Financial statements


Board of Directors' report 2016

Mission and strategy

Finnish Fund for Industrial Cooperation Ltd (FINNFUND) is a development finance company in which the Finnish government has a majority holding; it belongs to the administrative sector of the Ministry for Foreign Affairs and has a special development policy mission. The purpose of the company is to promote economic and social development in target countries by providing financing for private-sector projects involving Finnish interests. Finnfund provides long-term risk capital to complement funding obtained from the financial markets, and it operates on a self-supporting basis. The majority of Finnfund financing is directed at low-income and lower-middle-income developing countries with the aim of building bridges between Finnish expertise and the needs of developing countries, and of augmenting the developmental impacts of Finnfund investments.

The central government budget for 2016 approved by the Parliament contained significant additional funding to Finnfund. The additional funding was confirmed towards the end of the year, and it was specified that it is in the form of a loan and can be drawn in 2017. In 2016, the company focused on taking the full advantage of resources allocated to it in accordance with its mission. A record number of new investment decisions were made; nearly twice as many as the year before. In the course of investment decisions, payments also increased to a great extent and the amount of investment assets grew considerably. The company prepared for growth and strengthened its capacity by recruiting new employees, training its employees and developing its operating methods, among other things.

The special risk funding instrument that was intended for funding projects with extremely high impact and involving a great risk targeted at low or lower-middle income countries was no longer in use in 2016, which made the funding of the most high-risk projects more difficult.

Funding and investments

Finnfund's portfolio continued to grow from the previous year, and cooperation with Finnish companies intensified, with companies participating in an increasingly large number of projects as technology suppliers or partners. The majority of Finnfund's new funding decisions were allocated to projects with excellent development impact potential and a positive effect on climate change, particularly in the renewable energy and forestry sectors.

In 2016, 21 (in 2015: 18) new financing commitments were made, amounting to a total of EUR 152 million (EUR 83.5 million). The targeting of financing decisions at various income levels is shown in the table below.

Income level No. of
Least developed countries 8 38 42.4 28
Low-income countries 1 5 4.3 3
Lower-middle-income countries 8 38 78.5 52
Upper-middle-income countries 4 19 26.7 18
Russia 0 0 0 0
Total 21 100 151.9 100

The majority, or 14 (9) of the financing decisions made involved investment loans, accounting for about 80% (60%) of the value of the decisions in euros.

According to Finnfund's risk management principles, equity investments must be covered from Finnfund's shareholders' equity. In 2016, shortage of shareholders' equity and uncertainty about the realisation of the significant increase in capital limited the opportunities for making equity investments. The increase in capital was confirmed in the form of a loan towards the end of the year. However, thanks to the long maturity and subordination the loan can also partly be used for making equity investments. Eight (11) of the projects that were approved were equity investments or mezzanine financing, showing a reduction from the previous year. When calculated in euros, they accounted for 20% (32%) of all approved projects. Fund investment decisions were not made.

In terms of both the number and value of the financing decisions made, Africa with 9 (7) decisions and Asia with 7 (8) decisions were the leading continents. When calculated in euros, Asia was the most popular area with 41% (40%) of funding. The value of commitments was lower for Africa compared with the previous year, and constituted 21% (44%) of the total value of commitments. The change is due to casual variation year on year. Projects were evenly distributed between different countries. One decision per country was made, with the exception of Tanzania, which accounted for 2 (1) decisions.

The volume of disbursements grew to EUR 82 million from EUR 77 million, representing a historic high for Finnfund. Of this amount, EUR 34 million (EUR 53 million) was allocated to low-income countries or the least developed countries, EUR 42 million (EUR 8 million) to lower-middle income countries, EUR 5 million (EUR 16 million) to upper-middle income countries, and EUR 0 million (EUR 0.5 million) to Russia.

Finnfund is actively involved in European Financing Partners (EFP), founded in 2004 as a joint financing venture of European Development Finance Institutions (EDFI) and the European Investment Bank (EIB), and in the Interact Climate Change Facility (ICCF) founded by the same actors and the French development funding provider AFD in 2011. ICCF invests in projects aimed at curbing climate change, such as renewable energy and energy efficiency. In 2016, a decision was made to commit additional funding to the ICCF.

