How is EFSI channeled through EIB Group and how can it encourage RDI Finnish national workshop on EFSI and innovations

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1 How is EFSI channeled through EIB Group and how can it encourage RDI Finnish national workshop on EFSI and innovations Jukka Luukkanen Head of Helsinki Office European Investment Bank 1

2 EIB at a Glance We are the world s largest International Financial Institution 1958 Established to support long-term investments primarily in the European Union. We have over 50 years experience in financing sustainable projects. Shareholders Owned by the 28 Member States of the European Union. Source of funds We raise long-term funds on the international capital markets and as a non-profit organisation we pass favourable borrowing conditions to our clients. AAA-rated We re triple-a rated by all major rating agencies and have a sizeable capital of bn. European Investment Bank 2

3 The EIB Group Providing finance and expertise for sound and sustainable investment projects Leading developer of risk financing for innovative SMEs European Investment Bank 3

4 EIB Impact European Investment Bank 4

5 Total Lending volume (EUR m) Total number of operations Innovation and Skills (Knowledge Economy) Historical Lending Total Lending : EUR 152 bn 20, ,000 16,000 14,000 12,000 10,000 8,000 6, bn bn bn bn bn bn 10.9 bn 10.7 bn 10.2 bn bn bn 13.4 bn ,000 2, bn 5.1 bn 3.6 bn European Investment Bank 5

6 EFSI - Mobilising new investment European Investment Bank 6

7 EFSI - Contractual Setup EFSI is NOT legally a fund or a separate legal entity It is a contractual arrangement between EC & EIB Group All operations are EIB Group operations Standard EIB appraisal process followed by approval by EFSI Investment Committee Flexible, diverse products: Adapted to client s needs Risk-absorbing to trigger investments with higher risk profile (additionality), but economically and technically viable (bankability) European Investment Bank 7

8 EFSI setup and governance All EFSI operations are within the EIB Group (EIB&EIF) on the EIB s balance sheet (no separate entity) subject to standard due diligence EIB & EIF governing bodies approve each operation Additional EFSI governance: Steering Board Investment Committee, headed-up by a Managing Director EU Member States, National Promotional Banks, investment platforms and private sector can participate in different ways Operations started mid EFSI EIB Group 5

9 Timeline and investment period July 4 July 4 July 30 June Entry into force of EFSI Regulation Third anniversary of signing the EFSI Regulation 1st deadline for signature of EFSI operations Deadline for approval of EFSI Operations 2 nd deadline for signature of EFSI Operations Investment period to achieve EUR 315 bn of total investments Extended investment period EFSI operations to target EUR 315bn of total investment by 2018 Actual investment period runs until 30 June

10 Making a difference Additionality our value added is to Address market failures or sub-optimal investment situations Finance operations not possible to same extent without EFSI-backing Absorb part of the risk to trigger additional investments Impact orientation: Attracting other sources of finance Maximising growth Supporting employment creation and retention 10

11 With targeted products Continuously under development and adapted to market needs 11

12 Key areas Targeting strategic investment infrastructure, including transport, energy and digital education and training, health, research, development and innovation expansion of renewable energy and energy and resource efficiency projects in the environmental, urban development and social fields support for SMEs and midcaps 11

13 Who can benefit? Eligible counterparts: Corporates of all sizes Utilities and public sector entities (non-sovereign) SMEs (up to 250 employees) or midcaps (up to 3 000) National Promotional Banks or other banks for intermediation Dedicated Investment Platforms Contact: Application for financing directly with EIB Group (EIB or EIF) EIB InfoDesk or relevant Operations Department

14 What kind of operations? Operations need to be: Commercially sound, economically and technically viable Underpin EFSI objectives Support growth and jobs Mature enough to be bankable Priced in a manner commensurate with the risk taken Covering EU28 countries and cross-border operations 13

