Euroloan Group PLC Annual Review

Transcription

1 Euroloan Group PLC Annual Review 2013 Euroloan is a rapidly growing international group, specialized in highly automated financial services and financial technology (FinTech).

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3 TABLE OF CONTENTS EUROLOAN IN Key events of the year:... 6 Financial indicators... 7 FROM THE CEO... 8 BOARD OF DIRECTORS STEERING COMMITTEE BOARD ANNUAL REPORT Market development FINLAND SWEDEN POLAND Development of turnover Development of profit and costs Financial indicators Parent company s trend in earnings Balance sheet and financing Personnel and organization Business areas CONSUMER FINANCE CORPORATE CUSTOMERS COLLECTION SAVINGS & DEPOSITS INVESTMENTS GROUP SERVICES Board and auditors Responsibility Changes in shareholding, ownership and Group structure Related party loans and responsibilities Group structure Share capital development and authorizations of the Board of Directors Risk management Business environment Dividend proposal by the Board of Directors Relevant events after the balance sheet date Outlook for CONSOLIDATED FINANCIAL STATEMENTS Income statement EUROLOAN GROUP PLC ANNUAL REVIEW

4 Balance sheet Cash flow statement NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Consolidated financial statements PREPARATION OF THE FINANCIAL STATEMENTS CORPORATE INFORMATION ACCOUNTING PRINCIPLES OF FINANCIAL STATEMENTS PRINCIPLES OF CONSOLIDATION TRANSLATION OF FOREIGN CURRENCY ITEMS TANGIBLE ASSETS INTANGIBLE ASSETS FINANCING COSTS IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS EMPLOYEE BENEFITS INCOME TAXES CURRENT ASSETS LIABILITIES DESCRIPTION OF EUROLOAN GROUP PLC S FINANCIAL REPORTING PROCESS CORPORATE GOVERNANCE Decision-making GENERAL MEETING OF SHAREHOLDERS BOARD OF DIRECTORS CEO COMPANY S STEERING COMMITTEE AUDIT Internal operating principles and control systems COMPLIANCE RISK MANAGEMENT INTERNAL AUDIT GUIDELINES RISK MANAGEMENT General Risk management structure BOARD OF DIRECTORS CEO RISK MANAGEMENT RISK CONTROL INTERNAL AUDIT AUDIT Risks associated with the company GENERAL EUROLOAN GROUP PLC ANNUAL REVIEW

5 STRATEGIC RISK AND BUSINESS RISK OPERATIONAL RISK FINANCIAL RISK INTEREST RATE RISK Specific risks associated with other Group companies EUROLOAN CONSUMER FINANCE PLC CRÉDITO COBRO LTD DIGNA IT OY CRÉDITO COBRO CAPITAL OY Risks associated with investing in the company CREDIT RISK ISSUER RISK SECONDARY MARKET AND LIQUIDITY RISK TAXATION PARENT COMPANY S FINANCIAL STATEMENTS Income statement Balance sheet NOTES TO THE PARENT COMPANY S FINANCIAL STATEMENTS PREPARATION OF THE FINANCIAL STATEMENTS BOARD S PROPOSAL ON MEASURES CONCERNING THE PROFIT FOR THE FINANCIAL YEAR SIGNATURES TO THE FINANCIAL STATEMENTS AUDITOR S REPORT This is an unofficial English translation of from the original Annual Review in Finnish (Euroloan Group Oyj, Vuosikertomus 2013). The content in this document may contain translation errors. Please refer to the Finnish language original for correct information. EUROLOAN GROUP PLC ANNUAL REVIEW

6 EUROLOAN IN 2013 Euroloan Group PLC (Euroloan) is a rapidly growing international group specialized in financing and financial technology (FinTech). The Group s headquarters are located in Helsinki, Finland, with offices in Stockholm, Sweden and Warsaw, Poland. Euroloan has developed the most efficient financing business models and systems in the market. Euroloan s fully automated and internationally scalable cloud services provide realtime credit solutions for small-to-medium size businesses and consumers. Euroloan Group PLC also provides a fully automated invoicing and collection service through its subsidiary Cobro24, enabling cost-effective management of receivables over their entire life cycle. Euroloan has consolidated its market position and increased its market share continuously from the time the company was established in In early 2013, Euroloan s wholly-owned subsidiary Euroloan Finance AB applied to the Swedish financial service authorities to become a credit market company licensed to receive state-guaranteed deposits of up to EUR from the public. Key events of the year: Cochito Ltd changed its name and corporate form. The new name is Euroloan Group, and the corporate form is public limited company (PLC). At the same time, the share capital was increased into EUR Euroloan Group PLC (Group) operated in Finland, Sweden and Poland. The Group s headquarters are located in Helsinki, Finland, with local offices in Stockholm, Sweden and Warsaw, Poland. In May, the Group launched a unique automated Revolving Credit Line financing system enabling the creation of a virtual credit card, for example. The credit account is created and managed in real-time via the electronic my.euroloan service. In accordance with the Group strategy, a professional Board of Directors was established in June. The Group acquired the entire share capital of both Euroloan Consumer Finance PLC and Crédito Cobro Ltd in a corporate transaction with a total valuation of EUR 28 million. At the same time, the Group s equity grew by more than EUR 8 million. As a founding member, the Group participated in launching a positive credit register for the Finnish market. The Group expanded to the Polish market as the first operator to introduce a virtual credit card. The Group initiated a new business area, Corporate Customers. Customers may apply for a corporate credit of EUR to using their accounts receivables as collateral. The Group s wholly-owned subsidiary Euroloan Finance AB applied to the Swedish financial service authorities to become a credit market company (Kreditmarknads-bolag). Within the license, savings of up to EUR per depositor are guaranteed by the Swedish deposit guarantee. In December, the subsidiary was capitalized with EUR 5 million. The number of customers of the auxiliary Cobro24 business name used in the Group s collection operations exceeded 50 customers of significant size. At the turn of the year, our automated highvolume collection agency services were used by banks, cities, insurance companies and municipalities alike. Finnish legislation went through a period of fundamental change. Changes in both the consumer protection and collection legislation caused significant changes to the Group s business models. Implementing the new operating models brought about one-time investments in information system changes as well as changes to the way the sales are booked in the accounts. Due to the significant legislation-related changes to the Group s business model, the sales figures of the 2013 consolidated 6 EUROLOAN GROUP PLC ANNUAL REVIEW

7 financial statements are not comparable with the 2012 figures. The turnover amounted to EUR 7,4 (9,6) million. Other income stood at EUR 2,6 (0) million. Total income stood at EUR 10,0 (9,6) million, increasing 4,5% from the previous year. Operating profit amounted to EUR 1,8 (2,1) million, that is, 24,6% (21,7%) of the operating profit. Operating profit excluding non-recurring items was EUR 0,8 (2,1) million. Operating profit includes EUR 2,6 million linked to changes in the Group s receivables base. Equity stood at EUR 10,3 (1,7) million, increasing 525% from the previous year. Of the equity increase, EUR 8,3 million originated when Euroloan Group PLC acquired the minority-owned shares of Crédito Cobro Ltd and Euroloan Consumer Finance PLC. The total balance sheet was EUR 32,1 (14,6) million, increasing 121 % from the previous year. Financial indicators Turnover*, M Equity ratio, % 12 35% % 25% 20% 15% 10% 5% % * Including other operating income Equity, M Total balance sheet, M EUROLOAN GROUP PLC ANNUAL REVIEW

8 FROM THE CEO FUTURE WINNERS ARE AUTOMATION, SCALABILITY AND LOW FIXED COSTS. Tommi Lindfors, CEO We believe that the global financial sector is experiencing major changes and is continuously transforming. Geographically extensive physical branch networks are inefficient to scale and the associated fixed costs have become prohibitively expensive to maintain for financial institutions. Because of this, automating processes and moving services online will become a necessity. We have seen the first signs of big layoffs, which have shaken the whole banking industry. In Finland, one large bank promises a mortgage decision within an hour in its advertisement. We have focused on our future vision by developing highly efficient and extremely scalable financial technology (FinTech) systems that are capable of making all annual lending decisions in Finland and paying the corresponding loan transactions to our customers within that one hour. Looking back at 2013, I read through my own CEO reviews that I present on a monthly basis to our Board of Directors. I quickly discovered that the common theme during the year was getting a lot of projects into production and being able to steer our Group swiftly while maintaining a high level of flexibility. I have often said that a single quarter for Euroloan Group is the same as a full year for more traditional companies and in 2013 it felt very much so. I summed up 2013 in a letter I sent to our employees on New Years Eve. Only when going through hundreds of pages of material in preparation for that letter did I truly understand the achievements that our staff of 40 people had accomplished within a single year. We completed a massive project (relative to our size), allowing us to provide continuous credit lines or virtual credit card products effectively and internationally. The system has enhanced mechanics for adaptive scoring for further managing the credit risk and for giving a better understanding of our customers ability to manage their credit. A high level of automation has brought our operations to a completely new level of efficiency. Human factors, such as a loan officer having a bad day, a pleasant customer who has a bad credit history or plain stress, will not affect the credit decisions we continuously make. I firmly believe that the next few years will show growth in earnings and a stronger balance sheet. We were founding members in the creation of a positive credit register in Finland. For years we have stressed its importance in our press releases and interviews, and finally it is up and running. The tool provides benefits to the customer as well as the lender in correct credit risk and solvency modeling, as the number of bad debt decisions is 8 EUROLOAN GROUP PLC ANNUAL REVIEW

9 minimized. In the past we have had positive experiences of this type of credit information from Swedish consumer finance market. In December, we were the first operator to introduce a virtual credit card to the Polish market through our new finance system. The demand for the product was instantly much greater than the total size of our current business, but the Group s Risk Committee decided to proceed with the planned and controlled low volume test process. Borrowing money is always much easier than getting a sufficient repayment percentage to operate a business. We found that we have the technical ability to open up a financial services business in a new country in just three months! We did all of the above while increasing the Group s equity by more than EUR 8 million and the total balance over 100%. We recruited a professional board of directors and gave the external members a majority of the voting rights. New members Heikki Palosuo and Riitta Salonen have extensive experience from the banking industry, Tapio Vuojärvi has led a large Finnish collection company, Timo Saini (Chairman of the Board) is an experienced board professional and Jonas Lindholm has an impressive background in risk management and strategy. We completed a deal with a total value of EUR 28 million where the Group acquired the entire share capital of Euroloan Consumer Finance PLC and Crédito Cobro Ltd. We changed the parent company s name to Euroloan Group PLC (formerly Cochito Ltd) and raised equity to the required level to make the Group a public limited company. We applied for a license to become a credit market company (Kreditmarknadsbolag) governed by the Swedish Financial Services Authority (SFSA). The license allows us to receive deposits from the public, which are under the Swedish deposit guarantee (up to EUR per depositor). The application is expected to lower the Group s consolidated financial costs significantly. Financial and debt collection laws changed fundamentally in Finland in This caused a lot of tight schedules and a lot of extra work for our personnel. Major investments in systems and processes were also required to meet the new regulations. We opened two new business areas; Corporate Loans and Deposits. Companies may apply for EUR loans and their accounts receivables are used as collateral. The management of receivables will be handled automatically. The organizational structure of receiving deposits under SFSA has been built in advance of receiving the credit market company license. For example the CEO and some key personnel have been recruited and the Swedish subsidiary s (Euroloan Finance AB) equity has been increased to five million euro. Our collection brand Cobro24 increased its number of customers to about 50, all of them of significant size. Our automated high-volume debt collection services are currently used by companies with high collection volumes, such as banks, cities, insurance companies and municipalities. We did all of the above while increasing the Group s equity by more than EUR 8 million and the total balance by over 100%. These were the biggest and most important achievements, but emphasizing them above the thousands of stunning individual performances, hundreds of meetings and dozens of smaller projects not mentioned above feels wrong. Our team really proved to be more than the sum of its parts, and I am extremely proud to work with them every day. I cannot find the words to thank them and our partners enough for their contribution and commitment. I want to give it a try, though, and I will begin by thanking our customers and partners for their cooperation during the past year. Together, we have EUROLOAN GROUP PLC ANNUAL REVIEW

