Annual Report 2015

Report by the Board of Directors 2015

Business environment

The global economy grew moderately in 2015, but more slowly than the long-term average. Falling prices of oil and other raw materials depressed the growth of developing countries, and there were also signs of a slowdown in China’s economy. The USA’s economy grew in line with expectations, and the economies of many countries in Europe also showed signs of recovery. Low interest rates and depressed oil prices have contributed to Europe’s improved economic performance. After a number of years of recession, Finland’s macroeconomy still shows no clear signs of recovery, largely because in the capital goods sector demand for Finnish companies’ export products remained low. There was a particularly sharp fall in exports to Russia. Industrial production and investment volumes were still contracting in Finland, although positive signs emerged towards the end of the year. Slow progress in the public sector’s structural reforms has dented confidence in the future improvement of public finances.

Finland’s financial markets were fairly stable during the year. Finland’s banking sector is economically sound, but the stricter legislation now being applied to banks has constricted the availability of financing for the SME segment, and in particular financing for investment and growth. A welcome and long awaited development in 2015 was the large number of successful IPOs – the growth preceding the IPOs of many new listed companies was made possible by the risk financing that venture capital investors offered and by active ownership models.

Finland’s venture capital and private equity market has also developed favourably. In relation to its GDP, Finland has in recent years become one of Europe’s leaders in terms of the volumes of its early-stage venture capital financing, and some specific sectors in Finland are an attractive target for international capital. One challenge, however, for Finland’s investment industry continues to be a short supply of private risk financing for later-stage venture capital and growth-stage companies. The channelling of international expertise and capital into Finland is also more restricted than in many other countries. Finnish Industry Investment has participated in over one-half of the €5m raised in venture capital financing rounds for Finnish growth companies between 2013 and 2015, either via direct investments or through its portfolio funds in Finland and abroad.

Preliminary annual data released by the Finnish Venture Capital Association (FVCA) indicate that Finnish investors’ activity in 2015 remained at almost the same high level as in recent years, in fundraising and new investments as well as in exits. International players made several large investments, in monetary terms, in venture capital and later-stage companies, but Finland received fewer international investments in 2015, in numerical terms, than in previous years.

The private equity and venture capital markets of the other Nordic countries, notably Sweden and Denmark, continued to develop strongly in 2015, although overall activity did not quite reach the same levels as in 2013-2014. There were numerous profitable exits from all allocations of Nordic funds, and this was favourably reflected in Finnish Industry Investment’s result for 2015. Exits through IPOs have sharply increased compared to previous years.

Investment activities

Finnish Industry Investment’s private equity and venture capital investments accelerate the growth and internationalisation of Finnish companies as well as the development of the Finnish venture capital and private equity market. The company invests in private equity and venture capital funds as well as directly in companies.

Finnish Industry Investment made new investments and commitments amounting to €93m in 2015, an increase of 14% compared to the previous year. The focus was on fund investments, for which commitments totalling €66.7m (€42.3m in 2014) were given to seven new funds. Investment commitments were given to four venture capital funds and three later-stage funds. Three fund investments catalysed the creation of new Finnish funds, which expect to raise over €350min total capital. The objective of international fund investments is to channel foreign capital, expertise and networks into meeting the needs of Finnish growth companies. A total of €68.3m (€62.8m) was paid out in capital calls to Finnish Industry Investment’s portfolio funds. Correspondingly, the funds returned altogether €99.1m (€60.5m) from investments.

During the year altogether €24.9m (€39.0m in 2014) went to direct investments in 12 portfolio companies. Direct investments were for the most part linked with ongoing investment programmes, the largest of which is the €100m Industrial Renewal investment programme launched in 2014. Investments under the programme are targeted at medium-sized industrial enterprises and the companies serving them. The programme focuses particularly on cleantech, bioeconomy, health technology and digitalisation, and its largest new investments in 2015 were in Kotkamills Oy and Rauma Marine Constructions Oy. Altogether, investments totalling €47m have been made in 17 companies under the auspices of the programme. A new €25m investment programme was also launched during the year. The programme will catalyse international capital and expertise into Finnish companies needing later-stage venture capital. Investments totalling €2.2m were made under the investment programme during 2015. Enhancing active ownership in portfolio companies to achieve the growth and profitability of the companies was a high priority in managing investments during the year.

The objective for Finnish Industry Investment’s investment activities is to develop and internationalise Finland’s venture capital and private equity market. This takes place in practice by catalysing expertise and both private and international capital into Finnish growth companies. A total of 8.6 times the amount of capital invested by Finnish Industry Investment was channelled into the investments made in 2015. Altogether €113m of capital from abroad was channelled into Finnish companies and funds via Finnish Industry Investment’s network during the year.

Exit activity was very brisk in 2015, for both direct investments and fund investments. Finnish Industry Investment exited fully from eight direct investments and partially from five. There were also a number of large-scale exits via funds, especially towards the end of the year, plus seven exits from funds coming to the end of their term. Altogether €156m was received from exits during 2015.

