Annual Report 2015

1. Summary of significant accounting policies

General information

Finnish Industry Investment Ltd (”FII”,”the Company”) is a government-owned investment Company that promotes the Finnish business, employment and economic growth through venture capital and private equity investments and international networking.

Finnish Industry Investment is domiciled in Helsinki, and the address of its registered office is Mannerheimintie 14 A, 00100 Helsinki. Copies of the consolidated financial statements are available in the address mentioned above, as well as on the website http://www.industryinvestment.com/. The Board of Directors of Industry Investment authorised these financial statements for issue in their meeting 22.3.2016 According to the Finnish Limited Liability Companies Act, the Annual General Meeting has the power to amend the financial statements.

Finnish Industry Investment invests in Finnish companies both directly and through venture capital and private equity funds: in rapid growth, internationalisation, major industrial capital investments as well as sectoral, corporate and ownership restructurings.  

Finnish Industry Investment is part of the national innovation system, the goal of which is to renew the business community, enhance the development and utilisation of new technologies, create new growth companies and create jobs and welfare. FII contributes to the innovation system services by providing venture capital and private equity financing to companies.  Its key principle is to conduct its operations on market terms together with domestic and foreign investors and hand-in-hand with them increase the ability to take risks while boosting the availability of funding, investment expertise and networks. 

Since the year 1995, Finnish Industry Investment has made venture capital and private equity investments for approximately one billion euro in total.  Currently there are investments in 670 companies directly or through investment funds. The continuity and growth of FII’s investment activities have been secured with government capitalisation and with financing from the Company’s own income.

The operations of Finnish Industry Investment are regulated by legislation (Act on State-Owned Company Suomen Teollisuussijoitus Oy) and government decree (Government Decree on State-Owned Company Suomen Teollisuussijoitus Oy). According to the law, it is possible to accept a higher risk or lower expected return when making individual investment decisions. According to the law the operations must be profitable on the long term.

Basis of preparation of the financial statements

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), and they are in compliance with IAS and IFRS standards as well as SIC and IFRIC interpretations that are effective at 31 December 2015 and are endorsed to be applied in  the European Union.  In the Finnish Accounting Act and regulations issued by virtue of it, ”IFRS” refers to standards and interpretations that have been endorsed by the EU in accordance with the procedure defined in the EU regulation (EY) No 1606/2002. The notes to the financial statements also meet the requirements of the Finnish accounting legislation and company law that are complementary to the requirements in the IFRSs.

Finnish Industry Investment issues its first consolidated financial statements in accordance with IFRSs for the financial year ended 31 December 2015, and presents comparative information for the financial year ended 31 December 2014. It applies IFRS 1 First-time Adoption of International Financial Reporting Standards, and the date of transition to IFRSs is 1 January 2014.  Previously, the consolidated financial statements have been prepared in accordance with Finnish accounting standards (”FAS”). 

The impact of the transition to IFRSs is disclosed in the reconciliations included in note 3 Transition to IFRS.

The primary measurement basis applied in the preparation of the financial statements is fair value, as all financial assets are measured at fair value. Other items are measured at cost or amortised cost. The financial statements are presented in thousands of euros, unless stated otherwise. The preparation of financial statements in accordance with IFRSs requires the use of certain critical accounting estimates.  It also requires management to exercise its judgment in the process of applying the accounting policies. The most significant estimates and judgments are disclosed under accounting policies, in section 2 Critical accounting estimates and judgmental areas.

Accounting policy for investment entities

The management of Finnish Industry Investment has determined that the company meets the definition of investment entity in IFRS 10 Consolidated financial statements.  Therefore, FII records the investees under its control at fair value through profit or loss, except for operating subsidiaries whose operations relate to investment activities or which provide investment management services, unless those subsidiaries themselves meet the criteria for an investment entity. In summary:

  • Subsidiaries that provide fund management services are considered to be an extension to the parent company’s business activities and they are consolidated (Start Fund Management Oy and Tesi Fund Management Oy);
  • Subsidiaries that are considered as investment entities and through which FII makes its investments are measured at fair value through profit or loss (Start Fund I Ky and Tesi Industrial Management Oy).

Investees in which FII has significant influence are similarly recorded at fair value through profit or loss.

Subsidiaries and their treatment in consolidated financial statements are described in more detail in note 15 Subsidiaries.