10 created excellent conditions for building a successful Special thanks are definitely due to our staff, so thank you Adam, Agnieszka, Anne, Aleksi, Elina, Eric, Esa, Frank, German, Heikki, Jaakko, Janne, Jari, Jarno, Joachim, Jonas, Jukka, Jussi, Krzysztof, Lauri, Maarit, Maria, Maris, Marjo, Matti, Miikka, Mika, Nikolai, Oana, Olli, Pauli, Petra, Riitta, Risto, Robert, Rodica, Saara, Sami, Samuli, Santtu, Seppo, Sirkku, Stanislav, Stefan, Tapio, Teea, Thomas, Tiina, Timo, Tuomas, Turkka, Tuula, Ville-Mikko and Yingyun, or, in other words: Team Euroloan! Tommi Lindfors, CEO, Euroloan Group PLC 10 EUROLOAN GROUP PLC ANNUAL REVIEW

11 BOARD OF DIRECTORS According to the chosen strategy, the Group sought to form a professional board during The aim was achieved in the Shareholders Meeting of May 27 th 2013 with the selection of Timo Saini, Riitta Salonen, Heikki Palosuo, Tapio Vuojärvi and Jonas Lindholm as new board members. Board members Pauli Hentunen and Tommi Lindfors were re-elected to the board. In the Board s constituent meeting, Timo Saini was appointed Chairman of the Board. Board members on December 31 st 2013: Mr. Timo Saini, M.Sc. (Econ), born in 1945, Chairman of the Board Timo is an experienced business leader. He started his career at Unilever Finland Oy and has worked in managing director positions ever since, at Yhtyneet Kuvalehdet Oy, Talentum Oyj and as CEO of Oy Valitut Palat Reader s Digest Ab, in total for approximately 20 years. Between 1997 and 1999 he was European Vice President at Reader s Digest Ass. Inc. located in London. Since 2002, Timo has worked as a board member in several companies, often as chairman. Many of his board memberships are or have been in family businesses and in companies driven by private equity investors. He has special skills in board evaluation and corporate governance. He is also a popular speaker and writer in developing Board performance. Mr. Heikki Palosuo, LL.M., M.B.A, born in 1951 Heikki has over 30 years of experience in banking and finance. He has managed or taken part in the establishment of different banking entities in Scandinavia and the U.S. Heikki held various positions at Skopbank during the years , including in-house lawyer, head of letters of credit, SVP in corporate finance, New York branch manager and Executive VP. During the years , Heikki worked for Danske Bank, Finland, holding the positions of Helsinki branch manager, country manager and head of corporate finance. Since 2001, Heikki has worked on versatile financial advisory assignments, M&A and debt and equity capital market transactions as Senior Advisor at Corporate Advisor Group Oy, and as chairman and owner of Northeast Investments and Capital Ltd. He has served as a board member in various companies. Mr. Tapio Vuojärvi, LL.M., born in 1966 Tapio has 20 years of experience from outsourced receivables management services (ORM) and debt portfolio purchase. He played a leading role in setting the contemporary industry standards and creating a platform for rapid growth for the ORM industry in Finland, the Baltic States and Russia. He also has broad experience of consolidation and development of the ORM industry in the Nordic Countries and Europe. He has served leading financial institutions, telecom and utility companies, public organizations, retail and media companies as well as many other organizations in managing and financing receivables, and holds several board positions. His professional background includes Lindorff Oy as Senior Vice President responsible for Finnish, Baltic and Russian operations, Lindorff Invest Oy as Managing Director and Lindorff Group Ab as Senior Vice President responsible for the European SME market. Mrs. Riitta Salonen, M.Sc. (Econ), born in 1947 Riitta has a remarkable career at what is now Danske Bank. She started her career as a partner in Inter Consulting Ky (in ) and has since worked at Postipankki (Deputy General Manager, Capital Markets), Leonia Corporate Bank and Sampo Bank (Senior Vice President and Head of Capital Markets) and Danske Bank (Senior Vice President and Head of Debt Capital Markets Finland). Today Riitta is a Board Member of Gaia Network Association as well as Euroloan Group. She is a leading professional with an exceptionally EUROLOAN GROUP PLC ANNUAL REVIEW

12 broad knowledge of capital market and corporate finance products, such as the origination and syndication of domestic and euro bonds, syndicated loans, equity issues, swaps, asset securitization, corporate finance advisory, privatization, and IPO s and bank s own funding. She also has an excellent contact network with clients in the Nordic area and investment banks. Mr. Jonas Lindholm, M.Sc., born in 1971 Jonas has over 20 years of experience from working with strategy and finance for large international companies. He heads the Group s strategy and business development and its finance and administration. Before joining the Group as Executive Vice President and CFO in 2010, he worked as Vice President at Pöyry, leading highprofile projects for strategic and financial management of international energy, industrial, infrastructure and financial sector clients, and in public sector projects. Earlier he worked for KPMG as Director and Head of Business Area Risk Advisory Services, at Oxford IPC Worldwide as Partner and Vice President, Europe, and in several leading positions within ABB Financial Services and ABB Group. Jonas has a number of Board positions, and he is a founding member holding a Fellowship with the Oxford Leadership Academy. Mr. Tommi Lindfors, M.Sc. (Econ), born in 1975 Tommi is a co-founder and CEO of Euroloan Group PLC, formerly the CEO of Euroloan Consumer Finance PLC. He has experience in international financial services, real estate investment and entrepreneurship. Previously he worked at ABB; within ABB Group, ABB Credit, and ABB Financial Services; and in OP-bank Group. Tommi is the Chairman of the Board of Group companies Euroloan Consumer Finance PLC and Crédito Cobro Ltd and is a leading expert in business development and investment. According to the internal audit of 2013, there are no conflicts of interest related to the board members or the CEO. During the year, the Group made managerial appointments. These aim to secure efficient implementation of strategy related to the new operating model. Mr. Pauli Hentunen, BBA, born in 1964 Mr. Hentunen is a co-founder of the Group and a former Chairman. He has worked with marketing and sales management in the kitchen, home appliance and real estate businesses, with leading positions at Puustelli, Electrolux, Huoneistokeskus and OP-Kiinteistökeskus, among others. Pauli is a member of the boards of directors of several companies and has a long experience in recruiting and training expert personnel, and IT systems development 12 EUROLOAN GROUP PLC ANNUAL REVIEW

13 STEERING COMMITTEE The Group s Steering Committee in December 2013: Mr. Lauri Kivistö, born 1968, Head of Collection Mr. Samuli Korpinen, born 1977, Head of Consumer Finance Mr. Tommi Lindfors, born 1975, CEO Mr. Jonas Lindholm, born 1971, Executive Vice President, Chief Financial Officer Mr. Seppo Sairanen, born 1957, Head of Corporate Finance Mr. Eric Sederholm, born 1965, Head of Deposits Mr. Joachim von Schantz, born 1970, Head of Groups Services EUROLOAN GROUP PLC ANNUAL REVIEW

14 BOARD ANNUAL REPORT The year was challenging for Finnish consumer finance and collection companies. Wide-ranging operating environment changes to the consumer protection and collection legislation caused the Group significant system investments and scheduling pressures. Regardless of the challenging business environment, Euroloan was successful in many areas. Total Group income grew, solidity improved and the total balance sheet grew by more than 100% from the previous year. At the turn of the year, Euroloan Group had tens of thousands of satisfied B2C and B2B customers. The Board s main priority areas were the credit market company license application in Sweden, operating in compliance with the new legal obligations of early 2013, and controlled international operational expansion through organic growth. During the financial year, the consolidated Group turnover amounted to EUR 7,4 (9,6) million. The other income was EUR 2,6 (0) million. The total income stood at EUR 10,0 (9,6) million, increasing 4,5% from the previous year. The operating profit amounted to EUR 1,8 (2,1) million, that is, 24,6% (21,7%) of the turnover. The operating profit excluding non-recurring items was EUR 0,8 (2,1) million. The operating profit includes EUR 2,6 million linked to changes in the Group s receivables base. The total balance sheet grew by EUR 17,6 million during the year, or 121%, to EUR 32,1 (14,6) million. The growth came mainly from consumer lending activities and the increase in the amount of cash due to a bond emission in December. The Group s intangible assets related to information systems totaled EUR 3,1 (2,7) million. Due to legislation changes mainly in the consumer finance business, the figures for the 2013 financial year are not directly comparable with the 2012 financial year figures. In the autumn, the Board s main priority areas were the changes required for the license to become a credit market company and budgeting for The Board also clarified the growth strategy by naming new areas of growth. The most significant of these was the decision to initiate a new lending operations base by the launching of the Corporate Customers business area. Initially, the main focus in the area was to identify corporate credit demand in the target markets and to create a business plan. Euroloan continued to expand its loan services with the launch of a financing system in May. The system enables Euroloan to offer continuous credit lines or virtual credit card products effectively and internationally via the my.euroloan service. At the same time, new innovations for credit risk and customer solvency management were introduced. The Board will actively follow the development of the banking and financial sector tax and legislation changes in Finland, Sweden and Poland. Increasing costs and tightening regulation are a challenge, particularly for banks with an extensive physical branch network, limiting their ability to operate profitably. Euroloan believes that the demand among private individuals for flexible consumer credit solutions will increase significantly over the next several years, especially due to increasing e-commerce. In the future, we will continue to build our service model based on online services and developing leading technology, as outlined in the Group s FinTech (Financial Technology) strategy. 14 EUROLOAN GROUP PLC ANNUAL REVIEW

15 Market development FINLAND The Group s main market areas in 2013, in order of magnitude, were Finland, Sweden and Poland. The majority of the Group s operating profit came from the loan, finance, credit control, information system, receivables management and collection operations. Lending market in Finland (other financial institutions) The third quarter of 2013 saw the stock of lending of the Finnish financial institutions remain at the same level as before. At the end of the third quarter, the stock of lending was EUR 7 billion. The stock of lending grew from 14% from the previous year, but only about one percent from the previous quarter. The stock of lending consisted of 43,8% corporate and residential housing company, 31,7% foreign and 22,6% household credits. (Statistics Finland: Financial activities, 2013, 3rd quarter). Out of this, business credits totaled EUR 3 billion and household credits EUR 2 billion. Other financial intermediaries lending by borrower sector at the end of the 3rd quarter in 2013, R% Finnish collection market The debt collection market has continued to grow from the collection issues in 2008 to at the end of The growth in the period was 32%. The amount of receivables in enforcement proceedings has remained more stable: the total amount of receivables in enforcement proceedings was EUR 3,4 billion in 2008 and EUR 3,2 billion in In euro, receivables in enforcement proceedings decreased over the period by more than 5%. Number of debtors in enforcement matters, amount of receivables in enforcement matters (EUR 000) Number of debtors in enforcement matters 1) Amount of receivables in enforcement matters, EUR Number of debts in collection Men Women Men Women Men Women Men Women Men Women ) The table includes only Finnish residents with socioeconomic background information available based on their personal identification number. S.11 Non-financial corporations and housing corporations S.12 Financial and insurance corporations S.14 Households S.13 General government S.2 Rest of the world S.15 Non-profit institutions serving households Source: Statistics Finland Source: Statistics Finland EUROLOAN GROUP PLC ANNUAL REVIEW

