Annual Report 2014

Report by the Board of Directors 2014

Business environment

The global economy performed more weakly in 2014 than forecast. China’s economic growth continued to disappoint, while Europe still struggled with the effects of the debt crisis and the threat of deflation posed by a stagnating economy. Russia’s economy entered a sharp downturn as a consequence of heightened political tensions and falling oil prices. Positive growth in the USA contributed to growth in the world economy.

Finland’s economy hovered close to recession after two years (2012 and 2013) of undisputable economic recession. A contraction in exports, consumer caution and subdued investment were obstacles on the country’s planned path to economic growth. Small and medium-sized industrial companies, in particular, reduced their investment, presenting further challenges to industrial renewal in the future. Doubts caused by uncertain economic prospects and the consequent curtailment of debt financing contributed to weaker levels of investment in the country.

There was, however, brisk activity on Finland’s private equity and venture capital market. Finnish private equity and venture capital funds raised altogether €600m of new funds, and overall fundraising reached new highs since the financial crisis. Of the total funds raised, less than 20% came from foreign sources, slightly lower than in previous years. There were also proportionally fewer Finnish investors in new funds, as the traditionally larger investors in funds – pension institutions and public bodies – accounted for an appreciably larger share of the funds raised. Overall, the assets managed by Finnish private equity and venture capital investment companies amounted to €5.6 billion at the end of the year.

A record number of Finnish companies received financing from private equity and venture capital investors during 2014. Investments were made in some 300 companies, representing a 20% increase on the previous year. In monetary terms, €690m was invested in Finnish companies, some €140m less than in 2013. The average size of an investment was therefore smaller in 2014. Of the total amount invested, €580m (€695m) was allocated to buyout investments and €110m (€134m) to venture capital investments. In the venture capital allocation, there was a marked increase in the proportion of seed investments in start-ups.

The number of exits necessitated by the prevailing economic climate was the lowest since 2009. There was a visible upward trend in the number of write-downs included in exit statistics, the highest number in four years.

Finnish Industry Investment remodels its operations

Fund investments oiled the workings of Finland’s private equity and venture capital market by co-establishing private funds and by launching the FoF Growth II fund. Investments were made in international funds aimed at channelling foreign capital and business expertise into Finnish companies. Finnish Industry Investment’s investment network in fact channelled a record amount of foreign venture capital into Finnish companies in 2014.

Direct investment focused on promoting industrial revival and renewal. A new investment programme was launched with the aim of investing €100m over the next few years in industrial companies and in companies serving them. A major breakthrough in 2014 was the joint acquisition of Turku shipyard with a German investor. The acquisition ensures the continuity of the shipyard and of the operational framework for Southwest Finland’s maritime cluster.

Finnish Industry Investment updated its strategy at the end of 2014. Direct investment will in future be more clearly focused on companies needing later-stage venture capital financing and on medium-sized enterprises seeking international growth. The company will focus its fund investment operations on continuing to finance Finnish private equity and venture capital investment companies and on working towards internationalising Finland’s private equity and venture capital industry. Finnish Industry Investment fulfilled its role as a developer of the venture capital and private equity market also as a member of the Team Finland cooperation network in arranging the SLUSH event and by being active in numerous other major investment sector events during the year.

Investment activities

The deal flow grew during 2014. Finnish Industry Investment screened some 260 new investment projects during the year and made new investments amounting to €83m.

The parent company made new investment commitments, totalling €42.3m, in seven venture capital and private equity funds. Investment commitments were given to five venture capital funds and two late-stage growth funds. The company exited from five funds at the end of their terms. Capital calls amounting to €61.6m (€43.9m) were paid to funds. Altogether €58.3m (€54.5m) was returned to the company from funds.

New direct investments amounted to €39.9m (€37 m) in 2014. Most direct investment was in growth companies focusing on international growth and exports and in medium-sized industrial companies. Finnish Industry Investment also participated in the listing of two companies. During the financial year there were full exits from 10 portfolio companies (Incap Corporation, Artul Holding Oy, Finnprotein Oy, Altona Mining Limited, Nordic Mining ASA, Halikko Group Oy, Nordic Tank Oy, Silecs International Pte. Ltd., Genestia Group Oy and The Switch Engineering Oy), and partial exits from 7 portfolio companies. The exits had an impact on the company’s financial result of €-14.7m. The largest single impact was the bankruptcy of the portfolio company Finnprotein Oy in summer 2014.

Income statement and financial position

The Group’s loss for the financial year was €43.2m (€7.6m loss in 2013). Income from private equity and venture capital investments was booked as €21.6m. However, the value reductions of investments as well as the exit and sales losses from exits that were entered in the accounts pushed the result for the financial year into loss.

