Impact - 26.9.2018
Tesi's interim review 2018
- Tesi made new investments and investment commitments amounting to €87m (€37m)
- Profit after taxes was €46m (€45m)
- Investments made in Finland by Tesi and its co-investors during the review period totalled €327m (€308m)
- Tesi’s international partners invested altogether €85m (€27m) in Finnish growth companies
Tesi’s CEO Jan Sasse comments on the review period:
“The Finnish venture capital market is continuing to develop favourably and to internationalise, and these trends are also reflected in the improved performance of Finnish VC funds.
Growth investments and buyouts are finding more diversified sources of financing and a greater appetite for corporate renewal while also seeking innovative business models.
Investment activity was very brisk in the first half of the year. We made new investments and investment commitments amounting to €87m. Our international investor partners and portfolio funds made investments in Finnish companies totalling €85m.
As an active owner, we seek to accelerate the strong and sustainable growth of our portfolio companies. Our healthy profitability is a result of the success of both the funds and the companies in our portfolio. Prominent events in our portfolio companies during the review period included the successful listing of semiconductor laser manufacturer nLight and the strong performance of many service companies.
Digitisation, the more efficient utilisation of data and the development of artificial intelligence all offer companies new business opportunities. We established a new post, Chief Digital Officer. This will strengthen our ability to support our portfolio companies in digitisation issues and in exploiting technology breakthroughs as well as adapt our in-house procedures in response to the changed business environment.
As an investor, we can do a lot to promote sustainable development together with our partners and portfolio companies. During the review period, we launched a pilot, together with Upright Project, aimed at developing the assessment of companies’ impacts on society. Our goal is to create a more comprehensive understanding of the overall impacts that companies have on the environment, on people’s health and on society at large."
Finland’s venture capital industry continues its strong internationalisation. Larger financing rounds have mainly been led by international investors. Some 25 sizeable (over €10m) later-stage venture financing rounds have been raised in Finland since 2013. Tesi was involved in 18 of these, either directly or through funds. International investors were involved in almost all Tesi’s direct venture capital investments. New funds have also been established in Finland’s venture capital market, to support the risk-taking necessary for earlier-stage growth companies.
A challenge for investors is posed by the historically rather high valuation levels of companies, which affect both venture capital investment as well as later-stage growth and buyout investment. In the prevailing market environment, the need for investors to create value in their investments through their own expertise and networks is of paramount importance. Employing new types of approaches and financing structures, for instance, are essential for finding suitable projects.
Internationalisation is also a visible trend in Tesi’s growth and industrial investments, as many of our portfolio companies have their sights set on international markets.
The first half of 2018 was very busy in operative terms. Tesi made new investments and investment commitments amounting to €87m during the review period.
In the case of fund investments, commitments amounting to €39m were given to five new funds. Of these, two were new Finnish teams; namely, Saari Partners and Maki.vc.
Tesi made direct investments totalling €48m in altogether 18 companies. First-round investments were made in nine companies (KotiSun, Viria, Kaiku Health, SuperPark, ICEYE, Zervant, GRK Infra, Zsar and Oura). There were two exits during the review period (Talenom Plc and Cavitar).
International co-investors were involved in ten of the direct investments Tesi made during the first half of the year, investing altogether €43m in companies such as ICEYE and Oura. Tesi’s international portfolio funds made investments totalling €42m in four Finnish companies. International investors provide not only capital but also expertise and networks for accelerating the internationalisation of Finnish growth companies.
Profit, balance sheet and cash flow
Strong investment activity generated profit after taxes of €45m for the review period.
Net gains from investments amounted to €63.4m, consisting of €41.9m from fund investments and €22m from direct investments. Net gains in funds were largely due to some exceptionally large exits during the review period (e.g. Spotify). Net gains in direct investments were almost completely derived from unrealised gains in fair value, generated by the strong growth of many portfolio companies and developments in implementing business strategy.
Retained earnings from Tesi’s operations amounted to €370m at the end of the review period.
The balance sheet total at the end of the review period was €1,069m and shareholders’ equity totalled €1,024m. €64.4m was returned from the company’s investments during the review period and net cash flow was €-24.8m. A total of €57.8m was returned to Tesi from investments in funds and €6.6m from direct investments.
Investments under management
Tesi’s investments under management at the end of the review period totalled €1,241m. The figure for investments under management includes investments made by the FoF Growth funds managed by Tesi, as well as Tesi’s own investments.
Events after the reporting period
The European Investment Bank (EIB) and Tesi agreed upon a programme for channelling financing from the EU’s European Fund for Strategic Investment (EFSI) into Finnish companies’ growth. Managed by Tesi, a total €100m of EFSI financing will be targeted at SMEs and Midcap companies. This will facilitate larger financing rounds as well as a greater focus on riskier early-stage capital and research-intensive companies.
In August, Mikael Niemi started as Investment Director in the Growth and Industrial Investments team, Elisa Lehmusniemi started as Executive Assistant, and Juha Lehtola returned as Director, Venture Capital. Henri Hakamo started his duties as Chief Digital Officer (CDO) in September.
Brisk activity is expected in direct investments also for the reminder of the year. There is a high-quality deal flow in many sectors and the trend towards larger financing rounds continues. In light of the current market situation, funds’ investment volumes are expected to continue at the high level, and the exit market for funds is also expected to remain favourable. In the deal flow for fund investments, most activity centres around venture capital players. A growing trend is that new investment teams have a narrower and more specialised focus - for example, on impact investing.
Finland’s Ministry of Employment and the Economy has decided to concentrate the state’s holdings in the mining sector in a new company, Finnish Minerals Group. Consequently, Tesi will exit from its investments in Keliber Oy, Ferrovan Oy and Sotkamo Silver Ab during the second half of the year.
Tesi has sold its share in eight foreign buyout funds to a fund managed by Cubera Private Equity at the end of August. Gains from the divestment combined with sizeable fund exits contributed to the extremely good financial performance during the review period. There are no known non-recurring items of this nature during the remainder of this year, so a more moderate net profit is projected for the second half of the year. Unless fundamental changes occur in the market, Tesi’s successful investment operations will generate a strong profit for the fourth consecutive year.
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.
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