Annual Report 2012
Nordax Holding AB
Contents
Nordaxataglance
OperatingHighlights2012 ................. 2
Nordax is one of the leading niche consumer
ChairmanoftheBoard´scomment..... 3
loan and saving businesses in the Nordic region
CEO´scomment .............................. 4
where the team has developed a unique
Vision,strategy&businessmodel ....... 8
business model delivering attractive products
Market .......................................... 12 Lending........................................ 14 Funding ........................................18 Savings........................................ 20 Risk............................................. 21
and competitive returns. Providing competitive savings products and unsecured loans from a centralised and highly scalable platform, Nordax uses an advanced credit assessment process to ensure that the risk to both the customer and the lender is contained. At the beginning of 2013, Nordax had a total of 89,000
CorporateResponsibility.................26
active customers in Sweden, Norway, Denmark
CorporateGovernanceReport ......... 28
and Finland.
BoardofDirectors..........................35
Nordax has a sustainable and diversified
ExecutiveManagement...................36
funding base comprising major banks, investors in the ABS markets and deposits from the
AdministrationReport .................... 38*
public, a risk-weighted capitalisation ratio of
Fiveyearoverview ......................... 39
13.1 per cent and a liquidity coverage ratio five
IncomeStatement......................... 40 BalanceSheet ................................ 41 CashFlowStatement......................42 ChangeinEquity........................... 43 Notes.......................................... 44 Auditor’sreport............................. 57 * Pages 38–57 official annual report
times the required level as stipulated by Basel III. Established in 2003, Nordax Holding AB and the Nordax Group operate through the public limited liability company Nordax Finans AB (publ), a registered credit market company under the supervision of the Swedish Financial Supervisory Authority.
FINANcIAL HIGHLIGHTS 2012 •Increasedoperatingprofitsexclfxtotalling SEK208m(2011:195m). •SalesvolumeofSEK2,482m(2011:2,812m) atamarketingcostofSEK75m(2011:67m) •NetreceivablesofSEK7,391matyear-end (2011:6,643m). •Totalcreditlossesincreasedslightlyto
SEK 127m(2011:97m)whichequateto1.8per cent(2011:1.6percent)ofaveragereceivables. •DepositsofSEK7,165m(2011:5,101m). •TotalundrawnfundsofSEK5,667m (2011:6,952m). •TotalregulatoryequityofSEK939m (2011:797m).
1
3,315 SEK m
Norway
650 SEK m
Lending: since 2005 Deposits: since 2009 No. loans: 22 600 (2011: 21,300) Consumer lending Dec, 31: SEK 3,315m (2011: 3,041m) No. deposit: 5,500 (2011: 3,800) Deposits Dec, 31: SEK 2,239m (2011: 1,567m)
Finland
Lending: since 2007 Deposits: since 2011 No. loans: 9,000 (2011: 7,300) Consumer lending Dec,31: SEK 650m (2011: 506m) No. deposit: 1,600 (2011: 750) Deposits Dec, 31: SEK 536m (2011: 233m)
354 SEK m
Denmark
Lending: 2006–2008 – currently paused No. loans: 4,400 (2011: 4,700) Consumer lending Dec, 31: SEK 354m (2011: 438m)
1
3,070
Sweden
SEK m
Lending: since 2004 Deposits: since 2008 No. loans: 30,200 (2011: 26,400) Consumer lending Dec, 31: SEK 3,070m (2011: 2,658m) No. deposit: 15,300 (2011: 11,100) Deposits Dec, 31: SEK 4,390m (2011: 3,301m)
Germany
Lending: mid 2012 No. loans: 20 Consumer lending Dec, 31: SEK 1m
Key figures in SEK m Operating Income, excl fx Operating Profit, excl fx Net receivables Deposits Equity Regulatory capital incl tier 2 Credit loss, % Operating income % ANR, excl fx ROE, % Operating profit % ANR, excl fx Employees
2006 227 54 3,188 10 93 143 0.8 8.9 34 2.1 46
2007 344 92 5,015 10 159 232 1,0 8.4 72 2.3 70
2008 598 131 6,271 4 248 414 2.4 10.1 61 2.2 88
2009 505 162 5,291 2,147 382 491 3.6 8.6 58 2.8 76
2010 389 143 5,170 2,367 419 646 2.1 7.9 28 2.9 73
2011 516 195 6,643 5,101 560 797 1.6 8.7 40 3.3 102
2012 592 208 7,391 7,165 720 939 1.8 8.4 33 3.0 132
SEK m
2
O P E R AT I N G H I G H L I G H T S 2 0 1 2
OPERATING HIGHLIGHTS 2012 • B oth loan and deposit portfolios reached more than SEK 7 bn each. • Sales volumes reached SEK 2,482m (2,812). • New lending increased in Finland to SEK 272m with encouraging early credit risk performance. • Additional sourcing channels such as unaddressed mail, affinity, broker and online activated in several markets. • S mall-scale cautious product testing in Germany delivering promising results. • Warehouse funding facilities extended with Citibank in May and Deutsche Bank in August, the facility with UBS was terminated. • A new deposit product was launched in cooperation with Avanza Bank. • Successful and cost effective upgrade of IT platform. • Investor Relations department established and new HR manager appointed. • Additional resources in Legal, Compliance and Risk Control functions to manage the increased complexities of the regulatory environment. • Awarded second place in the Swedish championship in customer service (by QSurvey). • P assed the Equality Ombudsman gender equality survey of 30 companies in the finance and the media sector. • Named Best Bank in Norway' for deposits exceeding NOK 50,000 for the third consecutive year by Norsk Familieøkonomi.
Milestones 2004 • Nordax is established following FSA approval • Launch of lending activities in Sweden • Corporate funding facility with Danske Bank • Warehouse funding facility with Barclays
2005 • Launch of lending activity in Norway • E xpansion through central platform • Warehouse funding facility with Citibank
2006 • Warehouse funding facility with Deutsche Bank • ABS term trans action in the European ABS market • Launch of lending activity in Denmark
2007 • Launch of lending activity in Finland • Original business plan achieved 18 months before plan • Warehouse funding facilities with Deutsche Bank
2008 • Strategic focus shift, from sales to collections as a result of the financial crisis • Extension of Deutsche Bank and Danske Bank funding facilities • Deposit product launch in Sweden
C hair m an o f the B oar d ’ s co m m ent
3
”Nordax sustain the apparent paradox of conservative levels of capital with a high return on equity." Statement by the Chairman of the Board Chairman’s statements in annual reports are predictable – they start with saying how good the results are, how brilliant the management are, how supportive the board has been, and then thank the staff. Well, all that is certainly true in Nordax but what I would really like to focus on is explaining why Nordax is such a fantastic business. At the core of Nordax is a management group of data-rational, hardworking and intelligent individuals who have successfully built the business since its launch in January 2004. They have instilled a set of core values which drive all our behaviours in the business. In our office in Stockholm we have a team of around 150 people who provide customer service and co-ordinate our activities with business partners in the Nordic region. During 2012 we also launched lending in Germany which is a great demonstration of Nordax’s skills and demonstrates the flexibility of our centralised platform which gives us a low cost of entry into new markets. We have recruited a German speaking team based in Stockholm who have been busy personalising our product for a new audience, finding address lists with features predictive of success and then driving up response rates, accept rates and take-up rates. We don’t yet know how big our German business can be, but we are approaching the task scientifically, analytically and with patience. This is how
2009 • Deposit product launch in Norway • Onshore funding platform established, Deutsche Bank funding facility renewed
2010 • Acquired by funds advised by Vision C apital • Restart new lending in Sweden and Norway • E xtension of Citibank and Deutsche Bank funding facilities • New funding facility with UBS
the Nordax team have built a business which is both conservatively managed and capable of profitable growth and how we sustain the apparent paradox of conservative levels of capital with a high return on equity. Our management team has been expanded to reflect the ambition of the company. Three of the original founders have chosen to move to more part-time roles and interestingly all their successors are female. This means our leadership team is now much more diversified by age and gender and provides the competencies and succession we need for the future. I have been associated with Nordax since 2010 and each year continues to excite. We saw great success in 2012 and, returning to the theme at the start of this section, I really do want to thank ALL the Nordax team for their hard work and dedication in achieving so much during the year. I hope you enjoy reading the story of Nordax in 2012 which follows in this Annual Report.
Richard Pym, Chairman of the Board
2011 • Sales ramp up • Restart new lending In Finland • Norwegian ABS was launched in July • A Swedish ABS was launched in December • Deposits were successfully launched in Finland
2012 • German product testing commenced • Expansion of marketing channels • Bank warehouses extended • Deposit affinity with Avanza • Strengthened independent control functions • Change of clearing bank: from Danske Bank to Nordea
4
C E O ’ s co m m ent
Delivering on our strategic priorities 2012 Team dynamics and our effective central platform drive our strategic progress, and eight working principles guide our work ethic, decisions and actions. Nordax continues to strengthen its position as a leading player in the Nordic market for consumer lending. Net lending growth of SEK 748m (11.3 per cent) is higher than the market growth of 5 per cent and we have grown our niche market deposit base to SEK 7,165m. This is a testament to our compelling business model and a tribute to the tremendous efforts of all my loyal and talented colleagues.
Careful and controlled expansion – no change in strategy We saw good performance in 2012 and despite the lower consumer demand we gained over 19,000 new loan customers and new lending remained high at SEK 2,482m (2011: 2,812). Including the regulatory equity level of SEK 939m (12.7 per cent of lending) we have a strong balance sheet which now totals 11,962 (2011: 9,462). Supported by an organisation that now numbers 132 (2011: 102), this provides us with significant growth power.
Operating performance Operating profit increased to SEK 219m (2011: 195m). During 2012 we invested SEK 75m (2011: 67m) in marketing, including start-up costs for Germany, making an operating profit before marketing costs of SEK 295m (2011: 262m) which gives pre-marketing profit growth of 13 per cent. We are particularly pleased with performance in the second half 2012 which contributed 60 per cent of the full year operating income. The operating profit level remained stable over the year at 3.0 per cent (2011: 3.3 per cent) of average lending portfolio. This is slightly below our 4 per cent target but during the second half we achieved an improved level of 4.24 per cent. Net margin, fees included, increased to SEK 543m (2011: 463m) driven by the larger loan portfolio. Operating expenses including marketing increased to SEK
Sales volume per year
Net receivables
SEKm
SEKm
3,000
8,000 7,000
2,500
6,000 2,000
5,000 4,000
1,500
3,000
1,000
2,000 500
1,000 0
0 2006
2007
2008
2009
2010
2011
2012
2006
2007
2008
2009
2010
2011
2012
C E O ’ s co m m ent
257m (2011: 225m). This is 3.8 per cent of average receivables which is the same level as last year. The cost increase is caused partly by the growing lending portfolio and partly by the increased deposit portfolio and liquidity reserve. Net losses reduced to 2.2 per cent (2011: 2.8 per cent) over the year, falling from 2.4 per cent in the first half to 2.0 per cent in the second. Gross losses improved due to vintage maturity and recoveries from written off loans increased to SEK 117m (2011: 89m). Total losses, including provisions and revaluation of not fully performing loans, ended on SEK 127m (2011: 97m) which equates to 1.8 per cent (2011: 1.6 per cent) of the average lending portfolio.
5
(2011: 2,516m) and total undrawn funds amount to SEK 5,667m (2011: 6,952m). These additional factors confirm that Nordax is well positioned for further growth. The net stable funding ratio equates to 166 per cent in comparison to the Basel III expected requirement of 100 per cent and the liquidity coverage ratio reached 565 per cent compared to the 100 per cent requirement.
Risk Management Risk Management is at the core of our value creating business and as highlighted throughout this report Nordax manages credit, liquidity, market and operational risks on behalf of all our stakeholders and we are acutely aware of our responsi-
"Focus on risk management is imperative considering our role as a mediator between investors, depositors and borrowers and the huge responsibility that entails." Strong financial position Our balance sheet strengthened considerably during 2012 and regulatory equity increased to SEK 918m (757m) which exceeds the FSA Pillar 2 requirements by SEK 293m (2011: 190m) The weighted capitalisation ratio was 13.2 per cent (2011: 12.4 per cent) which confirms that retained profit is more than sufficient to support Nordax’s pace of growth. No dividend will be paid this year as we believe it is appropriate to retain the substantial excess equity should economic circumstances change and we may wish to expand the business more rapidly when consumer demand returns. The liquidity reserve portfolio exceeded SEK 4,124m
bility to our investors, depositors and borrowers. In areas of capital requirement levels, funding and liquidity exposures, catering for stakeholders including regulators, and reputational risk, our goal is to eliminate the risk completely. We also have a zero tolerance on breaking interest rate and FX risk limits. There are some risks we accept at very low levels where the cost of reaching zero tolerance does not make sense, for example operational errors, and we have three risk categories inherent in our business – credit risk, strategic risk and profit volatility – which we control but where we accept some deviation from expectations.
Credit loss per year
Operating profit, excl fx
% of average receivebles
SEKm
4
250 200
3
150 2 100 1
50
0
0 2006
2007
2008
2009
2010
2011
2012
2006
2007
2008
2009
2010
2011
2012
6
C E O ’ s co m m ent
Working principles 1. Flexibility We are flexible and highly adaptable as a reflection of a constantly changing environment. 2. Responsibility We take personal responsibility and make sure we get the job done. We lead by example. We are enthusiastic and genuinely interested in doing a good job for our customers. 3. Respect In everything we do we respect our customers, our stakeholders, and our colleagues. 4. Focus & prioritisation We focus our energy and resources by prioritising the projects that provide the most value. 5. Measurements We try to measure all aspects of our operations. Only with quantitative and objective key performance indicators can we ensure that we develop in the right direction to optimise our service proposition. 6. Experimentation We like small scale tests and experiments. The insight the tests provide becomes the foundation for further development of the company, our business model and our service proposition. 7. Problem solving We find simple, pragmatic, cost effective and reusable solutions to meet our challenges as we work in cross functional teams and have a central platform. The problem solving is further facilitated by our cross market- multi cultural team approach. 8. Continuity & reflection Whilst respect is given to proven routines and processes, we are always open to challenging ideas.
C E O ’ s co m m ent
Delivering on our strategic priorities We achieved all our strategic goals in 2012:
Customer orientation The growth of our lending and deposit products confirms that customers find value and utility in our products and Nordax continues to have an unblemished track record from consumer protection representatives. Our customer service has developed significantly in 2012 with 95 per cent of customer telephone calls answered promptly helping us achieve second place in the Swedish Championship in Customer Service. All customer facing colleagues are gold certified which confirms the high competence in customer service – this is a particularly outstanding achievement of which we are rightly proud, as our employees deal with customers in two or more countries and require detailed knowledge of several products. New credit risk scorecards in both Sweden and Norway facilitate even better and safer underwriting for our loan customers and for the third year in a row, Norsk Familieøkonomi named Nordax the Best Bank in Norway for deposits exceeding NOK 50,000.
Profitable growth The lending portfolio grew by 11.3 per cent. Sales in Finland increased and small scale product testing in Germany gave promising results. A number of new sourcing channels were activated in several markets.
Secure funding We renewed our bank warehouse facilities, launched a new deposit product with Avanza and grew existing deposit portfolios enabling us to grow our liquidity reserve significantly and strengthen our balance sheet and equity base.
Attractive working environment We value our people as we believe they are our most critical competitive asset. In order to meet the challenges of a growing organisation we hired a human resource manager whilst retaining much responsibility at the individual people manager level and over the year leadership training and project management courses have enabled many colleagues to develop their skills. The employee survey score shows yet again that Nordax is a popular workplace with employee satisfaction remaining high compared to industry averages. Employee turnover was 9 per cent and short term sick leave of 4 per cent. Our colleagues make Nordax which is why we share our success with them, and all employees received a half month extra salary for their work in 2012.
I am very grateful to all the talented people who choose to work for Nordax. Their team spirit and capability, combined with our central platform, drives our strategic progress and our 8 working principles guide work ethics, decisions and actions.
Bringing value to customers Nordax has focused on bringing good value and high utility products to customers to ensure a sustainable and profitable business and we are well prepared to meet future demand. Growth performance in 2013 will depend on the environment as, with the exception of Norway, economic growth has been sluggish for some time now and demand for unsecured consumer credit has been low. However, when demand recovers Nordax will be ready to act on the opportunity. We are an evolutionary company and a product of cautious experimentation and testing. This characteristic will continue as Nordax matures and becomes a larger institution. We will continue to invest further in our organisation, our people, structure, risk management and work processes to ensure that the increasing complexity of the business is robustly managed and controlled.
Our team I would like to express my sincere gratitude to all my colleagues for their outstanding efforts during 2012 and, as importantly, for continued efforts in 2013. I would also like to express my personal thanks to the board members for their support. The board met 11 times during the year, but the informal interactions have been more frequent and they have added great value to our business. I am proud that Nordax enthuse our board members and grateful for their continued passion and involvement in developing the business, facilitating strategic dynamism, cautious risk management and making the governance of Nordax very solid. I am pleased to assure all Nordax stakeholders – my colleagues, our investors and our customers – of my confidence for a continued great performance.
Stockholm, March 2013
Morten Falch. CEO
7
8
v ision , strateg y & b u siness m o d el
Focused and sustainable strategy from a unique central platform Nordax serves as mediator between borrowers and depositors and investors. We transfer money from investors to consumers – and as importantly – back again.
