Financial statements


Board of Directors' report 2017

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.

Finnfund has recently experienced a period of strong growth in terms of its project volume, investment portfolio, and number of personnel. The growth has been partially facilitated by the long-term loan of EUR 130 million issued by the government in 2016. As a result of the growth, public interest towards Finnfund and its operations has increased both domestically and internationally.

In 2017, a new strategy until the year 2025 was prepared for Finnfund. The objective of the strategy is to develop Finnfund as a pioneer in impact, and to support the coherent future development and growth of the organisation as it increases in size and recognition.

In connection with the strategy process, the company’s mission and vision and the key breakthroughs needed to achieve these were defined. The vision for Finnfund is to achieve the position of a valued partner and a pioneer in impact in European development financing by the end of 2025. In order to achieve this vision, Finnfund must increase the impact of its operations, manage its reputability, extend its financing base, and modernise its work culture.

Strategy 2018_2025


In the strategy, blended financing refers to funding or aid donated from public funds for purposes such as project preparation or the reinforcement of developmental impacts. 

Funding and investments

In terms of the number of projects, 2017 was a record year and a second consecutive year of strong growth for Finnfund. Finnfund's portfolio continued to grow from the previous year, and cooperation with the business sector intensified, with Finnish companies participating in the projects as technology suppliers or partners. In fund projects, Finnfund negotiated Finnish companies the right to offer their products for investment by the target companies of the funds. The majority of Finnfund's new financing decisions were allocated to projects with excellent development impact potential and a positive effect on climate change and poverty reduction, particularly in the renewable energy, financing, and forestry sectors.

In 2017, 29 (in 2016: 21) new financing commitments were made, amounting to a total of EUR 201 million (EUR 152 million). The targeting of financing decisions at various income levels is shown in the table below.

Income level Number of
Least developed countries 8 28 39.4 20
Low-income countries 4 14 27.9 14
Lower-middle-income countries 13 45 110.8 55
Upper-middle-income countries 3 10 20.3 10
Russia 1 3 2.0 1
Total 29 100 200.5 100

The majority, or 18 (14) of the financing decisions made involved investment loans, accounting for about 62% (80%) of the value of the decisions in euros.

Seven (7) of the projects that were approved were equity investments or mezzanine financing, showing a slight reduction from eight (8) in the previous year. When calculated in euros, however, they accounted for 24% of all approved projects, compared with 20% in the previous year. Three new fund investment decisions were made, one of which was cancelled. In addition, a decision was made to commit additional financing to a fund that is already invested in by Finnfund.

In terms of both the number and value of the financing decisions made, Africa with 9 (9) decisions and Asia with 8 (7) decisions were the leading continents. Africa was also the most popular target area in terms of euros, with 31% (21%) of the financing. The value of commitments was lower for Asia compared with the previous year, and constituted 28% (41%) of the total value of commitments. Projects were evenly distributed between different countries. One decision per country was made, with the exception of Egypt with three (none in 2016), Myanmar with two (none in 2016), and Vietnam with two (one decision in 2016).

The volume of disbursements grew to EUR 114 million from EUR 81 million, representing a clear historic high for Finnfund. Of this amount, EUR 66 million (EUR 34 million) was allocated to low-income countries or the least developed countries, EUR 15 million (EUR 42 million) to lower-middle income countries and EUR 33 million (EUR 5 million) to upper-middle income countries.

Of the disbursements during the 2017 financial year, EUR 21.7 million (EUR 22.7 million) is considered as Official development assistance (ODA) by the Finnish government.

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 aforementioned 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.

The amount of undisbursed commitments totalled EUR 178 million (EUR 147 million) at the end of 2017. In addition, EUR 98 million (EUR 108 million) was tied up in investment commitments that had not yet progressed to the agreement stage.

