Results

Financial results

The 2015 net result of Triodos Microfinance Fund amounts to EUR 8.4 million (2014: EUR 12.5 million). The fund’s interest income from loan investments increased by 49.6% to EUR 15.6 million (2014: EUR 10.4 million), which is in line with the growth rate of the fund and its increased exposure to loans in local currencies, for which interest rates are generally higher. In addition, the fund received dividend income from equity investments, amounting to EUR 1.5 million (2014: EUR 0.8 million).

The fund realised a net foreign exchange gain of EUR 0.2 million on loans maturing during the year. During the same period, the fund suffered a net loss of EUR 12.6 million on foreign exchange contracts. These results reflect the exponential increase in hedging costs for both US dollar swaps and hedging of local currency loans during 2015, reflecting the extreme volatility of the foreign exchange markets. The net change in value was EUR 8.7 million for both debt and equity investments (2014: EUR 13.6 million). This amount includes EUR 1.8 million in provisions on loans in Azerbaijan and Bosnia Herzegovina and a EUR 5.6 million increase in unrealised foreign exchange gains.

Total operating expenses in 2015 came to EUR 5.4 million (2014: EUR 4.2 million). The majority of these expenses relates to management, distribution and service fees, which rose to EUR 4.9 million (2014: EUR 3.6 million) and are in line with the growth of the net assets of the fund.

Provisions

The 34% oil price related currency devaluation of the Azerbaijani manat against the US dollar in February 2015 brought the economic boom in Azerbaijan to an abrupt end. As a sizeable portion of the MFI’s loan portfolio is denominated in US dollars, the repayment capacity of microfinance clients decreased significantly. In general, the portfolio quality and capital adequacy of many financial institutions in Azerbaijan came under significant pressure. In July 2015, the central bank introduced interest rate caps on credit and deposits. As a result, the business models of non-bank institutions came under considerable pressure. The central bank’s decision in December 2015 to move to a floating rate regime caused the manat to lose another 48% of its value against the US dollar. Consequently, Triodos Microfinance Fund has taken additional provisions on loans outstanding to two MFIs in Azerbaijan: Azercredit and FINCA Azerbaijan.

The provision on Prizma in Bosnia Herzegovina was raised from 90% to 95% in December 2015, following disappointing debt collection levels at the end of 2015. Total provisions on loans outstanding amount to 0.5% of the fund’s net assets.

Return

The return of the EUR-denominated institutional share class amounted to 3.3% (2014: 6.0%). The fund’s return remained below the target return of 5-8% due to the devaluations of emerging market currencies and increasing hedging costs. In addition, the return was negatively affected by the provisions the fund has taken on part of its loan portfolio. The liquidity ratio averaged 15% throughout the year, which is not too high but also leaves room for new investments. Differences in performance between the share classes are mainly attributable to the different cost bases, as explained below in the section on Costs.

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Share class

1-year
return p.a.

3-year
return p.a.

5-year
return p.a.

Return p.a.
since inception

 

 

 

 

 

*

NAV per share is based on share prices as published on December 31, 2015, i.e. the last price at which shares were traded in the reporting period.

**

The Z-share class has a limited history. Historic returns are based on the similar R-share class, which has an identical investment policy.

***

The GPB-denominated share classes are hedged against the euro.

Source: RBC Investor Services Bank S.A. and Triodos Investment Management B.V.

B-cap (EUR)

2.6%

4.7%

5.5%

4.8%

B-dis (EUR)

2.6%

4.7%

5.5%

4.8%

I-cap (EUR)

3.3%

5.5%

6.2%

5.5%

I-dis (EUR)

3.3%

5.5%

6.2%

5.4%

R-cap (EUR)

2.5%

4.8%

5.5%

4.8%

R-dis (EUR)

2.6%

4.8%

5.5%

4.8%

Z-cap (EUR)**

3.1%

5.1%

5.7%

5.0%

Z-dis (EUR)**

3.1%

5.2%

5.7%

5.0%

KB-cap (GBP)***

2.7%

5.0%

5.6%

4.9%

KB-dis (GBP)***

2.9%

5.0%

5.5%

4.6%

KI-dis (GBP)***

3.5%

5.8%

6.3%

5.4%

KR-dis (GBP)***

2.9%

5.1%

5.6%

4.8%

KZ-cap (GBP)***

3.3%

5.4%

5.8%

5.1%

KZ-dis (GBP)***

3.2%

5.4%

5.7%

4.9%

 

 

 

 

 

Liquidity

Triodos Microfinance Fund aims to retain a minimum of 10% of its net assets in cash or cash equivalents, in order to facilitate redemptions in the fund. The fund’s liquidity ratio at year-end amounted to 22.5%1 of the net assets. The cash position is relatively high as a result of large inflows into the fund in the fourth quarter of 2015. The excess cash will be deployed in the first months of 2016.

1 Investment restrictions are presented against total assets. The liquidity ratio is presented against net assets.

Costs

The largest item in the cost structure of Triodos Microfinance Fund is the management fee paid to the alternative investment fund manager (‘investment manager’), Triodos Investment Management. Triodos Investment Management uses this fee primarily to cover staff costs, including travel expenses incurred in connection with providing new finance facilities and managing existing finance facilities. This is generally quite an intensive process, especially the management of the fund’s equity investments, which requires frequent trips to the countries where investments are made. The lead times for first investments are relatively high because of the thorough due diligence analysis that is required.

The ongoing charges for Triodos Microfinance Fund, which include the management fee, ranged from 1.94% to 2.00% for the institutional share classes and from 2.13% to 2.78% for the other share classes. More detailed information on management fees and ongoing charges can be found on (PDF:) notes to the financial statements.

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