In addition to the Group’s own investment operations, Finnish Industry Investment manages the FoF Growth and FoF Growth II funds. The FoF Growth fund’s investment period expired at the end of 2013, when the fund was fully invested according to plan. FoF Growth II, for its part, began its investment operations at the start of 2014 and to date has made commitments amounting to €62.5m in five funds. In 2015 FoF Growth II gave three new investment commitments amounting to €37.5m.

Group’s financial performance

Transition to IFRS reporting

Finnish Industry Investment has prepared the first consolidated financial statements applying IFRS standards for the financial year ending 31 December 2015. The consolidated financial statements include comparison data from the financial year ending 31 December 2014. The date of transition from FAS (Finnish Accounting Standards) accounting practice to the IFRS standards is 1 January 2014. As a consequence of the transition to IFRS accounting, the Group’s shareholders’ equity at 1 Jan 2014 rose by €62.4m and at 31 Dec 2014 by €79.9m. The Group’s result for 1 Jan – 31 Dec 2014 was €17.5m higher when using IFRS accounting than when using FAS accounting.

More detailed information about the effects that the transition to IFRS accounting had on the consolidated statement of comprehensive income and balance sheet is presented in note 3 of the Notes to the Accounts.

Consolidated profit/loss

The Group posted a healthy profit for financial year 2015. The marked improvement compared to the previous year was largely due to strong growth in net gains from both direct investments and fund investments. The Group’s profit for the financial year was €86.4m (€25.7m loss in 2014).

The Group’s net gains from investments in 2015 totalled €108.8m (€39.7m loss) Net gains from private equity and venture capital funds amounted to €71.6m (€0.1m loss). During the review period portfolio funds realised a number of very profitable exits from portfolio companies and, consequently, funds returned more capital and profit than in recent years. Valuations of funds’ portfolio companies also rose on average strongly, resulting in a substantial unrealised net gain in 2015.

Net gains from direct investments amounted to €37.2m (€39.6m loss in 2014). The net gain consisted mainly of a rise in valuations of investments, unlike 2014 when valuations produced an unrealised net loss. Realised exits also boosted net gains.

Net gains from financial securities recognised as other operating income were €6.4m (€14.4m). Most financial securities are interest bearing, and produced low returns in 2015. Income from financial securities consisted mainly of net gains from share investments.

Operating expenses were €7.3m (€6.7m). Operating expenses represented 0.8% (1.0% in 2014) of the balance sheet total. Operating profit was €108.3m (€31.4m loss in 2014).

Balance sheet and financial position

Non-current assets were €472.3m (€439.9m), of which €459.8m (€414.2m) consisted of private equity and venture capital investments recognised at fair value in the statement of comprehensive income. They were divided into; fund investments €326.1m (€285.3m), and direct investments €133.7m (€128.8m). More detailed information about the determination of fair value is given in note 5 of the Notes to the Accounts.

The figure for current assets, €423m (€254.7m), included €419.6m (€252.4m) of financial securities recognised at fair value in the statement of comprehensive income. Recapitalisation of €105m received from the Finnish government contributed to the increase in the amount of financial securities. This capital will be channelled into investments in subsequent financial years. A positive net cash flow from private equity and venture capital investments also raised the amount of current assets.

Financial securities safeguard continuity in the company’s investment operations and its ability to meet unpaid investment commitments. At the end of 2015 unpaid commitments totalled €265m (€256m). Unpaid commitments consist almost entirely of commitments to funds with an average payment period of over 4 years. In addition to unpaid investment commitments to funds, some €114m has been set aside for direct investments under the company’s ongoing investment programmes.

The Group’s balance sheet total amounted to €895.3m (€694.5m) on 31 December 2015. Shareholders’ equity grew to €867.9m as a result of the €105m recapitalisation and the profit of €86.4m for the financial year. The Group’s equity ratio was 96.9% (97.4%). The Group did not hold any interest-bearing liabilities at the end of 2015.

Risks and 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. The policy sets out the principles for risk management, specifies risk definitions and risk classifications and also defines the main roles and divisions of responsibilities as well as the monitoring and reporting procedures. The goal for risk management is to ensure that risks borne by the company are commensurate with its risk-bearing capability. The objective of risk management is to ensure that the risks attached to the company’s business operations are identified and assessed, that the company responds to those risks, and that they are managed and monitored.

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 deconcentrated to different allocation classes, different industries, and also distributed geographically. The Board of Directors 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 most significant risks of Finnish Industry Investment relate to venture capital and private equity investments as well as investments in financial securities. Both involve various investment risks, including business risks attached to venture capital and private equity investments, liquidity risks, market risks and credit 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 board work 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 financial securities are made at the selected risk level in compliance with the investment policy confirmed by the Board of Directors. Investments in financial securities aim to ensure adequate assets for private equity investing and other payment transactions. Investments in financial securities are spread mainly between investments in bond funds and investments in equity funds. The market volatility of financial securities is regularly monitored. The counterparty risk attached to investing in financial securities is managed with a thorough partner selection procedure.
Other risks to which Finnish Industry Investments is exposed include strategic risks, operational risks, risks of loss or damage, and risks for reputation. Strategic risks are managed by regularly evaluating the company’s operations in relation to the environment and the expectations of various stakeholders. Operational risks are managed by good corporate governance and internal instructions, and these risks are covered by insurances.