Sales gains from direct investments in portfolio companies entered under other operating income in the consolidated accounts amounted to €2.5m (€0.7m). Other operating expenses for the Group amounted to €22.1m (€7.7m). This figure also includes exit losses and sales losses totalling €17.8m from direct investments in portfolio companies. The largest loss resulted from Finnprotein Oy’s bankruptcy.

The Group’s financial income included distribution of funds’ profit amounting to €16.5 (€16.8m) and interest income from direct investments totalling €1.8m (€3.4m). The aggregated net amount of value reductions of investments was €-49.4m (€-27.9m). The total impact of investments on profit was €-45.8m (€-11.4m).

Finnish Industry Investment will next year apply accounting practices conforming to International Financial Reporting Standards (IFRS) in the financial reporting of the Group’s accounts. In preparation for the IFRS conversion, the valuation practices for the fair values of private equity and venture capital investments were changed in the financial statements for 2014, compared to previous years. Owing to the nature of the investments, the management to a considerable degree exercised its judgement and made necessary estimates in valuation calculations. The fair value of investments is deemed to be the price that would be received when selling an investment in an orderly transaction between market participants at the measurement date. The book values derived from the fair values of private equity and venture capital investments have been calculated using the same principles as previously, i.e. private equity and venture capital investments were entered in the balance sheet at acquisition price or, if the fair value was lower than the acquisition price, at fair value.

The fair value of investments in private equity and venture capital funds has been defined independently, based on the International Private Equity and Venture Capital Valuation Guidelines (IPEVG) in the case of those fund investments whose investment operations did not correspond in a risk review to the original and the results of whose investment operations are expected to permanently fall short of the set targets. The Net Asset Value reported by fund managers was used as the fair values of other investments in private equity and venture capital funds. The fair values of funds in the valuations used for fund investments in the accounts were compared to the corresponding acquisition prices. A value adjustment was then made if the adjustment of fair value with respect to acquisition price was considered substantial and permanent. The one-off impact of the change in the valuation principles for investments in funds had a €-10.3m impact on the Group’s result.

The fair values of direct investments have been defined according to International Private Equity and Venture Capital Valuation Guidelines, as in previous years. The impact of the expected future profitability and business risks of portfolio companies on the permanent value of the portfolio companies has been given more weight in the valuations of direct investments than before.

According to Finnish accounting legislation, when the fair value of investments exceeds the acquisition price, the difference is not entered in the accounts as an uncapitalised increase in value. The fair value of the Group’s investments on 31 December 2014 was €405.3m and the book value €345.5m. The difference between them, €59.8m, is an uncapitalised increase in value that grew by €8.6m during 2014 and that has not been entered in the accounts.

The impact of consolidated income from liquid securities on the Group’s profit was €10.7m (€9.7m). At the end of the financial year the balance sheet value of liquid securities included in current assets and cash in hand and at banks totalled €242.4m (€188.2m). The corresponding market value of assets on the balance sheet date amounted to €257.4m (€199.6m). Investments in liquid securities ensure the company has adequate liquidity to cover investment commitments. At the end of 2014 the parent company’s unpaid commitments totalled €256m (€273.7m). Unpaid commitments consist almost entirely of commitments to funds with an average payment period of over 4 years.

Aker Arctic Technology Oy (Aker), which is 66.4% owned by Tesi Industrial Management Oy, a wholly-owned subsidiary of Finnish Industry Investment, was combined for the first time with the consolidated financial statements for 2014. Aker is the only direct investment in which Finnish Industry Investment has a majority holding. Aker specialises in ship engineering and associated testing services. Aker Arctic’s field of operation differs from Finnish Industry Investment’s other operations, so combining the accounts had an impact on the structure and content of the Group’s income statement and balance sheet, and therefore on their comparability with previous years’ accounts. As a result, the consolidated income statement now also includes a line for net sales. Aker had an impact on the Group’s profit in 2014 of €-1.8m, including €-2.2m amortisation of goodwill. The subsidiary Aker capitalised patent expenses of €0.15m (€0.28m) and the balance sheet value of patents at the end of the financial year was €0.39m (€0.33m).

The parent company’s balance sheet total at the end of 2014 was €598.8m (€565.3m). The Group’s balance sheet total was €605.4m (€561.5m). The parent company’s shareholders’ equity stood at €597.4m (€563.8m) at year’s end and the Group’s shareholders’ equity was €596.6m (€559.7m). The parent company’s equity ratio was 99.8% (99.7%). The Group did not hold any interest-bearing liabilities at the end of 2014.

Organisation, administration and personnel

The amendment to the special law governing Finnish Industry Investment’s operations entered into force on 15th January 2014. The amendment provided for a decree that entered into force on 1st February 2014 and replaced the government decision setting policy guidelines for investment activities. The amendment broadened the scope of the company’s operations. In addition to conventional private equity and venture capital investment, the company can now also invest in large projects that promote the government’s industrial policy.