Deposit Nordax
Borrowers
Investors Investors
Loans
• We offer an opportunity to invest in the attractive consumer credit sector through issuance of bonds in the European ABS market and warehouse funding facilities.
• We serve people whose income and spending diverge negatively – a temporary circumstance which many p eople encounter. • We serve people who want to pay as they consume – they prefer not to save before consumption but have the discipline to pay the loan back. • We offer competitive loans in terms of price, size and length to satisfy the customer’s total need.
Deposits • We serve people whose income and spending diverge positively and who would like a safe and decent return on their deposits.
VISION Nordax is a leading pan-Nordic financial intermediary in the consumer credit market with a vision to expand and become a pan-European financial mediator. With eight sound working principles and a central operating platform, development and sharing of core competence thrives. This positive dynamism is further facilitated by cross-functional forums and project task forces that cultivate strong collaboration which enables exceptional performance.
Our four strategic priorities Customer orientation Nordax is dedicated to giving professional, personal service to its customers providing product offerings that are competitive and attractive in the market. All lending customers are individually assessed through Nordax’s credit assessment process. Nordax’s view is that any individual credit loss is a failure both to the company and to the customer.
Forums – for all important cross functional decisions The Nordax culture and tradition is to work cross functionally, therefore, all strategic and important operational decisions are debated and agreed on in Forums. There is one Forum for each part of the Nordax organisation. The Forums are attended by colleagues from all relevant functions and include members of the executive management team, senior and middle managers as well as experts. The process facilitates cross functional collaboration which most company projects depend on. It also ensures that decisions and proposals to the board have benefitted from the views of a variety of senior and middle managers/experts. Forums improve communication and give a balance between functions that may have diverging goals. This reduces the risk of work taking place in silos and enable colleagues to hear and respect different views which facilitates great team performance.
V I S I O N , S T R AT E G Y & B U S I N E S S M O D E L
Profitable growth Nordax’s ambition is to grow lending volume without compromising risk management or profit margin goals. Although organic growth in the Nordics is the number one priority, Nordax is also evaluating opportunities to enter other geographic markets and make acquisitions. Nordax commenced tests in the German market during second half of 2012 by way of small and cautiously executed trials.
Secure funding Nordax aims to have a diversified of long-term funding sources and has established relationships with major international banks and the ABS market. In recent years, retail deposits have become an increasingly important cornerstone of the funding strategy. Nordax monitors the funding markets closely to adapt to changing circumstances.
Attractive working environment To attract and retain talent, Nordax believes it is important to maintain a structure where people feel they can influence, grow with the company and share its progress and success. Nordax’s ambition is to create a working environment where core competencies can flourish through the proximity of experts. Nordax has developed a positive work culture building on active and professional management, agile decision-making and minimised administrative burden. Various nationalities, specialists and competencies work together in teams at Nordax’s
9
office in Stockholm and the business culture encourages learning and knowledge sharing throughout the business. Since Nordax was established, dual career paths have been promoted enabling creative and talented individuals to be promoted even if they do not wish to take on people management responsibilities.
Superior and unique central platform Nordax has a highly scalable platform structured for further growth and geographic expansion. Nordax operates through an efficient, centralised platform from which all geographic markets are served and all primary activities that are connected to customer relations. Nordax has one single office in Stockholm and employs nationals from all its operating countries to serve existing and potential customers. Nordax has identified core competencies that are essential to the business and are kept in-house whilst other more standardised processes are outsourced. The compelling advantages of the centralised platform include improved strategic dynamism, more effective risk control and compliance management, optimised resource allocation and scalability. It ensures that the entire team is aware of Nordax’s priorities and risk tolerance level.
Strategic Opportunities There are a range of compelling strategic opportunities in the market place that suit the core competencies of Nordax, some of which will be analysed and possibly tested in future.
“This working approach builds a high degree of involvement and engagement at all levels.” Malin Frick, HR
Forums are attended by people from a variety of functions and layers in the organization enabling us to debate and agree strategic and operating decisions.
10
v ision , strateg y & b u siness m o d el
Planned actions 2012
Profitable growth
Attractive work environment
• Continue sourcing channel diver sification
• Continue to build on our culture and enhanced leadership
• Scale up lending in Finland cautiously • Test launching consumer loans in G ermany
Results in 2012
• New sourcing channels such as affinity, broker and online have been activated in several markets (see marketing section). 27 per cent of sales came from non DM channels • Finland sales ramped up to SEK 272m • German tests have been initiated with promising result
• H R function established. The eight working principles were refined • Together with two other companies, Nordax passed the gender equality survey of 30 companies by the Equality Ombudsman • All employees received a half month additional salary for good performance • Management tool box established, leadership and project management courses rolled out, middle managers were formally included in annual strategy session • The personnel survey shows employee’s satisfaction levels over 74 per cent which is significantly higher than the corporate average of around 60 per cent
Planned actions 2013
• Continue developing Germany
• Continue establishing new sourcing channels
• Evaluate Bank license • Consider compatible new product offerings
• Elevate quality and effectiveness of feedback talks • Develop HR function
v ision , strateg y & b u siness m o d el
Customer orientation
Secure funding
• Continue to offer and develop high utility products
• Maintain and further develop relations with established funding partners
• Enhance underwriting standards further
• D evelop deposit products further, evaluate new funding channels
• Improve availability of our services
• Prepare for further ABS transactions • Extend warehouse funding facilities
• Lending portfolio grew by 11 per cent and deposit portfolio grew by 40 per cent • New credit risk score cards were developed for Sweden and Norway, net losses continued to improve in all markets. Continued to work on introducing debt registers in Norway and Finland
• Citibank and Deutsche Bank warehouses were extended. UBS decided to stop offering warehouses • A new deposit product was launched in cooperation with Avanza • Internal preparation to improve future ABS programs
• 95 per cent of all calls are answered promptly • Named best bank for deposits by Norsk Familieøkonomi – third consecutive year • Customer service awarded second place in Swedish Championship for Customer service. All customer service employees achieved gold standard certification
• Continue to offer and develop high utility products
• Calibrate funding and liquidity to sales and lending growth
• Further enhance underwriting standards and tools
valuate strategic development of funding •E sources including new deposit products
• Further improve quality of customer service
• Renew warehouse facility and nurture ABS investor base
11
12
Mar k et
Nordax outlook for Nordic consumer credits 2012 was a year of slow market growth and increased competition, in which Nordax managed to continue to gain market shares. Concluding on 2012 Nordax achieved sales of SEK 2,5bn in 2012 and enjoyed a growth rate of 11 per cent in which compares to the growth of the total market for unsecured lending in Sweden and Norway of some 5 per cent. As during previous years Sweden and Norway continues to be Nordax main geographical markets, and Nordax continues to gain market shares. Nordax is estimated to have a market share of approximately 5 per cent of the unsecured loan segment of the Swedish and Norwegian market. 2012 was a year of increased price pressure as competition increased, both in terms of lenders and an expanding brokering industry. Nordax continues to be fully committed to its strategy of not trading margins or credit risk for volume. Jacob Lundblad, Deputy CEO, elaborates: “Competition has gradually increased as a result of the availability of funding via the retail deposit market, which implies that competitors are eager to put their money in play. Slow market growth and a growing broker channel has resulted in a willingness to trade margins and credit risk for balance amongst some of our competitors. Nordax, however, will always build our business to be sustainable over the cycle.”
Sustainable growth rate Nordax growth in 2012 was due to a continued focus on established sourcing channels such as direct marketing (DM) and sourcing via third parties, optimization of sales via CRM, and careful
Nordax Sourcing Channels
expansion into Germany. Although total sales came in lower in 2012 compared to 2011, the company has been successful in its strategy. Since establishment in 2004 Nordax has originated SEK 19bn worth of sales, predominantly through the DM channel, and has served around 25 per cent of our target population. This inherently implies that proprietary sourcing via DM will decrease over time which in turn has brought more focus towards customer acquisition via third parties and affinities. Sourcing via third parties compared with total sales increased from nearly 10 per cent in 2011 to almost 20 per cent in 2012. Morten Falch, CEO, comments: “Marketing starts with risk and sourcing via third parties, and affinities in particular enables us to expand on our core competence within statistical modelling, the foundation for marketing efficiency and low credit losses.”
Creating long-term customer satisfaction Sales through CRM amounted to approximately 17 per cent of total sales in 2012 compared to c. 13 per cent in 2011. This due to the company’s increased focus on CRM and a larger portfolio. The number of initiatives to optimise CRM has been extensive during the year and will continue throughout 2013. It is a tribute to the efforts of colleagues that in 2012 Nordax was awarded a silver medal in the annual Swedish championship in customer service (Sw: SM i kundtjänst) organized by QSurvey.
Test Denmark G ermany
Sweden
Norway
Finland
Direct mail
•
•
•
•
•
Unaddressed mail
•
•
•
•
•
Affinity
•
•
•
•
•
Print
•
•
•
•
•
Online
•
•
•
•
•
Telemarketing
•
•
•
•
•
TV
•
•
•
•
• Active channels • Unexplored • Tests to date not achieved sufficient efficiency
GDP Growth vs. Growth in lending to households – Sweden, % 25 20 15 10 5 0 –5 1975
1980
1985
1990
Growth in lending to households Source: SCB
1995
2000
GDP Growth
2005
2010
MARKET
Jacob Lundblad notes: I am very proud of what my colleagues in the customer service department have achieved during the year. Best in class customer service is one of the foundations for creating long term customer satisfaction, ensuring that Nordax stands as a preferred lender.
Good prospects in Germany During spring Nordax finalised the set-up of its German infrastructure. This has been a major initiative over the past two years and the testing that has been executed to date has confirmed that the operational set-up works very efficiently and has proven that customers in Germany will accept variable APRs instead of fixed APRs which is market practice, and that a relatively unknown Swedish origin company is not seen as a negative. Morten Falch comments: “The response rates are in line with what we experience in the Nordic markets and to date we have not received any negative remarks in relation to our Swedish origin nor the fact that we offer variable APR. We have much work to do in terms of marketing drivers and credit risk performance needs to be monitored over a one to two year period before we can conclude on the full potential of the German market. Our German expansion project is transformational but we need to go slow to go fast.”
Looking ahead Controlled and profitable growth will c ontinue to be the guiding rules for Nordax’s growth ambitions. The c orner stones for growth is not
13
changing; continued focus on the direct mail (DM) programs – proprietary and through affinities, continued development of CRM, and controlled geographical expansion into Germany. Considering the uncertain macro environment Nordax sales plans for 2013 are cautious but optimistic. Jacob Lundblad comments: “Looking at available sourcing channels there are clearly opportunities, and currently we see great prospects through affinities which essentially is a way for us to expand our DM program. We have, however, gained a lot of intelligence within most channels over the last couple of years and we will remain flexible and adaptable when it comes to where we spend our resources, what we believe is right today might not be right tomorrow. Marketing efficiency, viable pricing, and credit risk will guide our decisions.” Nordax's growth is dependent on the business and macro environment and the double digit market growth rate seen before the economic crisis has not returned. Uncertainty is still valid for the short term and Nordax is increasingly using scenario based planning in forecasting budgets. Morten Falch elaborates: “Looking at historical data there is a strong correlation between credit growth and GDP growth. As long as we live in a consumption society this will continue and although there are clouds on the horizon in the short term, we are confident in the future of consumer credit.”
“As a member of the management team, attending Forums enables me to increase my visibility and availability.” Olle Nordlöf, COO
Forums enable facts to be communicated clearly and create a base for consensus and respect for differing views. They embed cross functional collaboration which most company projects depend on.
14
LENDING
The lending process – our core competence Nordax’s main activity is to provide loans to consumers. As in all lending, risk evaluation is central and Nordax has a low risk tolerance and takes a conservative approach to handling and managing credit risk. Credit risk is correlated to the economic environment and thus quite volatile and we need to ensure that our customers and Nordax are not adversely affected in an economic downturn. Credit risk starts with marketing The risk assessment process at Nordax begins when we design our product characteristics and our marketing campaigns as this has a significant impact on the ultimate credit risk level in the portfolio. It is, therefore, no coincidence that our marketing team have extensive credit risk backgrounds and collaborate closely with the credit risk and underwriting teams. Much of the statistical analysis that we do in the marketing area is derived from our work in credit risk. One of our competitive advantages is our direct mail program where we use sophisticated data analysis programs to look at a range of demographic variables, enabling us to optimise our targeting in terms of balancing response level with quality of applications. The DM mailing program has been a cornerstone of our sales engine and will continue to be so. Our strategy to target customers carefully extends to our sourcing of customers through brokers. A set of clearly defined criteria has been set which people must achieve in order to become our customers. Good quality applications are the foundation for the underwriting process.
Underwriting – blending statistics with – careful craftsmanship Seven members of the management team have senior credit risk background and we know that avoiding defaults and minimising credit losses are fundamental to the company’s existence and success. At Nordax we have developed a unique credit underwriting process for handling loan applications. The model, which combines statistics with craftsmanship, has evolved over the years and will continue to do so as we enter new markets.
A four level underwriting process The credit underwriting model comprises four levels and Nordax’s comparably low default rate can be credited to the combined steps of the process. Before a lending application can be approved, a range of variables are evaluated. As far as possible, the model is standardised enabling applications to run smoothly through the process.
“To regularly sit down and talk about the market initiatives and results gives us a common roadmap.” Jessica Jonung Marketing
Forums ensure that each function's decisions, and proposals to the board, have benefitted from the views of a variety of senior and middle managers/experts.
len d ing
• Policy rules: we automatically reject applicants who do not meet the minimum criteria including income, age and debt history. No deviations from these rules are accepted. • Referral rules: all obtained information is verified and compared to information from other sources. • Scoring: a statistical measure of each applicant’s creditworthiness. In order to be approved, the applicant must achieve a predetermined minimum score which is within our internal maximum acceptable risk exposure. • Limit assignment: finally the credit limits are assigned based on a limit matrix that combines the score with the applicant’s income to set the maximum loan amount that can be granted within the internal maximum acceptable risk exposure. We recognise, however, that certain aspects cannot be standardised and require personal handling so Nordax educates its administrators and provides them with a clear framework specifying how ambiguities should be dealt with. The four underwriting process steps are further supported by automatic and manual check points to ensure that all procedures are carried out. This facilitates management of the complexities in the process and substantially reduces the chance for human error. Check lists are a simple but very powerful tool.
"The ever so important personal contact" Nordax operates in countries with differing access to credit information, therefore, a large part of the decision process is based on the information provided by the customer which is verified in various ways including salary slips and tax returns. To ensure that all relevant information is provided and interpreted correctly, a large proportion of the customers are contacted by telephone. This personal contact gives us and the customer the opportunity to sort out any questions or issues and also works as a quality control.
By having personal contact with the applicant, we can also detect possible/potential fraudulent applications at an early stage of the process.
Credit scoring Credit scoring consistently outperforms manual underwriting in empirical tests and facilitates the process of saying no to people that are better off without a loan. In addition to a number of policy and referral rules, the Nordax credit assessment is based on statistical credit scoring models.
"Nordax has strong competence in scorecard development and have over the years developed a number of bespoken models for the different markets were we operate." The credit score card is used to measure an applicant’s likelihood of paying back the debt. The model combines several characteristics, evaluates them and calculates a numerical expression which indicates the applicant’s likelihood of being both willing and able to pay back the loan based on historical patterns. Nordax has a strong competence in scorecard development and has developed a number of bespoke models for the different markets were we operate. The score models are monitored to ensure that they perform according to expectations and they are adjusted or replaced with new models as appropriate. During 2012 new score models were developed and implemented in Sweden and Norway.
15
16
LENDING
Risk classification and profitability m odelling The calculated score value provides the basis for our risk classification. Each approved customer is assigned a risk class at the time of approval and these are harmonised across all markets to enhance our ability to analyse comparative credit risk in all markets and form the basis for our credit risk strategy in each market. When the customer
applies for a new additional loan the risk classification is re-evaluated based on the current information. Profitability is also an important parameter when setting out our credit risk strategy. Through our profitability modelling we have identified certain segments which we no longer approve.
“Having an entrepreneurial culture involving all relevant parties ensures an efficient time-to-market.” Sébastien Martin, Marketing Director
Forums improve communication between functions and reduce the risk of work taking place in silos. They reduce politics and foster collaboration, which facilitates great team performance.
17
Nordax’s customers – A cross section of the market With a presence in five countries, Nordax’s customers represent a cross section of the population in Nordax’s established domestic markets. For the borrower, Nordax provides extra purchasing power and a flexible payback scheme determined by the amount borrowed and the credit worthiness of the customer. This extra purchasing power can raise the quality of life for the customer by giving the customer the opportunity to pay as they consume. A loan is only granted after careful individual underwriting that gives Nordax and the customer comfort that the customer will be able to pay the loan back. For depositors, Nordax offers a straightforward, safe and flexible savings option at one of the best interest rates available in the market. Nordax's savings accounts are all covered by the deposit insurance provided by the Swedish National Debt Office.
Erik – 60 years old, living together for many years with Gunnel in a rental apartment in Stockholm, Sweden, runs small car repair business. Borrowed SEK 250 000 to buy a sailboat and build a porch at their country house outside town.
Lise – 55 years old, single, lives in Oslo, Norway, in a self-owned apartment, works as a secretary. Lise borrowed NOK 100 000 to renovate her bathroom.