The amount of undisbursed commitments totalled EUR 147 million (EUR 137 million) at the end of 2016. In addition, EUR 108 million (EUR 104 million) was tied up in investment commitments that had not yet progressed to the agreement stage.

Development and priorities

Co-operation with other members of the European Development Finance Institutions (EDFI) continued as in earlier years through both projects and the development of harmonised operating methods. The focus on human rights issues was emphasised in the work of environmental and social advisers, and a tool created to improve the systematic way to work was taken into use towards the end of the year. The number of environmental and social advisers was also increased. In addition, the assessment of the development impact of projects and political risks and publicity risks was further developed. This work will continue in 2017.

In 2016, there was increasing interest and also critique toward Finnfund's projects and operations. Finnfund does try to actively increase communication between various interest groups such as non-governmental organisations and companies both in Finland and abroad and further increase openness about the company's operation and results. This work will also continue further in 2017.

An organisational reform was carried out towards the end of 2016 during which the partial matrix organisation was dissolved and investment operations were concentrated under a single Chief Investment Officer. Projects that were at the monitoring phase were transferred more actively than previously to Portfolio and Risk Management so that capacity was released from investment operations personnel for the preparation of new projects.

Legal affairs were transferred under the management of Director, Administration and the operation's personnel resources were considerably reinforced so as to correspond to the need of expertise due to the increasing number of both existing projects being monitored and new projects. In the future, an increasing share of legal affairs can be handled by the company's own resources, which will considerably reduce related external costs.

Internal processes were reviewed and developed further. Key areas included in particular a more efficient use of internal cooperation, online tools and processes. In 2016, new data systems were taken into use, and the work still continues in 2017.


Finnfund administers a business partnership programme called Finnpartnership. Launched in June 2006, it is financed by the Ministry for Foreign Affairs. A call for tenders for the administration of the revised programme was made in autumn 2015. Finnfund was awarded the contract, which means that it will continue as the programme administrator, although with smaller resources, in 2016–2018 and, if the option is exercised, in 2019–2021.

Finnpartnership provides advisory services and business partnership support for the planning, development and implementation of commercially viable projects carried out by Finnish companies and other Finnish actors targeting developing countries; for technology and solution pilot projects; and for education and training. As of 2016, training has also been provided to companies in the form of seminars and workshops.

Finnpartnership provides a matchmaking service for companies in developing countries, helping them to find Finnish business partners. The service has also been used by Finnish companies looking for business partners in developing countries.

In 2016, a total of 122 (185) business partnership support applications were processed. Of these, 91 applications were accepted (168). The support granted totalled EUR 4.5 million (EUR 7.4 million).

Business partnership support was paid out to 95 (81) projects, totalling EUR 2.0 million (EUR 1.5 million).

In 2016, the matchmaking service received a total of 441 (364) business initiatives from companies that operate in developing countries.

Risk management

The Finnfund Board of Directors confirms the company’s risk management principles and instruments. The company’s management is responsible for the practical implementation of risk management on the basis of the guidelines confirmed by the Board of Directors. Guidelines on asset and risk management are assessed annually. No changes were made to the management principles in 2016.

Owing to the nature of its activities, the company is exposed to greater than average risks. Risk management includes risk identification, hedging, and reporting to the company’s administrative bodies.

The risk classification system developed by Finnfund, which has been in use since 2005, is a key instrument in the assessment and monitoring of project risks. A risk assessment is conducted on all projects in the Finnfund investment portfolio at least once a year, and more often if necessary, that is, if it is estimated that the risk level has changed.

On 8 October 2012, the Ministry for Foreign Affairs decided on the introduction of special risk financing to share investment risks between Finnfund and the Finnish government. To be eligible for special risk financing, an extremely high developmental impact aimed at low-income or lower-middle-income countries was required of projects; or the risk was otherwise considered too high for the project to qualify for Finnfund financing. The arrangement considerably increased Finnfund's ability to take risks during the period of time when it was in effect. As of 31 December 2015, no new projects covered by special risk financing can be accepted.