16 Finnish information system market The information system market may be quiet in Development is expected to remain weak in 2014 due to the customer s cost savings. One of the most significant trends recognized by the Group is the implementation of mobile services. Mobile service users are a rapidly growing and therefore important customer segment. Another trend is that companies are moving toward flexible online models, both in applications and ICT infrastructure. Many companies combine and integrate cloud services with their old systems which are still used for business-critical processes. Customers value cost savings achieved through increased automation, and measurable IT service business benefits are increasingly used as a decision-making criteria. This leads to solutions being supplied as services incorporating the infrastructure, software and services. Servicebased supply models are gradually replacing traditional IT projects. Normally, the services offered cover several years, with payments being distributed over a longer period of time. Profitability typically grows over time as the volumes grow. Demand for services allowing the customers to move from their old infrastructure to the latest technology is expected to grow. The main growth incentives are automation of business operations and processes, new end user services, mobile applications and data security. SWEDEN Lending market (unsecured loans) The Swedish market for unsecured loans remained relatively stable in Swedish households borrowed 2% more than the previous year, bringing the credit stock up to about SEK 10 billion. Credit limit and credit card markets dropped a little. In October, the government drafted a motion to parliament to define a ceiling for the actual annual percentage rate. If implemented, the decision will cause problems for companies offering short-term credit. Savings and deposits market Deposits have continued to rise despite the low deposit rates. The Swedish households savings rate rose about 5,9% a year, or about SEK 74 billion, to a total amount of SEK billion. In 2013, there were 44 regulated credit market companies in the market, with five new companies (including Euroloan) applying for an equivalent credit market company license. Euroloan submitted the application early in 2013, and we expect to receive the license during the first half of The Group s wholly-owned subsidiary Euroloan Finance AB was capitalized with EUR 5 million in December The cumbersome and bureaucratic license process may take significantly longer than expected. Development of household savings in 2013: Source: Statistics Finland 16 EUROLOAN GROUP PLC ANNUAL REVIEW

17 POLAND Lending market (consumer finance) The consumer finance market has grown in 2013, after a calmer period of four years was the first year since 2008 without a decrease in the total consumer credit amount. This is due to the following: The mortgage market dropped significantly (60% of the total sales) due to the new regulations related to foreign currency mortgages. Previously, mortgages in euro and Swiss francs were very common. Changes in the Polish financial supervisory regulations allow banks to offer their customers bigger loans more flexibly. Tougher competition on the short-term loan market. The number of credit cards has decreased from 11 million in 2009 to a little over 6 million in Most of this comes down to payment problems and the small number of transactions. Euroloan started its lending operation test period in Poland in December 2013, with relatively modest volume with respect to the scope of operations. By the end of 2013, the Group had about 800 Polish customers. Development of turnover During the period under consideration, the consolidated Group turnover amounted to EUR 7,4 (9,6) million. The other income was EUR 2,6 (0) million. The total income stood at EUR 10,0 (9,6) million, increasing 4,5% from the previous year. The other income includes EUR 2,6 million linked to a part of the Group s internal EUR 33,5 million transaction from the stock of gross receivables to the fair value. million of sales realized in 2013 will be recognized in the 2014 turnover. In accordance with the Group strategy, the business model based on installment credit was replaced with a revolving credit line. As a result of this, the accounting practice changed so that loan operations income is recognized at a later stage than it was before. Therefore, the figures for 2013 s turnover are not comparable with the 2012 figures. Development of profit and costs Consolidated business result after tax for 2013 was EUR , compared to the EUR for the previous year. The business result, excluding non-recurring items, dropped from EUR in 2012 to EUR 2,3 million. However, due to the actions taken, the result trend before credit losses and non-recurring items improved significantly on the last quarter of the year. The low point was reached in the second quarter of 2013, after which business volume has grown continuously. The main factor behind the profit impact was the change in the law regulating the credit market (see Development of turnover above). Personnel costs increased from EUR 1,1 million in 2012 to EUR 1,7 million in Other costs decreased from EUR 6,1 million in 2012 to EUR 5,3 million in Total costs decreased 2,3% from EUR 7,2 million in 2012 to EUR 7,1 million in The increase in personnel costs and decrease in other costs is due to the organizational strategy change of 2012, decreasing outsourced work and increasing the number of in-house personnel. The decrease in turnover was mainly due to the change in the consumer finance business model made on 2 May Approximately EUR 0,8 EUROLOAN GROUP PLC ANNUAL REVIEW

18 Financial indicators Turnover, M 6,2 9,6 7,4 Other operating income, M 0,0 0,0 2,6 Earnings before interest and tax, M 2,8 2,1 1,8 Return on equity (ROE), % 60% 16% 3% Equity ratio 14% 11% 32% Calculation of key indicators Turnover Calculated directly from the income statement Other operating income Calculated directly from the income statement Earnings before interest and tax Calculated directly from the income statement Return on equity (ROE), % = Profit for the financial year Equity + minority interest Equity ratio, % = Equity Total balance sheet Parent company s trend in earnings The turnover of the Group s parent company Euroloan Group PLC for the financial year was EUR 1,3 million (EUR 0,6 million). Majority of the turnover comes from selling administrative services to other Group companies. The parent company s profit was EUR 0,0 million (EUR 0,2 million). Balance sheet and financing The Group s equity at the end of the period was EUR 10,3 million (EUR 1,7 million). The total balance sheet grew by EUR 17,6 million during the year, or 121%, to EUR 32,1 (14,6) million. The growth came mainly through public lending activities, increase in goodwill and increase in the amount of cash due to the bond emission in December. Personnel and organization The number of employees at the end of 2013 was 40 (38). Compared to the previous year, the personnel increased by two persons, or 5%. Of the personnel, 40 (35), or 100% (92%), were full-time employees. Of the employees, 87% worked in Finland and 13% in other countries. One of the main tasks in 2013 for human resources management was to support the organizational change and preparation for new operating models. To this end, human resources management established several working groups. In managerial appointments, special attention was paid to international and leadership skills and the ability to manage strategic change. Human resources management also participated closely in developing operations in the Group s current and 18 EUROLOAN GROUP PLC ANNUAL REVIEW

19 new markets. Other priority areas for 2013 were competence development and establishing an option-based incentive system for the entire personnel. During the year, several training events were organized, with the focus on development of competence, in order to ensure a good operating base for the company s key personnel. The aim is to share best practices and support project planning and management. SAVINGS & DEPOSITS The organizational structure for receiving deposits has been built in advance of receiving the credit market company license. For example, the CEO and some key personnel have been recruited and the Swedish subsidiary s (Euroloan Finance AB) equity has been increased to five million euro. The license allows the Group to receive deposits from the public under the Swedish deposit guarantee (up to EUR per depositor). The application is expected to lower the Group s consolidated financial costs significantly. Business areas The Group operations include the following five business areas and group services: CONSUMER FINANCE Consumer finance was the Group s largest business area, significantly affecting the risks and financial performance of the entire Group. In 2013, consumer finance was offered in the Finnish, Swedish and Polish markets. The maximum amount for the credit limits granted was EUR The Group s subsidiary Euroloan Consumer Finance PLC is responsible for consumer finance. CORPORATE CUSTOMERS Companies may apply for loans of between EUR and with maturity of 6 to 24 months, provided that their accounts receivables are sufficient for use as collateral. COLLECTION The Group offers a full-service collection service through its subsidiary Cobro24. Cobro24 signed a cooperation agreement with, among others, Falck Oy. Cobro24 provides notification and collection services for consumer and business customers. During the year, the service was extended to cover Falck Ensihoito Oy s collection. The use of the PerintäKarhu system for individual collection increased with several bank customers. Of the Pop Bank group, Pop Pohjanmaa and Poppia implemented the system, and S-Pankki decided to expand the application of the system significantly. As a whole, the Group had about 50 collection service customers of significant size, with banks, cities, insurance companies and municipalities using the services provided by Cobro24. INVESTMENTS In investments, the main focus was on the purchase of sales and debt receivables collected from the debtors. Investments are typically debt portfolios with thousands of individual debtors, mainly consumers. The purchase price is calculated based on a cash flow forecast determined from the entire portfolio. Typically, the company acquires old receivables at a significantly reduced price compared to their nominal value. This reduces the payoff risk. The nominal amount of receivables is significantly higher than the balance sheet value. In the case of prolonged receivables recovery, the debtors are usually struggling to pay. Therefore, it may take time to recognize the portfolio as income. Active and frequent collection actions are used to minimize the risk and improve the cash flow from receivables. GROUP SERVICES The Group s parent company provides administrative, financial administration and personnel services mainly to Group companies. Board and auditors The Shareholders Meeting held on 27 May 2013 reelected Tommi Lindfors and Pauli Hentunen as members of the Board of the Group s parent company. Timo Saini, Riitta Salonen, Heikki Palosuo, Jonas Lindholm and Tapio Vuojärvi were elected as new members. The Chairman of the Board is Timo Saini. The Shareholders Meeting appointed PricewaterhouseCoopers Oy as the Authorized Public Accountant, with Martin Grandell having the principal responsibility. EUROLOAN GROUP PLC ANNUAL REVIEW

20 Responsibility Euroloan Group PLC is a reliable and responsible partner. Our operations adhere to the Finnish, Swedish, Polish and Danish legislation and regulations by the local regional administration, consumer and financial supervisory authorities. The Group requires compliance with the company s ethical guidelines from personnel and contractors. Summary of Euroloan s ethical guidelines: We follow existing laws and regulations, and actively help to enforce them. We strive to implement the recommendations of authorities. We welcome improved oversight of the finance sector. Our reports are accurate and truthful. We are fair in our dealings and follow our policies, treating all our customers in the same manner. We do not associate ourselves with corruption or underhanded dealings. We honor our agreements and expect others to do the same. We do not take unreasonable risks, but conduct business in a prudent and reliable manner. We treat our personnel fairly and equally. We lead by example. Our values are something we live by they should shine through what we do. In our everyday work, we bring our personal values, which include the responsibility for people and the environment. We want to provide a safe, friendly and familiar environment for our staff. In all interaction with our customers and investors, openness, fairness and good service are our leading values. Corporate governance and decision-making comply with the Finnish Limited Liability Companies Act (public limited companies), other similar legislation, and the company s Articles of Association. We follow the principles of openness, fairness and good service, and we are committed to this aim in all our activities. Our financers and investors are actively involved in business development, and we strive to provide all necessary information for them to make sound investment decisions. The company follows the more stringent reporting requirements of a public limited company, and is audited by PriceWaterhouseCoopers (an APA audit firm), responsible auditor Martin Grandell. Since 2009, we have agreed to reduce emissions and plant trees in deforested areas of the world. In environmental issues, we partner with Carbonfund.org Foundation. By the end of 2013 we had planted more than trees and cut emissions by more than 500 tons. We have agreed to make quarterly donations to Carbonfund.org, half of which is to be used to plant trees and half to cut CO 2 emissions. Reduction in carbon dioxide emissions reduces the amount of fossil fuel sources, like coal and oil, used to produce energy. Deforestation accounts for 20% of climate change, so reforestation is essential in solving the problem. Reforestation binds carbon dioxide and prevents climate change improves air quality (by binding air impurities and producing oxygen) preserves biodiversity decreases floods and erosion provides habitat and sustenance for fauna creates jobs in nursery gardens, planting and forest management. Euroloan Group PLC is a Finnish public limited company. The responsibilities and obligations of its governing bodies are provided by Finnish law. The company s Board of Directors has determined the company s principles of corporate governance. The Group follows consumer protection laws and regulations, and the recommendations issued by consumer protection authorities. 20 EUROLOAN GROUP PLC ANNUAL REVIEW