Development and priorities

Cooperation 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 as part of the environmental and social responsibility analysis was strengthened, and in this respect, Finnfund is at the forefront of development finance institutions. All proposals for direct new investment decisions were assessed using the matrix tool developed last year. The aim is to ensure that human rights considerations are appropriately acknowledged in investment decisions. In the summer, a project was launched to further increase the level of expertise related to human rights issues and to develop the process and tools used for investment decisions to funds and financial institutions. In order to measure the project’s estimated development impacts, the tool developed during the preliminary survey phase of the project was piloted and comparative calculations were prepared on its use. The assessment of political risks and publicity risks was included as part of the assessment of all investment proposals.

As part of strengthening the assessments of development impacts, detailed theories of change describing the mechanisms to achieve desired development impacts were developed for the key investment sectors. These models serve as the basis of monitoring and assessing the development impacts of investments. Furthermore, two impact evaluations were launched in 2017: The impact of Finnfund renewable energy projects on employment and economic growth in Honduras, and the impact of the construction of the Lake Turkana Wind Power project on the local environment.

As in the previous year, Finnfund's projects and operations attracted both interest and critique during 2017. To this effect, Finnfund actively increased communication with various interest groups such as non-governmental organisations and companies both in Finland and abroad, as well as transparency of the company's operations and results. This work will also continue going forward.

During 2017, a public tax policy was prepared and approved for Finnfund and implemented in late 2017. Representatives of civil society and other key interest groups and experts were heard during the preparation of the tax policy. In connection with the preparation process, all members of personnel and the governing bodies were provided training in issues related to international taxation, tax structures, and their related challenges.

An organisational reform was carried out towards the end of 2017, during which the preparation of investment proposals and the management of existing investments were concentrated under the Chief Investment Officer, and risk management and impact under their responsible Director.

During autumn 2017, oversight of the Finnpartnership business partnership programme was transferred to the Director of Administration.

A training programme for supervisors was launched during the latter half of the year, which aimed to develop the management skills of supervisors and improve the consistency of managerial and supervisory work.


Finnfund administers the Finnpartnership business partnership programme, which is financed by the Ministry for Foreign Affairs. The current contract is valid for the years 2016‒2018, with an option for continuation for 2019‒2021.

During the latter half of 2017, the operations and organisation of Finnpartnership were under intense development in cooperation with the Ministry for Foreign Affairs. A new website was launched for the programme, and the positively received application workshop concept, developed for business partnership customers, was further developed to provide more extensive information and resources for Finnish companies in order to improve their capabilities to participate in sustainable development, while discovering new business opportunities.

Finnpartnership provides funding, networking and advisory services for the assessment of business opportunities in developing countries. Business partnership support is in the form of financial aid granted for use in investigating the viability of business opportunities. Funding by Finnpartnership also serves as a point of first contact and a learning process to facilitate access to more extensive internationally available ODA funding and impact investors. The matchmaking service connects Finnish operators with partners in developing countries. The services are intended for use by companies, educational institutions, NGOs and other actors.

In 2017, a total of 163 (122) business partnership support applications were processed. Of these, 121 applications were accepted (91). The support granted was EUR 5.4 million in total (EUR 4.5 million).

Business partnership support was paid out to 106 (97) projects, totalling EUR 2.4 million (EUR 2.0 million).

In 2017, a total of 230 new companies (237) in target countries joined the matchmaking service. In 2017, a total of 88 companies (98) in developing countries found a Finnish business partner through the service.

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 major changes were made to the management principles in 2017.

The objective of asset and risk management is to mitigate the negative effects of market risks, primarily changes in interest and exchange rates, on Finnfund’s earnings, and to ensure sufficient liquidity.

The company is exposed to greater risks than those present in typical financial institution operations. The management of funding and liquidity risks 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. A weaker risk level results in a reduction of the project’s balance sheet value. The development of identified risk projects is monitored closely, and measures to mitigate the risks to Finnfund are initiated if deemed necessary.