The special risk financing was provided on the basis of a loss compensation commitment adopted by the Government on 20 September 2012, whereby the government undertook to compensate Finnfund for a maximum of 60% of credit losses and investment losses in projects covered by special risk financing during the validity of the commitment.

Projects accepted for coverage by the special risk financing during the term of the programme will be covered by Government risk-sharing until repayment or Finnfund's exit. By the end of 2015, commitments with a value of EUR 111 million had been made for projects under special risk financing. The government answers for EUR 50 million, or 45 per cent of the risks involved in these commitments. The loss compensation commitment covers a maximum of EUR 5 million in compensation per year. No compensations had been applied for by the end of 2016.

The objective with regard to interest and currency risks is to identify and hedge against any risks. Since the company’s investments target developing countries and are often made in the local currency, managing exchange rate risks is exceptionally challenging. The objective is to cover the interest and exchange rate risks associated with lending fully and over the entire investment period. Managing exchange rate risks associated with equity and fund investments is more complicated. The general rule, applied on a case-by-case basis, is to cover currency positions that are certain or at least likely and that can be hedged at a reasonable cost in relation to the benefits gained.

In order to manage its liquidity risk, Finnfund maintains liquidity that is adequate in view of the anticipated volume of disbursements. Finnfund has a committed credit facility of EUR 50 million, non-committed credit facilities in Nordic banks, and a commercial paper programme set up in 2010 totalling EUR 100 million. At the end of 2016, the value of commercial papers issued through the programme amounted to EUR 55 million. The credit facilities provided by banks were not in use at the end of 2016.

The refinancing risk associated with borrowing is managed by trying to maintain a sufficiently extensive group of financiers and a versatile range of instruments. An additional aim is that at least half of the borrowing should be long-term funding. At the end of the year under review, the average time to maturity of interest-bearing debt in the balance sheet was 2.1 years (3.7).

In 2016, the Finnish government granted Finnfund a convertible loan of EUR 130 million for 40 years which is subordinate to the company's other debt. The loan has not yet been withdrawn, and it is available until the end of 2018.

The company maintains continuous procedures in order to identify, manage and prevent data security risks.

Financial result and balance sheet 

In 2016, Finnfund made a profit of approximately EUR 0.3 million (approximately EUR 5.1 million). The result was clearly more modest compared with the previous year and the budget and it was due to changes in the valuation of investment assets and the transfer of a considerable dividend payment to 2017 after it was expected to be received in 2016, among other things.

The operational result is shown in the table below. Income from financing activities stood at EUR 14.2 million (EUR 13.5 million) and the result before value adjustment items, sales and taxes was EUR 5.2 (EUR 6.0 million).

Operational result, EUR 1,000 2016 2015 Change
Financial income 19,306 16,168 3,019 19
Financial expenses -5,146 -2,704 -2,323 82
Income from financing activities 14,160 13,464 696 5
Other operating income 1,600 1,865 -265 -14
Administrative expenses, depriciation and other
-10,588 -9,342 -1,246 13
Result before value adjustment, sales and
5,172 5,987 -815 -14
Value adjustment and sales -4,824 -827 -3,997 483
Income taxes -18 -103 85 -83
Net profit 330 5,057 -4,727 -94


Dividend income amounted to EUR 0.6 million (EUR 0.2 million) and dividends were received from six companies.

Interest income from investment loans came to EUR 9.9 million (EUR 7.5 million), and other interest income was EUR 0.3 million (EUR 0.3 million). Interest income totalled EUR 10.2 million (EUR 7.8 million). Other interest income mainly consisted of interest income from liquid assets.

Other income from long-term investment amounted to EUR 6.7 million (EUR 7.1 million), consisting of gains from fund investments. No capital gains from sales were recognised as income during the year under review (EUR 5.5 million).