21 Changes in shareholding, ownership and Group structure At the end of the financial year, Euroloan Group PLC had a single share series and shares. During the financial year, a bonus issue increased the number of shares to In the third quarter, the number of shares increased by In the fourth quarter, a total of new Euroloan Group PLC shares were subscribed with share options. During the financial year, the Group s parent company name and form were changed by the decision of Cochito Ltd s Shareholders Meeting. The new name is Euroloan Group, and the corporate form is public limited company (PLC). Along the financial year, the Group s parent company acquired the entire share capital of both the Euroloan Consumer Finance PLC and Crédito Cobro Ltd in a corporate transaction with a total valuation of EUR 28 million. Crédito Cobro Ltd has a subordinated loan from Euroloan Consumer Finance PLC. Please refer to notes to the financial statements for more detailed information. Major shareholders 31 December 2013 Shareholder Shares (pcs) Share of ownership (%) Bonares Oy (in which Tommi Lindfors exercises controlling power) ,54% Eficaz Capital Ltd (in which Pauli Hentunen exercises controlling power) ,52% Esko Kauhanen ,56% Arto Keskinarkaus ,87% Optiopaja Oy ,67% Zandora Oy ,37% Gymnosof Oy ,19% Q2 Consulting Oy ,72% Mergus Oy (in which Timo Saini exercises controlling power) ,54% Scorchio Invest Ltd (in which Samuli Korpinen exercises controlling power) ,34% Oxford IPC Ltd Oy (in which Jonas Lindholm exercises controlling power) ,15% Other shareholders, total ,54% Shares, total ,00% The number of shareholders was 23 on 31 December Related party loans and responsibilities The Group has not granted loans to related parties. Group structure Euroloan Group PLC includes nine companies through its holdings. The parent company owns the entire share capital of the following companies: o o Euroloan Consumer Finance Sp. z.o.o Euroloan Consumer Finance APS Euroloan Consumer Finance PLC, which is the single owner of the following companies: Crédito Cobro Ltd, which is the single owner of the following companies: o ELCF Sweden AB o Crédito Cobro Capital Oy o Euroloan Finance AB o Digna IT Oy EUROLOAN GROUP PLC ANNUAL REVIEW

22 Group structure Share capital development and authorizations of the Board of Directors The EUR increase in the share capital, decided on 18 September 2013, was registered on 29 October In an Extraordinary Shareholders Meeting, the Board was authorized to decide on issuing shares and options in one or several batches, up to a maximum of shares issued. The authorization is valid for a period of five years. On the basis of the authorization, the Board of Directors issued conditional share options, with a typical maturity of five years, to the personnel and stakeholders. Out of the total amount of shares, were subscribed in Risk management The Board of Directors of Euroloan Group PLC has formed from its membership a Risk Committee responsible for the Group s risk management. The task of the Risk Committee is to recognize, analyze and control the Group s risks. The committee approves the risk management principles, risk limits and guidelines according to which risk management is organized. The Risk Committee presents the Board with the proposals concerning risk taking. The Group s most significant strategic and business risks include operative, financial, liquidity, credit, market, currency and interest risks. A separate, more elaborate risk description can be found on the Group s website and in the Annual Review Business environment Changes in both the consumer protection and collection legislation caused significant changes to the Group s business environment. The yield from the consumer finance operations is recognized at a later stage than previously, decreasing direct returns. Regulatory changes also brought about significant one-time investments to the information systems. The figures of the 2013 consolidated financial statements are not comparable with the 2012 consolidated financial statements figures. However, due to the actions taken, the result trend before credit losses and non-recurring items improved significantly in the last quarter of the year. In terms of lending market volume, December was the best month in the Group s history. Dividend proposal by the Board of Directors Despite the retained earnings and positive profit for the financial year, the Board of Directors proposes that there will be no dividend paid for financial year The proposal is based on the need for Tier 1 capital complying with the Basel III regulations, brought about by the Swedish credit market company (kreditmarknadsbolag) license. Dividend distribution would have a negative impact on the license process. Relevant events after the balance sheet date Board member Pauli Hentunen resigned from the Board of Directors of the Group s parent company on 15 January 2014, due to health reasons. Another member of the Board, Tapio Vuojärvi, resigned 22 EUROLOAN GROUP PLC ANNUAL REVIEW

23 from the Board of Directors of both the Group s parent company and Crédito Cobro Ltd on 27 January Tapio wanted to concentrate on other duties. At the constituent meeting, the Board of Directors of Euroloan Group PLC was found to be fully functional and in accordance with the Articles of Association. On 7 February 2014, the Board of Directors convened an Extraordinary Shareholders Meeting that decided to issue a new series of shares to strengthen the financial position of the company. On 14 February 2014 and 24 February 2014, the Group received new information from the Swedish Financial Services Authority regarding the license to become a credit market company (Kreditmarknadsbolag). In the view of the Board, the information increases the chances to obtain the license. However, the licensing process is still ongoing. By lending, the Group s business volume grew significantly in January (about +35% compared to December 2013). The Group s previous record volume was achieved in December. According to the forecast (as of 25 February 2014), the lending volume for February increases by 10% compared to January. In January 2014, about two-thirds of the Group s personnel and parent company s Board members subscribed to parent company shares. The Board and operative management consider this a very positive signal for both personnel commitment and future success potential. Outlook for 2014 The Board of Directors estimates that the turnover, income and total balance sheet for the financial year will grow from 2013, but notes that the availability of liquidity in particular will affect the outcome significantly. Helsinki, 25 February 2014 Board of Directors of Euroloan Group PLC EUROLOAN GROUP PLC ANNUAL REVIEW

24 CONSOLIDATED FINANCIAL STATEMENTS Income statement TURNOVER , ,67 Other operating income ,09 0,00 Materials and supplies Raw materials and consumables Purchases during the financial year 0,00 0,00 External services , ,33 Total , ,33 Personnel costs Salaries and benefits , ,40 Social security costs Pension costs , ,43 Other social security costs , ,28 Total , ,11 Depreciation and impairment Planned depreciation , ,35 Depreciation of goodwill on consolidation and decrease in Group reserve , ,07 Depreciation of fixed assets ,64 0,00 Total , ,28 Other operating costs , ,92 OPERATING PROFIT (LOSS) , ,03 Financial income and expenses Capital gains from holdings 0, ,00 Other interest and financial income From others 3 278, ,43 Total 3 278, ,43 Interest and other financial expenses To Group companies 0,00 0,00 To others , ,93 Total , ,93 Total , ,50 PROFIT BEFORE APPROPRIATIONS AND TAXES , ,53 Income taxes , ,94 Minority interests 0, ,10 PROFIT (LOSS) FOR THE FINANCIAL YEAR , ,49 24 EUROLOAN GROUP PLC ANNUAL REVIEW

25 Balance sheet ASSETS NON-CURRENT ASSETS Intangible assets Development expenditure , ,78 Intangible rights , ,50 Consolidated goodwill , ,57 Advance payments 0, ,09 Total , ,94 Tangible assets Machinery and equipment , ,41 Other tangible assets 2 500, ,00 Total , ,41 Investments Holdings in Group companies , ,35 Total , ,35 NON-CURRENT ASSETS, TOTAL , ,70 CURRENT ASSETS Receivables Short-term Sales receivables , ,72 Receivables from Group companies 0, ,00 Loan receivables , ,69 Other receivables , ,21 Accrued income , ,32 Total , ,94 Cash in hand and at bank , ,83 CURRENT ASSETS, TOTAL , ,77 ASSETS, TOTAL , , EQUITY AND LIABILITIES EQUITY Share capital , ,00 Translation difference , ,53 Invested unrestricted equity reserve , ,01 Retained profit (loss) , ,16 Profit (loss) for the financial year , ,49 EQUITY, TOTAL , ,13 EUROLOAN GROUP PLC ANNUAL REVIEW

26 MINORITY INTERESTS 0, ,30 GROUP RESERVE , ,70 LIABILITIES Long-term Bonds ,00 0,00 Loans from financial institutions , ,00 Total , ,00 Short-term Bonds , ,00 Advances received 0,00 0,00 Accounts payable , ,55 Other liabilities , ,11 Prepayments and accrued income , ,68 Total , ,34 LIABILITIES, TOTAL , ,34 EQUITY AND LIABILITIES, TOTAL , ,47 26 EUROLOAN GROUP PLC ANNUAL REVIEW

27 Cash flow statement OPERATING CASH FLOW: Cash receipts from sales , ,93 Cash receipts from other business income ,09 0,00 Cash receipts from operating expenses , ,71 Operating cash flow before financial items and taxes , ,22 Interest and fees paid for other operating financial costs , ,46 Interest received from business operations 3 278, ,43 Direct taxes paid , ,51 0,00 Operating cash flow , ,32 INVESTMENT CASH FLOW: Loans granted 0, ,00 Investments in tangible and intangible assets , ,80 Acquisitions of subsidiaries , ,35 Investment cash flow , ,15 FINANCIAL CASH FLOW: Sale of treasury shares 0, ,00 Withdrawal of short-term loans , ,00 Repayment of short-term loans , ,00 Withdrawal of long-term loans , ,00 Dividends paid and other distribution of profit , ,27 Financial cash flow , ,73 Change in cash , ,74 Cash at beginning of financial year , ,57 Cash at end of financial year , ,83 EUROLOAN GROUP PLC ANNUAL REVIEW

