Annual Report 2019

Growth, economic impact and climate change awareness

By year-end 2019, we were able to look back on a dynamic and eventful decade for EKF. The 2010s were hallmarked by EKF witnessing growth and surpluses benefiting exports, Danish companies and the treasury. All of this was achieved with an increasingly keen focus on global climate change mitigation efforts through green investments worldwide. However, the great uncertainty about the effect on the global economy of the global spread of the coronavirus in the beginning of 2020 means we are in a very bleak and unpredictable situation.

EKF’s net profit for 2019 of nearly DKK three quarters of a billion (DKK 743 million) is a result which testifies to the fact that rational financial management, solid credit facilitation know-how, growth and an unstinting commitment to economic impact and climate change awareness are perfectly well aligned. Today EKF has a business volume of about DKK 100 billion and an equity of DKK 8.5 billion.

Core to EKF's activities are Denmark's small and medium-sized enterprises (SMEs). Eight in ten of our customers belong to this category, which naturally has a great need for financial and credit facilitation and advice. Many SMEs will be affected by the global recession following the pandemic, however, EKF will continue to focus on supporting the SMEs through the difficult times ahead.

Growth and jobs have always been a key focus in EKF's mission. In 2019, EKF helped to generate contracts for Danish exporters worth DKK 15 billion, and through our activities, we secured 7,200 jobs in Denmark. We contributed DKK 6.4 billion to Denmark's GDP and DKK 2.2 billion in tax revenues.

Increased mandate for green financing

In December, the Danish Parliament resolved to make an additional appropriation to EKF in the 2020 National Budget of DKK 14 billion, under which EKF will be managing more than half of the funds of the newly established Denmark’s Green Future Fund. These national funds have not been redirected away from other beneficiaries and reallocated to EKF, but constitute a government guarantee facility, which extends EKF capacity within green financing. These funds will be invested in promoting the transition to the green economy, reducing global CO₂ emissions and boosting exports of Danish climate technology – basically generating business for Denmark and Danish companies, while driving climate change mitigation efforts and outcomes in the right direction.

We see EKF's role in Denmark’s Green Future Fund as a recognition of the efforts made in previous years, and equally as an expression of the Danish Government's and Parliament's confidence in EKF's capacity to raise the bar for national ambitions and performance even higher. We share that confidence. For many years now, we have supported projects within wind energy, other renewable energy sources and energy efficiency. In the wind sector, EKF is one of the major financial players in the world.

In 2019, this was manifested by the renewable energy projects EKF helped finance which are expected to reduce global CO₂ emissions by 75 million tonnes of CO₂ over the course of their useful life. This is almost one and a half times the total emissions in Denmark in 2019. Green technologies are displacing pollutant energy, and this is a virtuous spiral.
 

Exports and internationalisation for the whole of Denmark

EKF finances far more than wind. Our portfolio includes everything from some of the world’s largest wind parks and large-scale infrastructure projects through export of industrial products by large Danish companies to small exporters. EKF backs businesses in Greenland and on the Faroe Islands and from North Jutland to the island of Bornholm.
EKF’s ambition is to be there for all sectors and for all companies that do business benefiting Denmark, not least now when the crisis affects many companies.
 

An unstable global market

Danish companies and EKF have to compete with countries and export credit agencies with big muscles including some who show disregard for harmonised international rules. We have an intrinsic interest in ensuring that prudent conditions and binding rules prevail and are respected in the interests of fair and reputable competition.

However, we operate in an unsettled world. In 2019, Denmark and Danish companies faced considerable challenges. We had barely embarked on the new decade before the global spread of COVID-19 began to cause instability in the global economy. Right now we do not know the full extent and consequences of the pandemic. The global society, however, must be prepared to place great store and resources to cushion the effects.

That is why, EKF now offers new guarantee and working capital products aimed at companies who are particularly hard hit by the corona crisis. In times like these it is well worth remembering what companies, banks and EKF can achieve together. By working together, we can contribute to helping Denmark get back on its feet. In its capacity as a strong economic instrument to strengthen exports and ensure growth, EKF is there to support Danish companies and the Danish society.

Christian Frigast

Chairman of the Board of Directors at EKF

Kirstine Damkjær

CEO of EKF

EKF in figures

5-year overview

+ Proposed dividend is approved by the Minister for Industry, Business and Financial Affairs on presentation of the Annual Report and the distribution of profit at the company meeting. Dividend can then be paid to our owner.

++ Loans include granted loans and approvals of equity investments. Write-down to expected loss according to IFRS 9 has not been adjusted to the comparative figures from 2015-2017.

For definitions of financial highlights and ratios, see note 31.

EKF's value to Denmark

EKF's value to Danish economy

2019 was yet another high-activity year at EKF. This benefits Denmark, since activities within EKF generate growth, and create jobs and contribute to the Danish treasury. A continued high level of activity is important for an economic recovery after the corona crisis.

2019 was another year in which a large number of Danish companies travelled beyond their national borders to make a difference with their products and services. And more than 700 exporters had either export credits, working capital guarantees, offers or loans from EKF as backing for realisation of their international ambitions.

This amounted to a total of DKK 17.8 billion in new guarantees, the majority of which were issued for wind projects in countries such as Taiwan, the UK and Norway. 2019 was EKF’s second-best year on record for new guarantees. However, the new guarantees were lower than in 2018 due, in particular, to the deferral until 2020 of a number of large-scale infrastructure projects.

Trend in new guarantees 2015-2019

Healthy financial standing among Danish exporters

From solutions within flywheel energy storage through sustainable pencils and rare wines to an offshore wind farm capable of supplying green energy to more than half a million Taiwanese homes. EKF’s 706 customers benefited the globe with a diverse range of products in 2019.

706 represented a slight decrease in EKF customer numbers relative to previous years. This is an indication of the healthy financial performance of both Danish exporters and the private-sector financing market.

We will be continuing a targeted drive to reach out to the smaller-scale Danish exporters. Partly through our export ambassador programme, which is a close partnership with the Danish banks, under which EKF has so far trained 250 export ambassadors, and partly through direct advisory services for Danish exporters.

The customer numbers also indicate that just under eight in ten of EKF's clientele are SMEs. We play a special role in serving this segment since recent, small-scale start-ups are least well-placed to secure financing for their international ambitions. They are typically also the ventures that are hardest hit by any failures in export markets.

Breakdown of customers 2015-2019

Knock-on impact of businesses on the Danish economy

We are pleased every time we are in a position to help a Danish company navigate international waters. This is because every single business, of any size, does its bit to generate growth at home and abroad.

When we provide a guarantee for an international North-Jutlandic wine merchant's bank loan, that business is then in a position to accept more and larger orders. That generates growth within that business and local jobs.

And when we issue large guarantees for projects out in the world, the activity boost is not just confined to the exporter concerned. The large Danish exporters form a large ecosystem of businesses, whose success is propagated to a seedbed of Danish sub-suppliers. Increased employment in these businesses allows more employees to spend money with other businesses, and in this way, the value spreads outwards in concentric rings.

Large successful corporates – such as those in the wind turbine sector – also have some less tangible spill-over effects on the rest of business and industry in their regions. This happens, for example, when labour moves from the highly productive companies in one sector to other companies outside that sector. The workforce brings its know-how from the highly-productive company and in that way boosts productivity in the next companies along.

Growth and jobs have been a key focus in EKF's mission since 1922. However, the world has changed in the century that will soon have passed, with globalisation adding to the complexity of the picture. When EKF helps to procure orders and earnings for Danish companies from abroad, this does not necessarily mean that the entire project is then produced in Denmark. Danish companies today engage in an increasingly internationalised division of labour, in which development, marketing, sales, manufacturing and financing entail a global perspective. In many cases, it is more profitable to locate part of production in the country at which sales are targeted. Or where a component can be manufactured at the lowest cost.

In 2019, we helped to create and retain 7,200 jobs in Denmark.​

Given the increasing internationalisation of Danish companies, it is important to bear in mind that Denmark is still reaping substantial rewards from non-domestic production in the form of tax payments and research and development located in Denmark for example.

How we quantify economic impact

EKF calculates the economic impact of our solutions and products on the Danish economy. Our calculations show how EKF makes a difference for Danish companies and for Denmark.

The independent economic consultancy Copenhagen Economics devised a calculation model for EKF. The model contains figures from EKF's transactions and data from sources such as Statistics Denmark. The results show our economic impact in the form of jobs, for example. Both the data and figures are validated by Copenhagen Economics.

In 2019, once again, EKF's commitment to Danish exporters had positive impact on the Danish economy. Last year, EKF's export credits, working capital guarantees and loans generated DKK 15 billion in contracts for Danish companies. This helped to create and retain 7,200 jobs with Danish exporters, and our figures demonstrate that those jobs above all benefit people with vocational skills.

EKF's employment impact by level of educational attainment

The figures for employment by level of educational attainment are part of our economic impact figures from Copenhagen Economics.

The increased activity among Danish companies also strengthens Denmark's GDP. In 2019, EKF's business transactions with Danish companies contributed DKK 6.4 billion to Denmark's GDP and DKK 2.2 billion in tax revenues. For that amount, Denmark could payroll 5,200 pre-school teachers, 5,300 social and care assistants or 4,700 nurses (Source: Kommunernes og Regionernes Løndatakontor (municipal and regional wage, employment and absence statistics)).

Finally, EKF pays dividend to our owner, the Danish state. For 2019, we will be distributing DKK 140 million plus a lump sum of DKK 500 million; a total payment to the Danish treasury of DKK 640 million in 2020.

EKF's distributions to the Danish state 2016-2019

Our growth outreach

EKF puts a great deal of effort into seeking out growth potential. We need Danish exporters to be familiar with EKF and potential foreign buyers to be made aware of the strengths of Danish companies. For that reason, in 2019 we attended the Børsen Gazelle awards for the fastest growing companies for the third year in a row. By participating in the financial paper Børsen's annual awards nationwide, we gained an opportunity to promote EKF to the 2,043 fastest-growing companies, and sow early seeds among future export successes. Our message to the fastest-growing companies was that they need have no fears about taking external financing on board for their growth ventures. Because we know that expansion costs.

On several occasions, we also travelled abroad to match Danish companies with prospective buyers who had already expressed an interest in their products and services. For our part, we were able to offer an innovative financing concept – a credit card-type facility enabling a foreign company to make purchases from multiple Danish exporters by means of a consolidated and competitive line of credit. Named Shopping Lines, this one-stop credit facility took effect in 2019. At the beginning of the year, we extended the first Shopping Line to the Chinese wind turbine manufacturer Envision Energy. With this consolidated credit line, foreign buyers can now 'shop' with Danish wind-industry sub-suppliers.
 

Companies will get the wheels turning again

More than ever we accept our responsibility now when the coronavirus has turned Danish and international society upside down. We are ready with new guarantee schemes to support Danish companies and ensure that the level of activity will return to a high level once again. We believe that we rely on the companies for an economic bounce back when society reopens.

Owned and guaranteed by the Danish state

EKF is an independent public company. EKF is owned and guaranteed by the Danish state under the remit of the Danish Ministry of Industry, Business and Financial Affairs, but managed by an independent board of directors based on the Act on EKF Denmark’s Export Credit Agency.

In March 2017, it was decided that EKF should pay dividend to our owner. Accordingly, EKF distributes half of its annual surplus, up to a maximum of DKK 140 million, to the Danish state. As from the financial year 2020, the amount will be reduced to a maximum of DKK 100 million per year. In addition, a lump sum of DKK 500 million will be distributed for the 2019 financial year. This lump sum was also determined in 2017.

CASE: SPROUT

Sprouting pencils sow the seeds of sensational growth

"Sustainability has become a 'fluffy' kind of a concept. It's difficult to get a grip on. It's a buzzword, but what does it actually involve?" muses Michael Stausholm, who started Sprout six years ago.

As he sees it, the answer is: doing away with the use-&-throw culture. It's about giving products a new lease of life after use, and Sprout's pencil, which can be planted after use, is a good example of that.

Basically, it's about products to replace articles made of plastic.

– MICHAEL STAUSHOLM, Founder of Sprout

"Our pencils can't save the world, but we can hopefully do our bit to tell people that they can do a lot of little everyday things that help to make a difference," says Michael Stausholm. 

Michael Stausholm founded Sprout six years ago, and since then the company's growth has rocketed year on year. Sprout has sold pencils to the tune of more than DKK 100 million in 80 countries worldwide, and in 2019 received the Børsen Gazelle award that recognises growth businesses that have doubled their revenue or gross profits in the space of four years.

"We needed to bring someone in to help finance the many orders. Happily, EKF came to our assistance and guaranteed some loans with our bank so we could keep up with our own growth".

CASE: WATTSUP POWER

Reinventing the flywheel for efficient energy storage

The costliest kilowatt hours are at the times of day when electricity generation demand is at peak load. By evening out that peak load, huge sums can be saved on electricity generation.

WattsUp has refined the century-old invention of the flywheel using state-of-the-art technology and composite materials, enabling the wheel to run in a vacuum with minimal friction. This allows WattsUp’s flywheel to store and output energy with negligible power loss.

WattsUp Power even uses recycled glass for making the fibre glass in the flywheel. This is the same method used in making wind turbine blades.

WattsUp has already been successful at selling their flywheel for energy storage on oil rigs and ships where the energy demand fluctuates. The WattsUp flywheel means that smaller motors are needed for power generation, so the capacity can be used far more efficiently.

The efficiency of our flywheel is maximised when deployed by big companies that generate their own electricity from solar panels for example. It allows them to both generate carbon neutral power and reduce their energy bill.

– MARTIN SPEIERMANN, CEO of WattsUp Power

For solar energy arrays, the power generated can be stored and output to the grid when demand peaks and the price is higher.

CASE: RARE WINE INVEST

From Vosne-Romanée to Vester Hassing

In North Jutland, a small business is poised for unlimited growth with the backing of an EKF working capital guarantee. Their success is built on selling rare wines and unique expertise in investing in this high-end commodity.

"A typical bottle of wine here costs anything from a couple of thousand kroner up to a quarter of a million. Part of our success is down to our skill at matching people. Someone in Belgium might be on the look-out for a particular bottle of wine. We might locate that in Taiwan, purchase it and then resell it," explains Anders Børsen, CEO of Rare Wine Invest.

If you buy a coveted wine and can refrain from drinking it, then it's one of the safest investments in the world.

– ANDERS BØRSEN, CEO of Rare Wine Invest

The rapid expansion of Rare Wine is down to its combined merchant-investor setup. In the space of just three years, the workforce has gone from 5 to 36 full-time equivalents, and turnover has increased eightfold.

This overwhelming success called for an increase in stocks warehoused at Vester Hassing, and hence an increased loan facility from the bank. This is where EKF comes into the picture.