15 Financing step-by-step 15

16 First operations financed Financing for a Finnish bio-mill enhancement EUR 75m introducing renewable energy generation to make the plant fossil fuel free SME guarantee agreement Unlocking EUR 100m of loans for SMEs in Bulgaria Driving clean energy investment For more sustainable industries Backing midcap modernisation Supporting smaller businesses Equity-type financing for an innovative fund EUR 75m for investment in offshore wind, biomass and transmission projects Funding cutting-edge steel production facilities EUR 100m for innovative and competitive steel products 16

17 EIF investment in Open Ocean Fund IV In 2011, EIF played a crucial cornerstone role in helping a team of former MySQL founders to raise their debut venture capital fund, Open Ocean Fund III with EUR 44.6m in total commitments. Fund III has performed well with promising value drivers in the unrealized portfolio (e.g. Truecaller, Nosto Solutions, EyeEm) with blue-chip syndication partners like Atomico, Balderton Capital, Holtzbrinck Ventures, KPCB and Sequoia. EIF is the largest investor in Open Ocean Fund III. Since EIF s initial support in 2011, the team of Open Ocean has positioned itself as the investor of choice for entrepreneurs in the software space whose business model relies on open source or community components, and it is a sought-after co-investor for European and American generalist VC funds investing in that sector. The specialized skillsets that the Open Ocean team brings to the entrepreneurial ecosystem are highly appreciated by the market. By investing in Open Ocean IV, EIF saw an opportunity to further contribute to the consolidation of a reputed European VC firm with a specialized focus and a key role in the development of European software start-ups. Consequently, EIF made a commitment of EUR 30m at the first closing, hence allowing Open Ocean Fund IV to reach a viable minimum closing size. EIF s commitment in Open Ocean Fund IV will constitute a transaction to be reported under European Fund for Strategic Investment (EFSI), in line with the call from the European Council of December

18 Results dashboard (EIB+EIF) 20

19 InnovFin Product Overview European Investment Bank 19

20 Transactions under RSFF and InnovFin in Finland Nokia Ahlstrom Danisco Cargotec Outotec Aalto-Yliopistokiinteistöt EUR 180m EUR 10.8m EUR 30m EUR 21.5m EUR 34.7m EUR 50m Term loan Term loan Term loan Term loan Term loan Term loan Borealis Kemira Rovio Valmet Kiosked EUR 32.6m EUR 45m EUR 25m EUR 67.5m EUR 15m Term loan Term loan Term loan Term loan Term loan European Investment Bank 20

21 InnovFin Product Overview European Investment Bank 21

22 InnovFin intermediated products Designed to enable borrowing or investment capacity and additional risk taking capacity with intermediaries Portfolio approach whereby whole decision making is delegated to the intermediaries MCG SME VC Guarantee Equity The intermediary needs to confirm the eligibility of the final counterpart Unlike the Bank s funded SME loans to local Banks, in these products EIB shares the risk of the final beneficiary Local banks Loan Eligible counterparts Funds Equity European Investment Bank 22

23 Key Guarantee Terms Up to 50% loss coverage (Principal + Interest 90D) Full Delegation to Financial Intermediaries Automatic Coverage/ Inclusion Attractive Guarantee Terms Favourable Capital Treatment European Investment Bank 23

24 InnovFin Product Overview European Investment Bank 24

25 How does MGF work? EIF Growth Finance / Mezzanine EUR 25m Innovative Mid-Caps 3,000 Employees Direct long term debt and mezzanine finance: EUR 7.5m EUR 25m Loans can be structured as economic equity (silent participation) For innovative Mid-Caps and SMEs (eligible counterparty concept) EIB can finance up to 50% of all investments over 3 years Streamlined EIB approval process & English law European Investment Bank 25