28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Consolidated financial statements The same valuation and periodization principles have been followed in the consolidated financial statements as in the parent company s financial statements. Subsidiaries Crédito Cobro Ltd and Euroloan Consumer Finance PLC and their wholly-owned subsidiaries Crédito Cobro Capital Oy, Digna IT Oy, ELCF Sweden AB, Euroloan Consumer Finance S.P. z.o.o. and Euroloan Finance AB are consolidated in the Euroloan Group PLC s consolidated financial statements. Euroloan Consumer Finance PLC s subsidiary Euroloan Consumer Finance APS has not been consolidated, since it has not had any business activities yet. The consolidation has been made in accordance with the valid Accounting Act. The consolidated financial statements have been prepared by using the acquisition cost method. The difference between the subsidiaries acquisition cost and the equity corresponding to the acquired share is presented as consolidated goodwill. Intra-group transactions, mutual receivables, and receivables and liabilities as well as internal profit distribution have been eliminated. Minority interests have been separated from the Group s equity and result and are presented as a separate item. During the financial year, the parent company acquired all minority shares. The consolidated financial statements are available at Euroloan Group PLC s office at Energiakuja 3, Helsinki, Finland. PREPARATION OF THE FINANCIAL STATEMENTS Valuation principles and methods The company s non-current assets are valued at their variable acquisition cost. Periodization principles and methods The acquisition cost of the fixed assets subject to wear and tear owned by the company is written off according to a prepared plan. Asset type Machinery and equipment Development expenditure Copyright Consolidated goodwill Depreciation method/ percentage outlay residue write-off 25% 5-year straight-line 5-year straight-line 20-year straight-line The depreciation period for goodwill is 20 years. The long period is justified because of the particularly long-term added value expected from the acquired companies, for example due to the receivable cash flows for years to come. The customer base of the companies is also expected to generate long-term income. INCOME STATEMENT Financial income and expenses Capital gains from holdings 0, ,00 Other interest and financial income From Group companies 0,00 0,00 From others 3 278, ,43 Total 3 278, ,43 Interest and other financial expenses 28 EUROLOAN GROUP PLC ANNUAL REVIEW

29 Interest expenses on shareholder loans , ,80 To others , ,13 Total , ,93 Total , ,50 ASSETS Development expenditure Book value at the beginning of the financial , ,05 year Additions , ,38 Transfer from advance payments ,09 0,00 Disposals 0, ,97 Write-down ,64 0,00 Planned depreciation , ,68 Book value at the end of the financial year , ,78 Copyright Book value at the beginning of the financial , ,50 year Additions 0, ,00 Planned depreciation , ,00 Book value at the end of the financial year , ,50 Consolidated goodwill , ,57 Advance payments Book value at the beginning of the financial ,09 0,00 year Additions 0, ,09 Transfer to development expenditure ,09 0,00 Book value at the end of the financial year 0, ,09 Machinery and equipment Book value at the beginning of the financial , ,59 year Additions 0, ,30 Planned depreciation 6 782, ,48 Book value at the end of the financial year , ,41 Other tangible assets Book value at the beginning of the financial 2 500, ,00 year Book value at the end of the financial year 2 500, ,00 LIABILITIES Specification of equity Restricted equity Share capital At the beginning of the financial year 5 000, ,00 Additions ,00 0,00 EUROLOAN GROUP PLC ANNUAL REVIEW

30 At the end of the financial year , ,00 Translation difference At the beginning of the financial year 4 524,53 387,23 Additions , ,76 At the end of the financial year , ,53 Restricted equity, total ,30 475,47 Unrestricted equity Invested unrestricted equity reserve At the beginning of the financial year , ,01 Additions ,65 0,00 At the end of the financial year , ,01 Retained profit (loss) , ,43 Profit (loss) for the financial year , ,49 Dividends paid , ,27 Accrued profits , ,65 Unrestricted equity, total , ,66 Minority interest 0, ,30 Distributable funds , ,66 COLLATERAL AND CONTINGENT LIABILITIES Liabilities and collateral, by balance sheet item and type of collateral Specification of liabilities Amount Collateral Bonds ,00 Liabilities to financial institutions ,00 Liabilities to shareholders ,00 Some with Other liabilities ,40 guarantee CORPORATE INFORMATION Euroloan Group PLC (Euroloan) is a rapidly growing international group specialized in financing and financial technology (FinTech). The Group s headquarters are located in Helsinki, Finland, with offices in Stockholm, Sweden and Warsaw, Poland. Euroloan has developed the most efficient financing business models and systems in the market. Euroloan s fully automated and internationally scalable cloud services provide realtime credit solutions for small-to-medium size businesses and consumers. Euroloan Group also provides a fully automated invoicing and collection service through its subsidiary Cobro24, enabling complete, cost-effective life cycle management of receivables. The Group s parent company is Euroloan Group PLC. The parent company s domicile is Helsinki, and its registered address is Energiakuja 3, Helsinki, Finland. A copy of the consolidated financial statements is available at website or at the Group s parent company headquarters Euroloan Group PLC, Energiakuja 3, Helsinki, Finland. 30 EUROLOAN GROUP PLC ANNUAL REVIEW

31 ACCOUNTING PRINCIPLES OF FINANCIAL STATEMENTS The consolidated financial statements have been prepared in compliance with the Finnish Accounting Standards (FAS). The consolidated financial statements are based on actual costs, with the exception of financial assets, liabilities and derivative contracts booked at fair value. PRINCIPLES OF CONSOLIDATION Subsidiaries The consolidated financial statements include the parent company Euroloan Group PLC and all its subsidiaries except for the Danish subsidiary. Subsidiaries are companies controlled by the Group. All subsidiaries are wholly-owned. Control exists when the Group holds over half of the voting rights or otherwise has control over the company s financial management and operating policy decisions. Intra-group holdings are eliminated using the acquisition cost method. The acquired subsidiaries are included in the consolidated financial statements from the date that the Group obtained control. Intra-group transactions, receivables, liabilities, unrealized gains and profit distribution are eliminated in preparing the consolidated financial statements. Unrealized losses are not eliminated if they are due to impairment. The profit distribution for the financial year between owners of the parent company and minority shareholders is included in the income statement, and the minority share of equity is presented in the balance sheet as a separate item. The consolidated subsidiaries included in the consolidated financial statements are ELCF Sweden AB, Euroloan Finance AB, Euroloan Consumer Finance Sp. z.o.o, Crédito Cobro Ltd, Crédito Cobro Capital Oy and Digna IT Oy. TRANSLATION OF FOREIGN CURRENCY ITEMS The profit and financial position of the Group entities are measured using the currency of the primary economic environment in which each entity operates ( functional currency ). The consolidated financial statements are presented in euro, which is the functional and reporting currency of the parent company. The income statements of foreign Group companies are translated into euro using the average exchange rate for the period, and balance sheets are translated at the exchange rate on the balance sheet date. Translation differences arising from different rates in the income statement and balance sheet are reported in equity. Translation differences arising from eliminating the acquisition cost of foreign subsidiaries and the translation of the foreign subsidiaries accumulated equity subsequent to acquisition are reported in equity. When a subsidiary is divested entirely or partially, the cumulative exchange differences are included in the income statement under sales gains or losses. TANGIBLE ASSETS Property, plant and equipment are valued at actual cost minus accumulated depreciation and impairment losses. Other subsequent expenses are included in the carrying value of the property, plant and equipment only if it is probable that the future economic benefits that are attributable to the asset will benefit the Group and the cost of the asset can be measured reliably. Other repair and maintenance costs are expensed as incurred. Assets are depreciated as follows: Machinery and equipment: outlay residue write-off Art objects: no write-off The residual value of these assets and their useful lives are reassessed when the financial statements are prepared and, if necessary, adjusted accordingly to reflect any changes in the future economic benefits expected. Gains or losses on disposal or sale of property, plant and equipment are included under other business income or expenses. INTANGIBLE ASSETS The Group s main intangible assets are intellectual property rights related to information systems and goodwill. Intangible assets are recognized in the balance sheet only if it is probable that the expected future economic benefits that are attributable to the EUROLOAN GROUP PLC ANNUAL REVIEW

32 assets will flow to the Group and the cost of the assets can be measured reliably. Intangible assets with finite useful lives are recorded in the balance sheet at historical cost, and amortization is recognized in the income statement on a straightline basis over their known or estimated useful lives. Intangible assets include personnel costs from information system development projects and consultancy fees of external service providers. The depreciation period for intellectual property rights is five years. Goodwill Goodwill represents the amount of the cost that exceeds the Group s share of the net fair value of the acquired company on the date of acquisition. Goodwill is measured at historical cost less straight-line depreciation. The depreciation period is 20 years. The long period is justified because of the particularly long-term added value expected from the acquired companies, for example due to the receivable cash flows for years to come. The customer base of the companies is also expected to generate long-term income. FINANCING COSTS Financing costs are recorded as expenses in the period in which they are incurred. Transaction costs directly related to the borrowing of funds and clearly attributable to a specific loan are amortized over the loan period. IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS At each balance sheet date the Group assesses whether there is any indication that an asset may be impaired. If any such indication exists, the asset s recoverable amount is estimated. The recoverable amount of goodwill and intangible assets not yet available for use is also annually estimated, independent of any indication of impairment. The need for impairment is assessed at the level of cash-generating units, which in the case of Euroloan Group PLC is the subsidiary level. The recoverable amount is the higher of an asset s fair value less divestment cost and its value in use. The value in use is calculated by estimating future net cash flows expected to be derived from the asset or cash-generating unit, and by discounting them to their present value using a pre-tax discount rate which reflects the market s view on the time value of money and special risks related to the asset item. An impairment loss is recognized when the book value of the asset item exceeds the recoverable amount. In conjunction with this, the impaired asset s useful life will be reassessed. The impairment loss is reversed if conditions have changed and the recoverable amount has changed after the impairment loss was recognized. Impairment losses recognized for goodwill are not reversed. EMPLOYEE BENEFITS Pension obligations Euroloan Group PLC has defined contribution plans. Contribution plan payments are recognized in the income statement in the financial year they are made. All Euroloan Group PLC pension arrangements are financed through contributions to pension insurance companies. Contributions are made taking into account local country-specific provisions and practices. Remuneration In 2013, Euroloan Group PLC implemented an option-based incentive system for the entire personnel. The objective is to support the implementation of the Group s strategy and to ensure profitable growth through personnel commitment. INCOME TAXES The income tax expense in the income statement consists of current tax based on the taxable profit for the period and deferred tax. Current tax is calculated on the taxable profit using the tax rate in force in each country. The resulting tax is adjusted by any tax relating to previous years. Deferred tax is calculated on all temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. A deferred tax asset is recognized to the extent that it is probable that future taxable income will be available, against which a temporary difference can be utilized. Deferred tax is calculated by using the enacted tax rates prior to the balance sheet date. 32 EUROLOAN GROUP PLC ANNUAL REVIEW

