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Strong performance across Sustainable Development Goals 8 (Decent Work and Economic Growth), 10 (Reduced Inequalities) and 13 (Climate Action)
The Dutch development bank FMO achieved strong impact and financial results in the first half of 2018. FMO saw a near doubling in its avoidance of greenhouse gas emissions through investments in sustainable energy projects.
Higher impact portfolio
A total of EUR 1 billion was invested in developing countries and emerging markets through FMO as well as through government and catalyzed funds, contributing to economic growth (SDG 8). Through these investments an estimated 175,000 direct and indirect jobs were supported.
Of total commitments, EUR 360 million represented green investments, contributing towards climate action (SDG 13). Through these green investments an estimated 414,000 tons of greenhouse gas emissions (C02 equivalent) are avoided, nearly double the amount for the first half of 2017 (H1 2017: 214,000 tCO2eq).
Furthermore, EUR 240 million represented transactions that helped to reduce inequality (SDG 10). These investments in inclusive business focus on people lacking access to basic services, amongst others the un(der)banked, smallholder farmers and rural populations, youth, women, and on decreasing inequality.
In the first half year, some notable milestones were achieved in collaboration with FMO stakeholders:
NN Investment Partners and FMO Investment Management achieved a first close on their NN-FMO Emerging Markets Loans Fund in the first quarter at USD 250 million. The impact fund enables institutional investors to co-invest alongside FMO in loans to financial institutions, renewable energy projects and agribusinesses in emerging and frontier markets.
The European Commission selected FMO to manage a EUR 75 million guarantee to back underserved entrepreneurs in Africa and the European neighborhood countries. The NASIRA Program is a risk-sharing facility, which enables local banks to finance small businesses. By focusing on young, female and irregular migrant entrepreneurs, NASIRA aims to combat the root causes and pressures of migration.
FMO, Triodos Investment Management and The European Bank for Reconstruction and Development (EBRD) provided a EUR 32 million loan to finance the construction of the first solar power plant in Mongolia.
The Net Promoter Score (Client Satisfaction) stood at 68.6 in the first half of 2018, which is in line with the score in 2015 but below target (70). Performance was high on professionalism and reliability, but less so on lead times and the added value of training and knowledge management. We will address Employee Engagement scores, since the score came in at 7.2, below the industry benchmark of 7.5 and the 2017 score of 7.4.
In the first half of 2018 key strategic projects in the area of business process optimization, information management, HR change and steering metrics were initiated, with the objective to obtain more efficient processes, higher quality information, improved cooperation and better decision-making.
The first half of 2018 has shown a decline in net profit compared to the same period last year from €156 million to €124 million. Operating income amounted to €174 million, which is behind budget due to lower net interest income and lower results from equity. Lower net interest income is mostly explained by the euro-dollar exchange rate, as approximately 80% of the loan portfolio is USD related.
Net profit was positively influenced by a €15 million net release of impairments due to improved quality of the portfolio. Results from equity investments amounted to €44 million (1H2017: €92 million), consisting of €28 million FX gains, €23 million capital gains and a net loss of €8 million on exits. Operating expenses amounted to €52 million, an increase of €2 million compared to the same period last year but below budget for the period. The increase is explained by higher staff costs resulting from the recruitment of new hires.
Note that net profit as per 2018 is not fully comparable with previous years due to the implementation of IFRS9 – a new reporting standard for financial instruments. IFRS 9 predominantly impacts the results from the private equity portfolio as it requires fair value changes to be recorded in the profit and loss account. Previously, such changes were recognized in the available for sale reserve, and only exit results were recorded in the profit and loss account.
Non-performing loans (NPL) decreased over the reporting period to 6.3% (year-end 2017: 6.9%).
Peter van Mierlo, Chief Executive of FMO, said: “FMO is first and foremost an impact investor based on the philosophy that creating market economies in emerging territories is the best way to address two of the world’s biggest problems: climate change and inequality. Therefore, we judge our performance primarily through the prism of the contribution we make to the UN’s Sustainable Development Goals. It is encouraging to see these strong first-half results of FMO’s determination to address these global challenges during my first weeks as FMO’s CEO.”
Looking at the second half of 2018, FMO has a positive outlook for most targets based on the transaction pipeline. Emerging markets and developing economies have experienced powerful crosswinds in recent months, due to global developments such as rising oil prices, higher yields in the United States, dollar appreciation, trade tensions, and geopolitical conflict. We performed an in-depth review of our portfolio in Turkey and we currently do not foresee a material impact on our annual results. FMO’s portfolio is geographically well diversified.
For more information, please see our Half Year Report.