At the end of 2015 the ratio of total investments and investment commitments to shareholders’ equity was 83.5%. More detailed information about risks and risk management is given in note 4 of the Notes to the Accounts.

Corporate Governance

Group structure

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%). There were no changes in the Group’s structure during 2015. Owing to the transition to IFRS, the treatment of subsidiaries in the consolidated financial statements has changed from the previous financial year. The treatment of subsidiaries in the consolidated financial statements is specified in more detail in the Accounting Principles section.


At Finnish Industry Investment’s Annual General Meeting held on 17 April 2015, the following members were elected to the Board of Directors: Esa Lager (Board Chairman), LL.M., M.Sc. (Econ), born 1959; Urpo Hautala (Senior Advisor, Ministry of Finance), M.Pol.Sc., born 1958; Kimmo Jyllilä (CEO, Almatro Advisors Oy), M.Sc. (Econ), born 1972; Johanna Lindroos (Partner, Dasos Capital Oy), M.Sc. (Econ), born 1968; Mika Niemelä, (Director of Finance, Ministry of Employment and the Economy), M.Pol.Sc., born 1975; Annamarja Paloheimo, (Head of Branch Region, Nordea Bank Finland Plc), Senior Lawyer, LL.M., born 1964; and Riitta Tiuraniemi, M.Sc. (Tech), born 1962. In 2015 the Board of Directors convened altogether 14 times and average attendance at the meetings was 90.8%.

Finnish Industry Investment’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 during the review period. Two people resigned from the company and one person retired. At year’s end 13 women and 18 men worked in the company.

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 directed at 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.

Board’s proposal for the distribution of profit

The parent company’s distributable earnings (according to FAS financial statements) on 31 December 2015 amounted to €115,447,048. No significant changes in the company’s financial position have occurred since the end of the financial period. The Board proposes to the Annual General Meeting that no dividend be distributed for financial year 2015. The company’s financial resources will be targeted at private equity and venture capital investments that promote the growth and internationalisation of Finnish companies and the development of Finland’s venture capital and private equity market.

Events after the financial year

Capital markets across the globe have been distinctly apprehensive during the year and valuations of riskier asset categories have substantially declined. China’s poorer economic growth has contributed to investors’ unrest. If general economic growth continues to weaken it will probably also affect the valuation levels of private equity and venture capital investments in 2016. Typically the price changes of listed investment categories have a delayed effect on the valuations of private equity and venture capital funds.


The poor performance of the real economy, possibly over a prolonged period, might weaken the growth prospects and growth in value of investments in companies and funds, while also hampering exit opportunities. This could result in lower investment valuations.

Investments will focus on companies seeking growth and internationalisation. Future development of the venture capital and private equity market will be through channelling international capital and expertise into Finland alongside the catalysing risk financing that Finnish Industry Investment offers.

Key Figures, Group IFRS 2015 IFRS 2014 FAS 2013 FAS 2012 FAS 2011
Profit/loss for the financial year, €m 86.4 -25.7 -7.6 7.3 -12.6
Shareholders' equity, €m 867.9 676.5 559.7 567.4 510.0
Balance sheet total, €m 895.3 694.5 561.5 569.0 512.0
Unpaid commitments, €m 265.0 256.0 270.1 217.5 244.0
Investments at acquisition price, €m 503.4 528.6 493.2 476.8 425.9
Investments at acquisition price and commitments, €m 768.4 784.6 763.3 694.2 669.9
Investments at book value, €m 459.8 414.2 367.7 362.7 320.0
Ratio of investments and commitments to shareholder's equity 0.8 1.0 1.1 1.0 1.1
New commitments made during the financial year, €m 93.0 81.5 130.2 57.1 78.0
Return on equity 11.2 % -4.2 % -1.4 % 1.4 % -2.4 %
Equity ratio 96.9 % 97.4 % 99.7 % 99.7 % 99.6 %
Expences per balance sheet total 0.8 % 1.0 % 1.1 % 1.0 % 1.1 %
Personnel, average 31 31 30 29 26
Salaries and fees for the financial year, €m 3.6 3.2 2.9 2.8 2.4
Fund investments, number 91 90 88 86 84
Funds, number of portfolio companies 617 544 446 434 407
Parent company, number of direct portfolio companies 37 42 45 44 44
Start Fund I Ky, number of portfolio companies 14 22 25 32 35
Tesi Industrial Management Oy, number of portfolio companies 2 2 1
Number of portfolio companies, total 670 610 517 510 486
The information for 2014-2015 is derived from the IFRS consolidated financial statements. Information earlier than that is based on FAS consolidated financial statements.

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