33 CURRENT ASSETS Derecognition of current assets occurs when the Group has lost the contractual right to cash flows or when it has substantially transferred the risks and rewards outside the Group. Current assets accounts receivables comprise fees accounted for the year which are not paid at the balance sheet date. Accounts receivables are written down if it is probable that the fee booked as accounts receivables will not be received. Loan receivables include lending receivables, including loan period fees. Of the receivables transferred to collection, only the capitalized amount transferred to collection is recognized. The amount includes the loan capital and the loan period fees and interest but not the falling due fee or reminder costs. Unpaid loan receivables are typically transferred to collection about 45 days after due date. Written-off receivables include loan receivables borrowed under criminal pretenses, and receivables where the debtor has died or entered debt restructuring. Loan receivables from debtors, found to be insolvent after at least one ineffective foreclosure, are also written off at the end of the year. Loan receivables more than 360 days overdue have also been written off in connection with the sale of receivables portfolios. The transaction price has reduced the credit loss amount. Long-term receivables management within the Group will be transferred to the pending credit market company Euroloan Finance AB. Future credit losses will then be booked according to the Swedish accounting practices for banks and financing institutions. Current assets include periodized bond transaction fees. Cash and cash equivalents comprise cash in the Group s bank accounts. LIABILITIES Bonds and debt securities are recognized at nominal value. Variable bond revenue shares are recognized at balance sheet date value. DESCRIPTION OF EUROLOAN GROUP PLC S FINANCIAL REPORTING PROCESS The Board of Directors oversees the financial reporting process. The CEO and the CFO are responsible for controlling and ensuring the quality of the Group s financial reporting. The Group prepares an annual financial statement published via press release. The Board receives monthly financial reports for each business area. Accounting compiles financial reports per company partly based on business area financial data from operative systems. The veracity of the financial information from independent companies and the Group is ensured using various daily, weekly and monthly control procedures as well as matching and verification procedures. From the operative systems, information is regularly transferred to the financial administration systems. Financial administration ensures that all material is delivered and transferred to accounting. The accounts of all Finnish Group companies are included in the same accounting system, and the companies follow the same accounting principles. The accounts of the foreign subsidiaries are prepared by local accounting firms providing monthly accounting reports. Accounting is responsible for monitoring the Group s financial development continuously, at both the Group and business unit level. The objective is to identify and highlight both success factors and development targets in time to allow for time to react on them. Accounting provides monthly reports of Group level development and future prospects to the Steering Committee and the Board of Directors. Development is assessed by comparing realized figures to the budget and a regularly updated forecast for the remainder of the year. EUROLOAN GROUP PLC ANNUAL REVIEW

34 CORPORATE GOVERNANCE Euroloan Group PLC is a Finnish public limited company regulated by Finnish law and the company s Articles of Association in its operations and obligations. The company s Board of Directors is responsible for organizing the administration and business activities of the company according to the law and determines the company s principles of corporate governance. We are committed to our values and strive to work in accordance with them every day. The company follows consumer protection laws and regulations, and the recommendations issued by consumer protection authorities. The Group s foreign subsidiaries follow the laws and regulations of their respective countries and business sectors, instructions of the supervisory authority for the respective company and the company s Articles of Association. We follow the principles of openness, fairness and good service, and we are committed to this aim in all our activities. Our financers and investors are actively involved in business development, and we strive to provide all necessary information for them to make sound investment decisions. The company follows the reporting requirements of a public limited company, and is audited by PriceWaterhouseCoopers Oy (APA-community), responsible auditor Martin Grandell. Decision-making The responsibility for administration and operations of Euroloan Group PLC is vested in the following governing bodies: General Meeting of Shareholders Board of Directors CEO Steering Committee GENERAL MEETING OF SHAREHOLDERS Ultimate decision-making is vested in the company s General Meeting of Shareholders. The Shareholders Meeting is held once a year at a time determined by the company s Board of Directors. The meeting must be held by the end of June each year, with an agenda assigned to it by law and the company s Articles of Association. Proposals by shareholders are also decided upon in the meeting. The company s Board of Directors call the General Meeting no earlier than two months and no later than one week in advance. BOARD OF DIRECTORS The Board of Directors (the Board ) is responsible for the company s administration and for the proper organization of the company s operations. The Board supervises the operative management of the company, appoints and dismisses the CEO, and decides on the company s strategy, investments, organization and finances. The Board ensures that the operations of the company are conducted appropriately, and that the company identifies, measures and manages the risks associated with its business. In accordance with good corporate governance, the Board also ensures that the company applies stated corporate values in its operations. The Board shall work in the best interest of the company and its shareholders. A board director does not represent the interests of the parties who have proposed his or her election as director. The Shareholders Meeting elects the members of the Board of Directors. The Board comprises between one and ten members and at least one deputy if there are fewer than three board members. Members of the operative management also attend the Board meetings when necessary. The Board has adopted its own working procedure and evaluates its own performance and actions each year. Board members take an active role in the company s everyday business. The Board s main duties include: Setting long-term targets Approving strategies Approving financial targets Approving the organizational structure Confirming the principles of incentive plans Appointing the CEO 34 EUROLOAN GROUP PLC ANNUAL REVIEW

35 Deciding on the remuneration of the CEO Overseeing the proper arrangements for accounting and financial management Deciding on overall capital expenditure and significant individual investments Approving operating principles for management and supervision Overseeing the financial reporting process, and the quality and consistency of the information to be published Evaluating the competence, independence and work of the auditor Evaluating internal control and risk management processes Evaluating compliance with relevant legislation and regulations The Board also monitors the financial situation and development of the company. Additionally, the Board is responsible for evaluating and developing the competitiveness of the company s incentive plans, preparation of remuneration and appointment matters relating to the CEO, charting successors to the CEO and members of Steering Committee, and deciding on the salaries and other benefits of the members of corporate management. CEO The Board of Directors appoints the company s CEO, who is responsible for managing the company s business in accordance with the Finnish Limited Liability Companies Act, the Articles of Association and the instructions issued by the Board of Directors. The CEO leads the company s Steering Committee. COMPANY S STEERING COMMITTEE Euroloan Group PLC has a Steering Committee, the main task of which is to assist the CEO in corporate operative management and business planning. The Steering Committee s other duties include the preparation, follow-up and monitoring of financial and business decisions, as well as business development. The Steering Committee meets regularly. Members of the Steering Committee are appointed by the Board of Directors at the proposal of the CEO. The company s Steering Committee comprises four to six members, and the areas of responsibility of members of the Steering Committee correspond to their respective positions in the company. AUDIT Under its Articles of Association, the company has one auditor, which is usually an Authorized Public Accountant (APA) audit firm. The Shareholders Meeting elects the auditor for one year at a time. In the statutory audit, the auditor audits the accounting records, financial statements and administration of the company. The responsible auditor also audits the Group. From 2013, Euroloan is audited by PricewaterhouseCoopers Oy, responsible auditor Martin Grandell (APA). The previous auditor was Authorized Public Accountant (APA) audit firm Nexia Tilintarkastus Oy, responsible auditor Juhani Loukusa (APA). Internal operating principles and control systems The objective of the Group s operating principles is to strengthen the commitment to financial and other goals and to minimize internal business risks. The Group has a set of internal instructions and policies, including the following examples: COMPLIANCE Compliance Manual and Guidelines Consumer Protection Policy Ethical Rules and Guidelines Information Security Policy Outsourcing Business Policy Instruction for Measures Against Money Laundering and Financing of Terrorism Instruction for Handling Conflicts of Interests RISK MANAGEMENT Business Continuity and Contingency Planning Risk Policy EUROLOAN GROUP PLC ANNUAL REVIEW

36 Liquidity Risk Management Guidelines Credit Risk Management Guidelines Disaster Recovery Plan INTERNAL AUDIT GUIDELINES Remuneration principles The remuneration of the company s management is made up of a fixed salary, an annual bonus and long-term incentive plans such as pension benefits and share bonuses. The Board of Directors decides on the remuneration of the CEO. The Board is responsible for executive remuneration plans and for approving the salaries and other benefits. The Board of Directors approves the terms and conditions of long-term incentive plans and the principles of profit sharing. Appointments within the Group comply with the grandfather principle, whereby the superior of the person proposing the appointment approves all appointments, as well as the salary and other terms related to such appointments. Euroloan Group PLC has a long-term bonus system for key personnel. 36 EUROLOAN GROUP PLC ANNUAL REVIEW

37 RISK MANAGEMENT General Anyone considering investing in Euroloan Group PLC is recommended to review all the risk factors described below. The description contains estimates of the current state and future development of the Group, which carry risks and uncertainties. Investors should be aware of these when making their investment decisions. Estimates, risk descriptions and listed uncertainties are prepared by the Group s Board and management and are based on the information available to the Board and management at the time of preparation. The Group s management and Board strive to update relevant changes to the Group s risks without delay in order to keep the risk description current. If realized, the risks may have a negative impact on the Group s business operations, financial position and the value of the business operations, decreasing the value of the Group s shares and securities issued. The Group aims to prevent risk where possible and to minimize the impact of any risks realized in its risk management. Euroloan applies state-of-the-art corporate risk management models and methodologies as part of strategic planning, business development and daily operations. The aim of Euroloan s risk management process is to limit the total risk exposure of the company to an acceptable level while optimizing the risk/return ratio. Due to the nature of Euroloan s business, particular emphasis is put on analyzing and managing credit risk, and on managing total risk exposure. Advanced risk metrics are used in analysis to form an accurate company risk profile. Company management and the Board of Directors monitor risk exposure. Risk management structure Proper risk management is a working combination of identification, analysis, management, control and supervision of risk, along with the continuous documentation of activities for audit and quality control purposes. The principles for identification, analysis and management of the main risk areas are linked to the properties of each risk, whereas the control and supervision of each risk is linked to organization, authorization, supervision and responsibilities. Figure 1: Group risk management framework EUROLOAN GROUP PLC ANNUAL REVIEW

38 Risk Management is an integral part of the strategic and operational management framework of Euroloan Group. The risk management is structured based on a separation of responsibilities and duties as described in the Three lines of defense table below. Euroloan Group Three lines of Defence in Risk Management 1st LINE OF DEFENCE 2nd LINE OF DEFENCE 3rd LINE OF DEFENCE Risk Ownership Risk Control Risk Assurance Owners Owners Owners CEO Risk Control Internal Audit Business Management Compliance External Audit Risk Management Team Risk Committee Board of Directors Responsibilities Responsibilities Responsibilities Day to day decisions regarding risk management of business risks* Ultimate ownership, responsibility and accountability for identified risks Mitigate risk for the whole organization and business units Monitoring of risks within decided limits Control breakdown or noncompliant activities are reported upwards (* risk limits are set by the Risk Committee or Board of Directors) Oversight and challenge to the internal control framework used in 1st line Continuous monitoring of the consequences of business decisions in relation to predetermined risk appetite Monitoring of adherence to limits Advice to the Board (Risk Committee), Managing Director, Business Management Challenge 1st line risk reporting Produce risk reports to 1st line Independent periodic checking that the internal controls are effective and appropriate Ensure that risk have been identified, monitored and mitigated in 1st and 2nd line Check that laws and regulations are followed Ensure that policies have been effectively implemented Table 1: Three lines of defense main principles of risk management 38 EUROLOAN GROUP PLC ANNUAL REVIEW

39 The following risk management decision-making structure illustrates the Group s risk management organization: Figure 2: Risk management organization BOARD OF DIRECTORS The Board of Directors of the company is responsible toward the company s owners (the annual shareholders meeting) and regulatory authorities for the entire business of the company. Risk management falls under the responsibility of the Board. The Board has the principal responsibility to ensure that regulations, good corporate governance and sound business practices are followed in all the Group s business operations. The Board also sets guidelines and limits for risk management. CEO The CEO is responsible for daily operations being carried out in accordance with the instructions and directives issued by the Board of Directors. The Board appoints and discharges the CEO and oversees the CEO s actions. The CEO may only take actions which are unusual or sizable considering the size and nature of the company s business with the permission of the Board. The CEO is responsible for making sure that the accounting methods employed by the company are legal and that financial matters are managed in a reliable way. In the company s risk management, the operational management led by the CEO is responsible for the daily operations and activities in the company, without the right to make decisions about risk levels. The operational management has the right to view but not decide upon internal controls and documentation, and is responsible for implementing daily risk management. RISK MANAGEMENT Risk management is operated by the Risk Management Team, led by the company s Risk Manager. Decisions regarding risk management and changes to it are prepared by the Risk Management Team that puts them forward to the Risk Committee appointed by the Board. The Risk Management Team regularly monitors and assesses whether the company s risk guidelines and instructions are suitable and effective, and assesses what measures need to be taken to address potential deficiencies. Any decisions are made by the Risk Committee or the company s Board of Directors. RISK CONTROL The Risk Control function shall analyze and report without delay to the Risk Committee, the Risk Management Team and the company s operative management and internal audit any significant deviations from set guidelines or limits which may lead to significant changes in the company s internal risk level. Reporting is done according to an agreed process and is documented in a way that facilitates the control and audit of analysis results. EUROLOAN GROUP PLC ANNUAL REVIEW

