INVESTMENTS IN COMPANIES, INVESTMENTS IN FUNDS, IMPACT – 13.3.2019
In 2018, Tesi made new investments of €121m to accelerate the growth and internationalisation of Finnish companies. The aggregated net sales of direct portfolio companies grew on average by 19% during the financial year. Exits reached record levels in 2018, especially in the case of venture capital investments. Tesi’s social impact is manifested in the growth of portfolio companies and is exerted by promoting the development of Finland’s investment industry and enhancing skilled ownership. Another objective, alongside boosting companies’ growth, is to internationalise the Finnish venture capital and private equity market though investments made in funds as well as via direct minority investments.
CEO Jan Sasse:
“Investment volumes were very high in 2018: we gave a total of €59m in new investment commitments to eight funds and €37m via the FoF Growth III fund co-managed by Tesi and Finnish pension & insurance companies. We also made direct investments in companies totalling €62m, of which €52m were first-round investments. Tesi’s international partners invested altogether €123m in Finnish growth companies. As well as providing capital, they also brought access to valuable international business expertise and essential networks.
Our investment year was excellent, in terms of exits from both our Finnish and international funds. One outstanding example of this was Creandum’s exit from Spotify, which listed on the New York stock exchange. The year was also profitable, following the trend of previous years, although the growing uncertainty prevailing in the world economy towards year’s end kept net profit at €55m.
As a state-owned VC/PE investor, we constantly evaluate our role in the market. In doing so, we contemplate new strategic objectives and the fate of existing entities. As a new operational format, we started anchor investing to support growth companies for which an IPO is the best option, but whose size or sector makes an IPO challenging. On another front, a co-investment programme we will conduct with the European Investment Bank, hand-in-hand with private investors, will channel €100m of equity financing to promote the growth of innovative SMEs and mid-cap companies.
Tesi’s investment programmes focus on growth and the renewal of economic structures. At the end of the year, we launched a €75m Circular Economy investment programme. Its objective is to boost the growth and internationalisation of existing companies and encourage the creation of new funds investing in the circular economy.“
Business environment
Finland’s economy continued to grow in 2018. The partially conflicting forecasts for the global economy during the last quarter and the uncertainty about the future they caused were reflected, of course, in market sentiments.
Finnish growth companies again reached new records in raising venture capital. The total sum raised was over €350m, with most of the financing rounds exceeding €10m in size.
Finnish buyout funds in the SME sector investing in companies in a later stage of development again saw abundant capital seeking new investees. A large part of these funds’ investment capacity had a crucial focus for Finland’s business structure – the growth and internationalisation of medium-sized companies, an increase in their numbers, and buyouts. This corporate segment has also seen increasing demand for minority investments.
Investment operations
Tesi made new investments in companies and gave investment commitments to venture capital and private equity funds amounting to €121m (€149m). Investment commitments totalling €59m (€60m) were made to eight VC/PE equity funds. Five commitments were to venture capital funds and three commitments to growth and buyout funds. Direct investments amounting to €62m (€29m) were made in altogether 26 companies.
Overall, almost €250m in new risk capital was channelled into portfolio companies, representing over four times the amount invested by Tesi. Of this capital, some €61m came from international investors.
The €75m Circular Economy investment programme was launched at the end of 2018. A direct investment in Uusioaines Oy and a fund investment in Environmental Technologies Fund III were made from the programme.
Financial performance
Tesi once again performed strongly in 2018, despite the growing uncertainty in the global economy towards the end of the year. Realised net gains from venture capital and private equity investments largely contributed to the healthy profit.
Net gains from venture capital and private investments amounted to €90m (€69m), comprising net gains from funds €72m (€53m) and net gains from direct investments €18m (€15m). The increase in net gains was largely due to numerous successful exits from portfolio companies and a general rise in valuation levels. Net gains from direct investments derived from the seven exits effected during the year. Net losses (gains) from financial securities were -€14m (+€18m), largely due to a globally difficult last quarter for both shares and interest-bearing instruments. Operating profit amounted to €68m (€80m), and profit after taxes for the financial year was €55m (€66m).
The balance sheet total at the end of 2018 was €1,031m (€1,020m) and the company’s equity amounted to €999m (€978m). The carrying value of venture capital and private equity funds at the end of 2018 was €371m (€372m) and the carrying value of direct investments €235m (€189m).
The total amount of VC/PE investments under management at the end of 2018 was €1.2 billion. This includes the capital of the FoF Growth I, FoF Growth II and FoF Growth III funds that Tesi manages, in addition to Tesi’s own commitments and investments.
The cumulative amount with which the Finnish government has capitalised Tesi from the very start of its operations is €655m. The Company’s cumulative profit from operations, including the figure for the 2018 financial year, amounted to €341m. In addition to this, Tesi has generated altogether €163m for the Finnish state in corporation tax and dividends.
Events after the financial year
In early 2019, Tesi gave an investment commitment to a Finnish growth fund (more details to be published later) and also participated in LeadDesk’s successful listing on Helsinki’s First North exchange.
Prospects
In 2018, Tesi initiated a process for updating its strategy, which will be put into practice in spring 2019. The strategic objective is twofold: to identify those market areas in which Tesi is most needed; and to develop Tesi’s means for accelerating companies’ growth and internationalisation most efficiently and with maximum social impact. As a developer of the VC/PE market, Tesi plays a role that serves and supplements the market, and we can fulfil that role by, for instance, producing market data that can be usefully exploited. Tesi also acts at a social level: investments and ownership produce a beneficial social impact as well as being profitable.
Tesi wants to broaden the Finnish and international investor base operating in Finland’s market. This will provide funds with more private capital allowing them, as a result of larger capital sums, to finance their portfolio companies for longer. A number of new Finnish VC/PE investment companies are in the process of fund-raising, and projects arising from this are expected to emerge during 2019.
Minority investment operations will continue along the lines of previous years: in promising SMEs to supplement the market’s existing financing options; and in industrial investments. The Circular Economy will remain a key investment programme.
Tesi will continue to cooperate closely with the European Investment Fund and the European Investment Bank in channelling EU funds into Finnish venture capital funds and growth companies, in collaboration with private investors.
As we enter a new financial year, Tesi has strong resources for long-term investment operations that promote the growth of Finnish companies.
Decisions of the Annual General Meeting
The Annual General Meeting was held on 8 March 2019. Kimmo Jyllilä was elected Chairman of Tesi’s Board of Directors. Marika af Enehjelm, Pauli Kariniemi, Mika Niemelä, Annamarja Paloheimo and Riitta Tiuraniemi will continue as members of the Board of Directors. Jyrki Mäki-Kala was elected as a new member of the Board of Directors.
For further information, please contact:
Board Chairman Kimmo Jyllilä, tel. +358 (0)40 502 5105
CEO Jan Sasse, tel. +358 (0)40 861 9151
Interim CFO Gösta Holmqvist, tel. +358 (0)40 570 6508
Tesi (Finnish Industry Investment Ltd) is a venture capital and private equity company that invests profitably and responsibly, creating value from day one. Our investments under management total 1.2 billion euros and we have over 700 companies in portfolio, either directly or through funds. We help Finland to the next level of growth and internationalisation. Follow our success stories: www.tesi.fi / dtg.tesi.fi and @TesiFII.