"EKF provided a guarantee to the bank, meaning that we and the bank could be more ambitious together," Anders Børsen explains.

EKF's renewable energy projects reduce CO₂

Growth and green economy transition go together

In the previous year, EKF had its budget increased by DKK 14 billion to realise the ambition of diffusing Danish climate technology to the rest of the world. These funds, from Denmark’s Green Future Fund, are a logical continuation of EKF's long-standing efforts to support the transition to the green economy​.

When people look back at 2019, many of them will remember it as the 'year of the climate'. Climate action was the dominant topic in Denmark's election campaigns in the spring, and the incoming government launched 13 climate partnerships with the private sector to ensure that Denmark's ambitious targets for reducing CO₂ emissions are aligned with the corporate mission to generate growth and create jobs. And when the 2020 National Budget was adopted in December, DKK 25 billion was earmarked for the newly created Denmark's Green Future Fund, which will be investing in green solutions and technologies. Of the Fund's DKK 25 billion, DKK 14 billion was allocated to EKF, DKK 6 billion to the independent state loan fund, Danish Green Investment Fund, DKK 4 billion to Vaekstfonden, the Danish state's investment fund, and DKK 1 billion to IFU - Investment Fund for Developing Countries.

We see this enlarged budget for EKF as recognition of our efforts in previous years to promote exports of Danish climate technology and reduce global CO₂ emissions. We have demonstrated that it is perfectly well possible to generate growth in the order books of Danish exporters while driving the transition to the green economy in the right direction. Each time EKF participates in a renewable energy venture, the renewable energy displaces the more pollutant energy sources in a national grid. And with the aid of a calculation model from the independent economic consultancy Copenhagen Economics, we can quantify the concept of transitioning to the green economy.

How we quantify CO₂ emissions reductions

The independent economic consultancy Copenhagen Economics has developed a model capable of calculating carbon dioxide emissions reductions for the renewable energy projects EKF helps to finance, such as wind farms, solar power arrays and other energy sources that displace climate-pollutant CO₂-based energy sources from the electricity grids in various countries.

CO₂ displacement is quantified as the marginally reduced emissions in a country's power system achieved from the project over the full span of the project's useful life. This means that the CO₂ displacement depends on the volume of energy supplied by the given energy technology and the project country's/region's power generation mix and demand.

The figure for marginally reduced emissions is obtained by comparing expected supply and demand for electricity in a given country. The marginally most cost-intensive energy technology is displaced by the introduction of increased capacity from new renewable energy sources.

Since electricity generation from wind and solar is variable over any year and 24-hour period, the most accurate figure is obtained from an estimated hourly capacity at country level in the wind and solar model. The forecasted demand is then correspondingly determined per hour per country. In any country, wind, solar and other renewable energy sources will thus displace CO₂ equivalents at differing intensities per MWh supplied.

The calculations are also based on the projects' predicted capacity in MWh, the projects' useful life (e.g. 25 years for a wind turbine) and geographical siting. The results show how many tonnes of CO₂ equivalents these projects will avoid during their useful life.

In determining fossil fuel displacements in the renewable energy projects, CO₂ includes both CO₂ and CO₂e methane.

The renewable energy projects EKF helped to finance in 2019 are of great significance. Over the course of their useful lives, they are expected to achieve a total CO₂ emissions reduction of 75 million tonnes of CO₂ equivalents. This is almost one and a half times as much as Denmark's aggregate annual CO₂ emissions in 2019 of 49.9 million tonnes of CO₂.

The CO₂ reduction is achieved when the green energy sources displace pollutant technologies from the electricity grids. The large increase in 2018 is mainly attributable to EKF's involvement in financing a major hydropower project in Angola.

CO₂ reductions 2017-2019

To ensure a high degree of credibility for the CO₂ emissions figures they have been included in an auditor’s report from Deloitte, see The independent auditor's report regarding CO₂ data.​

We also see EKF's enlarged budget as the Danish Government's and Parliament's confidence in EKF's ability to help to achieve even more. We are also confident that we can do so. Because the additional funds are set to benefit a diverse range of Danish exporters. Worldwide, efforts are in progress to reduce reliance on fossil fuels, and here Danish companies have a key role to play. The prediction is that wind, and not least offshore wind, will drive the energy transition.

2019

A new era for renewables

At EKF, we have seen recent years as the dawn of a new era in renewable energy. This is due to two key factors: commercial maturity and political maturity. More than anything, the cost of installing wind power has come down so much that on by far the majority of markets, onshore wind is competitive with new fossil technology. The same applies to the prices for offshore wind, which have been substantially reduced in recent years.

Secondly, there are the signs of a political readiness worldwide to commit to renewable energy as focal for transitioning to the green economy. This is evidenced, for example, by the fact that offshore wind is now moving towards more remote coastlines. Until now, offshore wind farms have largely been a North Sea phenomenon, but last year Taiwan firmly positioned itself as the major new market in wind energy globalisation. The Taiwanese electricity sector is dominated by coal and natural gas, but the Government has set itself an ambitious green energy target of achieving 20 per cent renewable energy in its electricity generation by 2025. At present, the renewable energy share is a mere 5 per cent.

Danish players are in the frontline, since being among the first to gain a stake in new markets is all important. In 2019, EKF was involved in financing Taiwan's Yunlin and Formosa 2 offshore wind farms. With 640 MW capacity from 80 Siemens Gamesa turbines, Yunlin is the largest off-shore farm to date in Taiwan, and on completion will be capable of powering around half a million Taiwanese households with green electricity.

Green electricity to power 450,000 Taiwanese homes

Around 8 km off the coast of the Yunlin region in the west of Taiwan, 80 wind turbines from Siemens Gamesa will make up the Yunlin Offshore Windfarm. EKF is helping to finance the project with a guarantee of USD 500 million.

Read the full case on Yunlin Offshore Windfarm.

Transitioning to the green economy means other technologies too

Wind alone will not be powering the new era. At EKF we address and expand on our knowledge of the energy transition to ensure that it can also be applied to other sectors.

Danish companies have strong expertise in hydrotechnology and biogas, which are other segments with a positive climate footprint. Denmark has, for instance, some of the world's leading companies in recirculating aquaculture systems (RAS), a technology for sustainable onshore fish farming. In 2019, EKF participated in the financing of Atlantic Sapphire in the USA, which is expected to go into operation in mid-2020 with an annual production of approx. 10,000 tonnes of salmon.

Biogas is also a promising segment – not least because the plants can help to solve environmental problems in cities that generate vast volumes of organic waste, such as New York. EKF is involved in financing Trenton Biogas in New Jersey – a disused sewage treatment works currently undergoing conversion to process around 100,000 tonnes of organic waste annually. This waste, which would otherwise have been consigned to landfill, will now be converted into biogas and fertiliser.

Biogas plant solves environmental problem in urban America

Households, restaurants and supermarkets in northeastern USA generate mounting volumes of organic waste, much of which is consigned to landfills. Trenton Biogas, a private-sector community initiative in New Jersey near metropolitan New York, has resolved to collect the refuse and convert it into biogas and field fertiliser.

Read the full case on Trenton Biogas.

2019 was also the year in which we were involved for the first time in a project combining a mix of renewable energy technologies; in this case solar and wind. The combination of technologies results in steadier supply to the power grid, and the development of novel renewable energy solutions combinable with wind power might emerge as a new Danish specialist field in the future. In 2019, we were involved in financing the Golden Eagle project, which is a portfolio of wind energy and solar energy located at six sites in Mexico.

Innovative financing for complex projects

Mexico, the third largest country in Latin America, is aiming to obtain 50 per cent of its power supply from renewables by 2050.
Among the options currently being considered by the Mexican energy authorities is combined energy generation from solar and wind. EKF is participating in one such project.

Read the full case on the Golden Eagle energy project.

The development of new solutions along these lines is a key element of the energy transition. The majority of experts predict that half of the world's production capacity will be derived from renewable energy sources by 2050, whereas at present the figure is not even 10 per cent. Emergent technologies such as green hydrogen, batteries for energy storage and floating wind turbines that will allow wind farms to operate in waters too deep for fixed foundations, are all important.
 

Denmark’s Green Future Fund to make a difference

The creation of Denmark’s Green Future Fund clearly demonstrates that EKF is to continue to play a key role in diffusing Danish climate solutions to the rest of the world. There is a reason for that. EKF's strength lies in its backing for Danish exporters. However, EKF, in its own right, is pursuing a declared objective to reduce CO₂ emissions and front the energy transition within and beyond Denmark's borders.

EKF was instrumental in establishing the Danish wind industry's position of strength in the North Sea. In the future, however, we will increasingly seek to finance new green solutions once they reach maturity. These would include floating offshore wind, Power-to-X – a collective term for technologies that can convert the electricity from renewable energy sources into hydrogen – and other emergent technologies once they have matured. When that happens, we will be taking wind energy technology further afield.

This is because it is important to operate with a global perspective if Denmark is to gain economically from the national plans to achieve the energy transition. The same applies to other technologies. We are up to speed on emergent technologies in order to be ready to help power the next green export wave. For the benefit of the climate, Denmark's competitiveness and for the post-coronavirus economic recovery.

CASE: YUNLIN

Green electricity to power 450,000 Taiwanese homes

Around 8 km off the coast of the Yunlin region in the west of Taiwan, 80 wind turbines from Siemens Gamesa will make up the Yunlin Offshore Windfarm. With its 640 MW capacity, this will be Taiwan's largest off-shore windfarm, which from 2021 will be powering more than 450,000 Taiwanese homes with green electricity.

EKF is helping to finance the project with a guarantee of USD 500 million, representing 25 per cent of the senior debt.

Taiwan was long forecasted as the next major market for offshore wind, and the consensus is that Taiwan is poised to be a crucial regional wind energy hub in the coming years.

Given Taiwan's robust ambitions within renewable energy, this may turn out to be one of EKF's main markets ahead.

– KIRSTINE DAMKJÆR, CEO of EKF

Together with Danish sponsors and exporters, EKF helped to open up the market in Taiwan.
The Taiwan Strait – the body of water between the Taiwanese west coast and the Chinese mainland – with its viable water depths, is ideal for wind turbines. Political willingness and great ambitions mean that the framework conditions for attracting investors are more favourably advanced than in other potential markets.

EKF has so far been involved in the financing of all of the Taiwanese offshore wind farms.

”We aim to put in place the framework conditions that will attract investors to the new markets. We also want to help ensure that Danish exporters of wind technology are among the first to gain a stake in markets with high potential," Kirstine Damkjær explains.

CASE: TRENTON BIOGAS

Biogas plant solves environmental problem in urban America

Households, restaurants and supermarkets in northeastern USA generate mounting volumes of organic waste, much of which is consigned to landfills. Trenton Biogas, a private-sector community initiative in New Jersey near metropolitan New York, has resolved to collect the refuse and convert it into biogas and field fertiliser.

This is an extremely important project that can serve as inspiration for similar projects elsewhere in the country.

– STEPHEN M. SWEENEY, Senator in New Jersey

The plant is the first of its kind in New Jersey and can convert an annual 100,000 tonnes of organic waste into eco-friendly energy. However, this is only a fraction of the total volume of organic waste in New Jersey, which is estimated to amount to around 1.5 million tonnes annually. "This holds potential for many similar plants," says project initiator Peter Joseph, chair of Trenton Biogas.

A significant share of the project's technology comes from Danish suppliers, who have many years of experience in biogas installations.

”We found that the Danish suppliers offer the best technology, but also the most tried-and-tested technical solution. Our experience with the Danish deliveries to this project exceeded our expectations," says project initiator Peter Joseph.

He adds that from the earliest stages of the project's development, EKF has been a valuable financial partner in realising the vision. Trenton Biogas is expected to come on-stream during 2020.

CASE: GOLDEN EAGLE

Innovative financing for complex projects

In 2019, EKF was involved for the first time in a renewable energy combining solar and wind.
Mexico, the third largest country in Latin America, is aiming to obtain 50 per cent of its power supply from renewables by 2050.

Among the options currently being considered by the Mexican energy authorities is combined energy generation from solar and wind. This provides steadier supply to the grid, making the project economics more robust.

EKF is participating in a project of this kind with the Danish wind turbine supplier Vestas and a number of international lenders. The project is both the first and the largest portfolio of wind energy and solar energy in Mexico.

It is important for us to demonstrate that we are ready to provide innovative financing solutions for complex projects in support of the energy transition and reduced CO₂ emissions.

– KURT MARTIN LARSEN, Head of Team Onshore, EKF

Denmark has a leading international role within wind energy. Denmark also has a large number of up-and-coming companies working to develop hybrid systems combining wind energy with other renewables. These could well prove to be new specialist fields for Danish exports in the future.

CASE: ENVOTHERM

Win-win with wastewater 

Industrial wastewater is causing increasing challenges as regulators tighten up the environment requirements. Besides which, there is much money to be saved if a company can treat its own wastewater. The Danish company Envotherm can help companies do just that with its specialisation in purifying virtually all types of wastewater by means of evaporation.

”The water can be made completely clean and pure, allowing it to be re-used as process water. But evaporation is also a costly method because heating up the water requires a lot of energy," explains CEO Vibeke Svendsen, Envotherm.
However, Envotherm's solution recirculates the energy from the evaporation process inside the processing plant, thereby reducing energy consumption to a tenth.

”We offer customers return on investment from the outset because the cost of purifying the wastewater is only half that of disposing of it. At the same time, the treated water can be recycled," Vibeke Svendsen explains.

Envotherm's solution is now so much in demand that major multinationals have been placing orders with this small Danish company.

We have learned that having EKF behind us is like a seal of approval for our company and dispels any hesitation about doing business with us.

– VIBEKE SVENDSEN, CEO of Envotherm

Envotherm has had EKF on board its export venture almost since the outset in 2007. Most recently, the company has supplied turn-key solutions to German, US, UK and Polish companies in a wide range of sectors including automotive factories, commercial laundries and airports.

”EKF serves as a door opener, giving us access to customers we would otherwise not have had a chance of connecting with,” says Vibeke Svendsen.

CSR creates value for Danish exports

The international focus on human rights and climate concerns have been mounting in recent years. Respect for human rights and the environment have long been integral to EKF's strategy and business procedures, and we have an ongoing commitment to improving our CSR vigilance​.

In 2019, we focused on further integrating corporate social responsibility in EKF business procedures, meaning that CSR is addressed as early as possible in each project we assist with. The CSR department serves on the EKF Credit Committee, where current export transactions are screened in conjunction with representatives of EKF's other departments.

EKF seeks to enhance its internal CSR systems with the aim of improving its capacity to identify CSR risks and gather data for use in its CSR assessments. We have also met a request from our customers and business partners for the CSR process entailed by export transactions to be described more explicitly.