Arne – 35 years old, married with one child, living in Skien Norway, deposited his cash savings of 450 000 with Nordax.
Behza – 42 years old, married with two children living outside Åbo in Finland in their own house working as an engineer in the city. Behza borrowed EUR 10 000 to buy a used car to drive to work.
Veronica – 28 years old, single living in a rent apartment in Linköping in Sweden. Works for a large interior company. Inherited SEK 150 000 from her grandfather which she has deposited at Nordax.
The persons described above do not represent real customers but the features described can be found in Nordax customer base. Any resemblance to actual Nordax customers, if any, is coincidental.
18
f u n d ing
Diversified funding To manage financing efficiently, Nordax has a diversified funding platform combining issuance of bonds in the European ABS market, warehouse funding facilities provided by leading global banks and funding from retail deposits in Sweden, Norway and Finland. Nordax’s funding strategy Nordax’s diversified funding strategy aims to create low liquidity and refinancing risk. An important part of the strategy is to issue bonds targeted at a broad institutional investor base in the European ABS market. Through the ABS funding, a maturity match between the assets, i.e. the relevant consumer loan portfolio, and the financing of the portfolio, is achieved.
Long-term funding The European ABS market, in which Nordax issues Asset Backed Securities (ABS), is a longterm financing source. The maturity of the bonds issued are at least as long as the maturity of the underlying consumer loan portfolio, meaning that the investors commit matched funding for a long period of time. Thereby the liquidity and refinancing risk is eliminated for that specific portfolio. Before a consumer loan portfolio reaches sufficient volume and historical risk performance to be eligible to refinance in the ABS market it is funded by leading global banks and retail deposits. Nordax has access to the bond market thanks to the competence and experience of its management team, the extensive portfolio information available from the risk management systems and its reputation and established relationships in the market. To ensure continued access to the bond market, Nordax nurtures its relationships with existing and potential investors carefully and has
a dedicated website (www.scl-ir.com), with comprehensive monthly reports on the performance of the ABS portfolios, to retain a transparent and on-going dialogue with investors, banks and rating agencies. To manage the issuance of ABS as well as the warehouse funding facilities backed by consumer loan portfolios, Nordax has established a sophisticated funding structure in which consumer loans are placed in separate on-balance sheet subsidiaries, each of which keep the pledged assets for an ABS issue or a warehouse funding facility. This explains our corporate structure on page 29. The subsidiaries are registered as financial institutes with the Swedish FSA and are included in the financial group for regulatory capital purposes.
The Scandinavian Consumer Loans (SCL) ABS issuance program Nordax has established a program of issuance to increase transparency and facilitate secondary market liquidity. Although each issuance is made under standalone documentation, all issuances have a large number of features in common. Under the SCL issuance program, Nordax issued its first ABS in 2006 secured by a Swedish consumer loan portfolio and sold to 30 European investors. The bonds were called at the first call date in June 2011 showing Nordax’s strong longterm commitment to investors and the market.
Nordax’s balance sheet Dec 2012
Nordax’s committed and deployed funding Dec 2012
MSEK
MSEK
12,000
15,000
10,000
Deposit
12,000
8,000
Bank ABS
9,000
6,000 6,000
4,000
3,000
2,000 0
Assets
Liabilities
Liquidy reserve Loan portpolio Deposit Bank ABS Tier 2 loan Equity
0
Total funding
Deposit Bank ABS
Loan portfolio by funding source
f u n d ing
In 2011, Nordax made two additional issuances under the program backed by Norwegian and Swedish consumer loan portfolios; Scandinavian Consumer Loans II (SCLII) and Scandinavian Consumer Loans III (SCLIII). Standard & Poor’s rated SCL II and assigned the largest class of notes the highest possible rating: AAA. SCL III was rated by both Standard & Poor’s and Fitch and the largest class of notes was AAA/AAA rated, again the highest rating possible.
19
Retail deposit-taking Nordax launched deposit taking in Sweden in 2008, Norway in 2009 and Finland in 2011. In addition to providing savings products to Nordax’s customers, deposit taking complements funding in the bond market and via warehouse funding facilities. Nordax has grown steadily in the deposit market and the deposit inflow has been very strong during the year.
The Nordax funding platform
Consumer loans
Funding company
1. Nordax makes a loan to a customer.
Nordax Finans AB (publ)
2. Loans are transferred to a funding subsidiary and pledged to a bank warehouse lender.
3. When enough loans have been gathered, they are transferred to a subsidiary that sells bonds to investors.
Supervised by the Swedish FSA
Nordax funding subsidiary Consolidated Swedish Bankruptcy Remote Entity
Asset Backed Security (ABS) subsidiary Consolidated Swedish Bankruptcy Remote Entity
Funding providers
Retail deposits
Bank warehouse lenders
Institutional ABS investors
ABS are bonds that are secured by the cash flow of an underlying pool of assets. In Nordax’s case the bonds are backed by the payments that customers make on their loans. Since a pool consists of a large number of consumer loans that are unlikely to default at the same time, bonds can be issued with very high credit ratings. Nordax sells most of its bonds with the highest AAA ratings. The ABS market is one of the largest and most liquid bond markets in the world and in 2012 around EUR 243bn of European ABS bonds were issued.
20
S AV I N G S
Enhanced deposit offering Nordax offers savings products to customers via competitive and simple deposit accounts. During last year Nordax strengthened its position as an attractive deposit provider, attaining an equivalent of SEK 7,165m in deposits from the public in Sweden, Norway and Finland by the end of 2012. Nordax attracts savings by offering customers the opportunity to combine an attractive interest rate with security and flexibility, allowing Nordax to build a strong and loyal customer base at a low marketing cost. In 2012, the deposit portfolio increased by 40 per cent to the equivalent of SEK 7,165m showing solid growth according to plan in all countries where Nordax accepts deposits.
Features of Nordax's deposit accounts: • No set-up fees • No withdrawal fees* • No lock-in period • Same interest earned on all balances • Covered by the Swedish deposit insurance * O ne of the accounts (Kapitalkonto in Sweden) has limitations on free withdrawals
Nordax’ deposit accounts Nordax has offered deposit accounts in Sweden since 2008, Norway since 2009 and in Finland since 2011. The current offering comprises two deposit accounts in Sweden under the Nordax brand, and one deposit account in both Norway and Finland. In Autumn 2012 Nordax launched a new internet deposit account in co-operation with Avanza Bank which enables Nordax to reach a new customer base. All deposit accounts are easily understood by the customers and covered by the deposit insurance provided by the Swedish National Debt Office.
Deposit customers Nordax offered among the most competitive rates in the market during 2012 enabling significant growth in outstanding balances in Sweden, Norway and Finland with the number of new deposit customers increasing by 43 per cent. Nordax was namned best bank in Norway for deposit exceeding NOK 50,000 for the third consecutive year by Norsk Familieøkonomi.
“I appreciate the opportunity to influence and be able to ask questions relevant to my work.” Anna Ullrich Operation Control
Forums enhance the environment for ensuring risk control and compliance ensuring all new initiatives are properly implemented due to system and internal processes.
21
ris k
Nordax framework for risk management in a high control environment Management of risk is an integral part of achieving the business objectives. During 2012 Nordax continued to build on a strong control environment which enables the group to grow in times of uncertainty. Nordax's risk framework aligns controlled risk appetite closely with strategic decisions. The risk management process involves continuous communications and comprehensive and frequent reporting of risk. A strong, common risk culture exists to involve and include all staff in the risk management process and to optimise control.
Capitalisation Ratio, %
2012
2011
15
2011
12
2012
9 6
Good risk management is achieved through three lines of defence In an increasing climate of regulations for internal governance and control Nordax is well prepared. The organisational structure built from a three lines of defence model enables the group to manage its risks through a structured and transparent approach with established controls. In the first line of defence, the operational risk management functions have ownership, responsibility and accountability for assessing, controlling and mitigating risks. The independent compliance and risk control functions are the second line of defence, facilitating and monitoring the implementation of effective risk management practices and reporting risk related information throughout the organisation. The third line of defence is the internal audit function which provides assurance to the Board of directors on how effective the organisation assesses and manages its risks, including the manner in which the first and second lines of defence operate. To inform the Board on governance, risk and control matters, the Audit and Risk committee meet at least four times a year to discuss the compliance, risk control and internal audit areas. In addition to the work of the committee the independent Compliance and Risk control functions report to the Board of directors on a monthly basis. In addition Compliance and Risk controll have individual discussions directly with the Chairman. In the beginning of 2013 the SFSA announced that the EBA guidelines on internal governance and control (GL44) have the status as general
3 0
Pillar 1 requirement Ratio
ICAAP/Pillar 2 requirement Ratio
Total capitalisation Ratio
guidelines in Sweden. The implications for Nordax are not significant and the process to fill any gaps to the new regulation is underway.
Nordax’s risk framework The aggregated risk profile and the level of unexpected losses Nordax is willing to accept are determined through the internal capital adequacy assessment process (ICAAP). In the process risk is managed to handle the effect of extremely negative but plausible scenarios. The ICAAP ensures an adequate capital to absorb these losses without having to make capital injections. The company also has a capital buffer between the risk taking capacity and the aggregate risk profile. Risk is closely related to all business activities and is carefully managed within Nordax’s risk management framework. Credit risk is Nordax’s most significant risk followed by strategic risk, liquidity risk and operational risk. Market risks are limited to minor exposures in currency risk and interest rate risk. Alongside the group’s robust frameworks for managing distinct risks the overall risk framework constitutes Board supervision and controlled risk-taking within established limits. Nordax performs a risk identification, assessment and mapping process at least annually. All functions in first line contribute in the assesment.
22
ris k
r i s k m a n ag e m e n t f r a m e w o r k
Credit risks
Policies, instructions, process routines
Control with limits
Credit
✓
✓
✓
✓
✓
✓
Counterparty
✓
✓
Concentration
✓
✓
Liquidity risks Operational risks
Identify, measure, monitor and control
Contingency plans
ICAAP
✓
Liquidity
✓
✓
✓
✓
Infrastructure
✓
✓
✓
✓
✓
People
✓
✓
✓
✓
Processes
✓
✓
✓
✓
Systems
✓
✓
✓
✓
External environment
✓
✓
✓
✓
Currency
✓
✓
✓
✓
✓
✓
Market risks
Interest rate
✓
✓
Business risks
Earnings
✓
✓
Strategic risks
Business model
✓
✓
✓
The probability of a risk event to occur and the impact it could have on the group’s result or equity are assessed together with mitigating processes and procedures. From the result a heat map is drawn enabling actions to be taken to reduce risks that are not within Nordax’s risk appetite.
The calculated score value provides the basis for our risk classification. Each approved customer is assigned a risk class at time for approval which are harmonised across all markets. This greatly enhances our ability to analyse comparative credit risk in all markets and forms the basis for our credit risk strategy in each market.
Credit risk Credit risk in general
Measurements and control of credit risk
Management of credit risk is a central part of Nordax operations and a conservative approach is taken to handling and managing risk. Nordax does not aim to make extra profits by increasing the company’s risk exposure and all credits are granted based on the credit policy approved by the board. Credit decisions are made on the basis of a credit scoring model in combination with a number of policy rules and limits are assigned based on the individual score value in combination with income within the internal maximum acceptable risk exposure. Additional verification is required in markets where appropriate income and credit information is not available.
The portfolio risk level is regularly measured against established goals and is monitored on both an aggregated and vintage level, where the credit risk is measured by the age of the credit. An extensive risk report is produced on a monthly basis and delinquency and loss development is also reported to directors at each board meeting. Much attention is also placed on the credit evaluation process to ensure that credit underwriting complies with current credit policies approved by the board. The risk control function regularly performs controls and reports any deviations to the board. During 2012 a number of control measures have been implemented in order to detect any credit decisions deviating from current credit policy.
ris k
Liquidity risk Liquidity risk is defined as the risk that Nordax will not be able to obtain funding to replace existing funds maturing.
Nordax’s funding strategy In order to minimise liquidity and refinancing risk for the full maturity of assets, Nordax’s long-term funding strategy is to issue bonds in the international bond market, securitised by consumer loans (ABS). During a seasoning period, until a portfolio’s size and history of risk performance reaches an acceptable level for the rating agencies and investors, the portfolio is funded by highly rated international banks or with retail deposits.
Liquidity risk management Nordax’s liquidity risk management is based on policy statements resulting in different liquidity risk measures. Limits and organisational procedures are set by the Board and reviewed at least annually. The Treasury department is responsible for managing the liquidity risk and for ensuring compliance with the policy. Monitoring and reporting of liquidity risk is
23
performed on a daily basis and is reported to the senior management team. The group also has an independent function for control of liquidity risk according to FFFS 2010:7 which reports directly to the Board and the CEO. A liquidity contingency plan sets a clear division of responsibilities and instructions on how Nordax shall manage a liquidity crisis situation. The contingency plan outlines actions to handle consequences of different types of liquidity crisis situations and contains definitions of incidents that could potentially trigger and escalate the contingency plan.
Liquidity risk measurement methods Cash flows in run-off scenarios, in which no new assets or liabilities are contracted or extended, are measured. Key ratios such as cash, loan to deposit, liquidity coverage, net stable funding and deposit usage are measured and monitored over time to illustrate the financial structure and the group’s liquidity risk. The liquidity risk is measured in different scenarios and incidents, such as deteriorating advance rates and stressed deposit outflows, illustrated singularly and in combinations.
Board/Audit and Risk Committee
Senior Management
1st Line of Defence
2nd Line of Defence
3nd Line of Defence
Credit Risk
Risk Control
Internal Audit
Treasury
Compliance
Desision Science Operations and operational control Legal Finance IT Marketing
24
ris k
Liquidity risk analysis
Operational risk
Nordax’s liquidity reserve by 31 December 2012 was SEK 4,147m, consisting of short-term investments. 52 per cent was placed at Nordic banks (deposit on demand), 19 per cent in Swedish covered bonds and 29 per cent in Swedish local government bonds. All positions had a credit rating between AAA and A+ from Standard & Poor’s with an average rating of AA and average maturity was
With the organisation based at one site and a limited number of products Nordax is able to govern the operations in an efficient manner and aims to minimise operational risk through well-defined and integrated processes and procedures. This includes a high level of internal control, back-up routines for critical processes and ensuring contingency plans are up to date and tested with regular frequency. Operational risk is mainly related to manual procedures and is correlated with high activity in the business development. This risk is mitigated through the continuous communications across the organisation and the new product and process approval process (NPAP). At least annually all functions participate in a self-assessment process to identify any new risks and ensure mitigating actions are taken. During 2011–2012 comprehensive work has been done to implement process control and risk mitigating tools within all functions of the business. All staff use checklists in their daily activities and segregation of duties apply within and across teams. A new function, operational control, was implemented in 2012 with responsibility to monitor and control triggers in the loan portfolio processes. The function develops reactive controls with the main purpose to identify gaps and assist in the development of proactive controls. The Operational control team reports to senior management each month advising whether risks have been dealt with, if follow up is needed and whether new routines are required. To further mitigate risks of deficiencies in processes and procedures or potential fraudulent behaviour an incident report and whistle-blowing system is embedded in the organisation. All incidents reported are followed up and monitored by the independent control functions.
"With the entire organisation based at one site and a limited number of products, Nordax minimises operational risk through well-established and fully integrated processes." 54 days. All positions at banks are immediately available and all securities are eligible as collateral in the central bank. By utilising the liquidity reserve, Nordax is able to secure its entire funding requirements without access to new market funding. In case of a stressed run-off scenario, Nordax is able to secure its entire funding requirement at least until November 2014 without access to new market funding. As at 31 December 2012 Nordax had a liquidity coverage ratio of 5.65 and a net stable funding ratio of 1.66. The group’s funding sources consisted of SEK 2,033m of bond funding via asset backed securities, SEK 1,781m via warehouse funding facilities at two international banks and SEK 7,165m financed with retail deposits.
Liquidity Coverage Ratio
Net Stable Funding Ratio 2,0
6 5
1,5 4 1,0
3 2
0,5 1 0,0
Nordax
Basel 3 expected requirement
0
Nordax
Basel 3 expected requirement
RISK
Market risk Foreign exchange risk The group is active in the Nordic countries and is exposed to currency risks arising from currency exposure in NOK, DKK and EUR against SEK. The most significant currency risk arises in the translation of receivables and liabilities in foreign currencies. The Group’s policy is to limit the risk via the matching of assets and liabilities in the same currency and when considered necessary, derivative instruments are utilised to attain this balance. The Group protects its regulatory capital by taking on some currency risk, which may arise due to exchange rate effects with respect to the portfolios that are denominated in foreign currency. The impact on the regulatory capital due to exchange rate effects on the portfolios must then be offset by corresponding effect on group earnings. The Board has established a policy stipulating that Nordax continually measures and reports its exchange rate risk. This includes determined limits for the maximum permitted net exposure in foreign currencies. The current limit determined by the Board is SEK 350m (2011: 350m) while actual exposure amounted to SEK 284m (2011: 246m), divided between NOK 185m, DKK 19m and EUR 5.3m. A change of 5 per cent in the value on SEK against the other currencies would cause a change in the results of SEK 14m, and the actual effect for Nordax in 2012 was SEK 12m.