Recognition and measurement of financial assets

FII’s financial assets comprise venture capital and private equity investments, financial securities and cash and cash equivalents. Financial assets are grouped, at the date of acquisition, into classes that determine their basis of measurement. All purchases and sales of financial assets are recognized on the trade date.

Financial assets are derecognised when the rights to receive cash flows from financial assets have expired or transferred to another party so that risks and rewards have transferred or when a liability is extinguished.

Financial assets at fair value through profit or loss

Venture capital and private equity investments as well as financial securities are designated at initial recognition (or at the date of transition to IFRSs) as at fair value through profit or loss, because they are managed and their performance is monitored by Finnish Industry Investment on the basis of fair value (application of the ‘fair value option’).  Venture capital and private equity investments are in most cases non-current investments and are presented in the statement of financial position under non-current assets. Financial securities are presented under current assets because of their nature and purpose. 

Financial assets are initially recognised at fair value. Transaction costs are expensed immediately. After initial recognition, financial assets are measured at fair value at each reporting date, and both realised and unrealised changes in fair value are recognised in profit or loss in the period in which they arise. The net movements in the fair value of venture capital and private equity investments are presented in the income statement under ”Net gains from venture capital and private equity investments”, and the movements in the fair value of financial securities are presented under ”Net gains from financial securities”. Interest income and dividend income are included in the net movement in fair value. The basis for the determination of fair value is disclosed in note 5 Determination of fair value.

Cash and cash equivalents

Cash and cash equivalents comprise cash and demand deposits.

Tangible and intangible assets

Tangible assets comprise machinery and equipment as well as leasehold improvements, and they are carried in the balance sheet at cost less accumulated depreciation. Tangible assets are depreciated over their useful lives using the straight-line method. The estimated useful lives by class of assets are as follows:

  • Machinery and equipment  3-5 years
  • Other long-term expenditure 5-10 years

Intangible assets include intangible rights consisting of computer software. Intangible assets with a definite useful life are recognised at cost less accumulated amortisation. Intangible assets are amortised over their useful lives on a straight-line basis. The estimated useful life of software is five years.

Receivables

Receivables consist mainly of deferred expenses and accrued income that are carried at cost. 

Accounts payable

Finnish Industry Investment has minor amounts of current financial liabilities (accounts payable), which are measured at cost due to their short maturities. 

Leases

All leases are classified at the inception as finance leases or operating leases based on whether the lease transfers substantially all the risks and rewards of ownership.

Leases that transfer to the lessee substantially all the risks and rewards incidental to the ownership of the asset are classified as finance leases.

Leases where substantially all the risks and rewards of ownership are retained by the lessor are classified as operating leases, and they are included in the balance sheet of the lessor. Payments made under operating leases are charged to the income statement on a straight-line basis over the term of the lease.

The leases entered by Finnish Industry Investment are classified as operating leases.

Employee benefit costs

The pension plans of Finnish Industry Investment are classified as defined contribution plans. Under a defined contribution plan, the Company pays into publicly or privately administrated pension insurances contributions that may be mandatory and contractual. FII has no obligations to make any payments apart from these contributions. The contributions paid are recorded as employee benefit when they are due. Contributions paid in advance are recognised as an asset to the extent that a cash refund or a reduction of future payments is available.

All the personnel of the Company is covered by an annual bonus scheme. The annual bonus is determined based on performance both on Company and on a personal level.  The Board of Directors sets the targets beforehand and subsequently assesses the achievement of the targets.

Income taxes

The income tax charge in the income statement includes both current and deferred tax. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date. The amount is adjusted by any taxes relating to prior periods.

Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that are enacted or substantively enacted at the balance sheet date and that are expected to be applied when the related deferred tax asset is realised or the deferred tax liability settled.

Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax assets are reviewed annually and assessed in relation to the group’s ability to generate sufficient taxable profit in the future. 

Forthcoming requirements

IFRS 9 Financial Instruments and its amendments (applied to financial periods starting on 1 January 2018 or thereafter). The new standard replaces the current IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 changes the classification and measurement of financial assets and includes a new expected loss impairment model for assessing the impairment of financial assets. The classification and measurement of financial liabilities are largely the same as in the current IAS 39 requirements. FII has started to analyse the impact of the standard.

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