The CSR process

EKF's CSR activities are based on international principles and standards setting out the due diligence procedures for projects undertaken by EKF, including screening of the project, identification of risks, management, mitigation and monitoring of environmental and social impacts.

The CSR process commences from the early talks with a prospective customer, and we only engage in projects capable of meeting an acceptable standard. EKF ensures transparency on the projects' human rights, social and environmental impacts. We accomplish this by stipulating requirements for involvement with impacted local communities and other relevant stakeholders. We also require projects to publish information on any environmental and social impacts.

It must be made clearly apparent how CSR will be integrated in an export transaction, and how EKF's requirements serve to raise the project's standards of environmental and social sustainability. We follow-up on those requirements on an ongoing basis to ensure that we live up to our CSR strategy objective: Prudent growth.

International CSR alliances

Like other state export credit agencies within the OECD, EKF must comply with a number of international standards regarding respect for human rights and the environment, and at the international level, EKF cooperates with a number of institutions on continued reinforcement of CSR.

We are party to the OECD Common Approaches, the OECD Multinational Enterprise Guidelines, the UN Global Compact and the UN Guiding Principles on Human and Business Rights, the Equator Principles, and the IFC's Performance Standards and associated Environmental, Health and Safety Guidelines.

In 2019, EKF stepped up its participation in international CSR alliances in order to share our experience with our international colleagues and partners. Our aim is to ensure equal terms of competition for Danish and foreign companies and a basis for responsible growth.

Based on the international rules on corporate social responsibility, we set standards for ourselves and for the Danish exporters, foreign buyers and financial institutions we cooperate with. EKF can use its position to influence buyers to respect international standards protecting the environment, nature, societal factors and human rights. This position can be hard for an individual exporter to adopt.

EKF is involved in approx. 1,100 export transactions in more than 100 countries. Often in countries with traditions and regulations for environmental, working and welfare conditions that differ from those in Denmark. This is why the projects are required to comply with EKF's CSR requirements if we are to be involved in financing them.

Classification of CSR projects

In support of the OECD Common Approaches, EKF classifies export projects as category A, B or C projects. The classification indicates how comprehensively we need to investigate and assess a given project. Category A projects require the most extensive assessment of environmental and social sustainability, while category B projects are typically smaller, have fewer impacts and therefore do not require the same scale of assessment. C projects are those with negligible or no environmental and social impacts.

In 2019, EKF had more of the demanding A projects than in previous years, but slightly fewer B projects. Seven projects were classified as A projects, and six projects as B projects. Of the total, ten were wind projects, one was agricultural and two concerned infrastructure and utilities. In addition, EKF’s CSR department is monitoring and handling 130 projects from the previous years.

Following up on environmental and social sustainability requirements is just as important as following up on financial conditions. Accordingly, we prioritise both internal resources and consultancy services in order to ensure project compliance with international standards.

Projects with impact on CO₂

EKF helps to finance many renewable energy projects around the globe, which achieve CO₂ emissions reductions by displacing the more pollutant technologies from national power grids.

However, EKF also contributes to financing projects that emit CO₂. For all A and B projects that emit more than 25,000 tonnes of CO₂ per annum, a report must be compiled to account for the CO₂ emissions reductions measures implemented by the projects. In 2019, EKF only provided a guarantee for a single project with emissions on that scale.
For more information, please consult the latest CSR report on the EKF website, www.ekf.dk.

EKF's organisation

Over the past few years, EKF has been assigned larger scale and more complex tasks to boost Danish exports. Consequently, EKF has hired new staff on an ongoing basis. By year-end 2019, we had a staff of 150​.

In the light of this increase, in 2019, EKF directed additional focus on its procedures for induction of new staff and developing staff competences. EKF participates in export trade with both small and large Danish enterprises in more than 100 countries, and this calls for skilled, dedicated and versatile employees.

Staff knowledge, know-how and experience platform EKF's ambitions and continued success. For the employees, EKF is an opportunity for pursuing a promising career in an international arena, where we interact daily with businesses, organisations, banks and embassies worldwide.

Total number of EKF employees (average)

The chart is based on the average number of employees according to the ATP method customarily used in Denmark (based not on hours worked but on pension contributions).​

Gender balance in EKF’s management

As an independent public company, EKF is subject to the provisions of the Danish Gender Equality Act, which entail that the supreme governing body, EKF's Board of Directors, should have an equal gender balance.

The proportion of women on EKF’s Board of Directors constitutes 33 per cent (29 per cent excluding members of the Board of Directors elected by the employees as employee representatives) and thus meets the requirement for an equal gender balance.

EKF operates a policy of equal gender representation in management. The policy covers all management tiers within the organisation. Women managers at EKF account for 42 per cent of the overall management group. We want to increase the proportion of women managers in our management group, so we encourage women to go for management positions. We do this by striving for a representation of women in the recruitment process for management positions at EKF, provided that the candidate meets the qualification requirements.

EKF applies the Danish state ownership policy

As an independent public company, EKF applies the Danish state ownership policy as its corporate governance code. The ownership policy contains a large number of specific recommendations for and expectations of the Danish state’s exercise of ownership and the conduct of state-owned companies. EKF aims to comply with all recommendations of the state ownership policy.
EKF's Board of Directors holds eight meetings annually.

The state ownership policy is available at the Ministry of Finance website.

Corporate governance

EKF’s Board of Directors undertakes the overall and strategic management of EKF and the supervision of Management. The general tasks and responsibilities of the Board of Directors are laid down in its rules of procedure. Management is in charge of the day-to-day management of EKF and must thus comply with the policies, guidelines and instructions provided by the Board of Directors.

The Board of Directors consists of nine members, seven appointed by the minister and two employee representatives. In accordance with the Danish state ownership policy and the corporate governance recommendations, as a rule, EKF conducts an annual self-assessment of the Board of Directors. The question framework is based on the latest recommendations of the Corporate Governance Committee. In line with the recommendations of the Corporate Governance Committee, going forward, EKF is planning to involve external assistance for the assessment every three years.

According to the Act on EKF Denmark’s Export Credit Agency, the members of the Board of Directors shall between them have the competencies necessary to pursue the objects of the enterprise, including the required professional credit, financial, business, management and economic insights. EKF performs an analysis of the competencies of the Board of Directors in connection with the self-assessment of the Board of Directors.

According to EKF’s articles of association, board meetings must be held at least four times a year. Seven physical board meetings were held in 2019. In addition, a two-day board seminar was held. The Board of Directors has two sub-committees: the Audit and Compliance Committee and the Remuneration Committee. In accordance with the Danish state ownership policy, the members of the committees and the committees’ terms of reference can be seen on the EKF website at, www.ekf.dk.

Three physical meetings and two meetings conducted by telephone were held in the Audit and Compliance Committee and three meetings were held in the Remuneration Committee. The chairmanship holds quarterly meetings with the Ministry of Industry, Business and Financial Affairs, at which it reports on the organisation's strategic relations and follow-up on EKF's operating results etc.

For more information on remuneration and fees, see note 6 in the income statement and the other duties of the Board of Directors in the section entitled ‘EKF’s Board of Directors’.

EKF's risk management

In recent years, EKF has undergone a fairly significant increase in its activities. However, in that time, we have in no way compromised on our requirements regarding risk management. On the contrary, we have reinforced our setup, and we focus constantly on balancing risk, security and the ideal development options for positioning Danish companies to sell their goods abroad. In our strategy's 'Prudent Growth', risk management is an integral element of that commitment​.

Our decisions – to provide export credits or loans, or a guarantee for a foreign buyer's payment ability if they are intending to buy products from a Danish company – are always preceded by an extensive and thorough screening. We only assume risk in new transactions after careful consideration and once we understand the risks entailed. We owe that to all those stakeholders who rely on our integrity and financial strength.

EKF has the necessary procedures for risk management, financial statements and capital resources. We maintain robust capacity for assuming risk by actively covering risk and transferring risk to other parties. Our risk management is crucial for EKF's business model and in order to minimise risks. Both in all individual transactions and by diversifying risk across debtors, countries and regions within the sectors that make up a large share of EKF's portfolio. Assuming risk in a manner that is documented as being conducive to exports, value creation and trade, while resulting in only limited losses is one of EKF's hallmarks.

In 2019, EKF worked intensively on management of well-established risks, and directed increased focus at reducing credit risks, along with handling of IT security risks, the rules on anti-money laundering and counter terrorist financing, improving personal data processing and the introduction of a new product. To that end, EKF doubled the capacity of its treaty reinsurance programme, under which EKF now cedes 40 per cent of the risk incurred from large new financial guarantees and loans on issuance. This reflects the private market's great confidence in EKF's ability to handle the risks entailed in our transactions.

EKF's internal and external constraints on its portfolio and level of capital had all been observed by year-end 2019.

Risk types

As a result of EKF's role as an export credit agency, EKF's portfolio will largely be characterised by credit risk that is both significant and concentrated. EKF has both relatively higher single-debtor exposures and sectoral exposures on its books than other financial institutions. EKF divides risk types into financial risks, in which credit risks are the highest by far, and operational risks.

Credit risks

Credit risk is the risk of counterparties to EKF-guaranteed loans, working capital guarantees and direct lending defaulting on their debts. Hence, EKF’s greatest risk is that the exporter’s customer does not have the possibility, ability or willingness to pay.

The object of EKF is to facilitate Danish companies’ export and internationalisation opportunities, participation through internationally competitive financing and risk cover. EKF's exposure is thus often characterised by either large transactions or challenging markets. The advantage to the Danish exporters is that EKF’s export credit covers the buyer’s payment ability and reduces the risk associated with the credit extended to the customer by the exporter or the exporter's bank.

EKF offers export credits, especially buyer credit and project finance guarantees, to Danish exporters selling their goods abroad, and working capital guarantees to Danish exporters who lack the capital for taking on more customers and accepting larger orders. In addition, EKF can provide direct loans to Danish exporters’ customers in connection with exports. EKF manages credit risk via the framework for its credit rating process defined in the credit policy and product-specific guidelines.
 

Credit rating

EKF credit-approves all transactions by means of product-specific processes. Depending on the scale and complexity involved, this comprises the requisite due diligence and credit analysis of EKF's counterparties. All transactions involving high complexity and scale must be approved by the EKF Credit Committee prior to approval by the Board of Directors. The Board of Directors makes decisions on granting of loans and export credits at its board meetings. In our assessment of commercial risks we perform stress tests of debtors' payment ability.
 

Countries

For our assessment of country risks, we use the OECD’s country risk classification, which comprises the factors that may impact a country's possibilities, willingness and ability to meet its payment obligations.
 

Ratings

We use internationally recognised tools from Standard & Poor's for risk classification of foreign debtors and projects. For risk classification of Danish counterparties, we use a model developed by Moody’s. EKF operates with a standard approach to rating, which reflects the probability of counterparty debt default. EKF also estimates a Loss Given Default interval (LGD) for new project finance transactions, which reflects the scale of the exposure EKF is expected to lose in the event of counterparty debt default. The LGD estimate is used for testing the pricing in major project finance transactions, and will ultimately be incorporated as an element in our risk computation and risk management.
 

Reinsurance

Over the last few years, EKF has established an effective reinsurance programme. At present, EKF has reinsured approx. 30 per cent of its total portfolio in close cooperation with some 30 reinsurers in the private sector and among export credit agencies in other countries. EKF employs treaty reinsurance to procure capacity in the case of automatic reinsurance of large transactions within constraints determined in an agreement with a panel of reinsurers. In 2019, the treaty reinsurance was raised from 20 to 40 per cent of large new transactions. In addition, EKF reinsures individual transactions in order to reduce large concentrations on individual debtors and countries.

Reinsurance 2018-2019

Financial counterparties

Banks are typically involved in EKF's transactions as the guarantee holder, borrower or guarantor on behalf of a foreign buyer. EKF performs a credit rating of the bank, based on an external rating from an internationally recognised credit rating agency or based on a full internal credit rating of the bank. EKF manages bank risks by defining a minimum rating and exposure limits for the bank relative to its equity.

EKF hedges its exposure to a number of exchange rate and interest rate risks by means of swaps and other financial instruments, in connection with lending especially. This in turn gives rise to credit risk exposure from EKF's swap counterparties. EKF follows Danmarks Nationalbank's requirement for counterparties, whereby we operate with exposure limits for our swap counterparties based on their credit quality (external rating). EKF has entered into an agreement on collateral for receivables and the debt that arises when the market value of EKF's derivative financial instruments fluctuates. This serves to reduce the credit risk, while keeping the concentration on individual counterparties in check.

EKF sets strict requirements for the credit quality of its reinsurers. This is accomplished by requiring an external rating from an internationally recognised credit rating agency.
 

Concentrations

EKF’s portfolio is concentrated on the wind turbine industry and covers a number of single exposures worth billions. Diversification of risk on debtors, countries and regions is a key element in EKF’s risk management. EKF applies internal indicators in monitoring credit risk and portfolio concentration. The indicators monitor concentrations on individual debtors and the credit quality of the portfolio. EKF uses reinsurance in both risk and capacity management. In addition to reducing credit and concentration risk, reinsurance also lessens capital requirements and frees up capacity to issue new guarantees and loans.

The scale of wind projects – especially the offshore wind farms – is increasingly large, which results in a tendency towards an increasing concentration in EKF's portfolio. Wind projects accounted for just over 70 per cent of EKF’s guarantee exposure and loans after reinsurance at the end of 2019. Because EKF has financed wind projects for many years, in diverse locations worldwide with wide-ranging counterparty risks offset by reinsurance, the concentration in EKF's portfolio remains at a prudent level.

Exposure in the 10 largest countries with wind projects

2019

Project monitoring

Risk management includes an updated credit rating of risk exposure on the existing portfolio. EKF runs annual credit rating checks of significant exposures based on the scale of exposure, estimated probability of loss and customer characteristics. Monthly monitoring includes ratings of banks to ensure that EKF has an updated credit quality assessment of exposures guaranteed by such banks. EKF regularly monitors country risk and reassesses its cover policy in case of internal or external changes. In addition, EKF reviews all regions at least once a year.

Continuous monitoring helps to ensure that we know the portfolio and the overall risk profile and its development. Moreover, it enables us to implement loss prevention measures and calibrate provisions as and when required.

Provisions for losses

EKF regularly assesses the need for provisions for losses to ensure that realised losses on EKF’s portfolio of guarantees do not exceed total provisions and write-downs. In addition to the annual assessment of the need for provisions for losses in the exposure follow-up, the Board of Directors monitors the largest provisions. Furthermore, EKF performs statistical calculations of the need for write-downs of loans and premiums receivable in the quarterly financial statements in accordance with the IFRS 9 International Financial Reporting Standard, which sets out the principles for financial assets measurement. There is a risk that EKF's provisions for losses are insufficient to cover the realised losses on the portfolio of guarantees. This risk is reduced in that EKF has established a concentration reserve, the 'restricted equity', which is capable of absorbing a major potential loss. The concentration reserve is increased in line with portfolio growth. At the end of 2019, EKF's restricted equity totalled DKK 2.7 billion.

