2018 Annual Report Kommunalkredit Group

ALWAYS FIRST – WITH SPEED AND PRECISION. Annual Report 2018 Kommunalkredit Group KOMMUNALKREDIT ANNUAL REPORT 2018 HIGHLIGHTS Boost in profitability Product range extended RoE after tax up to Asset Management: 13.1% from 8.4% Fidelio KA Dynamic transformation Strong growth in origination 52% + 89% of total revenues from infrastructure and Financing volume new business energy business EUR 1.2bn HIGHLIGHTS Funding base strengthened High-quality loan portfolio + 56% Average rating Customer deposits increased to EUR 1bn “A-” Earnings power strengthened Stringent cost management + 65% CIR down to Operating result EUR 22m 68.4% from 78.7% Solid capitalisation Focus on distribution 19.9% CET 1 ratio + 53% Placement volume 24.3% EUR 570m Total capital ratio All figures under local GAAP. KOMMUNALKREDIT ANNUAL REPORT 2018 Table of Contents Governing Bodies of the Bank . 6 Letter by the Chief Executive Officer . 10 Management Report 14 Kommunalkredit – The Infrastructure Specialist �� 16 Our Business Model �� 18 50 | 50 | 10 �� 20 Why do we focus on Infrastructure? �� 22 Benefit to the Community �� 26 Economic Environment. 30 Business Review 2018 �� 34 Assets, Financial Position and Income. 44 Equity Participations. 52 Employees . 58 Other Material Disclosures. 60 Significant Events after Reporting Date. 61 Branch Offices . 61 Research and Development . 61 Internal Control System �� 62 4 TABLE OF CONTENTS Table of Contents Compliance and Anti-Money Laundering �� 64 Corporate Governance �� 66 Outlook �� 68 Report of the Supervisory Board to the Shareholder’s Meeting 72 Notes 74 Consolidated Financial Statements of the Kommunalkredit Group for the Business Year 2018 . 74 Consolidated Balance Sheet �� 74 Consolidated Income Statement �� 76 Consolidated Statement of Comprehensive Income �� 77 Consolidated Statement of Changes in Equity �� 78 Consolidated Statement of Cash Flows �� 80 Notes to the Financial Statements of the Kommunalkredit Group for the Business Year 2018 . 82 Auditor’s Report �� 194 Statement by the legal Representatives �� 206 5 KOMMUNALKREDIT ANNUAL REPORT 2018 Governing Bodies of the Bank Executive Board Supervisory Board Karl-Bernd Fislage Patrick Bettscheider Chief Executive Officer Chairman; delegated by Gesona Beteiligungsverwaltung GmbH; Alois Steinbichler Managing Director Gesona Chief Executive Officer Beteiligungsverwaltung GmbH until 31 August 2018 and Satere Beteiligungsverwaltungs GmbH Jochen Lucht Christopher Guth since 1 July 2018 Deputy Chairman; delegated by Gesona Beteiligungsverwaltung GmbH Jörn Engelmann Friedrich Andreae Wolfgang Meister Managing Director Gesona Beteiligungsverwaltung until 6 March 2018 GmbH and Satere Beteiligungsverwaltungs GmbH Katharina Gehra Managing Director Gesona Beteiligungsverwaltung GmbH and Satere Beteiligungsverwaltungs GmbH until 5 September 2018 6 GOVERNING BODIES OF THE BANK Governing Bodies of the Bank State Commissioner Jürgen Meisch Philip Schweizer Managing Director Achalm Capital GmbH State Commissioner; Federal Ministry of Finance Martin Rey since 1 July 2018 Managing Director Maroban GmbH Edeltraud Lachmayer Alois Steinbichler State Commissioner; since 20 September 2018 Federal Ministry of Finance until 31 May 2018 Patrick Höller Delegated by the Staff Council Bettina Horvath Deputy State Commissioner; Paul Matousek Federal Ministry of Finance Delegated by the Staff Council until 14 December 2018 Renate Schneider Government Commissioner Delegated by the Staff Council for the Cover Pool for Covered Bank Bonds Karin Fischer Government Commissioner; Federal Ministry of Finance Sandra Kaiser Deputy Government Commissioner; Federal Ministry of Finance 7 KOMMUNALKREDIT ANNUAL REPORT 2018 8 EXECUTIVE COMMITTEE The Executive Committee (from left): John Philip Weiland (Head of Banking), Mariella Huber (Head of Corporate Office), Reinhard Fuchs (Head of Markets), Bernd Fislage (CEO), Claudia Wieser (Head of Business Development), Thomas Grießler (Head of Finance), Jochen Lucht (CFO, CRO, COO). 