Interest rate risks attributable to cash flow and fair value In principle, the group’s assets and liabilities have a fixed interest term of one month. When consid-
“As a new member of the Nordax team the forums have helped me get fast insight in to how the different departments link together in the customer process.” Daniel Backlund Operation “It's satisfying to help the organisation with all the details to make sure the customer process runs according to our promises.” Lillemoo Sjöberg Economy Forums enhance strategic dynamism and improve resource allocation. They also facilitate checks and balances between functions that may have diverging goals.
ered necessary, derivative instruments are also utilised to maintain this balance. Subsequently, the group’s interest rate risks are very limited, both in respect of the fair value of assets and liabilities and the margin between interest income and interest expenses. The Board has established a policy stipulating that the group continually measures and reports its interest rate risks. These are measured by way of a sensitivity analysis of a parallel shift of the interest rate curve of 1 per cent. The limit determined by the Board is a net exposure of SEK 10m (2011: 10m), while the actual exposure per yearend was SEK 4.0m (2011: 3.6m).
Other risks Other risks that apply to Nordax include earnings volatility, strategic, reputational and group-specific risks. Strategic risk is defined as bigger projects and/or investments associated with expansions in new markets. The actual and future impact of business and strategic risk on the existing operations is limited due to the nature of the business providing uncomplicated and non-complex products. If the economy and the market should deteriorate the strategy would be to manage the existing portfolios. Group-specific risks are defined in two ways, operational risk associated with increased complexity due to several funding vehicles, and intra group loans secured by receivables. These risks are mitigated through the internal governance and control framework and are assessed to be non-material risks.
25
26
C orporate R esponsibilit y
Building trust is a requirement for a sustainable business model Nordax is serious about its corporate responsibility as it understands the importance of gaining the trust and confidence of all its stakeholders. Nordax operates within its legal and regulatory obligations and conducts its business in a socially responsible manner in respect of customers, authorities, banks, partners, employees and owners.
Customers
• Nordax strives to provide professional, personal service and competitive products that create utility and value for all customers. • We aim to give our customers clear and relevant information on the terms and conditions and in all communications. • Our credit business model strives to minimise the risk of credit losses, which benefits customers and Nordax.
Employees
• Attracting, retaining and developing colleagues who share our passion for Nordax is essential for executing the company’s overarching strategy. • We promote a diverse culture and have eight working guidelines to improve the wellbeing of all colleagues. • We are flexible in the way we approach the personal circumstances of colleagues, preventing discrimination and ensuring the workplace needs of those with families are addressed .
Society
• Nordax strives to make a positive difference and a meaningful contribution to society in the Nordic region by our product offerings and the utility this provides to people and the communities in which they live. • Nordax supports the African Medical and Research Foundation, AMREF, which is a leading health development and research organisation. Many Nordax employees have children and therefore we made a donation to projects supporting midwives in Africa. • We aim to be a good corporate citizen and are participating in projects in Norway and Finland to develop credit information systems.
C orporate R esponsibilit y
Owners
• Nordax’s ambition is to be an attractive investment for existing and future owners. • Nordax is owned by members of the board, its management and by funds advised by the private equity firm Vision Capital. As a result our owners are closely involved with our four strategic priorities and receive regular updates on our performance against business goals.
Banks/Partners
• Building good relations with funding partners, suppliers and advisors are essential to maintaining our role as a financial intermediary. Indeed, many of our partners have been with us since the company started . • Transparent and reliable financial reporting is fundamental, particularly in the refinancing of our portfolios and Nordax receives huge support from advisors for much of our trailblazing work in the markets. • In line with our ambition to be an efficient and flexible organisation with focus on its core competencies, Nordax outsources certain labour-intensive tasks to specialist subcontractors.
Regulators – Authorities
• Nordax is under the supervision of the Swedish Financial Supervisory Authority (SFSA) who have an important role in ensuring “fair and safe play” across all financial institutions to the benefit of all stakeholders. • During 2012 there have been several changes to regulations of our industry and Nordax supports these, and the positive effects of harmonizing various national regulations within EU. • Nordax supports regulations that ensure we treat customers safely and fairly and give them the opportunity to make sound decisions when taking on a loan or putting their money into a savings account.
27
28
C orporate G o v ernance R eport
Nordax – Corporate Governance Report 2012 About Nordax The Nordax Group comprises ten entities of which two are dormant (and therefore not shown in the structure on page 29). The Nordax Group operates through the operating company Nordax Finans AB (publ) (“Nordax”), which is a subsidiary of the holding company Nordax Holding AB, which in turn is held by the holding company Nordax Group Holding AB. The sole purpose of the three holding companies is to own shares and cater for a clear group structure. Nordax has five subsidiaries holding consumer loans pledged for funding. The registered office of Nordax is in Stockholm. Nordax is licensed to conduct financing business as a credit market company by the Swedish Financial Supervisory Authority (“SFSA”) pursuant to the Swedish Banking and Financing Business Act in Sweden, Norway, Denmark, Finland and Germany.
Corporate Governance This report on Corporate Governance describes the overall principles of governance in the Nordax Group. Nordax is a limited liability company governed by, inter alia, the Swedish Companies Act (Sw. Aktiebolagslagen (2005:551)), the Swedish Banking and Financing Business Act (Sw. Lag (2004:297) om bank- och finansieringsrörelse), the Swedish Capital Adequacy and Large Expo-
sures Act (Sw. Lag (2006:1371) om kapitaltäck ning och stora exponeringar), the Swedish Deposit Insurance Act (Sw. Lag (1995:1571) om insättningsgaranti) and its articles of association. As a credit market company, Nordax is subject to the supervision of the SFSA and governed by the general guidelines and official regulations issued by it, as well as publications issued by the European Banking Authority (“EBA”). As Nordax is not a publicly listed company, it is not obliged to follow the Swedish Corporate Governance Code but Nordax aims to be transparent about its governance principles. As a regulated credit market company, Nordax is obliged to maintain a regulatory capital base pursuant to the Swedish Capital Adequacy and Large Exposures Act. The company is also subject to ownership and management assessment. In addition to laws, ordinances and official regulations, Nordax has a number of internal documents that govern the day-to-day management of the company. These are adopted by the Board of Directors or the CEO and include inter alia the rules of procedures for the Board of Directors, instructions for the CEO, the risk management policy, the credit policies, the remuneration policy, the outsourcing policy, the liquidity contingency plan and the complaints management policy.
29
C orporate G o v ernance R eport
Nordax Group Ownership Structure Overview of the ownership structure in the Nordax Group. All companies are owned within the Group, i.e. there are no minority interests.
Non-Executive Board members
Executive Board members and Executive Management Team
(100%)
(100%)
Funds advised by Vision Capital
30
C orporate G o v ernance R eport
1. Annual General Meeting The right of Nordax’s shareholders to make decisions is exercised at the Annual General Meeting (AGM). As dictated by the Swedish Companies Act, the AGM is the company’s highest decision making body, deciding on matters including but not limited to the company’s annual accounts, dividends, election of members of the Board of Directors and election of auditors. The 2012 AGM was held in Stockholm on 20 April. There was one extraordinary general meeting in December 2012 to appoint a new member of the Board of Directors.
2. Nomination Committee The Board of Directors has appointed a Nomination Committee to nominate members to the Nordax Board of Directors, subsequently to be appointed at the AGM or at an extraordinary general meeting. The Nomination Committee is also tasked with assisting the shareholders in evaluating the incumbent Board of Directors. In evaluating candidates, the Nomination Committee follows guidelines provided by the AGM, taking into account a range of aspects including but not limited to the candidates’ respective backgrounds, areas of expertise, strategic knowledge, other professional assignments and board work. In 2012 the Nomination Committee consisted of four members: Richard Pym (chair), Andrew Rich, Daryl Cohen and Morten Falch.
3. Board of Directors The Board of Directors (the “Board”) holds the overall responsibility for the organisation and management of Nordax. The Board has adopted rules of procedure, which in addition to the provisions of inter alia the Swedish Companies Act and the company’s Articles of Association shall govern the work of the Board. The Board holds meetings on a monthly basis, as well as extraordinary meetings whenever necessary. In 2012 the Board held 21 meetings, of which 16 were held after the inaugural board meeting. The Board’s responsibilities and duties include, but are not limited to, establishing goals and strategies for the company’s operations, endeavouring
to ensure that the organisation and the operation of the company’s business are characterised by internal governance and control, establishing internal rules regarding risk management and risk control and regularly ensuring compliance with these rules, ensuring the existence of an audit function and monitoring the financial position of the company. Further, it is a duty of the Board to appoint and dismiss the CEO, adopt instructions and procedures for the CEO’s work and oversee the CEO’s performance. The Board receives regular reports from the internal and external auditors, as well as monthly reports from the CEO, internal control functions and other key functions. The Board has appointed two committees to help it with its duties: the Remuneration Committee and the Audit and Risk Committee. The committees are not decision-making bodies, but process work for the Board. Each committee has a chairman who is responsible for ensuring that the Board is informed on the committee’s work. According to the Articles of Association, the Board shall consist of no less than five and no more than eight permanent members, and no more than five deputy members. As at 31 December 2012, the Board consisted of eight members: Chairman Richard Pym, Non-executive Directors Arne Bernroth, Christian Beck, Andrew Rich and Daryl Cohen, and Executive Directors Morten Falch, Jacob Lundblad and Johanna Clason. Executive Director Johanna Clason replaced Executive Director Per Bodlund in November 2012. C h a i r m a n o f t h e B oa r d
The Chairman of the Board (the “Chairman”) is elected at the inaugural board meeting. The Chairman manages the work of the Board and ensures that it fulfils its duties in an efficient and qualified manner. All significant issues concerning Nordax are referred to the Chairman who ensures that the issue is investigated and, at a subsequent meeting of the Board, presented. The Chairman is responsible for ensuring that the other Board members receive the information they need in order to take informed decisions. Richard Pym was first appointed Chairman of the Board on 1 September 2010 and was there
C orporate G o v ernance R eport
31
Nordax Finans AB (publ) organisational chart Overview of the organizational structure at Nordax. Between the functions, there are well-defined areas of responsibilities with clear mandates and reporting lines, assuring on-going dialogue across the organization.
6. External Auditor
1. Annual General Meeting
11. Internal Audit
3. Board of Directors 4. Remune ration Committee
5. Audit and Risk Committee
10. Risk Control
9. Compliance
2. Nomination Committee
8.
7. CEO & Executive Management Team
32
C orporate G o v ernance R eport
after reappointed Chairman of the Board in April 2011 and April 2012. Previously the CEO of Alliance & Leicester (now a part of Santander) and former board member of Old Mutual plc, Richard Pym is currently Chairman of UK Asset Resolution (UKAR) Ltd, the holding company established to manage the ‘run off’ of the UK Government owned mortgage books of Bradford & Bingley plc, and Northern Rock (Asset Management) plc with assets of more than GBP 86bn. Eval u at i o n o f t h e B oa r d a n d t h e C h a i r m a n
The Board and the Chairman are evaluated by the shareholders. The evaluations are communicated and discussed at the AGM.
4. Remuneration Committee The main duty of the Remuneration Committee is to support the Board in its work of ensuring that the risks associated with Nordax’s remuneration systems are measured, managed, reported and under control. The Committee is further assigned to assist the Board when establishing standards and principles on how to determine remuneration of Nordax's employees and Executive Management Team and to ensure that the remuneration systems comply with applicable laws and regulations. In 2012, the Remuneration Committee consisted of three members: Andrew Rich (chair), Richard Pym and Daryl Cohen. R e m u n e r at i o n Pol i c y
The Board has adopted a remuneration policy that is based on the Swedish Financial Supervisory Authority’s regulations regarding remuneration structures in credit institutions, investments firms and fund management companies licensed to conduct discretionary portfolio management (FFFS 2011:1). The policy encompasses all Nordax’s employees, CEO and Executive Management Team, and is based on risk analysis and risk management evaluations. The policy states that Nordax’s remuneration and benefit schemes shall be competitive in order to promote Nordax’s long-term interests whilst discouraging excessive risk-taking. The remuneration policy is adopted at least annually. Nordax's website (www. nordax.se) gives detailed descriptions of remuneration paid during 2012.
5. Audit and Risk Committee The main duty of the Audit and Risk Committee is to support the Board in its work by ensuring the quality of the financial reporting, and by monitoring the company’s internal control. Without prejudice to the responsibility of the Board, the Audit and Risk Committee monitors, among other things, the financial reporting process, the choice of accounting policies and principles, the effectiveness of internal control, internal audit, compliance and risk management systems as well as the statutory audit of the annual and consolidated accounts. The Audit and Risk Committee maintains a close dialogue with the Executive Management Team and with the independent control functions, such as the compliance function, the risk control function and the internal and external auditors. In 2012, the Audit and Risk Committee consisted of three members: Arne Bernroth (chair), Andrew Rich and Daryl Cohen.
6. External Auditor The external auditor is assigned to review the annual accounts and financial reports, as well as the Executive Management Team and the CEO. The external auditor is appointed by the AGM. In 2012, PwC was elected as the company’s auditor for the eighth consecutive year, with Authorised Public Accountant Johan Månsson as Chief Auditor.
7. CEO and Executive Management Team The CEO is appointed by the Board to be responsible for the operational management of Nordax, pursuant to guidelines and instructions issued by the Board. In accordance with the Swedish Companies Act, these guidelines and instructions regulate, among other things, the CEO’s responsibilities, authority and obligations, as well as the interaction between the CEO and the Board. The CEO leads the Executive Management Team, which at 31 December 2012 consisted of nineteen members.
8. Business Support functions To support the Group’s primary activities, Nordax has established a number of administrative and supporting units. These report to the Deputy CEO or the CEO.
C orporate G o v ernance R eport
9. Compliance Compliance with external and internal rules is independently reviewed by the Compliance function in accordance with the Swedish Financial Supervisory Authority’s general guidelines regarding governance and control of financial undertakings (2005:1) and relevant publications issued by EBA. The Compliance function reports to the Board and the CEO and is regularly reviewed by the internal audit function.
10. Risk Control Independent risk control and monitoring of risks at Nordax are performed by internal independent Risk Control function in accordance with the Swedish Financial Supervisory Authority’s regulations and general guidelines. The Risk Control function reports to the Board and the CEO and is regularly reviewed by the internal audit function.
11. Internal Audit The Internal Audit function of Nordax was outsourced to Mazars SET in 2012. The Internal Audit function reports directly to the Board, and its work duties, responsibilities and areas to review are determined by the Board. The reviews are conducted according to an audit plan adopted by the Audit and Risk Committee. In 2012 the Internal Audit function’s review included, but was not limited to: • Risk Control Function • General IT controls • Business Contingency Planning • Credit Risk Management documentation • Internal fraud and Treasury processes • Deposits and interest
33
34
C orporate G o v ernance R eport
Selection of Board topics 2012 – Board Meeting Jan
• Review 2011 outturn • Treasury theme
– Board Meeting
• Approve 2012 budget
• Business development theme – Germany
– Remuneration Committee
– Audit and Risk Committee • Review draft 2011 accounts
Feb
• Review 2011 & 2012 Bonus schemes
• Internal audit report • Internal control, compliance, and risk review
– Board Meeting • Approve 2011 accounts Mar
• Systems theme – Remuneration Committee – Audit and Risk Committee
– Board Meeting
• External auditors report
• Quarterly budget review • Remuneration Committee
Apr
• Annual general meeting
• Internal control, compliance and risk review
• Inaugural board meeting May
– Board Meeting • Marketing theme
– Board Meeting • Credit risk theme
Jun
• Macro and regulatory environment theme
Jul
No board meeting due to summer holidays
– Board Meeting • Treasury theme • Half year budget review
Aug
One day strategy session with Board, executive management team and external participants Sep
– Board meeting • Strategy theme
– Board Meeting
– Audit and Risk Committee
• Operations theme
– Nominaton Committee
• Quarterly budget review – Nomination Committee
Oct
– Remuneration Committee – Audit and Risk Committee Nov
– Board Meeting • Full year budget review – Audit and Risk Committee – Remuneration Committee
Dec
– Board meeting • Marketing theme
B oar d o f Directors
35
Richard Pym
Daryl Cohen
Non-executive Chairman, member of the Nomination Committee, member of the Remuneration Committee
Non-executive Director, member of the Remuneration Committee, member of the Nomination Committee, member of the Audit & Risk Committee
Born: 1949 in the UK. Education: BSc Hons in Physics, University of Warwick, UK. Formerly Vice President of the British Bankers Association, Non-executive Chairman of Halfords Group plc and a non-executive Director of Old Mutual plc and Selfridges plc. Retired as Group Chief Executive of Alliance & Leicester plc in 2007. Currently Chairman of UK Asset Resolution Ltd, Non-executive Director of The British Land Company PLC and Chairman of Bright House Group Ltd. Also a fellow of the Institute of Chartered Accountants in England and Wales.
Born: 1978 in the UK. Education: Holds a B.A. and M.A. (Cantab.) in Natural Sciences, University of Cambridge, UK. Currently a partner of Vision Capital, he joined from Silver Point Capital (2005–2008). Previously he worked at Hicks Muse Tate & Furst (2003–2005) and Goldman Sachs (2000–2003) in London. He also serves on the boards of Portman Travel Limited and Bormioli Rocco Holdings SA, which he joined in 2013.
