HÜVITUSFOND

ANNOUNCEMENT

14.04.99

 

COMMENTARY TO THE AUDITED RESULTS OF 1998 

 

The financial result of Hüvitusfond’s activities in 1998 was a loss 

of 370 million EEK. In the course of auditing, additional 11.15 

million EEK provisions were made on deposits related to ERA-Pank, 

proceeding from the possibility of coming bankruptcy procedure of ERA 

Pank. Hence, the deposits related to ERA-Pank are now 100% 

provisioned. Based on the auditors’ valuations of ERA Pank assets and 

liabilities, the deposits related to ERA-Pank were earlier 

provisioned by 50 %. Also, additional 2.3 million EEK revaluation was 

made on assets underlying the share repurchase agreements. The volume 

of audited loss differs from the preliminary (unaudited) respective 

figure by 13.4 million EEK.

 

The financial loss proceeded from decrease in revenue as well as 

increase in expenses (mainly loss on marketable securities and 

increase in provisions) in 1998, compared to the results of 1997.

 

Income earned by the Fund in 1998 amounted to 184 million EEK, or 68 

million EEK (27%) less than in 1997. Total expenses amounted to 554 

million EEK, as opposed to 126 million EEK in 1997.

 

In the income structure, the interest income has increased to the 

level of 149 million EEK (+20%), income from investments (mainly 

shares) is down to 32.2 million EEK (-75%); other income from 

operations has remained on the level of 1997.

 

The above changes in income reflect significant changes, which 

occurred in the Estonian economic climate in 1998, and restructuring 

of the Fund’s assets structure in 1998.

 

The interest expenses increased from 1997 by 4.7% (64.7 million EEK).  

Compared to the increased growth of interest income, this indicates 

more efficient management of the Fund’s assets.

 

The major factor behind the financial loss of the Fund was sharp 

increase in the investment-related expenses in 1998. When the 

respective expense account totaled only 40.5 million EEK in 1997, 

then in 1998 it was already 463 million EEK. Increase in the 

investment expenses was related to loss from the disposal of short-

term share options (111 million EEK) and write-off of assets (186 

million EEK), totaling to 297 million EEK, or 54% of total expenses. 

Substantial expenses proceeded also from the increased provisions on 

long-term investments (119 million EEK), or 21% of total expenses. 

The provisions were increased principally due to the weakened 

financial health of the company in significantly worsened economic 

environment in 1998, and more conservative provisioning policies 

applied. Increased volume of provisions should guarantee more stable 

income from investment portfolio in the future. The Fund’s loss 

proceeding from write-off of the investments to subsidiaries and 

associated companies, based on the principles of equity method,  

amounted to 26 million EEK.

 

The volume of fund’s administrative expenses (19.3 million EEK) has 

remained relatively stable compared to 1997, increasing only by 1.4%. 

 

 

Andres Laisk

Tel +372 6 651 812