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2018-10-18 18:58 CEST
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RESULTS FOR THE 1ST HALF OF 2018 CONFIRM AFL MODEL'S ATTRACTIVENESS AND PERFORMANCE

PRESS RELEASE · September 28, 2018

 

RESULTS FOR THE 1ST HALF OF 2018 CONFIRM AFL MODEL'S ATTRACTIVENESS AND PERFORMANCE

AFL, the bank for local authorities, published its half-yearly statement today. Results at closing on June 30, 2018 confirmed our growth trajectory, with gross operating income of -€371,000 for NBI of €5,277,000.

  

On June 30, 2018, AFL entered its fourth year of operations. At the end of the period, AFL confirmed the relevance and solidity of its economic model through the achievement of three major objectives, as can be seen in the following key events:

  • continued reinforcement of equity capital through new subscriptions of Société Territoriale share capital by local authorities;
  • the sustained and diversified increase in the production of credit for AFL member local authorities; and
  • continued AFL investor base diversification in the capital markets.

During the first half of 2018, two new capital increases took place:

  •  with the 15th and 16th capital increases, 36 new local authorities of every category from every geographic area have joined AFL Group, bringing the total number of shareholders to 259 and contributing to the expansion of the model throughout the country;
  • as at June 30, AFL Group's paid-up capital amounted to €144.3 million and committed capital was €157.7 million.

At June 30, 2018, the total outstanding amount of credit was €1,909 million, compared to €1,194 million at June 30, 2017 and €1,670 million at December 31, 2017:

  • medium- and long-term production of credit in the first half of the year totaled €116.9 million for 64 loan agreements with a diverse population of local authorities, bringing to 396 the total number of medium- and long-term loans granted since AFL began operations;
  • since AFL began operations, total production has amounted to €1,725.1 million, compared with €1,608.3 million at December 31, 2017. Coupled with loan repurchases entered into between AFL Group member authorities with other lending institutions, AFL's outstanding loans at June 30, 2018 amounted to €1,908.7 million, of which €1,645 million was loans made available and €263.6 million financing commitments, compared with €1,430.8 million and €238.8 million respectively at December 31, 2017.

During the first half of the year, AFL raised €625 million on the bond market through long-term issues:

  • at the beginning of the year, a 10-year and a 15-year issue were launched in the form of a private placement for respective sizes of €25 million and €100 million and a margin of 25 basis points above the curve for French government treasuries (OATs);
  • on June 12, a benchmark public issue with a maturity of 10 years and a size of €500 million was completed at a margin of 30 basis points above the OAT curve;
  • the good reception for these three issues by investors shows their confidence in the AFL Group model, its development trajectory since April 2015 and, more broadly, the credit quality of the French local sector.

 

The increase in outstanding credit and control of expenses resulted in negative gross operating income of €371,000 for AFL under IFRS and a net loss of €771,000 after the cost of risk under IFRS 9 is taken into account:

  • NBI amounted to €5,277,000, compared to €5,347,000 in the first half of 2017. The later benefited from capital gains from the sale of securities in the liquidity reserve for €2,343,000 while they amounted to €1,305,000 at June 30, 2018;
  • the net interest margin in relation to outstanding loans increased to €3,879,000, compared to €3,177,000 at June 30, 2017;
  • operating expenses were controlled at €4,673,000, compared to €4,434,000 in the first half of 2017, with the latter benefiting from a tax provision reversal of €488,000.

 

AFL's sound financial structure is highlighted by its capital ratios, which are reported on a consolidated basis, and liquidity ratios:

  • solvency ratio of 22.88%;
  • leverage ratio: 3.39%;
  • liquidity Coverage Ratio (LCR): 798%;
  • net Stable Funding Ratio (NSFR): 227%.

At June 30, 2018, AFL's credit ratings were as follows:

  Moody's
Long-term rating Aa3
Outlook Stable
Short-term rating P-1
Updated on 5/9/18

AFL Group outlook

Marked by a sustained growth in memberships during the first half of the year, the 2018 target for capital contributions should be reached, thus making it possible to consolidate the achievement of the 2017-2021 five-year business plan's objectives.

Consequently, the size and structure of AFL Group's balance sheet should continue to develop rapidly, with continued credit production and further capital increases in the second half of 2018 and throughout 2019.

 

AFL Group consolidated income under IFRS

Over the first half of 2018, NBI generated by business activity stood at €5,297,000. This corresponds mainly to an interest margin of €3,903,000 over the half-year, a significant increase compared to the €3,197,000 observed over the first half of the previous financial year, capital gain on available for sale securities of €1,305,000, income from commissions of €74,000 and a negative net hedge accounting result of -€73,000.