Market risks

Market risk is the risk of loss due to changes in the market value of assets and liabilities attributable to developments in the financial markets. Within this type of risk, EKF is exposed to interest rate, exchange rate and liquidity risks. Our capital requirements are affected by exchange rate and interest rate fluctuations through the size of our guarantee exposure and loans, insofar as the risk has not been hedged. Consequently, our scope for issuing new export credits, working capital guarantees and loans changes when exchange rates appreciate or depreciate.

EKF is cautious about taking market risks. All significant exchange rate and interest rate risks incurred from lending are hedged until maturity from when the loan is established. Similarly, all accounting positions in foreign currency, that exceed DKK 50 million, are hedged on an ongoing basis.

Guarantee exposure

Interest rate risks

EKF is significantly exposed to interest rate risk incurred from export loans and premiums receivable for issued guarantees.

EKF undertakes full hedging of interest rate risks on issuance of export loans. Using interest rate swaps, EKF ensures a link between the raising of loans in Danmarks Nationalbank at a fixed interest rate and lending to customers at a variable interest rate. EKF is sensitive to interest rate changes in its discounting of premiums receivable. EKF performs an annual sensitivity analysis of the impact of an interest rate change on net profit and capital requirements.
 

Exchange rate risks

EKF’s transactions result in a number of assets and liabilities in different currencies, in both its lending scheme and guarantee scheme. EKF hedges all significant net exposures by means of currency swaps and forward exchange contracts, thereby minimising the effect of exchange rate fluctuations in its income statement. However, exposures in euros are not hedged, since Denmark's fixed exchange rate policy is regarded as hedging against fluctuations in the euro.

EKF undertakes full hedging of all exchange rate risks on issuance of export loans, except for loans in euros. Using currency swaps, EKF hedges against the risk of exchange rate changes and ensures a link between the raising of loans in Danish kroner in Danmarks Nationalbank and lending to customers in another currency.

EKF issues guarantees in many different currencies, as a result of which it has liabilities and receivables in foreign currencies. We hedge significant net exchange rate exposures by means of forward exchange contracts to ensure that our net profit is not significantly affected by exchange-rate fluctuations.

Export loans

EKF performs an annual sensitivity analysis of the impact of changes in exchange rates on net profit and capital requirements. See note 23 for more information about the sensitivity analysis.
 

Liquidity risk

EKF’s risk of lacking liquidity for servicing daily cash flow is low. EKF’s liquidity can be split into three levels. Operating liquidity consists of the funds for day-to-day operations (payroll, rent, etc.). On-demand liquidity is funds which EKF must have direct access to in order to cover provisions for claims expenses etc. The remaining liquidity is EKF's uncommitted capital, which can be used for financing EKF's products and investment in particularly secure securities. EKF thus has restricted equity to meet both the short need for operating capital and to cover significant indemnification payments and other transactional payments.

In addition, EKF has access to long-term financing through the Danish state's re-lending scheme with a limit of DKK 25 billion up to and including 2025.
 

Operational risks

Operational risk, including compliance and reputational risk, is the risk of loss resulting from inadequate or failed internal procedures, human error and system error or external events.
Operational risk is managed across the organisation through internal procedures compiled with a view to ensuring that risks are properly identified by controls.

EKF has implemented systematic registration, categorisation and reporting of operational incidents entailing potential losses/gains (near-miss events).

EKF conducts an annual risk assessment of operational risks, thereby identifying areas to be reviewed in the coming year. We address identified compliance risks and the ensuing follow-up on an ongoing basis, and we assess and monitor whether any new risks are being properly addressed.

Risk management principles

The organisation is set up to follow the fundamental risk management principles. The Board of Directors determines the main principles to be applied to risk management and lays down a general set of rules in a number of policies. Management is responsible for implementing the risk exposure framework in the business and for ongoing risk management. In close cooperation with the EKF Credit Committee, Management assesses and deals with the risks associated with individual business activities. EKF also makes use of intra-agency risk coordination units and risk management functions.

The capital and risk management project

In 2019, EKF undertook a modernisation of its risk management in a capital and risk management project. This project included EKF's indicators for different types of risks, deliberations on a future capital management model that will more explicitly reflect EKF's risks, and organisation of risk management at EKF.   

Financial review

General

New guarantees for 2019 amounted to DKK 17.8 billion, making them the second-highest on record in the history of EKF, exceeded only by the new guarantees for the previous record year 2018 of DKK 33.7 billion.
 

Income statement

EKF’s total net profit for 2019 was DKK 743 million against the DKK 618 for 2018. The result for 2019 is very satisfactory, and this year again is the highest profit on record at EKF. The net profit allows EKF to distribute the maximum amount of DKK 140 million of the year's net profit, together with the extraordinary distribution of DKK 500 million in accordance with EKF's dividend policy.

Net profit for 2019

The record-high result for 2019 is largely attributable to the year's new guarantees making a substantial income contribution. In addition, the high surplus in 2019 is due to the fact that EKF succeeded in restructuring two major claims, with the result that the borrower is now able to make the payment. EKF’s expectations regarding losses have been substantially reduced, and EKF was able to reverse the claims expenses on the two major transactions. Meanwhile, EKF registered no major new claims in 2019.  Consequently, the realised profit significantly exceeds the expected profit for the year of DKK 300 million.

The substantial volume of new guarantees in 2018 and 2019 necessitated EKF’s intensification of its reinsurance efforts in order to ensure balanced portfolio growth. Accordingly, in 2019, we increased the coverage of EKF’s treaty reinsurance agreements from 20 per cent to 40 per cent with effect on large issuances in 2018 and 2019. The increased reinsurance drive is reflected in the commission of DKK 17 million from the reinsurers, which EKF receives as compensation for administration and underwriting.
 

Insurance

The technical result before administrative expenses amounted to DKK 712 million in 2019. The technical result consists of premium income for own account of DKK 375 million, claims expenses for own account, which in 2019 is an income of DKK 160 million, and income from commission paid by reinsurance companies of DKK 177 million. 

The favourable technical result before administrative expenses derives primarily from the income from reversal of claims expenses. The technical result before administrative expenses was equally favourable in 2018 due to the highest number of new guarantees on record in that year, and low claims expenses.

Premium income for own account

Premium income for own account amounted to DKK 375 million in 2019. Of this, earnings from new guarantees amounted to DKK 113 million after guarantee provisions and reinsurance premiums paid. In the year in which a guarantee is issued, as a rule, 20 per cent of the gross premium is recognised. The remaining 80 per cent of the gross premium is recognised in step with repayment of the underlying loans we have guaranteed. In 2019, EKF was able to recognise as income DKK 403 million in the reductions in previous years’ provisions for guarantees. In 2019, prepayments and refinancing of projects resulted in a cost to EKF of DKK 44 million.

Reclassification of countries and debtors represented an expense of DKK 122 million in 2019. This expense was incurred primarily from the downgrading of a number of debtors in Turkey together with OECD’s downgrading of Argentina from country risk category 6 to country risk category 7, which resulted in an increase in EKF’s guarantee provisions, as we rate the risk posed by the implicated projects as increased.

Claims expenses for own account amounted to income of DKK 160 million in 2019. In 2019, EKF reversed the claims expenses for two major projects following successful restructuring. In addition, in 2019, the volume of claims for new projects exposed to potential loss was very low. New claims relate primarily to minor losses on working capital guarantees and other products geared to small and medium-sized Danish enterprises, for which it was necessary to make new provisions or increase the existing ones.

Commission to and from reinsurance companies yielded net income of DKK 177 million. In 2019, EKF increased its coverage from 20 per cent to 40 per cent for treaty reinsurance agreements with the private reinsurance market with effect on issuances from 2018 onwards. The treaty reinsurance agreements ensure that all major projects are automatically reinsured within the agreed limits. The increased reinsurance resulted in a reduction in EKF’s exposure and thus a fall in related guarantee provisions. The year's reinsurance premiums paid and commissions from reinsurers relate to new guarantees from both 2018 and 2019 and are thus very high.
 

Lending activities

The result of lending activities before administrative expenses was DKK 269 million. This was an increase on 2018 when the profit was DKK 212 million.

Under EKF’s business model for lending activities, EKF raises re-lending at Danmarks Nationalbank, on-lending it for export transactions. This involves considerable market risks, since re-lending is raised in Danish kroner at a fixed rate, while loans for export transactions are raised in different currencies at variable rates. EKF hedges the market risks occurring in this connection by interest rate and currency swaps. As a result, EKF will receive the full margin concerning loans expressed in the line Financial income related to loans, which are then converted into interest rate and currency swaps and repaid to Danmarks Nationalbank as a fixed interest rate in the line Financial expenses related to loans. Thus, to assess the income related to EKF’s lending activities, basic earnings, financial income and financial expenses should be taken as one.

Basic earnings, lending

Basic earnings from lending activities amounted to DKK 258 million in 2019 against DKK 291 million in 2018. The decrease is due primarily to prepayment of a loan at the end of 2018, which resulted in a decrease in earnings of DKK 21 million. In addition, four loans were refinanced at a lower interest rate, which meant a decrease in earnings of DKK 11 million.

Write-downs of loans in 2019 amounted to an income of DKK 11 million. No objective indications of impairment of new loans were registered in 2019 compared to the previous year. In 2019, write-downs were reversed as a result of two prepayments. For 2019, a significant increase in credit risk on a loan resulted in an increase in the write-down.
 

Administration

Net administrative expenses in 2019 amounted to DKK 209 million, up DKK 14 million from 2018. The increase is primarily attributable to increased payroll costs, since the staffing level was raised with several new positions in the last few years as a result of increasing activity.
 

Net financials

Net financials represented an expense of DKK 29 million compared to an income of DKK 66 million in 2018.

Total financial income was DKK 198 million in 2019. In 2018, financial income amounted to DKK 139 million. The income in 2019 was mainly related to interest from claims of DKK 80 million and income from discounting of premiums receivable of DKK 89 million as a result of a fall in the discounting interest for GBP.

Net financials amounted to DKK 17 million in 2019, which is in line with the 2018 level.

In 2019, EKF posted an expense as a result of exchange rate adjustments of DKK 31 million.

Value adjustments, unrealised amounted to an expense of DKK 179 million. EKF hedges the majority of exchange rate and interest rate risks in its lending portfolio by means of derivative financial instruments. Since EKF recognises loans at amortised cost price and the established hedging at fair value, a proportion of the volatility in the value of the financial instruments will not be reflected in the loans that are hedged. In 2019, the trend in the USD curves affected the market value of EKF’s currency swaps, but without this being reflected in the loans they hedge. This resulted in an expense item in EKF’s net financials.

Major fluctuations in unrealised value adjustments are collected in a reserve under equity. Over time, this reserve will be reduced to zero in step with lending, re-lending and derivative financial instruments approaching maturity.
 

Balance sheet

At 31 December 2019, our assets totalled DKK 26.6 billion, up from DKK 28.0 billion at 31 December 2018.
 

Assets

Cash and demand deposits fell to DKK 7.2 billion from DKK 7.8 billion at the end of 2018. The main reason for the fall was that in 2019 EKF financed loans from its own funds.

Loans amounted to DKK 9.4 billion at 31 December 2019. Compared to the end of 2018, this is a fall of DKK 1.3 billion. The fall is mainly due to loan prepayments and ordinary loan repayments in 2019.

Securities amounted to DKK 1.8 billion at 31 December 2019. EKF did not invest in new securities in 2019.

Receivables amounted to DKK 6.5 billion in 2019, down from DKK 6.6 billion at the end of 2018. Claims increased by DKK 0.1 billion as a result of lower write-downs of single major claims. Premiums receivable increased by DKK 0.2 billion due to large new guarantees in 2019 where premiums are paid periodically over the maturity period. Derivative financial instruments amounted to DKK 1.5 billion at the end of 2019, down from DKK 1.9 billion at the end of 2018.

Reinsurance shares of guarantee provisions and provisions for claims expenses amounted to DKK 1.7 billion at the end of 2019, up from DKK 1.1 billion at the end of 2018. The increase is mainly due to an increase in EKF's reinsurance cover for the treaty agreements from 20 per cent to 40 per cent applied to new guarantees for major projects issued in 2018 and 2019.
 

Liabilities

Total equity amounted to DKK 8.5 million at the end of 2019, up from DKK 7.9 billion at the end of 2018. Changes in equity for the year consisted of net profit for the year of DKK 743 million and the year's distribution to the Danish state of DKK 140 million.

Equity

The restricted equity for 2019 was only consolidated by DKK 88 million from the net profit for the year. At year-end 2019, restricted equity had reached the maximum calculated size determined on the basis of the portfolio's concentration on countries and the risk-weighted exposure. Proposed dividend to the Danish state for 2019 of DKK 640 million includes an extraordinary distribution to the Danish state of DKK 500 million.

Payables amounted to DKK 13.1 billion at the end of 2019, down by DKK 2.1 billion from the level at 31 December 2018. The reason is that EKF reduced its payables to the Danish state under the re-lending scheme in step with reductions in the loan portfolio.

Technical provisions amounted to DKK 5.1 billion at 31 December 2019. Guarantee provisions increased by DKK 0.2 billion to DKK 4.5 billion due to new guarantees in 2019. Provisions for claims expenses amounted to DKK 0.6 billion, down by DKK 0.1 billion in relation to the previous year, which was mainly attributable to downward adjustment of the expected losses on a major project in the UK.
 

Portfolio

EKF’s total portfolio consists of EKF's guarantee exposure, reinsurance exposure, loans and offers issued. The total portfolio for EKF amounted to DKK 99.2 billion at year-end 2019. Guarantee exposure for EKF is not registered in EKF’s balance sheet, but is a contingent liability.

EKF’s guarantee exposure and loans before reinsurance amounted to DKK 92.2 billion at the end of 2019. After reinsurance, guarantees and loans amounted to DKK 59.2 billion. For comparison, EKF's guarantee exposure after reinsurance and loans was DKK 66.2 billion in 2018. Guarantee exposure and loans after reinsurance have fallen appreciably since 2018 due mainly to an increase in the reinsurance share from 20 per cent to 40 per cent for treaty reinsurance agreements. Generally, more reinsurance was taken out in countries with a good credit rating such as the countries in Western Europe.

Guarantee exposure and loans after reinsurance, by region, end of year

The portfolio of loans decreased during 2019 as a result of a prepayment in Australia and a large loan in Lebanon reaching its maturity.