Andrew Rich
Jacob Lundblad
Non-executive Director, Chairman of the Remuneration Committee, member of the Nomination Committee, member of the Audit & Risk Committee
Executive Director
Born: 1974 in Hong Kong. Education: M.A. Honours degree in History of Art and Chinese Studies, Edinburgh University, UK. Currently a partner of Vision Capital LLP. Member of the boards of JDR Cables, Park Cakes, Pork Farms and Fletchers Bakeries) and the Advisory Board of Trio LLP (the holding company for ABL, MG and SwissHaus). Previously with Lazard (2004–2007) and Arthur Andersen/Deloitte & Touche LLP (1998–2004), where he qualified as a member of the Institute of Chartered Accountants in England and Wales.
Born: 1978 in Sweden. Education: Degree of Master in Economics and Business Administration, Degree of Bachelor of Business Law, School of Economics and Management, Lund University, Sweden. With Nordax since 2004. Appointed Assistant Treasurer in 2005. Promoted to Deputy Treasurer and Controller, and also made member of Nordax management team, in 2007. Chief Collection officer 2008–2009. Promoted to Deputy CEO in December 2009.
Arne Bernroth
Johanna Clason
Non-executive Director, Chairman of the Audit & Risk Committee
Executive Director
Born: 1947 in Sweden. Education: B.A., Lund University, Sweden. Previously Executive Managing Director of Nordea Regional Bank South Sweden (1995– 2009). Has also been Executive Vice President of Skandia International Insurance Company (1989–1992) and Senior Vice President of Skandia AB (1992–1994). Currently Board member of JB Education, Biolin Scientific, Aqilles Invest and Nordea Investment Management.
Born: 1965 in Sweden. Education: B.Sc. in Economics and Business Administration, Stockholm School of Economics, Sweden. Joined Nordax from SBAB Bank where she was CFO and Head of Treasury as well as member of the Management Committee (2005–2011). Prior to this, Treasurer of SEK, the Swedish Export Credit Corporation (1996–2004), Institutional Investor Relations at Brummer & Partners (2004–2005) and Interest Rate, Foreign Exchange and Equity Trader at ABB Treasury Center (1989–1996).
Christian Beck
Morten Falch
Non-executive Director
Executive Director, member of the Nomination Committee
Born: 1958 in Norway. Education: Master of Law and Advance studies in Political Economics, Oslo University, Norway. Retired as CEO of Banqsoft ASA in 2003, currently Chairman of the Board. Previously Chairman of the Board of Curatus gruppen (1999), CEO of Small Shops Gruppen (1992–1997) and CEO of Sakhalin Petroleum Plc (1998). Chairman of Eneas Energy AS.
Born: 1967 in Norway. Education: B.Sc. Honours degree in Business Administration, University of Bath, UK. Cofounder and CEO of Nordax Finans. Joined from Citigroup/The Associates/Avco Financial Services, where he held several positions including Managing Director for Norway (2000–2002), Business Development Manager and responsible for establishing the businesses in Sweden (1996–1997), Norway (1999–2000) and Denmark (2002). Prior to this, with GE Capital Finans AB (1994–1996) and IKANO Finans AS (1992–1994).
36
E x ec u ti v e Manage m ent
Morten Falch
Jacob Lundblad
CEO
Deputy CEO
Born: 1967. Norwegian nationality. Co founded Nordax in 2003. Education: B.Sc. Honours Degree in Business Administration, University of Bath, UK. Team leader and one of the founders. Has more than 21 years of experience in the sector. Prior to establishing Nordax, held several senior positions at Citigroup/The Associates/Avco Financial Services, including Managing Director of Norway (2000–2002) and Business Development Manager and responsible for establishing the businesses in Sweden (1996–1997), Norway (1999– 2000) and Denmark (2002).
Born: 1978. Swedish nationality. Joined Nordax in 2004. Education: Degree of Master in Economics and Business Administration, Degree of Bachelor of Business Law, School of Economics and Management, Lund University, Sweden. Held various positions in the Nordax Customer service department up until 2005 when he was appointed Assistant Treasurer. Promoted to Deputy Treasurer and Controller, and also made member of Nordax management team in 2007. Chief Collection Officer during the financial turmoil in 2008–2009 and later promoted to Deputy CEO in December 2009.
Camilla Wirth
Johan Karlén
Finance Director
Deputy Treasurer
Born: 1970. Swedish nationality. Joined Nordax in 2011. Education: Master of Science in Business Administration and Economics, Stockholm University, Sweden. More than 10 years of experience in the financial sector. Previously CFO and member of the management team at Aberdeen Asset Management Indirect Property (2007–2011). Prior to this worked as auditor and consultant at KPMG Financial Services (1999–2007). Assumed the role as Finance Director November 2012.
Born: 1971. Swedish nationality. Joined Nordax in 2008. Education: B.Sc.(Econ) Economics, London School of Economics, UK. Johan has 18 years experience of bond markets, where he has worked with credit structuring, debt financing and investment management, treasury and financial risk management. His past employers include UBS, Rabobank and SBAB Bank, for whom he served in London, Utrecht and Stockholm.
Johanna Clason Christine Ahlm
Treasurer
Risk Manager
Born: 1965. Swedish nationality. Joined Nordax in 2011. Education: B.Sc. in Economics and Business Administration, Stockholm School of Economics, Sweden. Has more than 20 years of experience of the financial markets. Joined Nordax from SBAB Bank where she was CFO and Head of Treasury as well as member of the Management Committee (2005–2011). Prior to this, Treasurer of SEK, the Swedish Export Credit Corporation (1996–2004), Institutional Investor Relations at Brummer & Partners (2004–2005) and Interest Rate, Foreign Exchange and Equity Trader at ABB Treasury Center (1989–1996).
Born: 1967. Swedish nationality. Joined Nordax in 2004. Education: B.A. in Economics and Business Administration, Stockholm University, Sweden. 20 years of experience in the consumer lending sector. Background as Head of Analytics (Nordic region) at Lindorff Decision (2000–2004). Between 1993 and 2000 held several positions for GE Capital Bank Scandinavia including Risk Analyst, Risk Manager Norway and Risk Manager Sweden.
Jan Ilseth Business Development Manager Born: 1967. Norwegian nationality. Joined Nordax in 2011. Education: Associate Degree in computer science. Has 17 years experience in sales, marketing and management. Previous Sales Director at Experian, MD at Amfa Finans Norway Branch and responsible for the start-up in Norway. Founder and owner of Gazellen AS witch developed and sold value assessments to SMB market.
Johan Franzén Investor Relations Manager Born: 1960. Swedish nationality. Joined Nordax in 2004. Education: Bachelor degree in Economics and Business Administration, Karlstad University. One of the founders and individual shareholders of Nordax Group Holding AB. Has over 25 years of experience in the sector. Previously Treasurer of Nordax (2004–2011). Prior to this, held the positions of Treasurer of SBAB (1991–2004) and Treasurer of Företagsfinans (1989–1991) and Credit Sales at Nordea (1986–1989).
Kristina Nordlind Chief Legal Counsel – Corporate Born: 1972. Swedish nationality. Joined Nordax in 2007. Education: Master of Laws (LL.M.), Stockholm University, Sweden and Diplôme d’Etudes Universitaires Générales (DEUG), Mention Droit (avec langue), Université du Havre, Le Havre, France. More than 10 years of experience in the financial sector. Previously legal counsel with emphasis on financial law for the Swedish state owned mortgage institution, SBAB Bank (2002–2007). Prior to this advisor/counsellor in foreign trade at the Swedish representative office of CIC Banques (Crédit Industriel et Commercial) (1998–2002).
E x ec u ti v e Manage m ent
37
Lotte Hassum Larsen
Per Bodlund
Deputy COO
Senior Project Manager
Born: 1980 Norwegian nationality. Joined Nordax in 2006. Education: Developing leadership (National Defence College), Graphic Design (Norwegian School of Creative Studies), Film, Media and communication (Oslo and Akershus University C ollege). Held various positions as manager within the Operation departments up until 2010 when she was appointed Marketing Manager. Assumed the role as Deputy COO December 2011.
Born: 1961. Swedish nationality. Co founded Nordax in 2003. Education: B.A. Honours degree in Economics and Business Administration, Stockholm University, Sweden. One of the founders with more than fifteen years of experience in the sector. Previously CFO of Nordax (2003–2012). Former CFO (1997–2003) and member of the Management Committee (1997–2002) of Citigroup/ACC. Prior to this, worked at Coopers & Lybrand (1985–1997). Was authorized public chartered accountant in 1990.
Markus Stoor CIO & CSO Born: 1973. Swedish nationality. Joined Nordax in 2004. Education: Master of Science Program (Computing Science), Umeå University, Sweden. More than 20 years of experience in the sector. Previously worked at Tieto where he held several positions including Senior Consultant and Senior Technical Architect. Prior to this, worked for Umeå University (1997–1999), co-founded an IT consultancy firm/ISP in 1996 and was actively involved in the firm until 1999. Between 1992– 1996, worked as an IT consultant.
Mats Lagerqvist Decision Science Manager Born: 1962. Swedish nationality. Co founded Nordax in 2003. Education: B.A. in Economics and Business Administration, Stockholm School of Economics, Sweden. One of the founders. Has more than 20 years of experience in the sector. Previously Risk Manager and a member of the Management Committee at Citigroup/ACC Bank (1997–2001). Prior to this, with GE Capital Bank’s Nordic consumer finance operations (1992–1996), where he held several positions including Risk Manager Scandinavia and Risk Analyst.
Olle Nordlöf COO Born: 1961. Swedish nationality. Co founded Nordax in 2003. Education: A-level equivalent in B.A. One of the founders with more than 27 years of experience in the sector. Previously, Operations Manager and then CEO and member of the Management Committee of Citigroup/ACC Bank (Associates Capital Corporation)/Avco Financial Services (1997–2002). From 1987–1997, responsible for Credit Risk and Operations in subsidiaries and Risk Management Sweden at GE Capital Bank’s Nordic.
Olof Bengtsson Deputy Decision Science Manager Born: 1975. Swedish nationality. Joined Nordax in 2010. Education: Degree of Master of Social Science (statistics, economics), Uppsala University, Sweden. 12 years of experience in credit risk modelling. Previously Credit Risk Analyst at Group Risk Control, Swedbank, Stockholm (2008–2010), Senior Risk Analyst at GE Money Bank, Copenhagen (2006–2008) and Risk Analyst at the Swedish credit information agency UC AB, Stockholm (2001–2006).
Sandra Narvinger Chief Legal Counsel – Treasury Born 1977. Swedish nationality. Joined Nordax in March 2012 Education: Master of Laws, Uppsala University, Sweden, additional studies at University of London, Queen Mary College (2000–2001) and Melbourne University (2007). Before joining Nordax, employed as a senior associate at the law firm Mannheimer Swartling’s banking and finance practice group (2002–2012) and has held a one-year position as Market Development Lawyer at the same firm. Performed one year of district court service between 2003–2004. Previously worked at Nordax as acting Chief Legal Counsel (secondment from Mannheimer Swartling, 2009–2010).
Sébastien Martin Marketing Director Born: 1974. German/French nationality. Joined Nordax 2011. Education: Banking training certificate with Dresdner Bank AG, Berlin and Business Administration diploma from Johann Wolfgang Goethe University, Frankfurt. Has over 20 years of experience in the financial service industry. Prior joining Nordax, independent Organisational Change Consultant (2009– 2011), Principal Consultant at PA Consulting and Consileon Business Consulting (2007–2009), Head of Marketing and SCHUFA Finance Line at SCHUFA Holding AG (2004–2007), Management Consultant at BearingPoint (2001–2004), M&A Assistant at Goldman Sachs (2000) and Corporate Clients and Credit Trainee at Dresdner Bank (1996–2000).
Tom Rabben Marketing Director Born: 1967. Norwegian nationality. Joined Nordax in 2005. Education: Norwegian School of Business Administration with specialization in shipping management, Norway. Has over 19 years of experience in the sector. Prior to joining Nordax, Country Risk Manager for Norway at Citigroup/Associates/Avco. Appointed Senior Credit Officer of Citigroup in 2002. From 1992–1998, worked with IKANO Finans in Norway, involved in establishing a private label credit card and started-up its leasing business.
38
a d m inistration report
Annual report for the financial year 1 January 2012–31 December 2012 The Board of Directors of Nordax Holding AB (Corporate Identity Number 556647-6726), hereby presents the annual report and consolidated accounts for the financial year 1 January 2012–31 December 2012. Unless otherwise stated, all amounts are in thousands of SEK.
Administration Report Operations Nordax Holding AB, previously operating under the business name Nordax Holding Second AB (Corporate Identity Number 556647-6726, with registered offices in Stockholm), is a 100% owned subsidiary of Nordax Group Holding AB (Corporate Identity Number 556792-7305, with registered offices in Stockholm). Consolidated accounts are also provided by Nordax Group Holding AB; this is the Company’s ninth financial year.
activities and a higher number of employees over the year as a whole. It should be noted that the year 2012 was positively impacted by a non-recurring income item of MSEK 15 (28) referring to the recovery of previously non-deducted input VAT.
During 2012, Nordax Holding Second AB was merged with the Parent Company Nordax Holding AB by means of a downstream merger. The Parent Company’s participation increased to 100 %. Due to the merger, the comparative figures for 2011 have been taken from the Group to which the previous Parent Company belonged.
Cred it quality and cred it risk management The Group’s credit lending takes place based on the Board’s established credit policies and credit instructions. The credit risk in established and sold credits is measured against set targets on an on-going basis. Reporting of the credit risk is made periodically to the Board in accordance with an established model. A more detailed description of credit risks is provided in Note 4.
Following the merger, Nordax Holding Second AB changed its business name to Nordax Holding AB during 2012. The wholly-owned Group company Nordax Finans AB (pub) (Nordax Finans) was authorised on January 27, 2004 to operate as a credit market company to conduct financing activities under the Swedish Financing Business Act (1992:610), subsequently replaced on 1 July 2004 by the Banking and Finance Business Act (2004:297) and is, since that time, under the supervision of the Swedish Financial Supervisory Authority. The Group’s primary activity is to engage in lending to private customers in the Nordic countries. The Company started its lending operations in Sweden in February 2004. Through a centralised business model and organisation based in Stockholm, the Group conducts cross-border lending operations in Norway, Denmark, Finland and Germany in accordance with the European Parliament and Council Directive 2006/48/EC of 14 June 2006 on the right to initiate and undertake activities in a credit institution. The group started the cross-border lending in Norway in October 2005, in Denmark in October 2006 and in Finland in August 2007. Loans consist of loans without collateral, currently offered in an amount up to the equivalent of DKK / SEK / NOK 300,000 respectively EUR 30,000. Communication with customers is conducted primarily by mail as well as by the phone and internet. The Group’s operating income for 2012 amounts to MSEK 219 (195). The difference compared with the previous year amounts to MSEK 24 and is, primarily, a result of higher lending to the general public which has generated net interest income of MSEK 71. Credit losses for 2012 amount to MSEK 127 (97), corresponding to 1.8% (1.6). The higher operating expenses in 2012 compared with the previous year are a result, primarily, of increased marketing
Lending to the general public increased by MSEK 748 during 2012, to MSEK 7,391 (6,643), while deposits from the general public also increased, by MSEK 2,064 to MSEK 7,165 (5,101).