Between the years 2012–2015, Finnfund employed a special risk financing instrument, which was provided on the basis of a loss compensation commitment adopted by the Finnish government. In its commitment, the government committed to compensate Finnfund for a maximum of 60% of credit losses and investment losses in projects covered by special risk financing during the period of validity of the commitment.

Projects accepted for coverage by special risk financing during the term of the programme will be covered by government risk-sharing until repayment or Finnfund's exit. As of the end of 2017, commitments of EUR 87.7 million were made for projects under special risk financing. The government answers for, at most EUR 50 million, or 57% of the risks associated with 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 2017.

The objective with regard to interest and currency risks is to identify and hedge against potential risks. Forward exchange agreements and interest rate and currency swap contracts are used as hedges against currency and interest rate risks resulting from investment loans granted by Finnfund. Interest derivatives are used as hedges against interest rate risks resulting from investment loans, when the interest basis of the investment loans deviates from that of Finnfund’s own funding.

Solvent Nordic banks comprise the contracting parties of Finnfund’s derivatives contracts.

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 100 million, non-committed credit facilities in Nordic banks, and a commercial paper programme, which was set up in 2010 with a sum of EUR 100 million and raised in 2017 to EUR 300 million. The credit facilities provided by banks were not in use at the end of 2017.

At the end of 2017, the value of commercial papers issued through the programme amounted to EUR 7 million.

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 financing. At the end of the year under review, the average time to maturity of interest-bearing debt was 3.1 years (2.1 years), if the convertible loan granted by the government is not included in calculations, and 4.2 years if the drawn portion of the loan is included.

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. As of the end of the financial year, EUR 10 million of the loan has been drawn. The remaining part of the loan will be used in the payment of approved investment decisions, and will be drawn in full during 2018.

The company maintains continuous procedures in order to identify, manage and prevent data security risks. Key personnel risks are managed by maintaining a continuous replacement and succession plan of key members of personnel.

Financial result and balance sheet 

In 2017, Finnfund made a profit of approximately EUR 2.0 million (approximately EUR 0.3 million in 2016). The result showed clear improvement from the previous year and corresponded with the budget. Realisation of the budgeted result was influenced significantly by two profitable exits that occurred close to the end of the year.

The operational result is shown in the table below. Income from financing activities stood at EUR 16.0 million (EUR 14.2 million) and the result before value adjustment items, sales and taxes was EUR 5.7 million (EUR 5.2 million).

Operational result, EUR 1,000 2017 2016 Change
Financial income 24,580 19,306 5,274 27
Financial expenses -8,568 -5,146 -3,422 66
Income from financing activities 16,012 14,160 1,852 13
Other operating income 1,538 1,600 -62 -4
Administrative expenses, depriciation and other
-11,838 -10,578 -1,260 12
Result before value adjustment, sales and
5,712 5,182 530 10
Value adjustment and sales -3,147 -4,824 1,677 -35
Income taxes -572 -18 -554 3,078
Net profit 1,993 340 1,653 486


Due to the nature of its operations, Finnfund’s annual income is highly variable.

Dividend income amounted to EUR 6.2 million (EUR 0.6 million) and dividends were received from six companies.

Interest income from investment loans came to EUR 13.2 million (EUR 9.9 million), and other interest income was EUR 0.2 million (EUR 0.3 million). Interest income totalled EUR 13.4 million (EUR 10.2 million). Other interest income mainly consisted of interest income from liquid assets.

Other income from long-term investments amounted to EUR 2.4 million (EUR 6.7 million), consisting of gains from fund investments. Capital gains from the sale of investments amounted to EUR 11.9 million during the year under review (no capital gains from sales in 2016).

Other financial income without foreign exchange gains, at EUR 2.6 million (EUR 1.4 million), mainly consisted of arrangement fees, commitment fees, and other financing fees.

Investment income before taxes totalled EUR 36.5 million (EUR 19.3 million).

Foreign exchange gains amounted to EUR 31.0 million (EUR 11.0 million) and losses to EUR 32 million (EUR 10.6 million). The foreign exchange difference was EUR 1.0 million negative.