40 INTERNAL AUDIT An internal auditor, who is independent from operational functions in the company, regularly assesses internal processes, decisions and controls, and reports any findings along with improvement suggestions directly to the company s Board of Directors. Internal audit services may also be provided by a third-party provider (audit company), which independent of the company s external auditors. AUDIT The company s external auditors audit the entire business with complete insight into reporting, decisions made and documentation. The auditors are responsible to the company s shareholders and regulatory authorities. The external audit is carried out on a continuous basis (i.e. process audit) and for the company s annual review. Risks associated with the company. GENERAL The company is the parent company of a wholly owned Group with the same name. For more information about the Group s and the companies operations, please refer the company s website or this document. The company s trade secrets are not available, neither are any e.g. third-party ratings or recommendations concerning the company s share or creditworthiness. The Group s risk exposure mainly consists of the following risks: Strategic risk and business risks Operational risk Financial risk o o Market risk o o Liquidity risk Credit risk Exchange rate risk Interest rate risk Figure 3: Group risk structure 40 EUROLOAN GROUP PLC ANNUAL REVIEW

41 Below are described identified risks and the principles for their management within Euroloan Group. adjusting its activities to comply with the changing regulations in countries where business operations will be conducted. STRATEGIC RISK AND BUSINESS RISK Strategic risk and business risks comprise the cost risk associated with a company choosing the wrong business strategy or failing to adapt the business to a new operating environment, such as changes in the regulatory environment affecting the company. The following risks relate to the operating environment: Regulatory and legislative risk (the effect on future profitability and/or cash flows) Competition Cyclical risk (business cycle) Access to the investment and lending market Market liquidity If realized, strategic risks may lead to losses, competitive disadvantage or reduction in capital adequacy, for example. These risks may also lead to reputation risk, i.e. that the company s reputation and trademark are adversely affected. Strategic risks are managed mainly through normal business planning and updating the company s strategic market positioning. Capital and pricing buffers reduce the business sensitivity to temporary disturbances, such as market function disturbances (market liquidity). The company s CEO and Board of Directors are responsible for the company strategic development and adaptation to regulatory changes in the market, and for proper monitoring of the company s market position. The Board and the CEO are also responsible for the company s communication strategy and oversight of business activities. Regulatory environment Regulation concerning the Group s business areas has increased in Finland. The company aims to predict forthcoming regulatory changes that can have a significant effect on business operations and profitability. Changes are typically known well in advance. The company has assessed the regulatory environment of other countries and is Internationalization The company is expanding its international operations, and there are risks involved in foreign operations. The company has decided to proceed cautiously in other markets and to minimize its foreign obligations so that they have no immediate significant impact on the volatility of the business operating profit. Due to the small size of the Finnish market, the relative volume of domestic business operations may decrease significantly in the long run. In the long term this should mitigate concentration risks related to a single market. OPERATIONAL RISK Operational risk is defined as the risk of financial or reputational loss due to insufficient or deficient internal processes, systems, human error, external incidents or compliance issues. Legal risk is defined as the risk of financial loss or sanction due to insufficient knowledge about laws and regulations or insufficient documentation or control of contractual issues. Operational risks include the following main areas: Personnel risk System risk Process risk External risk (crime, other events) Other operational risks can usually be traced back to these main risk drivers, as operational risks depend mostly on decisions made by people or on structural risks in systems and business processes. Operational risks are managed and mitigated in the company through the following measures: Proper governance based on documentation stating mandate, responsibility and reporting lines Clear and comprehensive risk reporting Follow-up and quality control of systems and processes Oversight including incident reporting and incident follow-up routines EUROLOAN GROUP PLC ANNUAL REVIEW

42 A functioning decision-making structure and correct incentives Competence development for company employees Intra-Group transactions Significant business transactions between the Group companies are possible. These include the sale of receivables and lending within the Group. The transactions are conducted in the same way as with external parties. Therefore, the interest rate used in lending within the Group is the same as that used in external financing. For sales of receivables portfolios, market price is used. Corporate governance and reputational risk The company s dependency on key personnel has been actively mitigated through recruitment of experts and operational and administrative management, and through appointing professionals to the company s Board of Directors. The aim is to bring the company s administration to the level of best in class, thus reducing administrative risk. The consumer credit and collection business have received a lot of publicity. The company takes consumer protection and customer interest seriously. The principles and values of sustainable development are applied as publicly declared strict policy guidelines. The company s guidelines and policies regarding ethics, environment, risk management, consumer protection and information on how to avoid debt problems are available on the company s website in accordance with the principles of good corporate governance. The Group companies apply reasonable pricing that may limit the company s profit but is in line with the company s strategy emphasizing sustainable business operations. As stated in the open pricing principles for consumer services, Euroloan publishes its current price lists online for each service and market area. Depreciation and impairment The Group companies have assets in three main forms, which are cash, the receivables portfolio and business-critical information systems. For impairment of the receivables portfolio, see Credit risk below. The Group owns all intellectual property rights to its core business systems. The development costs of these systems have been capitalized in the consolidated balance sheet as intellectual property rights in non-current assets. Investments are depreciated according to plan and generally accepted accounting principles. Due to changes in business operations, regulation and the business environment, continuous investments are required to maintain the systems operational capacity. Major changes in the business environment may increase the need for investments and funding for investments. FINANCIAL RISK Liquidity risk The Group operates in capital-intensive business sectors. Loans, for example, are paid out in cash. This requires liquidity management and that the company has the cash available prior to the loan being granted. Liquidity risk is the risk that the company cannot at some point generate sufficient cash flows to meet outgoing cash flows to customers or to meet other obligations that demand liquidity. Liquidity risk normally arises when the cash flows from operations are not balanced. A sufficient payment readiness can be achieved and maintained for example by keeping a sufficient amount of cash or equivalent means or liquid resources immediately available or by matching payments and maintaining a stable and well diversified funding base. The Group companies external capital is mainly in the form of bonds and partly in the form of mainly fixed-term private or corporate bonds. Should an issue of new bonds fail, the company could experience liquidity problems and the conditions of existing bonds would have to be renegotiated. Of the risk factors, availability of capital is the most important with regard to business growth potential. Since most of the business costs are fixed costs, greater business volume increases profitability substantially. Correspondingly, costs must be cut if sufficient capital is not available. There is a refinancing risk associated with the company s business operations, that is, a risk that the company is unable to acquire sufficient capital at reasonable terms to be able to continue business activities. 42 EUROLOAN GROUP PLC ANNUAL REVIEW

43 The company s liquidity risk is managed through set limits that are continuously monitored and reported to the company s operational management. The company s Board of Directors has also set what should be done at set threshold amounts regarding liquidity. There are several ways of managing the company s liquidity and related risks: Liquidity buffer the last resort for hedging against unexpected fluctuations in cash flows is to keep an adequate buffer on the company s bank accounts Limitation of lending operations Lending contracts may include clauses on partial or full recall of loans in case liquidity falls below permitted limits Increasing cost of financing Steering contract clauses Other financing sources Liquidity risks can be prevented through planning and control. Proper planning of future cash flows and funding needs is the best way to avoid liquidity risks. Cash needs are planned long term (monthly and yearly basis) through the budgeting process, forecasting and customer analysis. In the short term, adequate liquidity is reserved on a daily and weekly basis in the correct accounts. Credit risk Credit risk is a core risk in the Group s business sector. For unsecured consumer loans, for instance, it is likely that some debtors will not be able to repay the credit in full and on time. Credit risk arises in lending operations, investments and other business operations where future incoming cash flows are expected from counterparties. The company manages credit risk through careful counterparty screening (secure identification, control of repayment ability), spreading the counterparty risk across many counterparties, and through continuous extensive analysis of the credit portfolio and payment performance. Reliable valuation of receivables and credit pricing are important factors in managing credit risks. An adequate margin is required to cover operative cost, financing cost and credit risk as well as other risk. This helps in managing potential variation in counterparties payment behavior. Spreading the credit risk across tens of thousands of counterparties (consumer receivables) gives a stable level with little variance in total credit risk levels. Risks related to creditworthiness and payment behavior have been taken into account in pricing (cf. insurance operations where the amount of claims paid affects the price of premiums). Therefore, the credit risk is mainly due to unexpected variation in the customer s ability to meet their payment obligations. Independent of general economic trends, the payment behavior of the customer base as a whole has changed very little during the company s existence. To assess the credit risk and set credit limits, a risk assessment is made before lending, including the customer s credit rating, financial situation and cross-reference with earlier behavior statistics and other factors. The thresholds are set by the company s Board of Directors or the Risk Committee upon authorization by the Board of Directors. The utilization rate for credit limits are continuously followed up. Credit risks are continuously analysed, and the Company s Credit Committee has defined credit limits and principles for lending. Due to the automatic loan system in use, no exceptions from set limits and rules are made. Through analysis and continuous improvements in customer selection, the probability and effects of credit risks have been decreased significantly from the beginning of operations. Before buying receivables, the receivables portfolio in question is analyzed in detail. The purchase price is calculated based expected portfolio cash flows. The Group companies collect their own receivables. If the debtor is found to be permanently insolvent in court proceedings, the debt receivable is booked as a credit loss. Receivables that the company deems unrecoverable can also be booked as credit losses. For receivables booked as credit losses, the collection process can be continued or the receivables can be sold to another company (typically at a price less than the nominal value). INTEREST RATE RISK Euroloan s funding is secured at a fixed or variable interest rate, as are the company s loan receivables. This means that through balancing both sides correctly, the interest rate risk is minimal. Major changes in the general interest rate may affect the company s profitability. The changes must be very big to have an impact on EUROLOAN GROUP PLC ANNUAL REVIEW