Financial risks The Group’s policy is to minimise all types of financial risks, such as interest rate risk, liquidity risk and currency risk. A more detailed description of financial risks is provided in Note 4. Operational risks In order to minimise operational risks, an emphasis has been put on the use of risk analysis to establish an organisation with procedures and instructions in order to achieve both high internal control as well as back-up procedures in case of damage. In 2012, there were no significant costs that could be attributed to operational risks. Internal control The Group has established independent functions for risk control and compliance in accordance with FFFS 2005:1, as well as an independent function for the control of liquidity risk in accordance with FFFS 2011:7. These functions report directly to the Board of Directors and Managing Director. Evaluation of the organisation as regards, among other things, the internal control, is carried out by means of an internal audit. During the year, an agreement regarding internal auditing services has been signed with the auditing firm, Mazars SET. An internal audit organisation has not been established, due to the fact that it is not considered cost effective, based on the Company’s size and the fact that an internal audit conducted by an external auditing firm has points in common with a great number of the external firm’s other audit assignments and, therefore, the opportunity to contribute with knowledge on alternative solutions within areas important to the operations. Prospects for 2013 The Group expects to generate a positive result for 2013.
f i v e y ear o v er v ie w
39
Review of the past five years, MSEK, The Group Key ratios
2012
2011
2010
2009
2008
Capital cover ratio
1.6
1.6
1.8
1.6
2.8
Return on equity, %
33
40
28
58
61
CPI index, %
43
44
39
25
41
1.8
1.6
2.1
3.6
2.4
132
102
73
76
88
2012
2011
2010
2009
2008
496
425
357
465
461
Net provisions
47
38
32
40
47
Net income from financial transactions
45
23
-25
20
-7
Other operating income
15
30
603
516
364
525
591
Total operating expenses
-257
-225
-141
-133
-242
Loan losses
-127
-97
-106
-210
-134
Operating profit/loss
219
195
117
182
124
Tax
-58
-51
-31
-49
-35
Net profit/loss for the year
161
143
86
134
89
Summary of balance sheets
2012
2011
2010
2009
2008
Credit loss level, % Number of employees Summary of income statements Net interest income
Total income
Treasury bills eligible for refinancing
200
Lending to credit institutions
2,545
1,612
957
1,868
329
Lending to the general public
7,391
6,643
5,170
5,291
6,271,
Bonds and other interest-bearing securities
1,991
1,146
610
34
61
28
160
329
11,961
9,462
6,965
7,319
6,864
Liabilities to credit institutions
1,781
1,526
2,917
3,321
4,893
Deposits from the general public
7,165
5,101
2,367
2,147
4
Issued securities
2,033
2,022
1,014
1,289
1,505
Other assets Total assets
Other liabilities Subordinate liabilities Equity Total equity and liabilities
65
56
53
30
65
197
196
195
150
149
720
560
419
382
248
11,961
9,462
6,965
7,319
6,864
40
inco m e state m ent
Income Statement Group All amounts are reported in TSEK
Note
1 Jan 2012– 31 Dec 2012
Parent Company 1 Jan 2011– 31 Dec 2011
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
Operating income Interest income
6
1,003,431
818,417
475
347
Interest expenses
6
-507,247
-393,620
-27,012
-20,415
496,184
424,797
-26,537
-20,068
46,573
38,162
Total net interest income Dividends received from subsidiaries
30,000
Commission revenue
7
Net income from financial transactions
8
44,914
23,412
5
Other operating income
15,398
29,580
100
Total operating income
603,069
515,951
3,463
-19,963
-171,539
-147,545
-161
-54
Operating expenses General administrative expenses Depreciation and write-downs of tangible and amortisation and write-downs of intangible assets
9
-5,144
-4,598
Other operating expenses
16,17
-80,300
-72,587
Total operating expenses
-256,983
-224,730
-161
-54
346,086
291,221
3,302
-20,017
–127,121
–96,703
218,965
194,518
3,302
-20,017
-57,821
-51,143
7,022
5,306
161,144
143,375
10,324
-14,711
Profit/loss before loan losses Loan losses, net
10
Operating income Tax on profit/loss for the year NET PROFIT/LOSS FOR THE YEAR
11
Statement of comprehensive income Other comprehensive income is consistent with net profit/loss for the year.
balance sheet
41
Balance Sheet Group Note
Parent Company
2012
2011
2012
2011
10,183
9,905
208,229
177,662
28,467
29,282
246,879
216,849
1,689
2,815
Assets Lending to credit institutions
12
2,544,580
1,611,602
Lending to the general public
13
7,390,986
6,642,847
Bonds and other interest bearing securities
14
1,990,762
1,146,157
Shares in Group companies
15
Tangible assets
16
8,778
9,522
Intangible assets
17
5,894
Current tax assets
18
Deferred tax assets
11
5,035
4,055
Other assets
19
7,370
26,361
8,072
6,147
11,961,478
9,461,656
1,526,405
Prepaid expenses and accrued income Total assets
2,433 12,532
Liabilities, provisions and equity Liabilities Liabilities to credit institutions
20
1,780,809
Deposits from customers
21
7,164,974
5,100,603
Securities issued
22
2,033,112
2,022,305
Current tax liabilities
23
8,599
Deferred tax liabilities
11
6,500
2,263
Other liabilities
24
15,337
18,924
34,836
34,563
Accrued expenses and deferred income Subordinate liabilities Total liabilities
25
197,031
196,211
197,031
146,945
11,241,198
8,901,275
198,720
149,760
5,204
5,204
Equity Share capital
5,204
1,297
Other capital contributions
6,495
11,669 6,495
6,495
Profit brought forward, including profit/loss for the year
708,582
547,415
36,460
55,390
Total equity
720,281
560,381
48,159
67,089
11,961,478
9,461,656
246,879
216,849
Share premium reserve
Total equity and liabilities
42
cash f lo w state m ent
Cash Flow Statement Group
Parent Company
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
Operating profit/loss
218,965
194,518
3,302
-20,017
Income tax paid
-31,991
-49,196
5,144
4,598
-748,139
-1,472,265 815
15,153
Operating activities
Adjustment for non-cash items Change in the operating activities’ assets and liabilities Increase in lending to the general public Decrease/increase in other assets Increase in deposits from the general public
17,066
-28,063
2,064,371
2,733,113
Increase/decrease in other liabilities
-3,314
2,561
-1,126
1,813
Cash flows from operating activities
1,521,102
1,385,266
2,991
-3,051
-40,000
-11,817
Investing activities Purchases of equipment Investments in bonds and other interest bearing securities
-7,861
-9,421
-844,605
-536,106
Purchase of shares/shareholders' contribution provided Sales of shares Cash flows from investing activities
9,433 -852,466
-545,527
254,404
-1,390,950
10,807
1,007,954
820
217
-30,567
-11,817
820
775
Financing activities Decrease/increase in liabilities to credit institutions Increase in securities issued Increase in subordinate liabilities Merger effects Group contribution provided / received
335 -1,689
-1,912
26,699
20,174
Cash flows from financing activities
264,342
-384,691
27,854
20,949
Cash flow for the year
932,978
455,048
278
6 081
Cash and cash equivalents at the beginning of year
1,611,602
1,156,554
9,905
3,824
Cash and cash equivalents at the end of year
2,544,580
1,611,602
10,183
9,905
Cash and cash equivalents are defined as treasury bills eligible for refinancing and lending to credit institutions. Operating income for the Group includes interest income paid by the general public amounting to 926,465 (790,914) and interest
income paid by credit institutions amounting to 35,305 (27,503), as well as interest expenses paid to the general public amounting to 226,624 (128,756) and interest expenses paid to credit institutions amounting to 280,623 (264,864).
change in e q u it y
43
Change in equity Equity attributable to shareholders in the Parent Company the Group Share capital
Other capital contributions
Profit brought forward
Total
1,297
11,669
405,452
418,418
Net profit for the year
143,375
143,375
Total comprehensive income
143,375
143,375
-1,912
-1,912
Amounts in TSEK Opening balance, 1 January 2011 Comprehensive income
Transactions with shareholders Group contribution provided Tax effect of Group contribution
503
503
-1,409
-1,409
547,415
560,381
Net profit for the year
161,144
161,144
Total comprehensive income
161,144
161,144
Total transactions with shareholders
Opening balance, 1 January 2012
1,297
11,669
Comprehensive income
Transactions with shareholders Merger effects
3,907
-5,174
Group contribution provided Tax effect of Group contribution
1,267
0
-1,689
-1,689
444
444
Total transactions with shareholders
3,907
-5,174
22
-1,245
Closing balance, 31 December 2012
5,204
6,495
708,582
720,281
Share capital
Restricted reserves
Profit brought forward
Total
5,204
6,495
55,234
66,933
-14 711
-14 711
Parent Company Amounts in TSEK Opening balance, 1 January 2011 Comprehensive income Net profit/loss for the year Total comprehensive income Transactions with shareholders Group contribution provided
-8,676
-8,676
Group contribution received
28,851
28,851
Tax effect of Group contributions
-5,306
-5,306
Total transactions with shareholders
14 869
14 869
55,390
67,089
10,324
10,324
-48,928
-48,928
Opening balance, 1 January 2012
5,204
6,495
Comprehensive income Net profit/loss for the year Total comprehensive income Transactions with shareholders Merger difference Group contribution provided
-1,689
-1,689
Group contribution received
28,388
28,388
Tax effect of Group contributions Total transactions with shareholders Closing balance, 31 December 2012 Share capital consists of 5,000,000 ordinary shares and 204,037 preference shares. All shares carry an equal number of votes. Preference shares entitle the holder to a dividend of 10% before dividends to holders of ordinary shares. This 10% is calculated on the sum total of the amount contributed for preference shares and shareholder’s contributions received. In the event that the Company
5,204
6,495
-7,023
-7,023
-29,254
-29,254
36,460
48,159
is liquidated, preference shares entitle the holder to receive repayment before holders of ordinary shares, from the sum total of the amount contributed for preference shares, and shareholder’s contributions received. Preference shares do not represent a receivable from the Company, such shares merely regulate certain preferential rights compared with ordinary shares.
44
notes
Notes Unless otherwise stated, all amounts in the Notes are in thousands of SEK (TSEK).
Note 1 General information The consolidated accounts and annual report for Nordax Holding Second AB for the financial year 2012 were approved by the Board of Directors and Managing Director for publication on 20 March 2013, subject to adoption by the Annual General Meeting during 2013.
Note 2 Accounting and valuation principles The most important accounting principles applied in the preparation of these consolidated accounts are stated below. The consolidated accounts for the Nordax Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, together with the Swedish Financial Accounting Standards Council’s recommendation, Supplementary Accounting Regulations for Groups in RFR 1. The Parent Company’s annual report has been prepared in accordance with the Credit Institutions and Securities Companies Act (1995:1559) and the FSA regulations and guidelines under FFFS 2008:25. Consolidated accounts The consolidated accounts have been prepared on the basis of the cost method, except as regards derivative instruments that are measured at fair value via the income statement. Consolidation of subsidiaries Control is exercised over so-called specialised companies, established for specific objectives, and the risks and financial benefits associated with these holdings fall to Nordax Finans AB, signifying that the entities are included in the Group as subsidiaries even though the Group owns no participations in these companies. Translation of foreign subsidiaries All Group companies have SEK as their functional currency. Tangible and intangible fixed assets Tangible and intangible fixed assets are reported at acquisition value and are depreciated/amortised on a straight-line basis according to a plan over their useful lives. The depreciation/amortisation period for tangible and intangible fixed assets is between 3 and 5 years. Impairment testing is carried out whenever an indication of possible impairment arises. Financial instruments All financial assets are classified as lending except derivatives, treasury bills eligible for refinancing and bonds and other interest bearing securities. Derivatives are valued at fair value in the income statement. Hedge accounting is not applied. Treasury bills eligible for refinancing, as well as bonds and other interest bearing securities, are also valued at fair value via the income statement. Lending Loans receivable intended to be held to maturity are classified as financial fixed assets. These amounts are reported in the balance sheet at accrued acquisition cost after deduction of realised and expected loan losses. Received arrangement commissions are included in the acquisition value of the loan receivables. Individual assessment of any write-down requirement is carried out for significant individual loans. Furthermore, a group assessment is undertaken of incurred losses that are yet to be identified in individual commitments. When the value of a loan receivable has decreased, its reported value is reduced to the recoverable amount, which is comprised of future cash flows, discounted on the basis of the interest for instrument item effective at the time of write-down.
Translation of transactions and balances in foreign currency Transactions in foreign currencies are translated to the functional currency in accordance with the exchange rate prevailing on transaction date. Exchange gains and losses arising from the payment of such transactions and in the translation of monetary assets and liabilities in foreign currencies at the closing rate of exchange are reported in the income statement. Receivables and liabilities in foreign currency are translated at the closing rate of exchange. Interest income Interest income is recognised as revenue with the application of the effective interest method. Commission income Commission income mainly consists of monthly and late fees. Revenue comprises the fair value of the amount received or which will be received for services sold in the Group’s operating activities. The Group recognises revenue when the amount can be reliably measured and when it is likely that future economic benefits will accrue to the company. Taxes Reported income tax includes tax to be paid or received for the current year, adjustments concerning the previous years’ current taxes and the effects of paid or received Group contributions. Income tax liabilities and receivables are valued according to the amount the Company deems should be paid to or received from the tax authorities. Deferred tax is recorded in its entirety on all temporary differences arising between the tax base and book value of assets and liabilities. Deferred income tax is recorded with application of the tax rates applicable on balance sheet date. Segment reporting The Group consists of one segment with regards to both operations and geography. New and revised standards adopted by the Group None of the IFRS or IFRIC interpretations which are mandatory for the first time for the financial year commencing on 1 January 2012 or later are expected to have a significant impact on the Group. New applicable standards, amendments and interpretations to existing standards, which have not yet entered into force that have not been adopted in advance by the Group. The Group’s and the Parent Company’s assessments regarding the impact of these new standards and interpretations are listed below. There are also other new standards, but these are not recognised as they are not applicable to the Group. Amendments have been introduced to IAS 1 “Presentation of Financial Statements” regarding the reporting of Other comprehensive income. The most significant change to the amended IAS 1 is the requirement that the items reported under “Other comprehensive income” are to be classified according to two categories. This classification is based on whether or not the items can be reclassified to an item in the income statement (reclassification adjustments). The change does not address the matter of which items are to be included in Other comprehensive income. IFRS 13 “Fair value measurement” aims at more consequent and less complex valuations at fair value by providing an exact definition and a common source in IFRS for valuations at fair value and associated disclosures. The standard provides guidance regarding valuations at fair value for all types of assets and liabilities, both financial and non-financial. The requirements do not address the issue of when the fair value should be applied but provide guidance regarding the manner in which fair value should be applied in areas where other IFRS already require or allow valuation at fair value. IAS 19 “Employee Benefits” was amended in June 2011. Costs of employment for previous years are reported on an immediate basis. Interest expenses and anticipated returns on plan assets are to be replaced by a net interest calculated on the basis of a discount rate, based on the net surplus or net deficit in the defined benefit pension plan. The Group asses that the effects will not be material.
notes
IFRS 9 “Financial instruments” addresses the classification, valuation and accounting of financial liabilities and assets. IFRS 9 was published in November 2009 regarding financial assets and in October 2010 regarding financial liabilities, and replaces those parts of IAS 39 which are related to the classification and measurement of financial instruments. IFRS 9 stipulates that financial assets are to be classified in two different categories; valued at fair value or valued at accrued acquisition value. The classification is established the first time the liability or asset is reported in accordance with the standard, on the basis of the company’s business model and with consideration of the characteristic features in the cash flows according to the agreement. In terms of financial liabilities, there are no major changes compared with IAS 39. The largest change addresses changes in liabilities which are valued at fair value. The following is applied to these liabilities: the portion of the change in fair value which is attributable to the company’s own credit risk is to be reported in Other comprehensive income instead of Net profit/loss, so long as this does not result in an accounting mismatch. The Group intends to apply the new standard no later than in the financial year beginning on 1 January 2015 and has not yet assessed the effects. The standard has not yet been adopted by the EU. The Group will evaluate the effects of the remaining phases of IFRS 9 when they have been completed by IASB. IFRS 10 “Consolidated Financial Statements” builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included in the consolidated accounts. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. The Group intends to apply IFRS 10 for the financial year beginning on 1 January 2013. The Group asses that the effects will not be material. IFRS 12 “Disclosures of Interests in Other entities” includes disclosure requirements for subsidiaries, joint arrangements, associated companies and structured entities. The Group intends to apply IFRS 12 in the financial year starting on 1 January 2013The Group asses that the effects will not be material.
Note 3 Changes in accounting principles During 2012, the accounting principles have remained the same as in 2011.
Note 4 Financial risk management Financial risk factors Through its operations, the Group is exposed to both credit risks and to other financial risks: market risks (including currency risk, interest rate risk in fair value, interest rate risk in cash flow and price risk) and liquidity risks. The Group’s overall risk management policy focuses on handling intentional credit risks and minimising potential adverse effects of unpredictability in the financial markets. The Group employs derivative instruments to hedge certain risk exposure. Risk management is handled by a credit department and a central finance department in accordance with policies determined by the Board of Directors. The finance department identifies, evaluates and hedges financial risks in close co-operation with the Group’s operative entities. The Board of Directors prepares written policies for both overall risk management and for risk management of specific areas such as credit risk, currency risk, interest rate risk, the utilisation of derivative and non-derivative financial instruments and the investment of excess liquidity. Risk management is supervised by the risk control function which reports to the Board of Directors in accordance with FFFS 2005:1. Credit risks (i) Cred it risks in general Credit is granted on the basis of the credit policy and credit instructions determined by the Board of Directors. All credits are assessed by a separate department existing centrally within the Group.
45
Consumer credits are issued without physical collateral and, consequently, credit rating is of major significance. In order to receive a credit, the client and the submitted application documents must comply with a number of policy rules. Additionally, credit decisions are taken on the basis of credit ratings calculated according to a model estimating the probability that a credit holder will be able to comply with an agreed contract, so-called credit scoring. Among other things, the amount of the loan depends on the credit score attained by a borrower. In a large number of cases, additional documentation is requested in applications, such as salary specifications and income tax returns. Among other things, these are used to confirm reported income. Credit risks on other types of counterparties, for example, derivatives and financial investments, are regulated by a policy determined by the Board of Directors. For counterparty risks in derivative contracts, a security agreement is used to limit the risk. (ii) Measurement of cred it risks Credit risk in the portfolio is measured on an on-going basis against established goals. Among other things, this measurement is carried out on the basis of the development of credits over time, depending both on the age of the individual credits (so-called vintage) and on the maturity of the total portfolio. A measurement is made of the risk that a credit will lead to a claim, as well as regards any write-down requirement. Additionally, continuous measurements are made of various segments that are of significance for credit scoring. The results of these measurements then form the basis for the on-going assessment made on the basis of the parameters in the scoring model. If necessary, the model forming the foundation for credit granting is adjusted. (iii) Risk management and risk control The Group’s continued operations depend on the management and control of credit risk. Great importance is placed on the construction of routines to manage this. Among other things, reporting to the Management and Board of Directors takes place on a monthly basis or more frequently. The assessment of credit risk is also a central point of every Board meeting. During 2012, 11 Board meetings have been held. The risk control unit carries out on-going controls to ensure that credit granting is executed in accordance with the instructions determined by the Board of Directors. According to these instructions, any deviations must be reported to the Board of Directors. In conjunction with the group receiving loans from external parties, these parties will also be making continuous and comprehensive reviews with regard to credit risk. Major portions of the Group’s portfolio are also subject to rating by both Standard & Poor and Fitch. (iv) Principles for cred it risk provisions Principles for credit risk provisions are provided in Notes 2 and 5. As per year-end, no individual material commitments have been subject to individual assessment. The calculation of provisions for groups of credits in which lossmaking events have occurred, but where the losses in question cannot be linked to individual commitments, is based on an established model. Criteria for incurred losses include delayed repayments and interest payments. The Group Maximum exposure for credit risk Maximum exposure 2012
2011
Lending to credit institutions
2,544,580
1,611,602
Lending to the general public
7,390,986
6,642,847
1,990,762
1,146,157
11,926,328
9,400,606
Bonds and other interest bearing securities Per 31 December
The assets above have been reported at book value in accordance with the balance sheet.