Other operating income amounted to EUR 1.5 million (EUR 1.6 million) and this comprised 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 14.7 million (EUR 11.4 million), representing about 3.7 % (3.2 %) 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 5.5 million in 2017 (EUR 12.4 million). These resulted mainly due to the entry of previously recognised individual impairment losses as final losses in the financial statement.

The net effect of impairments on financial performance was approximately EUR -9.2 million (EUR 1.0 million).



Interest expenses were EUR 1.6 million and increased from the previous year (EUR 1.3 million). This resulted from the rise of US dollar interest rates and the increase in liabilities. Interest expenses were incurred through borrowing in both US dollars and euros.

Other financial expenses were EUR 6.0 million (EUR 3.9 million), including management fees of EUR 2.6 million (EUR 2.8 million) associated with fund investments. Other financial expenses also include costs of EUR 2.3 million (EUR 0.8 million) from derivatives.

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

Administrative expenses totalled EUR 11.8 million (EUR 10.6 million). The increase in expenses consists of several items that are related to the increase in the volume of operations and were therefore pre-planned.

Taxes recorded in the profit and loss account, totalling EUR 0.6 million (EUR 0.018 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 464.0 million (EUR 406.0 million) at the end of the year under review.

The balance sheet value of investment assets was EUR 393.3 million (EUR 356.3 million) at the end of the year under review. The growth of investment assets was slowed by the weakened US dollar exchange rate.

The breakdown of investment assets was as follows: loans (including subordinated loans and other mezzanine instruments) EUR 221.5 million (EUR 193.3 million) or 56.3% (54.3%); equity investments EUR 105.1 million (EUR 93.2 million) or 26.7% (26.1 %); and fund investments EUR 66.7 million (EUR 69.8 million) or 17.0% (19.6%).

Liquid assets stood at EUR 45.8 million (EUR 44.6 million) 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 244.1 million (EUR 232.9 million) or 53% of the balance-sheet total (57%). The company’s equity was reduced by EUR 0.8 million due to adjustments made to some fund recordings in the previous year.

In 2017, the company executed one share issue. In the share issue, a maximum of 62,961 new shares were offered to existing shareholders in proportion to their existing holdings, at the issue price of EUR 170 per share. The subscription period was 26 April to 5 June 2017. As a result of the share issue, the share capital was increased by EUR 9,999,910, corresponding to the proportion of the Finnish government. Pursuant to the issue decision, 58,823 new shares were issued. Finnvera Plc and the Confederation of Finnish Industries EK did not subscribe to any of the new shares they were offered.

At the end of the financial period, the company’s registered share capital stood at EUR 176,989,040 with 1,041,112 shares, with the Finnish government accounting for 976,542 shares (93.8%), Finnvera Plc for 63,349 shares (6.1%), 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 bookkeeping 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 unrestricted equity fund; 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 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 entitles it to one share. The government can subscribe to at most 764,705 of the company's shares. The subscription corresponds to the equivalent value of a share in bookkeeping, and it will be recorded in the company's unrestricted equity fund.

At the end of the year under review, the company’s long-term interest-bearing debt stood at EUR 149.7 million (EUR 103.1 million) and short-term interest-bearing debt at EUR 63.7 million (EUR 60.0 million), totalling EUR 213.4 million (EUR 163.4 million).

Long-term interest-bearing debt includes the EUR 100 million bond issued in summer 2017, as well as EUR 10 million of the long-term convertible loan of EUR 130 million granted by the government. 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 70% (60%) at the end of the period.

The company had no guarantee commitments at the end of 2017 (EUR 0.0 million).

Key figures

  2017 2016 2015
Financial income, EUR million 67.4 29.9 36.9
Net profit, EUR million 2.0 0.3 5.1
Return on equity, % 0.8 0.1 2.0
Equity ratio, % 52.6 57.4 66.5


Return on equity =     Result     x 100%

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

Administration and personnel 

In 2017, the Supervisory Board met 6 times, the Board of Directors met 14 times, and the audit committee of the Board of Directors met 3 times.