Guarantee exposure before reinsurance increased in 2019 relative to the previous year in all regions except Eastern Europe. The large new guarantees in 2019 were issued in Taiwan, the UK and Norway.

Key figures for EKF’s total claims and potential losses 2015-2019

Claims and potential losses

Claims expenses for own account amounted to income of DKK 160 million in 2019, up from DKK 91 million in 2018. In 2019, for two major transactions, provisions were adjusted downwards with an aggregate effect of DKK 263 million. For one of the transactions, the assessment is that the expected loss will be significantly lower, and the write-down ratio has been adjusted downwards accordingly. For the other transaction, after a large instalment was paid for the underlying loan, the exposure amount was thus adjusted downwards, which resulted in downward adjustment of the expected loss. EKF conducts regular follow-up on claims in order to minimise losses and ensure claims repayment.

Indemnification payments, gross, totalled DKK 108 million in 2019, representing a significant decrease relative to previous years.

Net claims increased from DKK 1,268 million in 2018 to DKK 1,385 million in 2019, reflecting that EKF takes over a claim when indemnification has been paid.

Post balance sheet events

No events have occurred after 31 December 2019 that would have a material impact on the assessment of the Annual Report.
 

Outlook for 2020

Before the outbreak of COVID-19 and its subsequent spread EKF expected a high level of guarantees and loans to be issued in 2020. 

Overall, EKF expected net profit for 2020 to be in the DKK 500-700 million range.

This outlook is subject to uncertainty against the background of the outbreak of COVID-19
and its subsequent spread. The economic slowdown this may result in might negatively impact both EKF’s trade volume and portfolio.

Corporate information

EKF Denmark’s Export Credit Agency

Lautrupsgade 11, 4th floor
DK-2100 Copenhagen

Telephone: +45 35 46 26 00
Fax: +45 35 46 26 11

Website: www.ekf.dk
E-mail: ekf@ekf.dk

CVR no. (company registration no.): 30 76 37 77
Founded: 19. November 1999
Registered office: Copenhagen

Financial year: 1 January to 31 December

Auditors

PricewaterhouseCoopers 
Statsautoriseret Revisionspartnerselskab 
Strandvejen 44
DK-2900 Hellerup

Rigsrevisionen

Landgreven 4
DK-1301 Copenhagen

Board of Directors

Christian Frigast, Chairman

Dorrit Vanglo, Deputy Chairwoman

Flemming Aaskov Jørgensen

Karen Nielsen

Jørgen Høholt

Jørgen Skeel

Poul Due Jensen

Anna Marie Owie, Employee Representative

Yasir Al-Gailany, Employee Representative

Management

Kirstine Damkjær, CEO

Jan Vassard, Deputy CEO

Christian Ølgaard, Deputy CEO

Tine Lundegaard, Deputy CEO

Management statement

Today EKF’s Board of Directors and Management considered and approved the Annual Report of EKF Denmark’s Export Credit Agency for the financial year 1 January to 31 December 2019.

The Annual Report was prepared in accordance with the Danish Financial Statements Act, subject to the necessary exemptions and adjustments required as a consequence of EKF Denmark’s Export Credit Agency’s special position as an independent public company, cf. the Act on EKF Denmark’s Export Credit Agency and EKF's articles of association.

In our opinion, the financial statements give a true and fair view of EKF Denmark’s Export Credit Agency’s assets, liabilities and financial position at 31 December 2019 and of the results of EKF Denmark’s Export Credit Agency’s operations and cash flows for the financial year 1 January to 31 December 2019.

Furthermore, we are of the opinion that the management’s review gives a true and fair account of the development of EKF Denmark’s Export Credit Agency’s operations and financial circumstances and a description of significant risks and uncertainty factors that could impact EKF.

The Annual Report is recommended for approval by the Danish Minister for Industry, Business and Financial Affairs.

Copenhagen, 10 March 2020

The independent auditors’ report

TO THE MINISTER OF INDUSTRY, BUSINESS AND FINANCIAL AFFAIRS

Auditors' report on the financial statements 

Opinion 
We have audited the financial statements of EKF Denmark’s Export Credit Agency for the financial year 1 January to 31 December 2019, which comprise the income statement, balance sheet, statement of changes in equity, cash flow statement and notes, including significant accounting policies. The financial statements are prepared in accordance with the Danish Financial Statements Act, subject to the necessary exemptions and adjustments required as a consequence of EKF Denmark’s Export Credit Agency’s special position as an independent public company, cf. the Act on EKF Denmark’s Export Credit Agency, and EKF's articles of association.

In our opinion, the financial statements give a true and fair view of EKF Denmark’s Export Credit Agency’s assets, liabilities and financial position at 31 December 2019 and of the results of EKF Denmark’s Export Credit Agency’s operations and cash flows for the financial year 1 January to 31 December 2019 in accordance with the Danish Financial Statements Act and EKF's articles of association.
 

Basis of opinion 
We have conducted our audit in accordance with International Standards on Auditing and the additional requirements applying in Denmark and in accordance with good public auditing practice, given that the audit is conducted on the basis of the provisions of the Act on EKF Denmark’s Export Credit Agency. Our responsibility according to these standards and requirements is described in more detail in the section ‘Auditors’ responsibility for audit of the financial statements’ in this auditors’ report.

The Auditor General is independent of EKF Denmark's Export Credit Agency, cf. section 1(6) of the Act on Audit of the State Accounts, and the approved auditor is independent of EKF Denmark's Export Credit Agency in accordance with the IESBA's Code of Ethics for Professional Accountants and the additional requirements applying in Denmark. We have both complied with our other ethical obligations under such code and requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
 

Management's Responsibility​
Management is responsible for the preparation and fair presentation of financial statements in accordance with the Danish Financial Statements Act and EKF's articles of association.

This responsibility includes implementing such internal controls that Management determines are necessary for the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

When preparing the financial statements, Management is responsible for assessing EKF Denmark's Export Credit Agency's ability to continue as a going concern, for providing information about going concern issues where this is relevant and for preparing the financial statements on the basis of the going concern accounting principle, unless Management plans either to liquidate EKF Denmark's Export Credit Agency or to discontinue operations or has no other realistic alternative than to do so.

Auditors' responsibility for audit of the financial statements​
Our objective is to obtain a high degree of certainty that the overall financial statements are free from material misstatement, whether due to fraud or error, and to present an auditors' report with an opinion. A high degree of certainty is a high level of certainty, but is not a guarantee that an audit performed in accordance with International Standards on Auditing and the additional requirements applying in Denmark and in accordance with good public auditing practice will always disclose material misstatements, if any.

Misstatements may occur as a result of fraud or error and can be deemed to be material if it can reasonably be expected that they will, individually or jointly, have an impact on the financial decisions made by users on the basis of the financial statements.

As part of an audit performed in accordance with International Standards on Auditing and the additional requirements applying in Denmark and in accordance with good public auditing practice, we perform professional assessments and exercise professional scepticism during the audit.
In addition: 

• We identify and assess the risk of material misstatement in the financial statements, whether due to fraud or error, plan and perform audit activities in response to such risk and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit opinion. The risk of not discovering material misstatements is higher for material misstatements resulting from fraud than for material misstatements resulting from error as fraud may include conspiracy, forgery, wilful omissions, misrepresentation or non-observance of internal controls.
• We gain insight into the internal controls of relevance to the audit in order to design audit activities that are appropriate in the circumstances, but not to express an opinion on the effectiveness of EKF Denmark's Export Credit Agency's internal controls.
• We consider whether the significant accounting policies applied by Management are appropriate and whether the accounting estimates made and related information prepared by Management are reasonable.
• We express an opinion as to whether the preparation of the financial statements by Management on the basis of the going concern accounting principle is appropriate and whether, on the basis of the audit evidence obtained, there is material uncertainty linked to events or circumstances that may cause substantial doubt as to EKF Denmark's Export Credit Agency's ability to continue as a going concern. If we reach the conclusion that there is material uncertainty, we must in our auditors’ report draw attention to information about this in the financial statements or, if such information is not sufficient, qualify our opinion. Our opinions are based on the audit evidence obtained until the date of our auditors' report. However, future events or circumstances could mean that EKF Denmark's Export Credit Agency is no longer able to continue as a going concern.
• We consider the overall presentation, structure and content of the financial statements, including information in the notes, and whether the financial statements reflect the underlying transactions and events in such a way that they provide a true and fair view thereof.

We communicate with the top management on, inter alia, the planned scope and timing of the audit, as well as material audit observations, including any material shortcomings in the internal controls identified by us during our audit.
 

Statement on the management's review​
Management is responsible for the management's review.

Our opinion on the financial statements does not include the management's review, and we do not express any opinion with certainty about the management's review.

In connection with our audit of the financial statements, it is our responsibility to read the management's review and in that connection to consider whether the management's review is materially inconsistent with the financial statements or with the knowledge we have gained during the audit or otherwise seems to contain any material misstatement.

In addition, it is our responsibility to consider whether the management's review includes the information required under the provisions of the Danish Financial Statements Act and EKF's articles of association.

In our opinion and based on the work performed, the management's review is in accordance with the financial statements and has been prepared in accordance with the requirements in the Danish Financial Statements Act and EKF's articles of association. We have not found any material misstatements in the management's review.

Statement according to other legislation and regulation

Statement on compliance audit and performance audit

Management is responsible for ensuring that the transactions that are covered by the financial statements are in compliance with the funding granted, legislation and other regulations, as well as with agreements made and customary practice, and that the necessary financial considerations have been made in the administration of the funds and operation of the enterprises comprised by the financial statements.

In connection with our audit of the financial statements, it is our responsibility, in accordance with good public auditing practice, to select relevant issues for both compliance audit and performance audit. During our compliance audit, we control with a high degree of certainty in terms of the issues selected whether the transactions that are covered by the financial statements are in compliance with the funding granted, legislation and other regulations, as well as with agreements made and customary practice. During our performance audit, we assess with a high degree of certainty whether the systems, processes or transactions examined support the necessary financial considerations in the administration of the funds and operation of the enterprises comprised by the financial statements.

If, based on the work performed, we reach the conclusion that there is cause for material critical remarks, we must report this.

We have no material critical remarks to report in this connection.

Copenhagen, 10 March 2020

The Independent Auditor’s Report regarding CO₂ data

TO THE MANAGEMENT AND STAKEHOLDERS OF EKF DANMARKS EKSPORTKREDIT 

We have audited EKF’s data for the reduction of CO₂ equivalents from renewable energy projects presented in the table ‘CO₂ reduction 2017-2019’ in EKF’s Annual Report 2019 (‘the report’) to obtain a high level of confidence. The data comprise the calculated reduction for the years 2017, 2018 and 2019.

We performed the audit to assess if the reported data are calculated in accordance with EKF’s method for calculating the total reduction of CO₂ equivalents from renewable energy projects in which EKF participates in the financing. The method is described at a general level in the report.

We express an opinion providing reasonable assurance.
 

Management’s responsibility 

The Management of EKF is responsible for collecting, calculating and presenting the data in the report. Management is also responsible for such internal controls as it determines is necessary to ensure that the reporting is free from material misstatement, whether due to fraud or error.
 

Auditor’s responsibility

Our responsibility on the basis of our work is to express a reasonable assurance opinion on the data for the reduction of CO₂ equivalents from renewable energy projects presented in the table ‘CO₂ reduction 2017-2019’ in the report. We have conducted our work in accordance with ISAE 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information, and additional requirements under Danish audit regulation, to obtain reasonable assurance about our opinion. We have assessed the data from the criteria of completeness, reliability, materiality, neutrality and understandability in accordance with ISAE 3000.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with international standards on auditing and additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the reported data.

Deloitte Statsautoriseret Revisionspartnerselskab is subject to the International Standard on Quality Control (ISQC) 1 and, accordingly, applies a comprehensive quality control system, including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. 

We have complied with the independence and other ethical requirements in FSR – Danish Auditors Code of Ethics for Professional Accountants, which are based on the fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

We have performed our work with the aim of obtaining a high level of confidence that EKF’s data for the reduction of CO₂ equivalents from renewable energy projects are in all material respects fairly stated. Considering the risk of material misstatement, we planned and performed our work to obtain all information and explanations necessary to support our opinion. 

We performed our work in March 2020. Our work has involved a review of the underlying procedures, calculations and input data in the calculation model for Marginal Emission Factors that cover 119 specific countries and one generic country. We have performed interviews, including with representatives from Copenhagen Economics, which has developed the model, as well as sampled input data for calculating the distribution of solar and wind production capacity for 39 specific countries and a generic distribution for other countries in addition to demand across a single day and tested the controls performed on these calculations. We have validated tests of the calibration of capacity factors per country for the technologies wind, solar and other renewable energy sources as well as coal, gas and oil, and carried out sensitivity analysis of this. We have performed interviews and sample testing of demand and capacity data for electricity per country from source data and validated assumptions about the growth of these from 2040 to 2050. Furthermore we have validated the marginal cost ranking of the energy technologies wind, solar, other renewable energy sources, coal, gas and oil from external data sources. We have performed analytical tests including validating calculations through samples and examined the internal controls on the collection and calculation of the data concerned. We have conducted interviews with process and data owners in EKF and reviewed documentation for project data relevant for the calculations, such as the MW of the projects, the dates for drawing the credit as well as the size of projects and the country in which the project is established. We have tested that all relevant projects are included in the calculation, and that the reduction of CO₂ equivalents is calculated correctly.

We have not audited the project data extract from EKF’s accounting system, which has already been audited by EKF’s financial auditor.
 

Opinion 

Based on our work it is our opinion that EKF’s data for the reduction of CO₂ equivalents from renewable energy projects presented in the table ‘CO₂ reduction 2017-2019’ in EKF’s Annual Report 2019 are in all material respects fairly stated.

We draw the attention of Management and stakeholders to the fact that the reduction for the years 2017, 2018 and 2019 presented in the table ‘CO₂ reduction 2017-2019’ in the report concerns the entire reduction from the total energy projects in which EKF has participated with others in the financing, without regard to EKF’s proportionate share in the financing.

Copenhagen, 31^st March 2020

Financial statements

Income Statement for the year

1 January to 31 December

Distribution of profit

Balance sheet at 31 December

Assets

Balance sheet at 31 December

Liabilities

Risk and off-balance sheet notes

Statement of changes in equity

Cash flow statement

Note 1: Gross premium income after reversed premiums and other adjustments

Note 2: Change in guarantee provisions

Note 3: Change in the reinsurance share of guarantee provisions

Note 4: Claims expenses

Note 5: Information about income, losses and costs related to financial instruments linked to lending activities

Note 6: Administrative expenses

Deputy CEO Tine Lundegaard joined EKF on 1 January 2020.