46
notes
Note 4 continued Receivables from private individuals 31 December 2012 Not passed due
Sweden
Norway
Denmark
Finland
Germany
Total
2,859,256
2,992,517
305,166
513,879
1,331
6,672,148
Passed due in less than 30 days
45,455
85,374
12,864
24,256
Passed due in 30-60 days
16,596
28,878
5,074
8,915
59,462
Passed due in 61-90 days
12,937
17,124
8,777
5,287
44,126
Passed due in 90–180 days Total Group provision Net value receivables passed due in over 180 days Net
18,963
19,305
3,569
4,018
2,953,206
3,143,198
335,451
556,355
167,949
45,855 1,331
6,989,540
-31,617
-24,158
-9,068
-1,648
-66,491
148,668
196,414
27,414
95,441
467,937
3,070,257
3,315,453
353,797
650,148
Sweden
Norway
Denmark
Finland
Total
2,490,228
2,749,111
384,346
362,238
5,985,923
1,331
7,390,986
Receivables from private individuals 31 December 2011 Not passed due Passed due in less than 30 days
25,892
67,542
15,334
25,293
134,061
Passed due in 30-60 days
14,621
24,595
5,132
10,022
54,370
Passed due in 61-90 days
11,216
17,947
11,797
6,351
47,310
Passed due in 90–180 days
10,115
11,860
5,336
9,051
36,362
2,552,071
2,871,055
421,945
412,955
6,258,026
-16,663
-15,642
-13,420
-5,813
-51,539
121,804
185,497
29,849
99,211
436,360
2,657,212
3,040,909
438,374
506,352
6,642,847
Total Group provision Net value receivables passed due in over 180 days Net
Risk concentrations among financial assets with credit risk exposure Geographical areas Group Below is presented a specification of credit risk exposure per geographical area. The values given are book values. This specification is based on the borrower’s legal country of domicile
Per 31 December 2012 Lending to credit institutions
Sweden
Lending to the general public
3,070,257
Bonds and other interest-bearing securities
1,990,762
Per 31 December 2011
Norway
Denmark
Finland
Germany
2,544,580
Total 2,544,580
3,315,453
353,797
650,148
1,331
7,390,986 1,990,762
Sweden
Norway
Denmark
Finland
3,040,909
438,374
506,352
Total
Treasury bills eligible for refinancing Lending to credit institutions
1,611,602
Lending to the general public
2,657,212
Bonds and other interest-bearing securities
1,146,157
1,611,602 6,642,847 1,146,157
No credit limits have been exceeded during the year. Market risk (i) Foreign exchange risk The Group is active in the Nordic countries and is exposed to currency risks arising from currency exposure vis á vis NOK, DKK and EUR. The most significant currency risk arises in the translation of receivables and liabilities into foreign currency. The Group’s policy is to limit the risk via the matching of assets and liabilities in the same currency. Derivative instruments are also utilised to attain this balance, when considered necessary. The Group also protects the regulatory capital against any exchange rate effects with respect to the portfolios in foreign currency, which results in exchange rate effects in the income statement. The impact on the regulatory capital due to exchange rate effects on the portfolios is, then, offset by corresponding effect on Group earnings.
value of assets and liabilities and the margin between interest income and interest expenses.
The Board of Directors has established a policy stipulating that the Company continually measures and reports its exchange rate risk. This includes determined limits for the maximum permitted net exposure in foreign currencies. The current limit determined by the Board of Directors is MSEK 350 (350), while actual exposure amounted to MSEK 284 (246), divided between MNOK 185 (164), MDKK 19 (23) and MEUR 5 (3). A change of 5% in the value on SEK against the other currencies would cause a change in the results of MSEK 14 (12).
Liquidity risk As per 31 December, BSEK 2.0 is financed on the bond market and, thereby, has no inherent liquidity risk. The Group’s strategy is to match duration in the portfolio. Management also meticulously follows rolling forecasts for the Group’s liquidity reserve on the basis of anticipated lending.
(ii) Interest rate risks attributable to cash flow and fair value In principle, the Group’s assets and liabilities have a fixed interest term of one month. Derivative instruments are also utilised to maintain this balance, when considered necessary. Subsequently, the Group’s interest rate risks are very limited, both as regards the fair
The Board of Directors has established a policy stipulating that the Group continually measure and report its interest rate risks. These are measured by way of a sensitivity analysis of a parallel shift of the interest rate curve of 1.0 %. The limit determined by the Board of Directors is a net exposure of MSEK 10 (10), while the actual exposure per year-end was MSEK 4.0 (3.6). Lending to the general public and Liabilities to credit institutions have a general fixed-interest term of less than three months. The average remaining fixed interest term is 0.0 years for these items as the interest rates are variable. Other assets, liabilities and equity are without interest.
The table below presents an analysis of the Group’s financial liabilities to be settled, net, specified according to the time on balance sheet date remaining until the contractual maturity date. The amounts stated in the table are the contractual, undiscounted cash flows. For derivatives to be settled, the flow of payments is reported gross, regardless of whether the derivative’s fair value is positive or negative.
notes
31 December 2012 Bank loans Securities issued Deposits from the general public
Less than 1 year
1–2 years
2–5 years
114,549
1,478,881
1,348,515
100,693
100,693
2,157,456
24,012
211,806
24,012
Accounts payable and other liabilities
50,173
31 December 2011 Securities issued Deposits from the general public
More than 5 years
7,164,974
Subordinate liabilities
Bank loans
47
Less than 1 year
1–2 years
2–5 years
395,496
1,303,415
1,129,648
119,513
119,513
2,289,645
26,220
239,549
More than 5 years
5,100,603
Subordinate liabilities
26,220
Accounts payable and other liabilities
53,487
Information on liquidity risks in accordance with FFFS 2007:5 The Group uses asset-related borrowing in which the Group’s asset portfolios are pledged as securities for the borrowing. The Group’s long-term borrowing strategy is to issue asset-related (securitised) bonds to institutional investors with the same maturity as the assets. During a build-up period, intended to create sufficient historical data on the asset portfolios and critical volume for the bond market, the assets are financed on the basis of credit facilities from banks with a remaining maturity of not less than one year and with deposits from the general public.
Capital cover analysis Information on capital coverage in this document refers to the type of information that should be disclosed according to Chapter 6, paragraphs 3-4 of the Swedish Financial Supervisory Board’s regulations and general guidelines (FFFS 2008:25) regarding annual reports of credit institutions and securities companies, and in accordance with the information in Chapter 3, Sections 1-2 and the Swedish Financial Supervisory Board’s regulations and general guidelines (FFFS 2007:5) regarding the publication of information regarding capital cover and risk management.
The Group has an independent function for controlling liquidity risk in accordance with FFFS 2011:7. The function reports directly to the Board of Directors and Managing Director.
Other disclosures required in accordance with FFFS 2007:5 are provided on the website www.nordax.se.
Measurement and reporting of liquidity risks is conducted on a daily basis and reported to the Company’s Management. Liquidity risks are reported directly to the Board of Directors on a monthly basis. The cash flows which are expected to arise on the settlement of all assets, liabilities and items outside the balance sheet (FX swaps) are calculated. The key ratios in the balance sheet (such as cash ratio, loan to deposit ratio, liquidity coverage ratio, net stable funding ratio and deposit usage) are calculated and followed over time in order to illustrate the financial structures and the Group’s liquidity risks. The liquidity risks are measured on a monthly basis using various scenarios, and events (such as inferior advance rates and changed cash flows) are illustrated both individually and in combination. The contingency plan includes a clear assignment of responsibilities, as well as instructions regarding the manner in which the Group is to solve a liquidity crisis. The plan stipulates applicable measures for addressing the consequences of various kinds of crisis situations, and includes definitions of events which imply the implementation and escalation of the contingency plan. The contingency plan has been tested and updated. On 31 December 2012, Nordax had a Liquidity Coverage Ratio of 5.65 (4.64) and a Net Stable Funding Ratio of 1.66 (1.46). All assets are financed until November 2014. On 31 December 2012, Nordax’s liquidity reserve amounted to MSEK 4,147, comprising current investments. Of these investments, 52% were in Nordic banks, 19% in Swedish secured bonds and 29% in Swedish municipal securities. All investments had a credit rating between AAA and A+ from Standard and Poor’s and the average rating was AA. The average maturity was 54 days. All bank investments are immediately accessible and all securities repurchaseable in central banks. At the end of the year, Nordax’s financing sources comprised MSEK 2,070 of financing through the bond market, MSEK 1,804 of financing against collateral in two international banks and MSEK 7,127 of deposits from the general public.
Information regarding Nordax Holding AB Nordax Holding AB (Corporate Identity Number 556647-6726, with its registered offices in Stockholm) is a wholly-owned subsidiary of Nordax Group Holding AB (Corporate Identity Number 556792-7305, with its registered offices in Stockholm), the Parent Company of the Group. Nordax Holding AB owns companies engaging in the ownership of companies and management of shares in companies whose primary operations consist of providing loans to private individuals in the Nordic countries. On 27 January 2004, Nordax Finans AB was registered as a credit market company and is, therefore, under the supervision of the Swedish Financial Supervisory Board. Information on the financial Group of companies The head company in the financial group of companies is Nelson Luxco Sarl. The following companies are included in both the consolidated accounts, in accordance with full IFRS, as well as in the Groupbased reporting of the calculation of capital requirements; Nordax Group Holding AB, Nordax Holding AB, Nordax Finans AB, Nordax Nordic AB, Nordax Nordic 2 AB, Nordax Sverige AB, Nordax Sverige 2 AB, Nordax Sverige 3, Nordax Finans AS, Norway, Nordax OY, Finland. Information on capital base and capital requirements The Group’s statutory capital requirements are determined in accordance with The Capital Adequacy and Large Exposures Act (2006:1371), as well as in accordance with the regulations and general guidelines of the Financial Supervisory Authority’s (FFFS 2007:1) regarding capital adequacy and large exposures. The purpose of these regulations is to ensure that the Group manages its risks and protects the Company’s customers. The regulations state that the Company’s capital base shall cover the capital requirements including the minimum capital requirement (capital requirement for credit risk, market risk and operational risk).
48
notes
Note 4 continued The capital situation for the financial groups of companies can be summarised as follows: Financial Group of companies 2012
2011
Capital base Core capital Supplementary capital Deduction from the entire capital base
1,083,845
947,954
197,031
196,211
-341,840
-347,037
Capital base Net
939,036
797,128
Capital requirements, credit risks
506,305
446,122
Capital requirements, market risk
22,753
19,692
Capital requirements, operational risk
55,353
49,730
584,411
515,545
1.61
1.55
2012
2011
1,083,845
947,954
-341,840
-347,037
Subordinate liabilities
197,031
196,211
Total capital base
939,036
797,128
Total capital requirements Capital cover ratio
Capital base Core capital Equity Deductions goodwill and intangible assets Supplementary capital
The Board of Directors’ proposed appropriation of profits is included in the capital base. Specification capital requirements Institute exposures Covered Bonds Household exposures Unregulated items Other items
2012
2011
40,797
25,795
6,162
2,375
417,972
376,542
39,179
36,474
2,195
4,936
506,305
446,122
Exchange rate risk
22,753
19,692
Total capital requirements for market risks
22,753
19,692
The base method
55,353
49,730
Total capital requirements for operational risks
55,353
49,730
Total capital requirements for credit risks Market risk
Operational risks
Total minimum capital requirements Nordax complies with the minimum level for its capital base which corresponds to a capital base amounting to at least the total minimum capital requirement. The capital base exceeds the initial capital of MSEK 45.9 (the capital which was required when the business received its authorisation to operate as a credit market company). Capital planning The Group’s goal regarding its capital structure is, in addition to meeting the statutory capital requirements, to secure its ability to continue its operations so that it can continue to generate returns to shareholders and benefits for other interested parties. In spite of the capital cover at the end of the financial year being assessed as more than sufficient to match requirements from governments and internal stress tests of the operations, the financial group of companies does not intend to distribute a dividend. The Group
assesses that after a period in which the global financial system was exposed to stress, a further buffer of capital is required than the amount considered to comprise the optimal capital structure under normal conditions. Capitalisation is expected to be strengthened through the fact that no dividends to shareholders are planned to be distributed for 2012. The Group’s strategies and methods for valuing and maintaining the capital base requirement in accordance with Chapter 2, paragraphs 1-2 of the Capital Adequacy Act are based on its risk management. The risk management aims at identifying and analysing the risks to which the Company is exposed in its operations and at establishing appropriate limitations to these and also at ensuring that controls are in place. The risks are monitored and controls are undertaken on an on-going basis to ensure that the limits are not exceeded. In the Group there are functions for independent risk control which are directly submitted to the Managing Director whose task it is to analyse the development of the risks, as well as, when needed, suggesting changes in the guidance protocols and processes for the overall risk management and as regards specific areas. In order to assess whether the internal capital is sufficient for current and future operations, and in order to ensure that the capital base is of the correct amount and composition, the Company has a process for Internal Capital Valuation (ICAAP). ICAAP is a set of regulatory requirements in which the company determines the amount of capital it considers necessary in addition to the requirements of the regulatory framework for capital adequacy. This process is a tool ensuring that the Company, in a clear and reliable manner, identifies, valuates and handles all the risks to which it is exposed, as well as making an assessment of the Company’s internal capital requirements in relation to this. This includes ensuring that the Company has appropriate guidance and control functions and risk management systems. The internal capital evaluation is performed, as a minimum, on an annual basis. Based on possible scenarios, plans are established in order to limit harmful effects on the Company and ensuring an adequate capital buffer to absorb these losses without having to do capital injections to ensure the minimum statutory requirements. Historical information is also utilised, for example, how credit losses can develop through an economic cycle. The Company stress tests then the need for capital to ensure sufficient capital supply through the worst periods observed. The ICAAP work has been documented. Calculation of fair value Fair value is deemed to correspond to the book value of all assets and liabilities in Nordax. The fair value of financial instruments traded on an active market (e.g. financial assets held for trading and available-for-sale financial assets) is based on quoted market prices on balance sheet date. The quoted market price used for Nordax’s financial assets is the current buying-rate. The fair value of financial instruments not traded on an active market (e.g. OTC derivatives) is determined with the aid of valuation techniques. The Group uses a number of different methods and makes assumptions based on the market conditions prevailing on balance sheet date. Quoted market prices or broker’s notes for similar instruments are utilised for long-term liabilities. Other techniques, such as the calculation of discounted cash flows, are used to determine the fair value of the remaining financial instruments. The fair value of forward exchange agreements is determined by the use of quoted prices for forward exchange agreements on balance sheet date. The book value, after any impairment, for accounts receivable and accounts payable is assumed to correspond with their fair values, as these items are of a short-term nature. Financial instruments by category. Items that are not financial instruments have been excluded.
notes
49
The Group
31 December 2012
Loans and receivables
Assets measured at fair value via income statement
Derivatives used for hedging purposes
Total
Assets in the Balance Sheet Lending to credit institutions
2,544,580
2,544,580
Lending to the general public
7,390,986
7,390,986
Bonds and other interest bearing securities Other assets Total
1,990,762 18,607
1,990,762 1,871
20,478
9,954,173
1,990,762
1,871
11,946,806
Derivatives used for hedging purposes
Liabilities measured at fair value through profit and loss
Other financial liabilities
Total
Liabilities to credit institutions
1,780,809
1,780,809
Deposits from the general public
7,164,974
7,164,974
Securities issued
2,033,112
2,033,112
Liabilities in the Balance sheet
Other liabilities Subordinate liabilities Total
31 December 2011
Loans and receivables
Assets measured at fair value via income statement
65,272
65,272
197,031
197,031
11,241,198
11,241,198
Derivatives used for hedging purposes
Total
Assets in Balance Sheet Lending to credit institutions
1,611,602
1,611,602
Lending to the general public
6,642,847
6,642,847
Bonds and other interest-bearing securities Other assets Total
1,146,157
1,146,157
1,146,157
9,461,656
61 050 8,315,499
61,050
Liabilities measured at fair value through profit and loss
Other financial liabilities
Total
Liabilities to credit institutions
1,526,405
1,526,405
Deposits from the general public
5,100,603
5,100,603
Securities issued
2,022,305
2,022,305
Liabilities in the Balance sheet
Other liabilities
809
Subordinate liabilities Total
809
33,754
34,563
196,211
196,211
8,900,466
8,901,275
50
notes
Note 4 continued The table below shows financial instruments valued at fair value, based on the classification made in the fair value hierarchy. The different levels are defined as: • Q uoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) • Other observable data for the asset or liability than quoted prices included in Level 1, either directly (i.e. as price quotations) or indirectly (i.e. derived from price quotations) (level 2). • Data for the asset or liability that are not based on observable market data (i.e. non-observable data) (Level 3) The following table shows the Group’s assets and liabilities valued at fair value as of December 31, 2012 and 2011. 31 December 2012
Level 1
Level 2
Level 3
Total
Assets in the balance sheet Financial assets measured at fair value through profit and loss - Securities held for trading Derivative used for hedging purposes Total assets
1,990,762
1,990,762
1,871
1,871
1,992,633
1,992,633
31 December 2011
Level 1
Level 2
Level 3
Total
Assets in Balance sheet Financial assets measured at fair value through profit and loss - Securities held for trading
1,146,157
1,146,157
Total assets
1,146,157
1,146,157
Derivative instruments used for hedging purposes
809
809
Total liabilities
809
809
Liabilities in the balance sheet
The fair value of financial instruments traded in active markets is based on quoted market prices at balance sheet date. A market is considered active if quoted prices from an exchange, broker, industry group, pricing service or supervisory body are readily and regularly available and if such prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for the Group’s financial assets is the current bid price. These instruments can be found in level 1. The fair value of financial instruments not traded on an active market is determined using valuation techniques. In this respect, market information is used as widely as possible when it is available. If all of the essential inputs required for the fair value valuation of an instrument are observable the instrument can be found in level 2. In cases where one or more significant inputs are not based on observable market information the relevant instruments is classified in Level 3. Some of these instruments are currently not present.