The Annual General Meeting, held on 26 April 2017, addressed the matters listed in Article 11 of the Articles of Association and the proposal by the Board of Directors on increase of the company’s share capital.

Members of the Supervisory Board at the Annual General Meeting for the period 2017−2020 were elected as follows: Seppo Kallio, Director, Johanna Karimäki, Member of Parliament, Riitta Myller, Member of Parliament, and Anne-Mari Virolainen, Member of Parliament.

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

Board Professional Ritva Laukkanen, Chair
Ambassador, Senior Advisor on Trade and Development Sinikka Antila, Vice Chair
Director of Finance Tuukka Andersén
Deputy Director General Kristiina Kuvaja-Xanthopoulos
Partner Pirita Mikkanen
CEO Lars-Erik Schöring
Financial Counsellor 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 23 May 2017:

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

The company’s auditor is Deloitte Oy, authorised public accountants, with Anu Servo, KHT, JHT, as the principal auditor.

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

During the year under review, the company employed an average of 71 personnel (60 personnel in 2016). At year-end, the number of employees in contractual employment was 76 (64), of whom 70 (61) were full-time. Of the employees, 52 were women and 24 were men.

Total wages and salaries paid to personnel in 2015–2017 were as follows.

  2017 2016 2015
Average number of personnel 71 60 56
Total wages and salaries, EUR 1,000 6,131 4,784 4,462

The final accounts include a provision for incentive bonuses earned in 2017, amounting to 8.2% of payroll expenses (5.1%). In 2017, the amount of incentives was partly based on performance at company and function levels, 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 2018

In accordance with the guidelines specified in the State Ownership Policy, three out of four projects will be located in lower-middle-income or poorer countries. Approximately half of projects are targeted at low-income countries, and focus will also be on projects aimed at fragile countries.

Potential investment decisions will be prepared only for projects with a positive development impact and to which Finnfund can create added value through its involvement. The due diligence assessments of projects will receive increased focus in the future, particularly in projects in which Finnfund holds a significant role. The assessment of political context and publicity risks will also be given more emphasis.

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 under preparation, some in extremely poor or fragile countries.

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 2018 and used mostly for payments of investment decisions made in 2016 and 2017. In the event that contributions by the government are limited to an increase in equity of EUR 10 million, as stated in the current budget proposal, this would necessitate an estimated one-fourth decrease in the volume of investment decisions. In this case, investment decisions could be made for a total value of approximately EUR 150 million. If a portion of the financial investments for development co-operation presented in the budget proposal should be issued to Finnfund as a long-term loan, the volume of investment decisions could be increased.

The Ministry for Foreign Affairs is planning continuation of the special risk financing instrument that ended in 2015 and considering the granting of a new authorisation. Depending on the decisions concerning the special risk financing instrument and the financial investments for development cooperation, Finnfund will either stall or increase the preparation of investment decisions in 2018.

The Ministry for Foreign Affairs has announced its intention to begin drafting a government decree for the removal of Russia from the list of countries eligible for financing within 2018. In practice, this would mean an end to any investment decisions targeted at Russia. At the end of 2017, Finnfund’s portfolio held EUR 10.7 million in investments in Russia. After an exit that took place in early 2018, the amount of investments and undisbursed commitments to Russia totalled EUR 4.2 million. The possible removal of Russia from the list of countries eligible for financing will have no effect on existing commitments.

Liquidity is expected to remain good in 2018. 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 on financial performance for 2018 is moderate, as the company’s loan portfolio has increased, and there has already been one profitable exit from an equity investment during early 2018. The company’s financial performance will be crucially affected by how the measurement of its investment assets changes during the financial period and whether further 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 2018.

Proposal of the Board of Directors for the distribution of profit 

The company recorded a profit of EUR 1,993,049.45 in 2017. 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