The Group’s subsidiaries are: Start Fund Management Oy (parent company’s ownership 100%), Start Fund I Ky (parent company’s ownership 100%), Tesi Fund Management Oy (parent company’s ownership 100%), Tesi Industrial Management Oy (parent company’s ownership 100%) and Aker Arctic Technology Oy
(ownership 66.4%).

At Finnish Industry Investment’s Annual General Meeting held on 21 March 2014, the following members were elected to the Board of Directors: Jukka Alho (Board Chairman, M.Sc. (Eng.), born 1952), Urpo Hautala (Senior Advisor, Ministry of Finance, (M.Pol.Sc.), born 1958), Esa Lager (LL.M., M.Sc. (Econ.), born 1959), Inka Mero (Founder, KoppiCatch Oy, M.Sc. (Econ.), born 1976), Mika Niemelä (Director of Finance, Ministry of Employment and the Economy, (M.Soc.Sc.), born 1975), Annamarja Paloheimo (Head of Branch Region, Nordea Bank Finland Plc, Senior Lawyer, LL.M, born 1964) and Riitta Tiuraniemi (M.Sc. (Eng.), born 1962).
Board Chairman Jukka Alho resigned from the Board of Directors on 31 August 2014. Sakari Tamminen (honorary counsellor, born 1953) was elected as the new Chairman of the Board of Directors, by the unanimous decision of the owner, with effect from 1 September 2014.

Board member Inka Mero resigned from the Board of Directors on 26 May 2014. The Extraordinary General Meeting held on 24 September 2014 elected Johanna Lindroos (Partner, Dasos Capital Oy, M.Sc. (Econ.), born 1968) a member of the Board of Directors.

In 2014 the Board of Directors convened altogether 17 times and average attendance was 90%.

Finnish Industry Investment Ltd’s President & CEO until 31 August 2014 was Juha Marjosola, (M.Sc. (Econ.), born 1952). As from 1 September 2014 the company’s President & CEO has been Martin Backman (M.Sc. (Econ.), M.Sc. (Eng.), born 1969). The parent company employed an average 31 people during the year. Two new employees were recruited in 2014, one of which on a fixed-term contract. No people resigned from the company. At year’s end 13 women and 19 men worked in the company. The Group employed an average 79 people during the year and had 85 employees at the end of 2014.

Shares and share capital

The Annual General Meeting held on 21 March 2014 decided to issue 3,000 new shares at a subscription price of 10 euros per share. The share issue was placed with the Finnish government. The shares were subscribed for on 21 March 2014 and paid up on 1 April 2014. The subscription price was entered in full as share capital. The funds from the share issue will be channelled into ensuring the supply of business and growth financing of high-growth SMEs and internationalising SMEs (FoF Growth II fund) and into private equity and venture capital investment that promotes internationalisation.

The Extraordinary General Meeting held on 24 September 2014 decided to issue 5,000 new shares at a subscription price of 10 euros per share. The share issue was placed with the Finnish government. The shares were subscribed for on 24 September 2014 and paid up on 30 September 2014. The subscription price was entered in full as share capital. The funds from the share issue will be channelled into private equity and venture capital investment that promotes the renewal, diversification and growth of Finnish industry as well as the growth of companies in the bioeconomy, cleantech and healthcare sector.

The company has one class of share and 31,210 shares. The share capital is €333,992,200.

Risk management

Finnish Industry Investment’s operations are governed by a special law and a government decree relating to it, which define the company’s main principles for risk-taking. The company promotes the development of Finland’s private equity and venture capital market as well as the growth and internationalisation of Finnish companies. This focuses the company’s investment operations mostly on Finland and particularly on small and medium-sized growth companies. The company’s operations therefore involve bearing higher than usual risks in certain geographic areas and specific sectors. The company’s investment activities must nevertheless be managed as a whole in a way that ensures investments are adequately diversified and that does not legally jeopardise the primary obligation for profitable operation over the long term.

The company has a risk management policy, confirmed by the Board of Directors, which sets out the principles for the company’s risk management, risk definitions and risk classifications, as well as defining the main roles and divisions of responsibilities and the monitoring and reporting procedures. The goal for risk management is to ensure that risks borne in the company are commensurate with Finnish Industry Investment’s risk-bearing capability. The objective of risk management is to ensure that the risks attached to the company’s business operations are identified and evaluated, that the company reacts to these risks, and both manages and monitors them.

The company’s Board of Directors confirms the company’s strategy and action plan, in which the targets for different investment allocation classes are specified. In order to reduce risks, investments are divided between different allocation classes, different sectors, and are also distributed geographically. The Board makes investment decisions and supervises the implementation of investments.

Risk management supports achievement of the goals set in the company’s strategy and action plan by monitoring that the risks taken are commensurate with the risk-bearing capability. Risk-bearing capability is managed by carefully planning investment operations and by managing investments with the aim of assuring achievement of the targets set for return on capital and profitability.

