news - FMO 2022 interim report: increased uncertainty, sustained ambitions

After a hopeful end to 2021 and a positive start to 2022, when many COVID-19 measures were lifted, FMO set out to deliver on ambitious targets for new investments and our development impact. Major geopolitical and economic changes in the first half of the year, however, have changed our positive outlook. The war in Ukraine in particular, ushered in new challenges, complicating the context in which we operate and at the same time, making our work more relevant than ever.

In light of this, it is imperative we serve our customers better, create more impact and take risks which commercial parties are not ready to take. Last year, the pandemic and the need to focus on internal processes limited our ability to generate new business. This year we have set ambitious targets and are building our investment pipeline in pursuit of these, in full awareness of the uncertainty that lies ahead.

Financial performance

Financial profit for the first part of the year amounted to €102 million, compared to €198 million this time last year. 

The easing of COVID-19 measures was overshadowed by the Russian invasion of Ukraine, where the impact of the war resulted in additional impairments and valuation adjustments on our loan and private equity portfolios respectively. The private equity portfolio in Ukraine and investees active in the region has been valuated at approximately €67.6 million less than before the Russian invasion. In addition, FMO took impairments of approximately €96.5 million on loans to customers in Ukraine. Our CET1 ratio remains well above our appetite level.

The strengthening of the USD versus the EUR had an upward impact of €118 million on the predominately USD denominated private equity portfolio.

Impact performance

The current crisis is enhancing FMO’s additionality as an investor in emerging markets and developing economies. At the same time, we notice a decline in the share of our investments in least developed countries, that started during the pandemic and continues in 2022.

We are currently not on track to achieve our Reducing Inequality (RI) target for 2022, however we are striving to bring our RI investments back on track in the second half of the year. In the first half year, we realized €198 million in RI-labelled investments. With €289 million Green-labelled new investments, we are progressing well on our Green target. At the end of the first half year, FMO's outstanding portfolio resulted in an estimated 620,000 jobs supported (FY21: 642,000) and 1,300,000 tCO2e avoided GHG emissions (FY21: 1,255,000 tCO2e).

With social and environmental improvement embedded at the core of our work, we look back on various high-impact investments for the first part of the year.

From supporting the relocation of displaced Ukrainian refugees to ensuring the continuation of business and opportunities, to renewing collaboration with promising players in food security via Babban Gona (Nigeria) and Trans-Oil Group (Moldova), we strengthened existing partnerships and created new ones.

Our partnership with Ipak Yuli Bank (Uzbekistan) and our NASIRA program proved to be strong vehicles to help youth- and women-run SMEs remain in business, and in Egypt, we invested in the refinancing of six power plants across the country via the Scatec Green Bond. In Karachi, we enhanced K-Electric’s transmission and distribution network, an important pillar in FMO’s Energy approach.

We are also expanding opportunities for Africa-based entrepreneurs via AfricArena (through our FMO Ventures Program), and the Cheetah Roundtable, which brings together executives of Africa’s most promising and fast-growing agribusiness companies. And for the first time in two years, we were able to host our Future of Energy conference in-person, which highlighted how hybrid (wind) applications, energy storage, and distributed energy can increase access to energy.

In June of this year, we launched the Joint Impact Model Foundation, to drive financial sector transparency on key impacts in developing countries.

Internal improvements

We continue to monitor regulatory developments and are adapting our internal procedures, disclosures, risk management and governance frameworks in line with the expectations of the European Central Bank (ECB) to manage and disclose on climate-related risks, the LIBOR transition and the EU Sustainable Finance regulation.

End of 2021, we completed our Financial Economic Crime (FEC) Enhancement program to demonstrate full compliance with the Anti-Money-Laundering and Anti-Terrorist Financing Act (in Dutch: Wwft) and the Sanctions Law. FMO received DNB’s conclusions and observations. Follow-up on DNB’s recommendations and findings has been initiated. We are determined to continue to improve in the regulatory domain and to ensure that the changes we implement are tailored to the day-to-day realities and complexities of the markets we are active in.

To help us realize our financial and impact targets and to increase our productivity, we have been recruiting more people. This includes a Director Business Projects, who leads our Digitalization and Efficiency workstreams. 

Looking ahead  

We have set ambitious targets and are building our investment pipeline in pursuit of these, in full awareness of the uncertainty that lies ahead.

Food price inflation and increasing inequalities will be tough to overcome, but we are committed to working with the right partners and clients to help ensure global food supply to the most vulnerable countries and increasing commitments where commercial lenders are retrenching.

We are also exploring opportunities with the private sector and the Dutch government, to tap into the Dutch expertise in food technology and agribusiness and bring solutions where they are needed the most.

We will continue to monitor economic developments and mitigate risks when necessary. We believe that global equity markets will remain very volatile in the second half of the year and that the war in Ukraine could lead to further impairments to our debt and equity portfolios. We are, amongst others, also following the situation in Sri Lanka, where the country and its people are faced with an economic and political crisis. The current exposure in Sri Lanka amounts to €70.4 million.

We need to and want to continually improve. Lessons learned and insights gained from the more complex projects help us do that, for example Plantations et Huileries du Congo S.A (PHC) / Feronia, which we exited earlier this year. Another complex project, Agua Zarca, saw new developments in June, related to earlier legal proceedings. More information can be found on our website.

Our experience gained over more than 50 years, continued dialogue with our stakeholders and insights from evaluations we conduct, continue to inform our approach, and our long-term strategy. In September of this year, we will launch our updated impact strategy toward 2030, which sets out how we will challenge ourselves and our partners to maximize our impact. This includes expanding the Management Board (MB) from three to five members, which we agreed with the Supervisory Board last year. We are in the process of hiring two people, who – pending final approvals – will join the MB later this year.

For more information, please see the interim report.