CFO insight into 2022 and Q1: Positive result – positive outlook

Our Annual Report 2022 has been published, and I am happy to say that despite the global and local economic and political challenges, the year was a successful one.

The project preparation targets for 2022 – 230 million euros and 22 projects – were clearly exceeded: a total of 28 new projects totalling 246 million euros were prepared fully in 2022.

As explained further in the report and our press release, Africa continues to be Finnfund’s primary investment destination, with 57% of volume and 54% of decisions. Asia comes second, with slightly less than a quarter of investments. The remaining share, about 20%, was allocated to other continents or international projects.

Although the effects of the coronavirus pandemic and various political crises led the company to make a loss in 2021, the result for 2022 was profitable once again. The profit was 324,426 euros.

Q1 – an active start for the year

We also started the year 2023 actively. Finnfund made ten new investment decisions during the first quarter, with a value of EUR 83 million. Within the quarter, our portfolio declined by EUR 3 million from the year-end of 2022, landing at EUR 695 million.

In March, we also announced our USD 20 million commitment to Evolution III Fund, a Pan-African equity fund aiming to foster the availability and accessibility of clean energy and increase energy efficiency.

The interest income increased by 47% compared to Q1/2022 (EUR 7.6 million vs. EUR 5.1 million). However, the net interest income grew only by 11% from the previous year, reaching EUR 4.2 million (EUR 3.8 million) because the interest expenses increased 249% compared to Q1/2022. The main driver for increased interest expenses is the cost of FX and IRS derivatives. While the USD/EUR rate is volatile, the expenses in derivatives may change rapidly. The portion of the derivative costs is almost half of the total interest expenses.

The net financial income declined 39% compared to Q1/2022 (EUR 3.3 million vs. EUR 5.4 million). The fundamental explanation for this was the valuation of FX and IRS derivatives at fair value, which have been recognized in the item exchange rate loss net. In last year’s Q1, the exchange rate gain was EUR 2.5 million more than this year’s Q1.

Operational expenses increased by 41% over the previous year’s Q1 and are 8% above the budget. That is mainly due to the accruals in accounting at the beginning of the year.

The profit before reduction in value of investments and sales gains and losses was EUR -1,6 million (EUR 2.2 million). The profit for Q1 was EUR 0,6 million (EUR 2.6 million).

Positive outlook for this year

The outlook for the financial year 2023 remains positive. For instance, we are looking for two significant exits for the year.

The war in Ukraine, the high inflation, and the rising interest rates worldwide will affect the scenarios. The business environment, especially in our target countries, will probably worsen over the year if the global situation continues. We are closely monitoring our investees as well the global economics and are prepared to react whenever necessary.

Olli Sinnemaa
Chief Financial Officer, Finnfund

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Olli Sinnemaa Chief Financial Officer olli.sinnemaa@finnfund.fi