is in USD.

FimBank's current operational factoring companies (in Egypt and Dubai) are accounted for in different ways.

The performance of the 40 per cent shareholding in EgyptFactors is shown as "share of profits/losses of associates" while the fully-owned subsidiary Menafactors is treated as a discontinued operation since FimBank had declared some time ago that it is seeking to dispose of a sizeable shareholding in this company to a strategic partner.

The factoring company in Dubai had a good start to the year with the June 2009 half-year results showing a profit of US$470,000. However by year-end the company registered a loss of US$74,000 due to the impairments taken on a number of factoring assets which were negatively impacted by the Dubai crisis.

The Egyptian-based factoring company incurred a loss of US$400,000 during 2009. It is worth noting that the prior year's share of profits of US$1.7 million had included the profitability of GTF for the first quarter of the year before FimBank sold its 38.5 per cent shareholding in the company.

While Menafactors could continue to experience a difficult trading environment in 2010, FimBank's president claimed that the Egyptian-based venture should start showing strong signs of growth from this financial year.

Ms Lutschg-Emmenegger explained that FimBank is benefiting from an improved economic environment so far this year with substantial trade flows starting to materialise.

This increased activity forms the basis for the bank's expectation of higher profitability levels in 2010 and beyond.

The president also explained that the directors' recommendation of the payment of all the profits generated during the year in the form of a scrip dividend (equivalent to US$0.01156 per share) signals their strong confidence in the return to more meaningful levels of profit in the short-term and the solid fundamentals of the bank.

With regards to the strategic direction being adopted by the group, Ms Lutschg-Emmenegger once again explained that the global network of joint venture factoring companies remains at the core of the group's strategy.

FimBank's president claimed that the economic crisis facilitated the growth of factoring in certain markets as many companies understood that factoring provides a good solution to improve cash flow.

The president noted the importance of FimBank setting up new ventures in the Russian and Indian markets in 2009 at a time of low business confidence.

While both these new companies are expected to commence operations during the course of 2010, the bank is also working on another three potential factoring companies in Brazil, Romania and Africa. Arrangements in this respect should be in place this year or in 2011.

All three ventures will be in partnership with supranational institutions, namely the International Finance Corporation or the European Bank for Reconstruction and Development.

The president confirmed that this network of factoring joint venture companies is intended to position FimBank to generate returns in the long-run similar to those seen at the Indian company GTF before its sale in March 2008.

The successful capital raising exercise last year when FimBank issued US$40 million worth of bonds was specifically intended to fund the group's investment programme in the factoring network and provides a sound platform for FimBank to achieve its strategic objectives.

Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Ltd.

Rizzo, Farrugia & Co. (Stockbrokers) Ltd, RFC, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the issuer/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.

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