Other financial income without foreign exchange gains, at EUR 1.4 million (EUR 1.1 million), mainly consisted of arrangement fees, commitment fees, and other financing fees.

Investment income before taxes totalled EUR 19.3 million (EUR 21.7 million).

Foreign exchange gains amounted to EUR 11.0 million (EUR 15.3 million) and losses to EUR 10.6 million (EUR 15.2 million). The foreign exchange difference was EUR 0.4 million positive.

Other operating income amounted to EUR 1.6 million (EUR 1.9 million) and this comprises fees received for the administration of the Finnpartnership programme and other income from fees and charges.

Impairment losses

New recognised individual impairment losses amounted to EUR 11.4 million (EUR 10.2 million), representing about 3.2% (3.1%) of the balance-sheet value of investment assets at the end of the year under review.

Reversals of previously recognised individual impairment losses amounted to EUR 12.4 million in 2016 (EUR 5.2 million).

The net effect of impairments on financial performance was approximately EUR 1.0 million (EUR -5.0 million).


Interest expenses were EUR 1.3 million and increased from the previous year (EUR 0.8 million). Interest expenses were incurred through borrowing in US dollars, which is used to refinance Finnfund investment loans denominated in US dollars, and through euro-denominated commercial papers issued in 2015 and the bond issued in autumn 2013.

Other financial expenses were EUR 3.9 million (EUR 2.0 million), including management fees of EUR 2.8 million (EUR 1.4 million) associated with fund investments. The doubling of the fund expenditure is due to a change in the recording practice of funds. According to the new recording practice all management fees of funds are recorded as expenses whereas previously only management fees following the conclusion of the investment period were recorded as expenses. At the time, fees paid during the investment period were recorded as part of the acquisition cost of an investment. Other financial expenses also include costs of EUR 0.8 million (EUR 0.4 million) from derivatives.

Investment and sales losses amounted to EUR 5.8 million (EUR 1.3 million), which is attributable to previously recognised individual impairment losses.

Administrative expenses totalled EUR 10.6 million (EUR 9.3 million). The increase in expenses consists of several items, the most significant ones being higher personnel costs and increased use of external services. The increase in the volume of operations and the resulting increase in operating costs were pre-planned.

Taxes recorded in the profit and loss account, totalling EUR 0.018 million (EUR 0.1 million), consist of both sales gains taxes paid to the target countries and withholding tax targeted at work compensations and dividends.

Balance sheet

The balance sheet total stood at EUR 406.0 million (EUR 377.1 million) as at the end of the year under review.

The balance sheet value of investment assets was EUR 356.3 million (EUR 330.0 million) at the end of the year under review. During the financial period, a change was made in the recording practice of funds. According to the new practice, only the acquisition cost used by funds in investments is activated as an investment acquisition cost in Finnfund's balance sheet. Previously, management fees paid during the investment period of funds were also activated as part of the acquisition cost. The recording practice was also adjusted retrospectively for previous financial periods, which resulted in a reduction of EUR 18.2 million in the balance sheet value of fund investments. A similar adjustment was made to the company's equity. Comparable growth of investment assets was around 14%. The growth resulted from the record number of disbursements related to investments.

The breakdown of investment assets was as follows: loans (including subordinated loans and other mezzanine instruments) EUR 193.3 million (EUR 151.0 million) or 54.3% (46%); equity investments EUR 93.2 million (EUR 89.4 million) or 26.1% (27 %); and fund investments EUR 69.8 million (EUR 89.3 million) or 19.6% (27%).

Liquid assets stood at EUR 44.6 million (EUR 42.8 million) as at the end of the year under review. The liquid assets are invested in domestic bank deposits and money-market instruments in accordance with the asset and risk management guidelines.

At the end of the financial period, the company’s equity (share capital and retained earnings) totalled EUR 232.9 million (EUR 250.8 million) or 57% of the balance-sheet total (67%). The company’s equity reduced due to the above-mentioned change in the recording practice.