++ The remuneration includes a fee for the Audit and Compliance Committee.

+++ In 2018, Poul Due Jensen, Jørgen Høholt and Yasir Al-Gailany joined the Board of Directors. Søren Østergaard Sørensen and Charlotte Hagen Simonsen resigned from the Board of Directors in 2018.
Members of Management at EKF have a bonus scheme. The maximum CEO bonus is 10 per cent of the salary and is calculated based on the degree of fulfilment of EKF’s business plan. The Deputy CEO bonus is a fixed amount and calculated based on the degree of fulfilment of EKF’s business plan.

The annual bonus is shown as a variable salary under the salary of the Deputy CEO concerned.

Other duties of the Board of Directors can be seen in the section entitled ‘EKF’s Board of Directors’.

Note 7: Net financials

Note 8: Loans

Note 9: Securities

Note 10: Intangible fixed assets

Note 11: Tangible fixed assets

Note 12: Investments

Note 13: Claims

Note 14: Premiums receivable

Note 15: Derivative financial instruments

Note 16: Prepaid interest expenses and income

Prepaid interest income concerns a number of loans where EKF receives the part of the interest margin related to the loan risk as an upfront payment. As interest income is earned over the term of the loan, EKF has accrued interest paid, but not yet earned. A number of these loans are reinsured. In these cases, prepaid interest income was paid to the reinsurer despite the risk margin not having been earned. Interest is recognised as income in line with the repayment profile of the loans.

Prepaid interest expenses cover future reinsurance of the credit risk on loans. The prepayments are recognised at the time of payment and charged to the income statement in line with the repayment profile of the loans.

Note 17: Guarantee provisions

Note 18: Provisions for claims expenses

Note 19: Payables to the Danish state (re-lending)

Note 20: Payables to reinsurance companies

Note 21: Overview of financial instruments

EKF uses only the accounting categories financial assets at fair value, financial liabilities measured at fair value and loans and receivables measured at amortised cost. Financial instruments are specified as follows:

Note 22: Information about credit risks

Credit risk is the risk that EKF will incur a financial loss due to non-payment by a counterparty. EKF’s counterparty risk relates to loans guaranteed by EKF and to EKF’s direct loans. Default can be both the inability and the unwillingness to pay.

EKF may only provide financing and risk cover where risks of the relevant nature or extent are not normally assumed by the private, commercial insurance and capital market. EKF therefore assumes extraordinary risks compared to the risks taken on by ordinary financial institutions and banks. This means that EKF’s risk appetite is high.

EKF’s credit risk also includes financial counterparties. The risk comprises default on the financial contracts used by EKF in connection with interest rate and currency swaps and repo transactions.

The risk management framework is determined by the Board of Directors. EKF has drawn up a number of policies, guidelines and procedures describing EKF’s business objectives and risk management thereof. ‘Risk management policy’ and ‘Risk management policy for export loans’ describe the overall framework, while the ‘Credit policy’ lays down the framework for EKF’s guarantee and credit facilities. The policies are determined and regularly reassessed by the Board of Directors. EKF works on credit quality limits and procedures in terms of amount sizes and territorial limits. Guarantees and loans are subject to the same criteria as credit facilities with each transaction being given an internal rating. If the counterparty has a rating from external rating agencies, that rating is used.

The table below shows EKF’s maximum credit risk broken down by guarantee and loan exposure and financial credit risk, respectively. The table takes into account both EKF’s on-balance sheet credit risk and off-balance sheet items.

The table below shows that EKF’s maximum credit exposure is primarily attributable to issuance of guarantees and loans.

As a state-owned export credit agency, EKF is subject to a number of international rules where OECD premium rules determine the framework for the premium rate. The OECD determines minimum rates that all EKF's transactions and projects must comply with. EKF also uses the market price as a benchmark for transactions in country risk category 0, comprising mainly the OECD countries in which the financial and political risks are low, and for project finance transactions.

EKF’s risk management also entails exposure limits in risk categories for all countries and relevant banks. EKF uses and actively participates in the OECD’s country risk classification that is based on member countries’ credit assessments and overall payment experience. EKF places banks in the OECD’s commercial risk categories by comparing an internal risk assessment and the OECD’s country risk classification. Exposures and limits on both countries and banks are defined in EKF’s guidelines for countries and banks.

For large issues in countries where the risk is deemed to be particularly high, EKF requires a sovereign guarantee in most cases, cf. the ‘cover subject to sovereign guarantee’ term. Sovereign guarantees are normally the relatively best credit risk of the country rather than the financial sector, and they have access to collective bargaining through international institutions in the event of payment default.

EKF guarantees or finances transactions for Danish exporters in cases where the buyer has limited access to financing, the financial markets are short of capacity or the risk appetite is too low. This specific role in Danish exports also makes EKF a seasoned player in new sectors and markets and a strength for Danish exporters. EKF’s exposure is mostly concentrated on project finance and transactions in the wind sector. However, EKF’s large share of transactions involving the wind sector is highly diversified in terms of wind farm types, geography and counterparties.

Day-to-day credit management is conducted in EKF’s customer-oriented departments and in our credit and customer administration. The approval structure for guarantees and loans is in accordance with EKF's authorisations under which transactions of a specific nature and amount size are approved by Management acting as a credit committee. Overall monitoring of EKF’s credit risks is anchored in an annual commitment follow-up, checking and thus monitoring developments in the credit quality of commitments selected on the basis of a number of financial parameters. In the commitment follow-up for 2018, commitments covered approximately 83 per cent of EKF’s total exposure. Continuous assessment of the portfolio credit quality and a corresponding capital ratio are important elements of EKF’s credit risk management. EKF’s existing portfolio is continuously monitored based on a number of focus areas such as sector, market, country, buyer and exporter. This includes relevant material from the guarantor and exporter as part of the guarantee and loan agreement.

The risk of the maximum loss at a 95 per cent probability is calculated semi-annually to match reserves by the expected loss as well as a stress scenario over a full run-off of the existing portfolio.

The aim of EKF’s investment policy is to achieve a stable return based on a conservative risk consideration. EKF manages issuer risk for particularly secure securities through asset class and type of issuance requirements.

Write-downs according to IFRS 9

For Loans and Premiums receivable a calculation is made of expected credit losses according to IFRS 9. Each asset is divided into stage 1, 2 or 3 and the division into stages is described in accounting policies. EKF calculates write-downs according to IFRS 9 using a proprietary PD-based model describing the process in a business procedure. The business procedure contains guidance on running the PD model and a description of the manual processes related to the model.

EKF prepares an annual validation report concerning the PD model. By means of validation and monitoring, EKF is also able to continuously assess developments in credit risks for loans and guarantees with premiums receivable. The validation process is described in a business procedure, which includes processing control, review of discounting methods, reconciliation of input data and criteria for significant credit risk development (staging).

The following tables show the financial assets for loans and premiums receivable, respectively:

• Changes in financial assets from the beginning to the end of 2019 before write-downs and any reinsurance, by stages 1–3.
• Changes in financial assets before write-downs and any reinsurance, by country risk categories and stages 1–3.
• Financial assets before write-downs and any reinsurance, by debtor rating and stages 1–3.
• Changes in write-downs from the beginning to the end of 2019, by stages 1–3.

Guarantee exposure

EKF provides guarantees for loans with export transactions. Guarantee exposure is not registered in EKF’s balance sheet, but is a contingent liability.

Guarantee exposure comprises the largest possible exposure in cases that include both commercial and political exposure. The guarantee exposure is regularly written down during the guarantee period on the basis of the repayment profile defined when the guarantee is issued. The amounts stated for guarantees include future interest payments on the guaranteed loan.

Guarantee exposure to potential losses/claims plus impaired loans

Provisions for claims expenses on guarantees

Where the probability that EKF could incur a loss on a transaction exceeding the usual guarantee provisions is deemed to be high, provisions for claims expenses are made.

The risk of loss is assessed on the basis of objective evidence and determined on a case-by-case basis. EKF performs individual write-down based on a trade-off between three scenarios: a best-case scenario, a base-case scenario and a worst-case scenario. The current impairment is assessed as a write-down ratio and determined on the basis of available information, thus constituting a specific assessment of the risk of loss. The write-down ratio is fixed until new significant changes are reported and a reassessment is made. Furthermore, the write-down ratio of large loans will be reassessed at the end of the year.

Write-down of impaired loans

If a loan is deemed to be credit-impaired (stage 3), the asset is written down by an amount corresponding to the expected credit loss during the remaining term of the asset. Loans for which EKF has observable data on events indicating that the asset is credit-impaired are written down individually. EKF performs individual write-down based on a trade-off between three scenarios: a best-case scenario, a base-case scenario and a worst-case scenario. The current impairment is assessed as a write-down ratio and determined on the basis of available information, thus constituting a specific assessment of the risk of loss. The write-down ratio is fixed until new significant changes are reported and a reassessment is made. Furthermore, the write-down ratio of large loans will be reassessed at the end of the year.

The process to assess the impaired asset starts with a screening of the loan based on a report received or other observations. It is important for EKF to spot and act effectively on indications of the risk of loss as early as possible.

Hence, the impaired financial assets are assessed on the basis of a specific assessment of the current risk of loss. The assessment emphasises the status of on-going negotiations, macroeconomic conditions and the evolution of market indicators, among other factors.

Derivative financial instruments subject to ISDA/CSA agreements

The terms of EKF’s derivative financial instruments are laid down in ISDA/CSA agreements. An ISDA master agreement is the standard document specifying the overall framework of international over-the-counter derivatives and outlining the terms to be applied to derivative transactions between two parties. Provision of collateral is regulated by the CSA (Credit Support Annex) agreement.

Credit risks on counterparties are managed by requirements with regard to ratings from external rating agencies, limits to counterparty concentration and conclusion of the international ISDA/CSA netting and framework agreements for financial contracts and GMRA/RSA agreements for repo transactions, which minimise the risk of loss by collateral requirements.

EKF has concluded derivative financial instruments with a number of financial counterparties. These are major international banks. All financial counterparties all have a rating ranging from BBB- to AA-. EKF has entered into master netting agreements (ISDA Master Agreement) with related agreements on collateral for derivative financial instruments. The collateral received comprises only high credit quality bonds.

Positive and negative fair values of financial instruments are included in separate balance-sheet items, and positive and negative values are set off only when EKF is entitled and intends to settle several financial instruments, net. This would be the case only in a bankruptcy scenario or in connection with a substantial downgrading of the counterparty.

Collateral

Collateral plays an active part in EKF’s risk management and loss-reducing processes. The existence of collateral entails that the bank and thereby EKF rank pari passu with the asset provided as collateral. Collateral is usually relevant if and when a loan accelerates and may also in certain circumstances be used as a tool to aid the negotiation process in a default situation. Collateral is included in EKF’s risk management together with loss-reducing elements such as covenants, waivers and conditions precedent.

Reinsurance is included as a significant factor in mitigating EKF’s risk concentration. Furthermore, EKF’s position in the order of priority, fixed assets and intellectual property rights charged as security and subject to retention of title serve as proactive safeguards. In the event of objective indications of impairment or claims, EKF will launch a number of loss-reducing processes, including setting up a team with specifically selected qualifications to handle the transaction, participation in restructuring agreements and other legal insolvency processes. In connection with its issuance of export loans, EKF hedges market risks by entering into framework agreements with swap counterparties and by using the repo market. In these instances, counterparty and liquidity risks are minimised by requirements for collateral.

Note 23: Information about market risks

At EKF, market risks are defined as the risk of financial losses due to changes in market variables such as interest rates and exchange rates. EKF’s risk appetite and tolerance of market risks is low and hedged insofar as possible.

EKF defines the market risk framework through its ‘Risk management policy’ and ‘Export loan risk management policy’. These describe the principles of hedging, day-to-day management of financial instruments and separation of duties.

Exposure to interest rate fluctuations and exchange rate changes on issuance of export loans are hedged through simultaneous conclusion of interest rate and currency swaps, securing the full cash flow in relation to the underlying re-lending. The risk of spreads between re-lending over a 10-year period and the export loan over a period of more than 10 years is mitigated by a weighted addition matching the term of the export loan.

It is EKF’s policy to provide foreign currency hedging based on a balance sheet principle. This is done by calculating EKF’s net position for each currency and hedging positions exceeding DKK 50 million. Hence, in case of changes in exchange rates, the result of such hedging and EKF’s net position will be balanced. Exchange rate changes will have an effect on guarantee exposure and the principal amount of loans. These are included when calculating the capital ratio. The US dollar, the Australian dollar and the pound sterling are the currencies estimated to have a significant effect. The effect on the profit/loss for the year is calculated by taking the net positions of all balance sheet items including hedging in order to simulate the effect of an increase in the exchange rate.

Interest rate changes will have an effect on discounted values of premium income receivable and payables to reinsurers. The effect was calculated by raising the discount rate by 1 per cent.

Interest rate changes will also have an effect on provisions for claims expenses on guarantees with underlying variable interest rates. The effect was calculated by raising the underlying variable interest rate by 1 per cent.

There may also be an effect on the result of lending activities due to a simulated increase in interest rates. This effect is attributable to the fact that, despite full financial hedging of the interest rate risk, EKF may experience fluctuations in the result due to an accounting mismatch between loans, which are measured at amortised cost, and interest-rate hedging, which is measured at fair value. These fluctuations are collected in the exchange rate adjustment reserve under equity. The fluctuations will be eliminated over the period until maturity and ultimately reach zero. These effects are consequently not included in the sensitivity analysis.

Note 24: Information about liquidity risks

Liquidity risk is the risk that EKF will not have the necessary means or access to the necessary liquidity to cover expected liabilities, costs or losses. Liquidity risk may occur in case of a mismatch between cash flow and debts between both EKF and the borrower and EKF and Danmarks Nationalbank.

EKF manages its liquidity reserve by sub-dividing it on the basis of needs analyses. Operating and demand liquidity are fixed and based on operating and demand needs over a 1-year period. Investment liquidity is the excess liquidity managed through EKF’s investment policy. EKF’s liquidity management is based on a high level of access to liquidity through acquisition of flexibility. In addition, EKF handles day-to-day liquidity by applying amount limits to custody accounts and other accounts.

EKF’s funding of export loans via Danmarks Nationalbank does not match the cash flow of its export loans. Placement risk is hedged through the repo market and the collateral for such risk. The diversification of loans with different terms and exposure aims at mitigated hedging.

In addition to this, EKF has outstanding guarantee exposure before reinsurance of DKK 79.9 billion. The guarantee exposure is treated as a contingent liability until the recognition criteria are met. EKF makes provisions for claims expenses corresponding to the expected loss. The guarantees provided typically have long maturities.