9 KOMMUNALKREDIT ANNUAL REPORT 2018 LETTER BY THE CHIEF EXECUTIVE OFFICER 10 LETTER BY THE CHIEF EXECUTIVE OFFICER Dear stakeholders, In our efforts to provide our customers with outstanding services, we benefit from the strengths of Kommunalkredit delivered a strong performance in a smaller bank. We are agile and nimble, we have 2018. We continued on the trajectory established no silo mentality and our team is eager to succeed. in 2017, substantially strengthening our operating We aim to be always first when it comes to deliver- earnings power and making significant progress in ing outstanding results with speed and precision. We the execution of our strategic programme 50 I 50 I 10. are ambitious. We take this as an obligation to get By 2022, we aim to increase our operating result un- better every day. der Austrian GAAP to EUR 50m, reduce our cost/income ratio to 50% and generate an RoE of 10%. In 2018, we have vigorously implemented our growth strategy, based on the two pillars of selective origi- Our success in 2018 was thanks to the dedication of nation of new business transactions and disciplined our employees. We have a first-class team of local placement with investors. In our origination activi- and international experts with an extensive track re- ties we put a strong focus on deal selection criteria, cord in both the public finance business as well as considering structure, pricing and placeability with the infrastructure and energy financing business. investors. Consistently applying these criteria, we This is reflected in our achievements. Our success is expanded our presence in key international markets. their success! Our underlying financial results were much better than they may seem at first glance. Kommunalkred- it reported an after-tax IFRS result of EUR 14.3m in 2018, compared to EUR 18.0m in 2017. However, 2018 after-tax profit was impacted by a large year- on-year change in tax expenses arising mainly from the reduction in value of capitalised tax loss carry- forwards under IFRS. Our pre-tax result rose strongly from EUR 7.1m to EUR 32.6m, reflecting the excel- lent performance of the bank. That said, at Kommunalkredit performance is not only judged by financial results. One of our key prin- ciples, along with client centricity and operational efficiency, is sustainable performance which we define as focusing on consistently providing value for our employees, our clients, the community and share- holders as our primary stakeholders. Our role as a bank is to finance economic growth by facilitating investment in essential infrastructure that improves the quality of people’s lives. 11 KOMMUNALKREDIT ANNUAL REPORT 2018 We increased new business volume by 89% to EUR These are tough measures, but they are necessary 1.2bn in 2018 and established Kommunalkredit as a to facilitate essential future investments. We are Top 30 lender in infrastructure and energy financing no longer in restricting mode, efficiency has moved in the EMEA region (Europe, Middle East and Africa). from being a program to how we run the bank day to The volume placed with investors rose by 53% to EUR day. We will further invest in talent, the moderniza- 570m. Equally, we invested into our public financing tion of our IT and the digitalization of our business. business. The combination of our two businesses led In 2018, we outsourced part of our IT hardware and to significant growth in earnings and outpaced the streamlined processes as part of our FiT2020 pro- reduction in earnings from our historic, amortizing gram. Our workforce is prepared for technology in- public sector asset book. At the same time, we suc- vestments which will automate many current tasks. cessfully maintained our 0% NPL ratio. However, this is an essential issue all companies face - automation will be necessary, but it is not just Moreover, we set up a reliable stream of funding about technology, it is about how we will work in sources for the bank with 54% of our funding stem- the future. ming from sources not available to us at the time of Kommunalkredit’s privatisation in autumn 2015. We We start 2019 from a position of strength, and we have a combination of long-term funding that we are well-positioned to capitalise on the opportuni- are gradually rolling out with lengthening tenors and ties offered by the market. Although the world econ- deposit term funding resting on three pillars: public omy seems to have

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