At the end of the financial period, the company’s registered share capital stood at EUR 166,989,130 with 982,289 shares, with the Finnish government accounting for 917,719 shares (93.4%), Finnvera plc for 63,349 shares (6.5%), and the Confederation of Finnish Industries EK for the remaining 1,221 shares (0.1%).

The company’s shares have no nominal value. The equivalent value of a share in accounting is EUR 170. The company has one share class. A minimum of 51 per cent of the company shares must be under the direct ownership and control of the Finnish government at all times. The company does not distribute its funds in dividends or in payments from its reserve for invested unrestricted capital; nor does it acquire or redeem its own shares.

At the end of 2016, Finnfund signed an agreement with State Treasury on a subordinate convertible loan of a total of EUR 130 million. The loan period is 40 years of which the first 10 years are instalment-free. The interest on the loan is 0.5% per annum for the first five years. After this period, the government may adjust the interest rate. The government is also entitled to convert the loan either entirely or partly as Finnfund's share capital.

The company's shareholders decided on 30 December 2016, in accordance with the Limited Liability Companies Act Section 5(1), as a unanimous decision by shareholders without holding a meeting, to approve the granting of special rights to shares as stated in the Limited Liability Companies Act Section 10(1) related to the convertible loan between the company and the Finnish government. The government may collect receivables from the company either completely or partly by subscribing to the company's new shares in one or several allotments in such a way that EUR 170.00 of debt capital entitle it to one share. The government can subscribe for 764,705 of the Company's shares at the most. The subscription corresponds to the equivalent value of a share in accounting, and it is recorded in the company's reserve for invested unrestricted capital.

At the end of the year under review, the company’s long-term interest-bearing debt stood at EUR 103.1 million (EUR 106.3 million) and short-term interest-bearing debt at EUR 60.0 million (EUR 11.9 million), totalling EUR 163.4 million (EUR 118.2 million). Long-term interest-bearing debt includes the bond issue of EUR 50 million in autumn 2013. Otherwise, the long-term interest-bearing debt is in US dollars, used to refinance Finnfund investment loans denominated in US dollars.

Long-term debt as a percentage of all financing liabilities totalled approximately 60% (90%) at the end of the period. Total financing liabilities increased by some 37% from the previous year following the company's issue of commercial papers.

Finnfund had no guarantee commitments at the end of 2016 (EUR 0.0 million).

Key figures

  2016 2015 2014
Financial income, EUR million 29.9 36.9 23.5
Net profit, EUR million 0.3 5.1 2.4
Return on equity, % 0.1 2.0 1.1
Equity ratio, % 57.4 66.5 74.3


Return on equity = Result before extraordinary items – taxes x 100 %

Equity ratio =                           Equity                               x 100 %
                        Balance sheet total – advances received

Administration and personnel 

In 2016, the Supervisory Board met five times, the Board of Directors met 12 times, and the audit committee of the Board of Directors met five times.

The Annual General Meeting, held on 20 April 2016, reviewed the matters listed in Article 11 of the Articles of Association.

Members of the Supervisory Board at the Annual General Meeting for the period 2016−2019 were elected as follows: Eija Hietanen, Director of Strategy and Administration, Mika Raatikainen, Member of Parliament, Pertti Salolainen, Member of Parliament, and Tapani Tölli, Member of Parliament.

Members of the Board of Directors elected at the Annual General Meeting:

Board Professional Ritva Laukkanen, Chair
Deputy Director General, Ministry for Foreign Affairs, Kari Alanko, Vice Chair
Director of Finance, Tuukka Andersén
Ambassador, Senior Advisor on Trade and Development Sinikka Antila
Partner Pirita Mikkanen
CEO Lars-Erik Schöring
Senior Adviser Anne af Ursin
CFO Tuula Ylhäinen

The members of the Board of Directors do not have deputy members.