EKF’s restructuring and recovery process may extend over several years, and it is not possible to estimate the cash flow for these transactions. Therefore, it is not possible to present a fair maturity analysis. For this reason, the maturity of provisions for claims expenses is entered as a short-term liability.

When assessing the liquidity risk, it must also be taken into consideration that EKF is guaranteed by the Danish state.

Note 25: Fair value by fair value hierarchy

Fair value hierarchy

Level 1: Fair values measured on the basis of unadjusted quoted prices in an active market.

Level 2: Fair values measured using valuation methods and observable market data.

Level 3: Fair values measured using valuation methods and observable and significant non-observable market data.
 

Level 2 – Derivative financial instruments

Derivative financial instruments at level 2 are used to hedge interest rate and exchange rate risks related to export loans and to hedge both assets and liabilities.

The fair value is calculated by discounting future cash flows based on observable market data. The fair value is determined as a settlement price, so the value is not adjusted for credit risks.

The valuation methods for interest rate and exchange rate instruments are identical. A fair value is calculated for both legs of the instrument. For financial instruments with floating rates, an expected yield curve is used on the current index based on observable market data. The expected yield curve is used to estimate the future cash flows. The future cash flows are subsequently discounted by a discount rate. The discount curve on the interest rate instruments is generated on the basis of the zero-coupon rates. The discount curve on the exchange rate instrument is based on the CSA curve (EUR) as defined in the ISDA/CSA agreement.
 

Level 2 – Payables to the Danish state (re-lending)

Payables to the Danish state comprise loans concluded under the Danish state’s re-lending scheme (Statens Genudlånsordning) and match EKF’s total loans receivable. The re-lending portfolio comprises serial loans raised at par and bullet loans raised at the current rate.

The fair value is calculated by discounting future cash flows based on observable market data. The fair value is determined as a settlement price, so the value is not adjusted for credit risks.

The re-lending structure of interest rates is fixed, so the future interest rates are known. The fair value is calculated by discounting the future cash flows using a discount curve generated on the basis of the zero-coupon rates.

No change is made to the fair value of EKF’s payables to the Danish state resulting from changes in EKF’s credit risk. The reason is that EKF has a guarantee from the Danish state, cf. section 10 of the Act on EKF Denmark’s Export Credit Agency.
 

Level 3 – Derivative financial instruments

Derivative financial instruments at level 3 comprise hedging of exchange rate risk related to export loans and are used to hedge assets. For hedging in currencies subject to restrictions so they cannot be traded freely, an offshore market is used to determine fair values.

The fair value is calculated by discounting the future cash flows based on our own valuation model.

The fair value calculation method is identical with level 2, as it calculates a discounted value based on the future cash flows. Financial instruments at level 3 differ in that the underlying conventions, indices and discount curves are not based on observable market data. EKF’s internal model converts the cash flows of the instrument to US dollars in order to estimate the future cash flows using a USD forward curve. The fair value is then calculated by discounting the financial instrument using an estimated discount curve in US dollars.

Fair value calculations at level 3 are checked against market valuations from the counterparties.

Note 26: Fair value of financial assets measured at amortised cost

The fair value of EKF’s loans is estimated based on an assessment of the development in the future cash flows and market risks and an adjustment taking the current value of the loan into account.

The fair value calculation is made at level 3 of the fair value hierarchy.

The fair value of EKF’s securities is estimated on the basis of the security market value plus accrued interest.

With respect to other financial instruments measured at amortised cost, cf. note 21, amortised cost is deemed to be an approximation of the fair value.

Note 27: Contingent assets and liabilities

+ Reinsurance is related solely to guarantee exposure. In addition, EKF has reinsured a share of the portfolio of loans.

EKF provides guarantees for loans in connection with export transactions. To the extent that the guarantee becomes a potential loss or claim, provisions are made for claims expenses. Part of the guarantee exposure may be regarded as a contingent liability if net provisions for claims expenses were not made for own account and thus not recognised in the balance sheet.

Note 28: Related parties

In 2019, EKF had transactions with the Danish state as well as other related parties. The balance with the Danish state is determined by agreement with the Danish Ministry of Industry, Business and Financial Affairs. Transactions with other related parties are administration fees for administered schemes.

These schemes and administration fees are set out in note 6. Settlement is on market terms according to actual consumption.

EKF distributed DKK 640 million in dividend to the Danish state in 2019.

The administration of the Danish Trade Fund and the CIRR scheme is vested in EKF by the Ministry of Industry, Business and Financial Affairs. EKF manages EKF A/S CVR no. 20895470 (Slotsholmsgade 10, DK-1216 Copenhagen) on behalf of the Danish state in accordance with Finance Committee Document no. 30 of 27 October 1999. Administration of EKF A/S is charged at an hourly rate.

EKF has entered into a cooperation agreement with Danida Business Finance (DBF) on the administration of the Mixed Credit Programme. The basis of the agreement is Finance Committee Document no. 106 of 24 May 2016 concerning the distribution basis for Danida Business Finance. The arrangement with DBF entails that DBF bears all losses and costs in connection with the provision of guarantees, so that EKF is exempt from paying costs. EKF receives a standard amount from DBF for each guarantee transaction. The total amount for 2019 is set out in note 6. 

EKF also administers the Danish Ministry of Foreign Affairs’ investment guarantees for developing countries.

Note 29: EKF’s auditors’ fee

Note 30: Significant accounting policies

General

The Annual Report of EKF Denmark’s Export Credit Agency (EKF) was prepared in accordance with the provisions of the Danish Financial Statements Act for reporting class D, subject to the necessary exemptions and adjustments required as a consequence of EKF’s special position as an independent public company, cf. the Act on EKF Denmark’s Export Credit Agency, and EKF's articles of association. In addition, policies applied to private non-life insurance companies and banks are taken into consideration.

The policies applied from the requirements for non-life insurance companies as established by the Danish Executive Order on Financial Reporting for Insurance Companies and Multi-Employer Occupational Pension Funds (Danish Executive Order on the Presentation of Financial Statements for Insurance Companies) relate to recognition and measurement of EKF’s insurance-like activities. These requirements comprise premiums, guarantee exposures, indemnification payments and provisions for claims expenses as well as the reinsurance share of these items.

The policies applied from the requirements for banks as established by the Danish Executive Order on Financial Reporting for Credit Institutions etc. (Danish Executive Order on the Presentation of Financial Statements for Credit Institutions etc.) relate to recognition and measurement of EKF’s bank-like activities. This includes state lending and re-lending.

The presentation of the income statement and balance sheet chosen is believed to provide the fairest presentation of EKF’s activities. Against that backdrop, the format requirements of the Danish Financial Statements Act have been departed from.

The accounting policies are unchanged from the previous year.

The policies for recognition and measurement are described in more detail below.

The financial statements present all amounts in whole DKK million. Each figure is rounded separately, possibly leading to minor differences between the totals stated and the sum of the underlying figures.

Recognition and measurement in general

The Annual Report is presented in accordance with a number of concepts and definitions as described below.

Premium income and related income are recognised in the income statement as earned. The income date for premium income is the date on which the cover under the guarantee commences, and in the case of related income the time from which the income can be considered to be sufficiently certain. Interest income is recognised as earned, and interest expenses are correspondingly reported as accruals. Other income and value adjustments of financial assets and liabilities are recognised in the income statement as earned. Similarly, all expenses, including depreciation, amortisation and write-downs, are recognised in the income statement in the period in which the activity has taken place.

Assets are recognised in the balance sheet when it is probable that future economic benefits will flow to EKF and the asset can be reliably measured. Liabilities are recognised in the balance sheet when it is probable that future economic benefits will flow from EKF and the value of the liability can be reliably measured. Assets and liabilities are measured at cost on initial recognition. Subsequently, assets and liabilities are measured as described for each accounting item.

Certain financial assets and liabilities are measured at amortised cost, recognising a constant effective interest rate over the maturity period.

Amortised cost is determined as the original cost less any repayments plus addition/deduction of the accumulated amortisation of the difference between the cost and nominal amount.

On initial recognition, transactions in foreign currency are measured at the exchange rate on the transaction date. Exchange differences occurring between the exchange rate on the transaction date and the exchange rate on the payment date are recognised in the income statement as an item under financial income and expenses, net.

On the balance sheet date, monetary assets and liabilities in foreign exchange are recognised at the exchange rate on that date. The difference between the exchange rate on the balance sheet date and the exchange rate on the date the receivables or payables were incurred or recognised in the financial statements of the previous year, are recognised in the income statement under financial income and expenses and under result of lending activities to the extent that it is attributable to EKF’s loans or hedging thereof.

Income statement

Premium income for own account

Gross premium income comprises premiums on export credit and working capital guarantees issued for the year, including any returned premium amounts etc. Moreover, upfront and commitment fees are included. Write-down of the expected loss on premiums receivable are set off in gross premiums according to IFRS 9. Premiums paid over more than one year are discounted and recognised at present value. Premiums are recognised when cover under the guarantee commences or when the policy is issued. The share of premiums received on current contracts that concern future risks is reported as accruals via provisions for guarantees on the balance sheet date.

Reversed premiums comprise reversals or adjustments of gross premiums recognised in previous years. Reversals or adjustments arise as a result of prepayments, refinancing or other changes in the agreement leading to an adjustment of the original gross premium on issuance.

Reinsurance premiums paid are the share of the gross premium income for the year ceded to other insurance companies due to reinsurance cover.

Change in guarantee provisions describes the change in provisions for guarantees and is included under Premium income for own account as EKF’s recognition of premium accruals. Change in guarantee provisions includes reductions in guarantee provisions that express provisions for guarantees recognised as income as underlying loans are repaid. In addition, the accounting item includes additions resulting from new issues, change in the assessment of countries and debtors etc.

Change in the reinsurance share of guarantee provisions states the shift in the share of provisions for guarantees that EKF has reinsured with foreign export credit agencies or private reinsurance companies.
 

Claims expenses for own account

Claims expenses comprise the loss assessment of indemnification payments and changes in commercial and political claims as a result of additions and disposals of provisions for claims expenses and potential losses. Claims expenses also include depreciation and value adjustment of claims.

Change in the reinsurance share of provisions for claims expenses comprises additions and disposals related to the reinsurance share of EKF’s provisions for claims expenses and potential losses.
 

Commission to and from reinsurance companies

Commission to and from reinsurance companies is the administration fee that EKF receives or pays in connection with reinsurance agreements.
 

Result of lending activities before administrative expenses

Financial income related to loans comprises interest income for the year from loans, derivative financial instruments, repos and upfront and commitment fees received.

Financial expenses related to loans comprise interest expenses for the year for re-lending and derivative financial instruments. The item also includes fees to Danmarks Nationalbank calculated based on the nominal value of re-lending.

Write-downs of loans comprise write-downs for the year and changes in write-downs of loans. Write-downs of loans are made according to IFRS 9. See under loans.
 

Administration

Administrative expenses, net comprise expenses related to the administration of EKF and the Danish Trade Fund, the Mixed Credit Programme, Eksport Kredit Finansiering A/S (EKF A/S), the CIRR scheme and investment guarantees issued by the Danish Ministry of Foreign Affairs.

Administrative expenses have been reduced by income received by EKF in connection with the administration of various schemes (see above), as well as the sale of consulting services. These schemes are normally invoiced at agreed hourly rates for the actual number of hours spent by EKF. In addition, large direct expense items related to the individual scheme are invoiced.
 

Net financials

Financial income and expenses comprises interest received in connection with claims, interest and exchange rate adjustment of bank deposits, guarantee provisions and claims, investment income from securities and claims. The item also includes adjustment of discounting of premiums receivable and guarantee provisions as well as reinsurance premiums payable. Due to the general uncertainty surrounding claims, the related interest is recognised only when payment is made, apart from any recognised capitalised interest. Prepaid interest is, however, recognised in the year in which it falls due.

Exchange rate adjustments comprise positive and negative realised exchange rate adjustments of loans, derivative financial instruments and exchange rate accounts for the year. The item also includes positive and negative value adjustments of loans, re-lending and derivative financial instruments for the year. In addition, the item includes exchange rate adjustment of the guarantee provisions, provisions for claims expenses and claims. Exchange rate adjustment from receivables and payables and gains/losses on hedging of the exposure in foreign currency are also included in this item.

Value adjustments, unrealised comprise unrealised fair value adjustments of re-lending, derivative financial instruments, unrealised exchange rate adjustments of loans and exchange rate adjustments of repo transactions concerning unpaid loans.
 

Balance sheet

Cash and demand deposits

The balance with the Danish state comprises EKF’s liquidity placed in an intermediate account with the Danish state. As from 1 July 2016, interest is no longer applied to EKF’s balance.

Cash comprises cash at bank and repo/reverse transactions.
 

Loans

Loans are measured at amortised cost using the effective interest method. The difference between the value on first recognition and the redemption value is amortised over the remaining time to maturity and recognised under financial interest income.

Loans are written down according to IFRS 9. EKF uses a proprietary model to calculate the expected credit loss according to IFRS 9. The model is based on an assessment of the likelihood that the counterparty will no longer be able to meet its contractual commitments – Probability of Default (PD). EKF uses well-known methods such as rating tools from S&P and Moody’s to determine ratings. Ratings are translated into PD based on Moody’s statistics for 1-year default rates.

Loans are written down on initial recognition by an amount corresponding to the expected credit loss during a 12-month period (stage 1). EKF calculates the 12-month credit loss as the product of the probability of default (PD), the average expected receivable in the coming 12 months and the share EKF expects to lose.

In the event of a subsequent considerable increase in credit risk relative to the time of initial recognition, the asset is written down by an amount corresponding to the expected credit loss during the remaining term of the asset (stage 2). Because EKF uses a PD model, the following principle is applied to assess when a considerable increase in credit risk exists:

• If the 12-month PD on initial recognition is under 1 per cent: At the time of calculation, the 12-month PD must have increased by 0.5 percentage point or more and the PD must have doubled for the expected remaining term of the asset.
• If the 12-month PD on initial recognition is 1 per cent or more: At the time of calculation, the 12-month PD must have increased by 2.0 percentage points or more or the PD must have doubled for the expected remaining term of the asset.

EKF calculates the credit loss over the useful life of the asset as the product of the probability of default (PD), the average expected annual receivable and the share EKF expects to lose.

If the asset is deemed to be credit-impaired (stage 3), the asset is written down by an amount corresponding to the expected credit loss during the remaining term of the asset. Loans for which EKF has observable data on events indicating that the asset is credit-impaired are written down individually.

EKF performs individual write-down based on a trade-off between three scenarios: a best-case scenario, a base-case scenario and a worst-case scenario. 
 

Securities

Securities are classified as ‘held to maturity’ assets and recognised at fair value corresponding to cost price. The securities are subsequently measured at amortised cost plus interest receivable. Premium and discount are reported as accruals over the maturity period and recognised under net financials.
 