The interest margin of €3,903,000 originated from three items:

  • firstly, the income related to the loan portfolio at €3,672,000, once it was restated for hedges;
  • secondly, revenues related to the management of the liquidity reserve (-€1,481,000), due to interest rates deeply anchored in negative territory; and
  • lastly, the interest expense from debt, which, for the reasons mentioned above, represents a source of income amounting to €1,712,000, once the income from hedging it is taken into account.

Capital losses on disposals for €26,000 are due to the management of the liquidity reserve portfolio over the period. These disposals led to the concurrent cancellation of the interest-rate hedges for €1,331,000, leading to the net overall capital gain of €1,305,000 for the period.

The net loss from hedge accounting is €1,357,000. It consists of two elements: the cancellation of interest rate hedges related to sales of securities and loan repurchases for €1,430,000 and the sum of the variations from fair value of hedging instruments and the underlying hedged items for instruments still in the portfolio on the date of closure, for -€73,000. Among these variations, -€110,000 relates to differences in valuation on instruments classified as macro-hedges and €37,000 of income relates to valuation differences of instruments classified as micro-hedges. There remain unrealized valuation differences between hedging instruments and the underlying hedged items. Some of these differences are due to an accounting practice that leads to an asymmetry in the valuation of hedging instruments collateralized daily and discounted on the basis of an EONIA curve, and of hedged items discounted on the basis of a Euribor curve, which, under IFRS, leads to the recognition of hedging inefficiencies that is recorded in the income statement. It should be noted, however, that this is a latent result.

At June 30, 2018, general operating expenses represented €4,689,000, compared to €4,335,000 at June 30, 2017. Of this, €2,465,000 is for personnel expenses, which are down from the first half of the previous year, when they were €2,575,000. General operating expenses also include administrative charges, which amount to €2,224,000 and remain at a level comparable to the first half of the previous year when adjusted for the effect of a reversal of a provision for tax risk of €488,000, which amounted to €1,813,000.

After depreciation, amortization and provisions, which amounted to €975,000, compared with €937,000 as at June 30, 2017, operating income totaled -€368,000, compared to €72,000 for the first half of the previous year.

The first application of IFRS 9 and its new provisioning model led to the recognition of €234,000 of impairment losses in the first half of the year, which resulted almost exclusively from the increase in the securities portfolio, and there was no credit risk in the period.

After taking into account a deferred tax expense of €166,000 related to consolidation adjustments, the first half of 2018 ended with negative net income of €767,000, compared to -€41,000 for the same period during the previous year.

Balance sheet and financial structure of AFL Group

The consolidated balance sheet at June 30, 2018 amounted to €3.186 billion, compared to €2.537 billion at December 31, 2017, reflecting the increase in assets including outstanding loans and the liquidity reserve.

AFL Group has a robust financial structure with equity capital of €125.3 million at June 30, 2018, compared with €121 million at December 31, 2017, for share capital of €144.3 million. Given the quality of the Group's exposures, the Basel III solvency ratio based on the Common Equity Tier 1 standard method is 22.88% and the leverage ratio is 3.39%.

In addition to this, a very comfortable liquidity position allows AFL Group to continue its operational activities and withstand a liquidity shock. At June 30, 2018, the LCR ratio is 809% and the NSFR ratio is 228%.


2018 consolidated income statement (€ millions, consolidated IFRS)

(€ thousands)   6/30/2018 6/30/2017 12/31/2017
Interest and similar income   28,076 16,721 38,342
Interest and similar expenses   (24,173) (13,524) (31,789)
Commissions (income)   134 29 73
Commissions (expense)   (60) (44) (95)
Net gains (losses) on financial instrument at fair value through profit or loss   1,346 545 141
Net gains (losses) on financial instrument at fair value through equity   (26) 1,636 4,051
Income on other activities        
Expenses on other activities        
NET BANKING INCOME   5,297 5,364 10,722
General operating expenses   (4,689) (4,355) (8,653)
Net depreciation, amortization and impairments of tangible and intangible assets   (975) (937) (1,914)
GROSS OPERATING INCOME   (368) 72 156
Cost of risk   (234)    
OPERATING INCOME   (601) 72 156
Net gains and losses on other assets        
PRETAX INCOME   (601) 72 156
Income tax   (166) (113) (579)
NET PROFIT   (767) (41) (423)
Non-controlling interests        
NET INCOME GROUP SHARE   (767) (41) (423)
Basic earnings per share (EUR)   (0.53) (0.03) (0.31)
Diluted earnings per share (EUR)   (0.53) (0.03) (0.31)