44 operations, meaning that the operational interest rate sensitivity is rather small. Interest rate risk arises mainly from depositing surplus cash in banks, which have a lower interest rate than other investment options (such as lending operations). At the same time, this is the cost of limiting liquidity risks in the company, so the risks have to partly be weighed against each other to achieve a sustainable level for both. Exchange rate risk The Group has assets in several countries with different currencies. Currency exposure mainly comes from capitalization and liquidity management in foreign currencies (mainly EUR, SEK and PLN). accepting and repaying deposits in different currencies. procurement of receivables in different currencies. corporate loans in different currencies. Using different currencies does not automatically mean exposure to exchange rate risk. Exposure arises when assets and liabilities in different currencies do not match, leading to an open currency position for the company. A nominal exchange rate risk also arises in accounting when assets in a foreign currency are calculated in the accounting currency, and when future business transactions are stated in a foreign currency which is not the accounting currency. Euroloan does not actively seek exchange rate risk exposure to make a profit, but to limit the risk. The company manages exchange rate risks mainly through balancing funding in different currencies with the business operation volumes. To limit the exchange rate risk exposure, derivatives can also be used to fix exchange rates. As a last resort, currency risk can also be managed through additional capital injection. This can be done if exchange rates change significantly and continuously in the same direction over a long period of time. Capitalization should be made in the currency that has the biggest expected exposure (i.e. if assets are denominated mainly in euro, equity input will also be made in euro). Specific risks associated with other Group companies EUROLOAN CONSUMER FINANCE PLC Euroloan Consumer Finance PLC is the Group s largest subsidiary by operating volume, having a significant impact on the risks and performance of the entire Group. A separate risk description for Euroloan Consumer Finance PLC is available on the company s website. The description also includes the risks for the Euroloan Consumer Finance PLC s subsidiaries. CRÉDITO COBRO LTD Compliance The collection business of the company is regulated and subject to license. Regulatory risk in this business is significant and has been partly realized through a decrease in the maximum allowed debt collection expenses. Future regulatory changes may have a significant effect on business operations and profitability. The company actively monitors regulatory changes with the aim to predict and prepare for future changes affecting the operations well in advance. Changes are typically known well in advance. As part of mitigation of regulatory risk, operations have been adapted to comply with regulations and costs have been cut to minimize profitability impact. The company has assessed the regulatory environment of other countries and will make any changes necessary to comply with regulations in countries where it intends to do business. Systems Modern debt collection requires functional information systems. Automation reduces relative cost as volumes increase. The company has invested significantly in modern collection systems and related services. There is an investment risk associated with low usage volume. The risk is mitigated by the fact that the collection systems developed can be utilized in other Group business areas. Risks associated with system usability have been mitigated through good quality control, testing and a sensible choice of platforms. Customerships The typical delay between the collection service sales efforts and the customer agreement causes a 44 EUROLOAN GROUP PLC ANNUAL REVIEW

45 volume risk. Another risk associated with customerships are up-front costs. On the other hand, customerships are typically long-term agreements that last several years. Efforts to improve customer satisfaction also reduce the risk of losing customers. The company s goal is to offer the customers agreements that comply with industry standards, protect both parties and follow fair business practice. DIGNA IT OY A subsidiary of Crédito Cobro Ltd, Digna IT Oy develops collection systems and sells collection system licenses. Operational risks are associated with the above systems. Digna IT Oy s operations are very long-term and capital-intensive, causing investment profitability risks. Digna IT invests in high-quality systems, being, for instance, a Microsoft Silver Partner. System-related risk management is partly built on in-house system development expertise and capacity. CRÉDITO COBRO CAPITAL OY Crédito Cobro Capital Oy has no active operations, so the associated risks are the same as those associated with the Group. Risks associated with investing in the company CREDIT RISK Bonds and other investment products issued by the company do not include security of capital or separate collateral. Therefore, the investment products are associated with issuer credit risk. This means that the investor may lose the invested capital entirely or partly in the event of a company credit transaction such as a serious payment default, debt restructuring or bankruptcy, for example. ISSUER RISK Repayment of invested capital and profit carry a risk relating to the issuer s repayment ability. With the company being the issuer, the issuer risk is comparable to the issuer credit risk associated with bonds (see Credit risk ). The issuer risk refers to the risk of the issuer becoming insolvent and unable to meet its obligations. The investor may risk entirely or partly losing the invested capital and potential profit. SECONDARY MARKET AND LIQUIDITY RISK Secondary market risk refers to the risk that when the investor sells the investment before the agreed maturity date, the price may be higher or lower than the nominal value. In this case, the investor may not get back the entire capital invested. Bonds or other investment products issued by the company are primarily intended to be held until their respective maturity date. However, bonds may be sold before their maturity dates. The issuer will have no obligation to repurchase, but a third party can do so. In this case, the value of the investment loan may be lower or higher than its subscription price. The market price is affected by changes in market rates of interest, among other things. Selling the loan before its agreed maturity date also carries a liquidity risk, meaning that it may be difficult to find a buyer for the loan or that the price offered is lower than the actual value. Big market fluctuations, closing of trading venues or technical problems may affect the secondary market. TAXATION Any taxes related to the investment product are paid by the investor. Tax legislation and local taxation may change, which may have adverse effects for the investor. In isolated cases, investors would be well advised to seek advice from their tax consultant or tax authorities. EUROLOAN GROUP PLC ANNUAL REVIEW

46 PARENT COMPANY S FINANCIAL STATEMENTS Income statement TURNOVER , ,95 Other operating income 387,13 0,00 Materials and supplies External services 5 680,00 0,00 Total 5 680,00 0,00 Personnel costs Salaries and benefits , ,33 Social security costs Pension costs , ,63 Other social security costs , ,19 Total , ,15 Depreciation and impairment Planned depreciation 4 257, ,08 Total 4 257, ,08 Other operating costs , ,19 OPERATING PROFIT (LOSS) , ,53 Financial income and expenses Dividend yield from Group companies 2 456, ,73 Capital gains from holdings 0, ,00 Other interest and financial income From Group companies , ,85 From others 28, ,97 Total , ,82 Interest and other financial expenses To Group companies , ,23 To others , ,64 Total , ,87 Total , ,68 PROFIT BEFORE APPROPRIATIONS AND TAXES , ,21 Income taxes 4 609, ,66 PROFIT (LOSS) FOR THE FINANCIAL YEAR , ,55 Balance sheet ASSETS NON-CURRENT ASSETS EUROLOAN GROUP PLC ANNUAL REVIEW

47 Tangible assets Machinery and equipment , ,22 Other tangible assets 2 500, ,00 Total , ,22 Investments Holdings in Group companies , ,79 Total , ,79 NON-CURRENT ASSETS, TOTAL , ,01 CURRENT ASSETS Receivables Short-term Receivables from Group companies , ,41 Loan receivables ,00 0,00 Other receivables , ,50 Accrued income ,41 465,65 Total , ,56 Cash in hand and at bank , ,09 CURRENT ASSETS, TOTAL , ,65 ASSETS, TOTAL , ,66 EQUITY AND LIABILITIES EQUITY Share capital , ,00 Invested unrestricted equity reserve ,65 0,00 Retained profit (loss) 1 602, ,72 Profit (loss) for the financial year , ,55 EQUITY, TOTAL , ,83 LIABILITIES Long-term Bonds ,00 0,00 Total ,00 0,00 Short-term Accounts payable , ,13 Liabilities to Group companies , ,05 Other liabilities , ,85 Prepayments and accrued income , ,80 Total , ,83 LIABILITIES, TOTAL , ,83 EQUITY AND LIABILITIES, TOTAL , ,66 EUROLOAN GROUP PLC ANNUAL REVIEW

48 NOTES TO THE PARENT COMPANY S FINANCIAL STATEMENTS PREPARATION OF THE FINANCIAL STATEMENTS The company changed its name from Cochito Ltd to Euroloan Group PLC on 29 October Valuation principles and methods The company s non-current assets are valued at their variable acquisition cost. Periodization principles and methods The acquisition cost of fixed assets subject to wear and tear owned by the company is written off according to a prepared plan. Asset type Depreciation method/percentage Machinery and equipment Outlay residue write-off 25% INCOME STATEMENT Financial income and expenses Dividend yield from Group companies 2 456, ,73 Capital gains from holdings 0, ,00 Other interest and financial income From Group companies , ,85 From others 28, ,97 Total , ,82 Interest and other financial expenses To Group companies , ,23 To others , ,64 Total , ,87 Financial income and expenses, total , ,68 ASSETS Machinery and equipment Book value at the beginning of the ,22 0,00 financial year Additions 0, ,30 Planned depreciation 4 257, ,08 Book value at the end of the financial year , ,22 48 EUROLOAN GROUP PLC ANNUAL REVIEW

49 LIABILITIES Specification of equity Restricted equity Share capital At the beginning of the financial year 5 000, ,00 Additions ,00 0,00 At the end of the financial year , ,00 Restricted equity, total , ,00 Unrestricted equity Invested unrestricted equity reserve At the beginning of the financial year 0,00 0,00 Additions ,65 0,00 At the end of the financial year ,65 0,00 Retained profit (loss) , ,28 Profit (loss) for the financial year , ,55 Dividends paid , ,00 Accrued profits , ,83 Unrestricted equity, total , ,83 Distributable funds , ,83 INFORMATION ON A REPORTING ENTITY THAT IS PART OF THE GROUP Subsidiaries Euroloan Consumer Finance PLC, domicile Helsinki, is wholly-owned by Euroloan Group PLC. Crédito Cobro Ltd, domicile Helsinki, is wholly-owned by Euroloan Group PLC. Group financial statements have been consolidated in accordance with the current Accounting Act and prepared by the acquisition cost method. The consolidated financial statements are available at Euroloan Group PLC at Energiakuja 3, Helsinki, Finland. Receivables from Group companies Sales receivables , ,14 Accrued income 807, ,27 Loan receivables 0, ,00 Total , ,41 Liabilities to Group companies Other liabilities , ,74 Prepayments and accrued income 0, ,31 Total , ,05 GUARANTEES AND COMMITMENTS Leasing agreement commitments EUROLOAN GROUP PLC ANNUAL REVIEW

50 Due next financial year , ,88 Due at a later date , ,09 Total , ,97 Rental commitments Next financial year , ,86 Other commitments Rent security deposits paid , ,50 INFORMATION ON PERSONNEL AND MEMBERS OF GOVERNING BODIES Average number of employees 15 4 The personnel of the subsidiaries Euroloan Consumer Finance PLC and Crédito Cobro Ltd was transferred to Euroloan Group PLC on 1 October Management s salaries and benefits , ,00 COMPANY SHARES Share capital by types of share and Articles of Association s main provisions regarding the types of share Series No. of shares Euro Votes/pcs BOARD S PROPOSAL ON MEASURES CONCERNING THE PROFIT FOR THE FINANCIAL YEAR Distributable funds in the financial statements amount to EUR ,29, of which the profit for the financial year is EUR ,81. No material changes have occurred in the company s financial position following the end of the financial year, based on section 13(2) of the Limited Liability Companies Act. The Board proposes that the EUR ,81 profit for the financial year is included in equity and that no dividend is paid. 50 EUROLOAN GROUP PLC ANNUAL REVIEW

51 SIGNATURES TO THE FINANCIAL STATEMENTS Euroloan Group Oyj Y-tunnus: L{ $ TILINPÄÄTöXSTru ALLEKIRJOITUS Hersinki 26a Timo Saini Riitta Salonen "S.,&o-0,^-/ Heikki Palosuo Tommi Lindfors nrrrupäärösuenrcrurä Suoritetusta tilintarkastuksesta on tänään annettu kertomus Helsinki Ln L.2014 KHT-Yhteisö PricewaterhouseCoopers Oy EUROLOAN GROUP PLC ANNUAL REVIEW

52 AUDITOR S REPORT 52 EUROLOAN GROUP PLC ANNUAL REVIEW

53 EUROLOAN GROUP PLC ANNUAL REVIEW

54 54 EUROLOAN GROUP PLC ANNUAL REVIEW