Fixed assets

Intangible fixed assets relate to software acquisitions and are recognised at cost less accumulated amortisation and write-downs. Cost includes expenses directly linked to acquisition and implementation, up to the date when the asset can be commissioned. Intangible fixed assets are amortised on a straight-line basis over the expected useful lives of the assets of three to five years from the date of commissioning.

Development projects in progress relate to software acquisitions that are clearly defined and identifiable. Development expenses are determined as direct expenses incurred.

An impairment test is carried out for acquired intangible fixed assets if there are indications of impairment. Additionally, every year an impairment test is carried out on development projects in progress. The impairment test is carried out for each asset. The assets are written down to the higher of the asset’s value in use and net selling price (recoverable amount), if this is lower than the carrying amount.

Tangible fixed assets relating to hardware, fixtures and fittings and refurbishing of leased premises are measured at cost less accumulated depreciation and write-downs. Cost includes the purchase price and expenses directly related to the acquisition.

Cost is depreciated on a straight-line basis over the expected useful lives of the assets at a residual value of DKK 0. The expected useful lives of the assets are deemed to be as follows:

• IT hardware 3–5 years
• Other plant and operating equipment 3–5 years
• Refurbishing of leased premises 5 years

An impairment test is carried out for tangible fixed assets if there are indications of impairment. The impairment test is carried out for each asset. The assets are written down to the higher of the asset’s value in use and net selling price (recoverable amount), if this is lower than the carrying amount.

Deposits concern deposits from rent etc. Deposits are recognised at cost with subsequent indexation.
 

Reinsurance shares

Reinsurance share of guarantee provisions comprises the reinsurers’ share of EKF’s guarantee provisions. The share is adjusted for EKF's counterparty risk on the reinsurance companies.

Reinsurance share of provisions for claims expenses comprises the reinsurers' share of EKF's provisions for claims expenses. The share is adjusted for EKF's counterparty risk on the reinsurance companies.
 

Receivables

Claims consist of commercial claims and claims on countries.

Where an agreement exists with the counterparty, commercial claims are recognised at cost and subsequently assessed so that the value of the claim corresponds to the expected repayment. Where no agreement exists with the counterparty, which is the general rule, the value of claims is assessed taking into account the debtors' ability and willingness to pay. Gross claims comprise indemnification payments with addition of the recognised capitalised interest less recovered amounts, adjusted at the exchange rate on the balance sheet date. Net claims are reduced by actual write-downs to offset losses.

Claims on countries relate to receivables from countries resulting from indemnification payments, capitalised interest and purchase of the uninsured part of the political risks, or purchase of claims by EKF. Claims on countries are recognised at cost and subsequently assessed at fair value, so that the value of the claim corresponds to the expected repayment and the exchange rate on the balance sheet date, taking into account the countries’ ability and willingness to pay.

Claims on countries are recognised at the value of the indemnification paid, with addition of the recognised capitalised interest. Recognised capitalised interest is interest accrued on the claim prior to the conclusion of the rescheduling agreement and recognised by the debtor country. The capitalised interest thus becomes part of the new principal of the rescheduling agreement. A rescheduling agreement is an agreement between an individual creditor country and debtor country. The rescheduling agreement is negotiated under the auspices of the Paris Club.

Premiums receivable are measured at the present value of receivables on the date of recognition. Subsequently, current recalculation of present values is performed on the balance sheet date. Premiums receivable with a maturity of more than one year are discounted by a CIRR rate in the currency of the receivable concerned.

Premiums receivable are written down according to IFRS 9. EKF uses a proprietary model to calculate the expected credit loss according to IFRS 9. The model is based on an assessment of the likelihood that the counterparty will no longer be able to meet its contractual commitments – Probability of Default (PD). EKF uses well-known methods such as rating tools from S&P and Moody’s to determine ratings. Ratings are translated into PD based on Moody’s statistics for 1-year default rates.

Premiums receivable are written down on initial recognition by an amount corresponding to the expected credit loss during a 12-month period (stage 1). EKF calculates the 12-month credit loss as the product of the probability of default (PD), the average expected receivable in the coming 12 months and the share EKF expects to lose.

In the event of a subsequent considerable increase in credit risk relative to the time of initial recognition, the asset is written down by an amount corresponding to the expected credit loss during the remaining term of the asset (stage 2). Because EKF uses a PD model, the following principle is applied to assess when a considerable increase in credit risk exists:

• If the 12-month PD on initial recognition is under 1 per cent: At the time of calculation, the 12-month PD must have increased by 0.5 percentage point or more and the PD must have doubled for the expected remaining term of the asset.
• If the 12-month PD on initial recognition is 1 per cent or more: At the time of calculation, the 12-month PD must have increased by 2.0 percentage points or more or the PD must have doubled for the expected remaining term of the asset.

EKF calculates the credit loss over the useful life of the asset as the product of the probability of default (PD), the average expected annual receivable and the share EKF expects to lose.

If the asset is deemed to be credit-impaired (stage 3), the asset is written down by an amount corresponding to the expected credit loss during the remaining term of the asset. Premiums receivable for which EKF has observable data on events indicating that the asset is credit-impaired are written down individually. EKF performs individual write-down based on a trade-off between three scenarios: a best-case scenario, a base-case scenario and a worst-case scenario.

Derivative financial instruments are recognised from the trading date and measured in the balance sheet at fair value. Positive and negative fair values of derivative financial instruments are included on separate lines in the balance sheet, and positive and negative are set off only when the enterprise is entitled and intends to settle several derivative financial instruments, net. Fair values of derivative financial instruments are determined on the basis of current market data and recognised valuation methods.

Prepaid interest expenses comprise prepayments to reinsurers. The prepayments cover contracts with reinsurance of the credit risk on loans. The prepayments are charged to the income statement as a financial expense under result for lending activities in line with the repayment profile of the loan.

Other receivables comprise interest related to export loans and other receivables and are measured at amortised cost, usually equivalent to nominal value. The value is reduced by write-downs to offset expected losses.
 

Equity and capital ratio

Equity comprises restricted equity, the exchange rate adjustment reserve, proposed dividend and non-restricted equity.

Restricted equity is strengthened by 75 per cent, or another share recommended by the Board of Directors, of any positive result less value adjustments, unrealised under the lending result and provision for dividend distribution. The restricted equity is strengthened only when below the calculated maximum size of the restricted equity.

The exchange rate adjustment reserve corresponds to the accumulated unrealised fair value and exchange rate adjustments related to loans, re-lending and interest rate and currency swaps.

Proposed dividend to the Danish state is shown as a separate item under equity. Proposed dividend is recognised as a liability on the date the Minister for Industry, Business and Financial Affairs approves the proposed dividend.

Non-restricted equity comprises the remaining reserve after calculation of the restricted equity, the exchange rate adjustment reserve and proposed dividend.

Management of activities through equity means that the non-restricted equity must at any time meet a minimum requirement calculated as the non-restricted equity relative to the sum of guarantee exposure, offers, loans and outstanding claims. Offers are weighted pro rata with a share determined by the Board of Directors. The pro rata share is determined prior to each financial year. Guarantee exposure, loans and claims are calculated less any provisions and write-downs. If the non-restricted equity fails to meet the minimum requirement, EKF may not undertake any new guarantee or loan commitments. According to EKF's articles of association, the minimum requirement for non-restricted equity is 4 per cent.
 

Payables

Payables to the Danish state (re-lending) via Danmarks Nationalbank are recognised initially at the proceeds received. In subsequent periods, re-lending is measured at fair value. The fair value is calculated as the exchange rate on discounting to net present value of future cash flows at the relevant discount rates determined on the basis of current market data.

Derivative financial instruments are initially recognised in the balance sheet at cost and subsequently measured at fair value. The fair value is calculated as the exchange rate on discounting to net present value of future cash flows at the relevant discount rates determined on the basis of current market data.

Prepaid interest income comprises prepayments received from borrowers. The prepayments cover future interest income on loans. The prepayments are recognised as income in line with the repayment profile of the loan.

Payables to reinsurance companies are recognised at the present value on the date of recognition. Subsequently, current recalculation of present values is performed on the balance sheet date. Payables with a maturity of more than one year are discounted by a CIRR rate in the currency in which the receivable concerned was raised. Payables to reinsurers are written down according to the same principles as premiums receivable. See the section on premiums receivable.

Other payables are measured at amortised cost, essentially equivalent to nominal value.
 

Technical provisions

Guarantee provisions are measured on the basis of the risk assessment carried out when the premium is set. Provisions for guarantees are made when cover under the guarantee commences. The individual guarantee provisions are calculated continuously based on the classification of the buyer country and the guaranteed buyer or bank into eight risk categories. Based on these country (political risk) and buyer (commercial risk) classifications, the risk of loss on the guarantee exposure is calculated.

The tenor of the guarantees is also included in the risk calculation. The guarantee exposure and guarantee provisions for individual transactions are regularly written down on the basis of a repayment profile that is defined when the guarantee is established and matches the payment plan provided by the lender to the borrower.

The individual rate applied to the guarantee provision expresses the risk of loss on the individual guarantee.

On initial recognition, provisions of 80 per cent of the premium are usually made. The remaining 20 per cent of the premium is considered as coverage for administrative expenses, cf. international procedures agreed within the OECD. No provisions are made for upfront and commitment fees.

Subsequent provisions are measured based on the current recalculated present value of the premium. Provisions are recognised on an ongoing basis, taking into account the individual risk profile and the remaining tenor of the guarantee.

For some of EKF’s products, provisions of a different percentage of the premium are made. For working capital transactions, provisions are made for 100 per cent of the premium. In case of significantly increased risk on a guarantee, a specific assessment of the guarantee provision will be made.

Provisions for claims expenses are amounts allocated to cover payments on commercial claims and political claims received or potential commercial and political claims. Provisions for claims expenses also include expenses related to the prevention and assessment of claims. In the event of a potential loss on a guarantee, a specific assessment and measurement of the expected loss on the guarantee will be made.

When provisions are made for claims expenses, the provision for the guarantee will be reversed.
 

Cash flow statement

The cash flow statement based on the indirect method shows the cash flows from the operating, investment and financing activities during the year. The impact of these cash flows on liquidity at the end of the year is also shown. Liquidity at the end of the year comprises the items Balance with the Danish state and Cash and cash equivalents.
 

Assessment of guarantee exposure and conditional offers

Guarantee exposure comprises the largest possible exposure less reinsurance in cases that include both commercial and political exposure. The guarantee exposure is regularly written down during the guarantee period on the basis of the repayment profile defined when the guarantee is issued.

Conditional offers comprise the largest possible exposure in cases that include both commercial and political exposure. Conditional offers are either converted to a guarantee or the transaction is completed on the expiry date.

Adjusted guarantee and loan exposure is defined as the sum of EKF’s guarantee exposure, loans and 60 per cent of EKF’s exposure on conditional offers, as well as net claims less technical provisions after reinsurance. The adjusted guarantee and loan exposure is applied to the calculation of capital requirements.

Note 31: Definitions of financial highlights and ratios

EKF’s Management

CEO
Kirstine Damkjær
EKF Denmark’s Export Credit Agency

Management positions:
Eksport Kredit Finansiering A/S

Board positions:
Pensiondanmark Holding A/S, Member
Pensiondanmark Pensionsforsikringsaktieselskab, Member

Deputy CEO
Jan Vassard
EKF Denmark’s Export Credit Agency

Board positions:
Advisory Board, Institute for Trade and Innovation (IfTI), Offenburg
University

Deputy CEO
Christian Ølgaard
EKF Denmark’s Export Credit Agency

Board positions:
P/F Fønix, Tórshavn

Deputy CEO
Tine Lundegaard
EKF Denmark’s Export Credit Agency

Board positions:
IMD Alumni, IMD Business School

EKF’s Board of Directors

Christian Frigast
 

Chairman of EKF, Chairman of Remuneration Committee, Member of Audit and Compliance Committee

Management positions:
Frigast A/S

Board positions:
Board Leadership Society, Chair
Danmarks Skibskredit Holding A/S, Chair
AX IV HoldCo P/S, Chair
Axcel Management A/S, Chair
MNGT2 ApS, Chair
Eksport Kredit Finansiering A/S, Chair
DVCA, Chair
PostNord, Deputy Chair
Pandora A/S, Deputy Chair
Axcel Fonden, Member (including management positions in seven companies)
Frigast A/S, Member
AX V Nissens II ApS, Member (including board positions in two companies)
Danmarks Skibskredit A/S, Member

Adjunct Professor at Copenhagen Business School

Dorrit Vanglo
 

Deputy Chairwoman of EKF, Member of Remuneration Committee

Management positions: 
LD Fonde

Board positions:
KAPITALFORENINGEN LD, Chairwoman
Eksport Kredit Finansiering A/S,
Deputy Chair
Dalgasgroup A/S, Deputy Chair
Det Danske Hedeselskab, Deputy Chair
Bikubenfonden, Member

Flemming Aaskov Jørgensen
 

Chairman of Audit and Compliance Committee


 

Management positions:
D&F Invest ApS
88 Invest ApS

Board positions:
Eksport Kredit Finansiering A/S, Member
Alsie Express, Member

Jørgen Høholt
 

Member of Audit and Compliance Committee

Management positions:
JH Financial Advisory

Board positions:
Axcel Advisory Board, Member
Kirk Kapital Advisory Board, Member
ATP Ejendomme A/S, Member
ATP Real Estate Partners I K/S, Member
Eksport Kredit Finansiering A/S, Member

Jørgen Skeel

Management positions:
Birkelse Gods (estate)
JSJ-Agro I/S

Board positions:
AKV-Langholt AmbA, Chair
Slåbakkegaard Fonden, Chair
Donau Agro ApS, Chair
Det danske Hedeselskab, Chair
Dalgas Group A/S, Chair
Eksport Kredit Finansiering A/S, Member
Den Schimmelmannske Fond, Member
Sisseck Familieinvest A/S, Member

Karen Nielsen
 

Member of Audit and Compliance Committee

Management positions:
J.K.N. Holding ApS

Board positions:
Eksport Kredit Finansiering A/S, Member
LB Forsikring A/S, Member
Leman A/S, Member
Leman Holding A/S, Member

Poul Due Jensen

Board positions:
Grundfos (Singapore) Pte. Ltd., Chair
Grundfos (China) Holding Co., Ltd., Chair
Grundfos Pumps (Shanghai) Co., Ltd., Chair
Poul Due Jensens Fond, Deputy Chair
Eksport Kredit Finansiering A/S, Member
Ormstrup Gods A/S, Member
DWT Holding S.p.A., Member

Anna Marie Owie

No other positions​

Yasir Al-Gailany

No other positions​