Tesi in 2016: Record-high investment volumes and a good operational result
Financial year 2016 was extremely brisk in terms of Tesi’s new investments, the activity level of Tesi’s international co-investors in Finland as well as in terms of portfolio companies’ growth figures. Tesi made new investments amounting to €165m. In addition, Tesi’s international partners invested almost €160m in Finnish companies. Direct portfolio companies continued to grow strongly, increasing their net sales by 17% on average. Profit for the financial year was €45m, boosted by favourable market conditions, active portfolio management and numerous exits.
President & CEO Martin Backman:
“Tesi made investments amounting to €165m during the year. In fund investments, our focus was on international venture capital funds, through which we attract international capital and business management expertise into Finnish companies. We also made a number of commitments to Finnish later-stage growth funds, such as Folmer’s and Intera’s new funds.
We made direct investments in, for instance, Midaxo, Vexve and Touhula. Finnish companies raised a record amount of large international venture capital rounds, which Tesi also participated in. Overall, Tesi’s international partners invested almost €160m in Finnish companies in 2016.
Tesi put special emphasis on active portfolio management during the year. Both portfolio funds and direct portfolio companies developed well. The net sales of Tesi’s venture capital portfolio companies grew on average by 31% (median), and of later-stage growth companies by an average 10% (median) during 2016.”
Business environment
The venture capital and private equity market has been buoyant, both in Finland and internationally, for a number of consecutive years now as measured by fund-raising as well by investment and exit volumes.
Proportional to GDP, Finnish start-ups raised more venture capital than any other European country. Later-stage growth funds, both in Finland and internationally, have also continued to see brisk activity, especially in exits. The global market trend in the current low-interest environment, in which capital seeks riskier asset categories with higher expected returns, such as private equity, also fuels this development.
Investment activities
Tesi made new investments and commitments amounting to €165m in 2016, an increase of 77% compared to the previous year. In addition to its own investment operations, Tesi manages the KRR I and KRR II funds. KRR II fund gave two new commitments amounting to €28m during the review period.
Fund investments
Tesi gave fund commitments totalling €102m (€67m) to ten funds. Capital calls of altogether €62m (€68m) were paid out to portfolio funds. Correspondingly, the funds returned a total of €80m (€99m) to the company. Realised and unrealised changes in fair value recognised as income totalled €28m (€72m) for fund investments. Funds’ net gains were boosted in particular by higher valuations of Finnish venture capital funds and by exits from portfolio companies. The balance sheet value of funds at the end of 2016 was €336m (€326m).
Direct investments
Tesi made direct investments of altogether €63m (€25m) in 25 portfolio companies. Realised and unrealised changes in fair value recognised as income totalled €18m (€37m) for direct investments. Net gains from direct investments consisted mainly of a rise in the valuations of investments, fuelled by the good growth and improved profitability of portfolio companies in 2016. The balance sheet value of direct investments at the end of the year was €189m (€134m).
Result
All segments of Tesi’s investment portfolio generated a profit during the year. Cumulative gains from venture capital and private equity investments were positive, for both funds and direct investments, while investments in financial securities also showed good gains. Net gains from venture capital and private investments amounted to €46m (€109m), comprising net gains from funds €28m (€72m) and net gains from direct investments €18m (€37m). Net gains from financial securities totalled €17m (€6m). Operating profit amounted to €55m (€108m), and profit after taxes for the financial year was €45m (€86m).
Balance sheet and cash flow
The balance sheet total at the end of 2016 was €943m (€895m) and the Company’s equity amounted to €913 (€868m). 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 2016, amounted to €258m.
Altogether €105m (€156m) was returned from the Company’s investments during the year and net cash flow was €-23m (€63m). Some €80m (€99m) was returned to the Company from fund investments, of which €4m (€7m) via KRR. Altogether €25m (€57m) was returned from direct investments.
Assets under management
Tesi’s assets under management at the end of 2016 totalled €1.1 billion. This also includes assets managed by KRR I and KRR II.
Events after the financial year
Tesi has decided at the start of the year to invest in two new funds. In direct investments, Contemporary Amperex Technology Limited became a minority owner of Valmet Automotive. Valmet Automotive has also signed an agreement for the acquisition of Swedish Semcon’s automotive engineering business in Germany.
Prospects
In 2017 Tesi will give high priority in its investment activities to active ownership, internationalisation and responsible investment. Fund investments will focus on Finnish venture capital funds and, as in 2016, on Finnish later growth funds. KRR II is expected to be fully invested during 2017. The focus for direct investments will be on the Industrial Renewal and International Co-investors investment programmes. Tesi will continue its cooperation with the EIB and the EIF. This will include channelling financing from the European Fund for Strategic Investments (EFSI) into Finland. Jan Sasse starts as Tesi’s President & CEO with effect from 6 March 2017. Good retained earnings from previous financial years give Tesi strong resources for long-term investment operations that promote the growth of Finnish companies.
Tesi's Annual Report 2016
Presentation: Performance & Results 2016
For further information, please contact: Martin Backman, President & CEO, Tesi, +358 9 6803 6875, martin.backman@tesi.fi
Tesi (Finnish Industry Investment Ltd) is a venture capital and private equity investment company that accelerates companies’ success stories by investing both in funds and directly in companies. We operate as an active minority owner that possesses business expertise and international networks enabling a company to pursue its growth strategy. Our assets under management amount to €1.1 billion and we have a total of 723 portfolio companies. @TesiFII
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