 

Balance sheet at June 30, 2018 (€ millions, consolidated IFRS)

Assets as at June 30, 2018

(€ thousands)   6/30/2018 1/1/2018 12/31/2017
Cash in hand, central banks   590,371 420,338 420,351
Financial assets at fair value through profit or loss   21,220 13,711 13,711
Derivative hedging instruments   24,692 15,629 15,629
Financial assets at fair value through equity   665,253 363,554  
Available-for-sale financial assets       363,554
Securities at amortized cost        
Loans and receivables due from credit institutions at amortized cost   229,190 281,735 213,433
Loans and advances to customers at amortized cost   1,644,988 1,430,802 1,430,829
Revaluation adjustment on interest rate hedged portfolios   43    
Financial assets held to maturity        
Held-to-maturity financial assets   33 25 25
Current tax assets   5,298 5,343 5,330
Deferred tax assets Accruals and other assets   622 348 68,657
Intangible assets   3,850 4,689 4,689
Property, plant and equipment   449 471 471
Goodwill        
TOTAL ASSETS   3,186,010 2,536,643 2,536,678

Liabilities as at June 30, 2018

(€ thousands)   6/30/2018 1/1/2018 12/31/2017
Central banks   596 368 368
Financial liabilities at fair value through profit or loss   21,629 14,267 14,267
Derivative hedging instruments   67,204 61,841 61,841
Debt securities   2,969,446 2,335,802 2,335,802
Due to credit institutions and similar   11    
Due to customers   0    
Revaluation adjustment on interest rate hedged portfolios   0 963 963
Current tax liabilities   0    
Deferred tax liabilities     278 278
Accruals and other liabilities   1,822 2,172 2,172
Provisions   22 22 19
Equity   125,280 120,930 120,968
Equity, Group share   125,280 120,930 120,968
Share capital and reserves   144,314 138,500 138,500
Consolidated reserves   (18,317) (17,893) (17,665)
Revaluation reserve        
Gains and losses recognized directly in equity   50 747 557
Profit for the year   (767) (423) (423)
Non-controlling interests        
TOTAL LIABILITIES   3,186,010 2,536,643 2,536,678

On this basis, the AFL Management Board approved the AFL half-yearly financial statements on September 12, 2018. The AFL Supervisory Board met on September 27, 2018 under the chairmanship of Richard Brumm and favorably reviewed the AFL half-yearly financial statements. The Statutory Auditors conducted a limited review of those statements.

The AFL-ST (Société Territoriale) Board of Directors met on September 28, 2018 under the chairmanship of Jacques Pélissard and approved the Group's half-yearly consolidated financial statements. The Statutory Auditors conducted a limited review of those statements.

The limited examination procedures for the condensed half-yearly individual and consolidated financial statements for the period from January 1, 2018 to June 30, 2018, were conducted by the Statutory Auditors. The limited examination reports are being issued.

This press release may contain certain forward-looking statements. While the Company believes that these statements are based upon reasonable assumptions as of the date of this press release, they are inherently subject to risks and uncertainties that could cause actual results to differ from those shown or implied by such statements.

 

AFL Group's financial information for the first half of 2018 consists of this press release, as supplemented by the financial report available on the website www.agence-france-locale.fr

 

 ABOUT THE

 AGENCE FRANCE

 LOCALE

 GROUP

 
  • AFL Group is organized around a twofold structure consisting of Agence France Locale - Société Territoriale (the parent company with the status of financial company, called Société Territoriale) and of Agence France Locale (AFL, the subsidiary, a specialized credit institution).
  • AFL Group is an investment financing agency for local authorities in which they are the exclusive shareholders through Société Territoriale, the majority shareholder and over 99.9% owner of AFL. Like the local authority financing agencies in Northern Europe, which have existed for several decades, AFL was established to be a long-term player in the financing of local investments.
  • The purpose of the AFL Group is to provide French local authorities with access to capital markets by pooling their needs and granting them attractive and transparent financing conditions.
  • AFL manages its banking activities electronically, which enables it to limit its operating costs in a sustainable manner.
  • More information at www.agence-france-locale.fr

 

 

Press contacts

Olivia Pénichou

O2P Conseil for AFL

o.penichou@o2p-conseil.com

Mobile: 06 07 08 91 47
Investor relations

Romain Netter

romain.netter@agence-france-locale.fr

 
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