The Board of Directors has an audit committee, with the following members since 26 April 2016:

Director of Finance Tuukka Andersén, Chair
CFO Tuula Ylhäinen
Partner Pirita Mikkanen

An extraordinary General Meeting was held on 19 September 2016. An extraordinary General Meeting selected Kristiina Kuvaja-Xanthopoulos, Deputy Director General, as a Member of the Board to replace Kari Alanko, and Sinikka Antila, Ambassador, Senior Advisor, as the Vice Chair of the Board.

The company's shareholders decided on 30 December 2016, in accordance with the Limited Liability Companies Act Section 5(1), as a unanimous decision by shareholders without holding a meeting, to select Director Petri Vuorio as a member of the Supervisory Board to replace Simo Karetie.

The company’s auditor is Deloitte & Touche Oy, authorised public accountants, with Jukka Vattulainen, APA, as the principal auditor.

The company CEO is Jaakko Kangasniemi PhD (Agricultural Economics).

During the year under review, the company employed an average of 60 (56 in 2015) people. At year-end, the number of employees in contractual employment was 64 (57), of whom 61 (55) worked full-time. Of the 64 employees, 43 were women and 21 were men.

Total wages and salaries paid to personnel in 2014-2016 were as follows.

  2016 2015 2014
Average number of personnel 60 56 51
Total wages and salaries, EUR 1,000 4,784 4,462 4,121

The final accounts for 2016 include a provision for incentive bonuses earned in 2012, amounting to 5.1% of payroll expenses (9.7%). In 2016, the amount of incentives was partly based on performance at company and function level, and partly based on individual performance.

The Board of Directors decides on the incentive system and its key criteria on an annual basis. Remuneration in the company follows the remuneration guidelines applying to state-owned companies.

Outlook for 2017

In accordance with the guidelines specified in the State Ownership Policy, Finnfund aims to improve the positive developmental impacts of its financing and to focus primarily on low-income and lower-middle-income developing countries. Approximately half of investment decisions are targeted at Africa. As before, priority will be assigned to projects where Finnish know-how and competence is used to curb climate change, to improve environmental conditions, and to improve the living conditions of poor people. As before, key sectors will be renewable energy and sustainable forestry. Several project ideas with a significant expected impact are being investigated, some in extremely poor or fragile states.

According to the decision of the Parliament and the Council of State, the long-term loan of EUR 130 million granted by the government is intended to be drawn for the most part in 2017 and used mostly for the payments of investment decisions made in 2016 or before that. The aim is to make around 20% more investment decisions than the year before for a total amount of around EUR 180 million. Government budget for 2017 also included an increase in equity of EUR 10 million.

The Ministry for Foreign Affairs will assess investments made on the basis of the special risk financing authorisation that ended at the end of 2015 and consider granting a new authorisation. In addition, the Ministry will likely consider increases in capital (regular or in the form of a loan) that could be made at a later point in time. Depending on them, the company will either stall or increase the preparation of investment decisions in 2018, or possibly already at the end of 2017.

Liquidity is expected to remain good in 2017. If the desired additional resourcing does not move forward during the year, Finnfund will limit its project preparations and transfer its focus on investments in the form of a loan to ensure the fulfilment of its commitments in any given situation.

The outlook for 2017 is slightly better compared with 2016 as the amount of loans granted by the company has increased and as some projects, in which equity investments have been made, have been completed and they have started to generate cash flow. The company’s financial performance will be crucially affected by how the valuation of its investment assets changes during the financial period and whether any profitable exits from projects occur. Although these tend to be difficult to predict in development finance, the outlook is positive, even based on cautious assumptions.

With the contract for the Finnpartnership programme awarded to Finnfund in 2015, programme work will continue also in 2017.

Proposal of the Board of Directors for the distribution of profit 

The company recorded a profit of EUR 339,579.80 in 2016. The Board of Directors proposes that the profit be transferred to the retained earnings account and set aside for disposal in accordance with Article 2 of the Articles of Association.


Finnish Fund for Industrial  
Cooperation Ltd. (FINNFUND)

Uudenmaankatu 16 B
P.O. Box 391 FI-00121 Helsinki, Finland
tel. +358 9 348 434
fax +358 9 3484 3346