Note 5 Significant accounting estimates Nordax has made a number of estimates and assumptions affecting the valuation of assets and liabilities in the financial statements. These estimates and assumptions are continually evaluated against previous experience and other factors, such as anticipated future events. Write-downs of loans receivable The Nordax Group continually reviews its credit portfolios in order to identify write-down requirements. In order to determine whether any write-downs should be recorded in the income statement, an assessment is made of whether indications have arisen of the reduction of future estimated cash flows from receivables in the credit portfolio. These indications may include a deteriorated
payment status among a group of debtors or the presence of deteriorating socio-economic conditions correlating with the suspended payments in the portfolio. When the value of a loan receivable has decreased, the reported value is reduced to the recoverable amount, which is comprised of future cash flows, discounted with the interest for the item effective at the time of write-down. Senior management utilises estimates based on historic loan losses for assets with the same credit risks and attributes as those in the credit portfolio. The methods and assumptions employed to forecast future cash flows are reviewed regularly to reduce the difference between estimated losses and actual losses.
Note 6 Net interest income The Group
Parent Company
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
Interest income from the general public
968,126
790,914
Interest income from credit institutions
35,305
27,503
475
218
1,003,431
818,417
475
347
Interest expenses to the general public
-226,624
-128,756
Interest expenses to credit institutions
-253,574
-237,720
Total interest income
Interest expenses subordinated debt Total interest expenses Net interest income
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011 129
-27,049
-27,144
-27,012
-20,415
-507,247
-393,620
-27,012
-20,415
496,184
424,797
-26,537
-20,068
Of the Group’s net interest income/expense, 162,909 (135,942) is from Sweden, 270,371 (222,966) from Norway, 26,635 (30,834) from Denmark, 36,228 (35,055) from Finland and 41 from Germany. The net interest income/expense in the Parent Company is from Sweden.
notes
51
Note 7 Commission revenue The Group
Parent Company
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
Lending commissions
46,573
38,162
Total
46,573
38,162
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
Commission revenue items include insurance reimbursement, monthly and late fees. Of the commissions reported by the Group, 17,138 (13,148) is from Sweden, 23,789 (19,999) from Norway, 1,740 (2,019) from Denmark and 3,906 (2,996) from Finland. The commission income in the Parent Company is from Sweden.
Note 8 Net income from financial transactions The result in the Group refers to the income of 11,290 (165) from exchange rate changes in the net position and the flow in operations related to lending in Norwegian and Danish krona as well as lending
in Euro and the result of investments in bonds and other debt securities of 33,624 (23,247).
Note 9 General administrative expenses The Group
Parent Company
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
-79,250
-62,423
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
Personnel costs Salaries and fees Pension costs Social security contributions Other personnel costs
-8,346
-6,582
-24,780
-19,380
-3,016
-3,683
-115,392
-92,068
IT costs
-11,934
-12,479
External services
-18,809
-21,274
Total personnel costs Other administrative expenses
Costs for premises Telephones and postage Other Total other administrative expenses
-4,981
-4,087
-10,607
-8,403
-9,816
-9,234
-161
-54
-56,147
-55,477
-161
-54
The item ‘External Services’ includes fees to auditors in the Group (PwC) of 1,256 (955), of which 1,091 (915) refers to auditing, (-) uditing services in addition to the audit assignment and 165 (40) other services. The cost of the audit for the Parent Company is reported a in Nordax Finans AB.
The Group 1 Jan 2012– 31 Dec 2012
Parent Company
1 Jan 2011– 31 Dec 2011
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
Allocation of salaries and fees Board Members, Managing Director and other Senior management
29,245
23,623
Other employees
50,005
38,800
Total
79,250
62,423
Board Members, Managing Director and other Senior management
5,153
4,340
Other employees
3,193
2,242
Total
8,346
6,582
Allocation of pension costs
The Group
Parent Company
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
Women in Sweden
84
63
Men in Sweden
48
39
132
102
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
Average number of employees (translated to full-time positions)
Total
Regular working hours have been defined as the available working time. This does not include overtime or leave from full- or part-time. The data refers to the full year.
52
notes
Note 9 continued Group
Parent Company
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
– women
1
0
– men
7
8
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
Number of women and men on the Board of Directors
Number of women and men in Company management – women – men
7
6
12
12
Remuneration and other benefits 2012 Remuneration and other benefits 2012
Flexible remuneration
Pension costs
Total
Board Members and Managing Director
8,315
404
1,587
10,306
Other senior management (15 persons)
16,015
4,511
3,566
24,092
Remuneration and other benefits 2011
Flexible remuneration
Pension costs
Total
Board Members and Managing Director
7,824
82
1,557
9,463
Other senior management (14 persons)
15,414
303
2,783
18,500
Remuneration and other benefits 2011
Information on the remuneration system The publication of information on the remuneration system, in accordance with the Swedish Financial Supervisory Authority’s regulations and general guidelines regarding publication of information on capital cover and risk management (FFFS 2007:5 as altered via FFFS 2012:3), is provided on Nordax’s website, www.nordax.se.
Note 10 Loan losses, net Group
Parent Company
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
Homogenous receivables valued by category Write-downs for the year regarding established loan losses
-230,781
-187,755
Payments received on previous year's established loan losses
117,296
89,495
Provisions for loan losses
-13,634
1,556
-127,121
-96,703
Annual loan losses for receivables valued by category and loan losses
‘Established loan losses’ refers to write-down of loans that are past due more than 180 days.
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
notes
53
Note 11 Tax on profit for the year Group
Parent Company
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
1 Jan 2012– 31 Dec 2012
1 Jan 2011– 31 Dec 2011
Reported profit before taxes
218,965
194,518
3,302
-20,017
Tax according to current tax rates
-57,588
-51,158
-868
5,306
-235
-204
2
180
Difference between reported tax expenses and tax expenses based on current tax rates
Tax effect of non-deductible expenses Tax effect of non-deductible income Non-utilised loss carry forwards Tax on net profit for the year according to income statement
7,890
40 -57,821
-51,143
7,022
5,306
Tax rates The current tax rate is the tax rate for Group income tax, 26.3%. Group
Parent Company
2012
2011
4,045
2,336
990
1,719
5,035
4,055
2012
2011
Deferred tax assets Deferred tax assets to be utilised after a period greater than 12 months Deferred tax assets to be utilised within a period of 12 months Deferred tax assets according to the balance sheet
The deferred tax asset relating to temporary differences in accrued arrangement fees for loans. Group Deferred tax liabilities Deferred tax liability referring to temporary differences on accrued acquisition costs for loans
2012
Parent Company 2011
2012
2011
6,500 Group
Parent Company
2012
2011
Deferred tax expenses referring to temporary differences
-981
-1,719
Deferred tax in income statement
-981
-1,719
2012
2011
Deferred tax expenses/revenue for the year
Group
Parent Company
2012
2011
2012
2011
Tax effect of Group contributions
-444
Total
-444
-503
7,023
5,306
-503
7,023
5,306
Tax referring to items reported directly against equity
Note 12 Lending to credit institutions Group Swedish banks
Parent Company
2012
2011
2012
2,544,580
1,611,602
10,183
Of the Group’s lending to credit institutions is included 465,818 (472,724) in assets pledged for liabilities to credit institutions.
2011 9,905
54
notes
Note 13 Lending to the general public Group
Note 14 Bonds and other interest bearing securities
Parent Company
2012
2011
2012
2011
Fixed assets Households
7,390,986
Group
Parent Company
2012
2011
– Foreign states
101,013
Swedish municipalities 1,220,545
748,270
2012
2011
Holdings divided by issuer
6,642,847
Of the Group item, 7,243,256 (6,146,974) is included in assets pledged for liabilities to credit institutions and securities issued. Lending takes place in the respective country’s currency. The geographical distribution is presented in note 4.
Swedish mortgage bonds (secured bonds) Total
770,217
296,874
1,990,762
1,146,157
All holdings are listed and have a maturity of less than one year, except holdings of 151,263 in Swedish mortage bonds with maturity between 1 and 2 year.
Of total lending, 6,709,488 (6,041,580) has a maturity of more than one year.
Note 15 Shares in Group companies Parent C ompany
Organisation number
Residence
Share of equity
Nordax Finans AB
556647-7286
Stockholm
PMO Finans AB
556654-0927
Stockholm
Nordax Nordic AB
556787-1891
Stockholm
Nordax Nordic 2 AB
556823-4255
Stockholm
Nordax Sverige AB
556794-0126
Stockholm
Nordax Sverige 2 AB
556798-5915
Stockholm
Nordax Danmark AB
556683-9071
Stockholm
Nordax Finans AS, Norway
986568158
Nordax OY, Finland
1983408-0
Share of equity
Book value
Number of shares
2012
100 %
100 % 50,100,000
191,497
151,497
90.9 %
90.9 %
11,908
11,908
107 90,900
4,590 4,636 90.9 %
90.9 %
90,900
4,636
Oslo
100 %
100 %
100,000
116
Helsinki
100 %
100 %
1,000
72
72
208,229
177,662
Note 16 Tangible assets 2012
2011
Parent Company 2012
2011
Fixed assets
- acquisitions during the year
Group
2012
2011
22,493
21,153
17,361
10,949
2,869
8,081
Acquisition value at beginning of year
5,036
1,340
-910
-1,669
19 320
17,361
- disposals during the year
Accumulated depreciation at beginning of year
-7,839
-6,921
- depreciation for the year
-3,570
-2,450
Accumulated amortisation at beginning of year
-20,060
-17,912
- disposals during the year
867
1,532
- amortisation for the year
-1,575
-2,148
- disposals during the year
590
Accumulated amortisation at year-end
-21,045
-20,060
5,894
2,433
- disposals during the year
Accumulated depreciation at year-end Book value
Parent Company 2012
2011
Intangible assets
- acquisitions during the year
Acquisition value at year-end
116
Note 17 Intangible assets Group
Acquisition value at beginning of year
4,636 100
Total
2011
-10,542
-7,839
8,778
9,522
All tangible assets refer to inventories, installations and equipment.
-590
Acquisition value at year-end 26,939
Book value
22,493
All intangible assets are costs related to software development performed by external consultants.
notes
Note 18 Current tax recoverables Group Current tax recoverables
Note 19 Other assets Parent Company
2011
2012
2012
2011
12,532
The amount relates to the difference between tax for the year and preliminary tax paid for the corresponding period.
Note 20 Liabilities to credit institutions Group
2012
55
Group Market value of currency swap
Foreign Banks
1,780,809 1,526,405
Total
1,780,809 1,526,405
2012
2012
2011
28,467
29,282
28,467
29,282
1,871
Receivables from Group companies Other
5,499
26,361
Total
7,370
26,361
Note 21 Deposits from the general public
Parent Company 2011
Parent Company 2011
2012
2011
Group
2012
Deposit accounts
Parent Company 2011
2012
2011
7,164,974 5,100,603 7,164,974 5,100,603
As regards the above liabilities, collateral has been provided in an amount of 3,659,294 (2,916,622) for all receivables attributable to. Lending to the general public and 122,473 (134,858) for Lending to credit institutions. Granted credit amounts to 3,378,809 (5,183,541).
Note 22 Securities issued Group Duration Bonds issued by Nordax Sweden 3 AB, issued in SEK
December 2015
Bonds issued by Nordax Nordic AB, issued in NOK
July 2016
The foreign exchange positions for securities issued in SEK and NOK are fully matched against assets in the corresponding currencies.
Parent Company
2012
2011
1,156,312
1,168,979
876,800
853,326
2,033,112
2,022,305
2012
2011
All issued securities are quoted on the Irish stock market.
For the liabilities above, collateral has been provided comprising 3,583,962 (3,230,352) of the receivables attributable to Lending to the general public and 343,345 (337,866) attributable to Lending to credit institutions.
Note 23 Current tax liabilities
Note 25 Subordinated liabilities
Group
Parent Company
2012
2011
Current tax liabilities
8,599
2,263
2012
Group
2011
Current tax liabilities refer to the difference between tax expenses for the year and preliminary tax paid for the corresponding period.
2011
2012
2011
Subordinated loans
197,031
196,211
197,031
146,945
Total
197,031
196,211
197,031
146,945
Note 26 Pledged assets
Note 24 Other liabilities
Group
Group
Parent Company
2012
2011
Accounts payable
6,267
7,129
Liabilities to Group companies
1,689
2,815
Other Total
Parent Company
2012
7,381
8,980
15,337
18,924
2012
2011
1,689
2,815
1,689
2,815
2012
Parent Company 2011
Pledged assets for own liabilities Lending to the general public Lending to credit institutions Total
7,243,256 6,146,974 465,818
472,724
7,709,074 6,619,698
2012
2011
56
P ropose d appropriation o f pro f its f or the parent co m pan y
Note 27 Transactions with related parties
Note 28 Contingent liabilities
The Group has carried out no significant transactions with related parties other than those contained in the proposed distribution of profits and remuneration to employees stated in Note 9.
Neither the Group nor the Parent Company has any contingent liabilities.
Note 29 Significant events after balance sheet date
No significant events to report.
Proposed appropriation of profits for the parent company The Annual General Meeting has the following profits at its disposal: Profit brought forward Net profit/loss for the year TOTAL, SEK
26,136,936 10,323,163 36,460,099
The Board of Directors proposes that the profits be appropriated as follows To be carried forward
36,460,099
A Group contribution of 28,388 (28,846) has been received from Nordax Holding Second AB, and a Group contribution of 1,689 (1,912) has been paid to Nordax Group Holding AB. Stockholm, 20 March 2013
Richard Pym Christian A. Beck Arne Bernroth Chairman
Andrew Rich Daryl Cohen Morten Falch CEO
Johanna Clason Jacob Lundblad
Our audit report was presented on Öhrlings PricewaterhouseCoopers AB
Johan Månsson Authorised Public Accountant
Au d I TO R ’ S R E P O RT
Auditor’s report TotheannualmeetingoftheshareholdersofNordaxHoldingAB,corporateidentitynumber556647-6718 report on the annual accounts and consolidated accounts We have audited the annual accounts and consolidated accounts of Nordax Holding AB for the year 2012. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages 38–57. responsibilities of the Board of directors and the managing director for the annual accounts and consolidated accounts The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these annual accounts and consolidated accounts in accordance with the Annual Accounts Act, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Managing Director, as well as evaluating the overall presentation of the annual accounts and consolidated accounts. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinions In our opinion, the annual accounts and consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company and the group as of 31 December 2012 and of their financial performance and cash flows for the year then ended in accordance with the Annual Accounts Act. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts. We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet for the parent company and the group.
report on other legal and regulatory requirements In addition to our audit of the annual accounts and consolidated accounts, we have also audited the proposed appropriations of the company’s profit or loss and the administration of the Board of Directors and the Managing Director of Nordax Holding AB for the year 2012. responsibilities of the Board of directors and the managing director The Board of Directors is responsible for the proposal for appropriations of the company’s profit or loss, and the Board of Directors and the Managing Director are responsible for administration under the Companies Act. Auditor’s responsibility Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company’s profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden. As a basis for our opinion on the Board of Directors’ proposed appropriations of the company’s profit or loss, we examined the Board of Directors’ reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act. As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Director is liable to the company. We also examined whether any member of the Board of Directors or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions. Opinions We recommend to the annual meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year.
Stockholm 20 March 2013 Öhrlings PricewaterhouseCoopers AB
Johan Månsson Authorised Public Accountant
Production: Intellecta Corporate. Photos: Mats Lundqvist. Printing: Ineko, 2013.
nordax holding AB P. O. Box 23124, SE-104 35 Stockholm, Sweden Phone: +46 8 508 808 00 www.nordax.se