The company’s main risks are related to private equity and venture capital investments, and to investments in liquid assets. Both of these involve various investment risks, namely; valuation risks, market risks, liquidity risks, financing risks, credit risks, currency exchange risks, interest risks and other investment risks.

The risks related to each private equity and/or venture capital investment are managed by predictive generation of the deal flow, careful analysis in the screening phase, participating through boardwork in the business development of portfolio companies, proactive interaction with managers of private equity and venture capital funds, and positive action in the exit stage.

Managing financing risks ensures that the company always has adequate financing available for its business operations (unpaid investment commitments). The company’s liquidity and cash flows are continuously monitored. When preparing new investments, the effect of the investments on liquidity and financial position is taken into account. Most of the company’s cash flows and investments are denominated in euros.

Investments in liquid securities are made at the selected risk level in compliance with the investment policy confirmed by the Board of Directors. Investments in liquid securities aim to ensure adequate assets for private equity investing and other payment transactions. Investments in liquid securities are spread mainly between investments in bond funds and investments in equity funds. The market volatility of liquid securities is regularly monitored. The counterparty risk attached to investing in liquid securities is managed with a thorough partner selection procedure.

Other risks to which Finnish Industry Investment is exposed are strategic risks, operative risks, risks of loss or damage, and risks to reputation. Strategic risks are managed by regularly evaluating the company’s operations and business environment. Operational risks are managed both by good corporate governance and with internal instructions, and these risks are covered by insurance.

At the end of 2014 the ratio of investments and commitments to shareholders’ equity was 102%. The guidelines set by the ownership steering department of the Ministry of Employment and the Economy limit the ratio to 150%.

The Ministry’s ownership steering department set a maximum of 35% in 2014 for the proportion of direct investments (aggregated total of investments and investment commitments) in the investment portfolio. At the end of the financial year direct investments accounted for 29% of the investment portfolio.

Board’s proposal for the distribution of profit

The parent company’s distributable earnings on 31 December 2014 after the loss for the financial year of €46,462,609.02 amounted to €47,509,664.45. No significant changes in the company’s financial position have occurred since the end of the financial period. Taking into account the company’s liquidity, unpaid commitments and confirmed investment plan for 2015, the Board proposes to the Annual General Meeting that no dividend be distributed for 2014.

Events after the financial year

Finnish Industry Investment made a number of profitable exits from its investment portfolio during the current year. Consequently, the financial result for the first part of this year has been favourable. Finnish Industry Investment is preparing a new investment programme aimed at catalysing foreign investors into investing capital and expertise in Finnish companies in the later venture capital stage. The Finnish Parliament approved in the first supplementary budget of the year an investment of €25m for implementing the programme.


The difficult economic climate prevailing in Finland, weak domestic demand and the prolonged Russian crisis will create uncertainty for investors in the near future.

Finnish Industry Investment will pursue its long-term function of providing venture capital and private equity financing and of promoting development of the investment industry through active boardwork in its portfolio companies.

Key figures, Group
2014 2013 2012 2011 2010
Profit/loss for the financial year, €m -43.2 -7.6 7.3 -12.6 -6.2
Shareholders’ equity, €m 596.6 559.7 567.4 510.0 522.6
Balance sheet total, €m 605.4 561.5 569.0 512.0 524.3
Unpaid commitments, €m 253.6 270.1 217.5 244.0 280.3
Investments at acquisition price, €m 490.8 493.2 476.8 425.9 386.7
Investments at acquisition price and commitments, €m 744.4 763.3 694.2 669.9 666.9
Reductions in value of investments, €m 145.3 125.6 114.1 105.9 100.0
Investments at book value, €m 345.5 367.7 362.7 320.0 286.6
Ratio of investments and commitments to shareholder's equity 1.0 1.1 1.0 1.1 1.1
New commitments made during the financial year, €m 82.6 130.2 57.1 78.0 105.8
Return on equity -7.5 % -1.4 % 1.4 % -2.4 % -1.2 %
Equity ratio 98.5 % 99.7 % 99.7 % 99.6 % 99.7 %
PE & VC investment expenses per balance sheet total 1.1 % 1.1 % 1.0 % 1.1 % 1.0 %
Personnel, average 79 30 29 26 25
Salaries and fees for the financial year, €m 6.1 2.9 2.8 2.4 2.4
Fund investments, number 89 88 86 84 84
Funds, number of portfolio companies 544 446 434 407 388
Parent company, number of direct portfolio companies 42 45 44 44 41
Start Fund I Ky, number of portfolio companies 22 25 32 35 51
Tesi Industrial Management Oy, number of portfolio companies 2 1
Number of portfolio companies, total 610 517 510 486 480

Download ready made reports

Annual Report

Financial Statements