CFO’s insight into Q3: Navigating through challenging times

The COVID-19 pandemic and the challenges in the global economy are not over yet. However, I am happy to see that at Finnfund we have been able to navigate through these challenging times.

In Q3, our activities remained at high level:

• Since the beginning of the year 2021, Finnfund has made 22 new investment decisions, worth 189 million euros.
• We signed several new investment agreements, such as a new EUR 10 million debt facility commitment to to Advans Group, one of the leading international microfinance group. University of Helsinki participates in this investment with Finnfund.
• Our portfolio has grown by 42 million euros compared to the situation at the end of the year 2020, 6.9%, reaching 650 million euros.
• Interest income increased by 3% compared to Q3/2020 (EUR 16.1 million in Q3/2021 EUR 15.6 million in Q3/2020). The net interest income increased 18% from the previous year, reaching 12.9 million euros (EUR 10.9 million). The main reasons for the good performance are the growth of the portfolio and the lower level of the USD reference rates. The latter cut interest expenses by 31% compared to Q3/2020.
• Net financial income increased by 17% compared to Q3/2020 (EUR 12.5 million vs. EUR 10.7 million).
• Operating expenses increased by 18% compared to Q3/2020. However, operating expenses remained under control and stayed below the budget by 11%.
• The profit before reduction in value of investments and sales gains and losses was 2.9 million euros (EUR 2.7 million).
• Write-downs stayed at a moderate level, 11.8 million euros (EUR 24 million) in total. The amount represents 1.8% of the portfolio’s book value. As the situation with the COVID-19 pandemic remains challenging in our target countries, we are closely monitoring the need for possible new write-downs in our portfolio.
• The profit for Q3 was -3.2 million euros (EUR -18.3 million). The main reason for the negative result is the challenges in the fund investment performance as well as the lack of the sale gains from our equity investments. These income components have suffered the most of the COVID-19 pandemic and the escape of equity capital in our target countries.

As Finnfund follows FAS (Finnish Accounting Standard) we are not able to value our investments above the disbursed amount. However, we can see increased value in many of our investments according to our own valuation methods as well as those of the fund managers, but the profits can only be realized in our accounting at the time of exits of the investments.

The outlook for the financial year 2021 end remains challenging. Although the activity level has been high and many parts of the world are opening from lockdowns, the economic situation and timeline for recovery remain unclear in many developing countries. For us as a development financier, this means that our contribution is strongly needed.

We at Finnfund strive to stay at the frontline of the global effort to build back better.

Olli Sinnemaa
CFO, Finnfund

P.S. This is the third quarterly blog post aiming to provide a better insight into our investment operations for our financiers, investors and other stakeholders.

We have also started to publish a quarterly newsletter – you can read the Q3 edition & join our subscribers here.