26 MGF: Summary of Terms Indicative Term Sheet Borrower Product Purpose Eligible companies Term Loan / Guarantee Finance future investment budgets (capex, opex and other, mainly R&D related) Size of the loan EUR 7.5m EUR 25.0m Tenor Seniority Security Pricing Covenants Fees Jurisdiction Appraisal Flexible (usually 5-7 years) options: amortizing, bullet, grace period Senior to mezzanine Secured or unsecured Floating, fixed or convertible No subsidy elements, full risk pricing Pricing advantage a function of favorable borrowing costs and non-for-profit maximization objective Based on EIB standard loan contracts General and financial covenants/limitations are included according to the credit risk Limited but certain fees may be applicable English law subject to satisfactory documentation usually between 3 and 5 months Illustration Short-Term Assets Long-Term Assets Eligibility Eligible company Borrowing Base* Screening process Balance Sheet: Mid-Market Company Senior Debt Junior Debt Equity Medium sized companies, usually from 500 to 3,000 employees R&D-intensive of fast growing Planned investments of at least 15m and 50m over the next three years Research & Development related Innovation / Commercialization of new technology, capex, opex, salaries Industry & company RDI intensity Company R&D score (quality) Borrowing base European Investment Bank 26

27 MidCap Growth Finance Signed transactions ( YTD) EVS (2013) EUR 12m Senior term loan Pramac (2014) EUR 8m Senior term loan SAES (2015) EUR 10m Senior term loan Marposs (2013) EUR 25m Senior term loan 3 Maier (2014) EUR 7.5m Senior term loan PLANON (2015) EUR 12m Senior term loan Rovio (2014) EUR 25m Senior term loan 4 Manz (2014) EUR 20m Mezzanine loan e-net (2014) EUR 12m Subordinated loan 10 Novabase (2014) EUR 14m Senior term loan KIOSKED (2015) EUR 15m Senior term loan 16 DANOBAT (2015) EUR 10m 5 Pharmathen (2014) EUR 25m Senior term loan Marangoni (2014) EUR 10m Senior term loan Pipeline for end of Welltec (2014) EUR 25m Senior term loan Innocoll (2015) EUR 25m Senior PIK loan European Investment Bank 27

28 Company Overview Founded in 2003 by three Finnish students, Rovio is an entertainment media company and best known for its Angry Birds franchise; 800 employees At the end of 2013 the company had launched 7 Angry Birds sequels and 3 other games, which had been downloaded over 2 billion times and attracted over 200 million monthly active users The company expanded into animation and by end of 2013 their Toons Channel (toons.tv) had acquired over 1 billion views In the consumer products area currently there exists 30,000 Angry Birds licensed products distributed by 500 licensing partners in 100 different countries. Angry Birds was listed in 2013 as the 30 th most valuable brand in the world, but in top 10 in terms of brand recognition across all categories High innovativeness of the company with R&D costs 17% of revenue and above average industry benchmarks Financials: 2013 Revenues: EUR 150.1m ; EBITDA: EUR 30.5m. Loan structure Facility: Term Loan Amount: EUR 25,000,000 Ranking: Senior Pricing: Cash interest Borrower: ROVIO ENTERTAINMENT OY Other: English law, Financing tailored to the needs of the client EIB investment rationale Rovio is a significant employer of young and highly skilled people - the number of employees of the company grew in the past 2-years from 211 to over 800 at the end of 2013 Support for European presence in an industry mainly dominated by US players Significant commitment and investments to growth with a RDI and capital investment plan around EUR 120m over the next three years European Investment Bank 28

29 Company Overview Founded in 2010, the company is headquartered in Helsinki with offices in Los Angeles, New York, London and Singapore to ensure local support; 41 employees Kiosked is a global advertising platform software company delivering unique, targeted ads in all display and video formats and across both desktop and mobile devices The group's proprietary algorithms dynamically and automatically place ads directly within publisher content, using detailed contextual and behavioral data to provide industry-leading levels of ad targeting Its advanced data aggregation capabilities allow it to provide indepth insight and analytics directly to its customers Kiosked's advertising platform already serves over 10,000 advertisers (inducting e.g. Samsung, American Express, Jeep and AT&T) across a fast-growing network of premium content publishers The company is experimenting a substantial expansion and is now serving over 3 billion ad impressions per month, resulting in over 255 million people viewing Kiosked ads each month Financials: 2014 Revenues: EUR 4.2m ; EBITDA: EUR -1.6m Loan structure Facility: Term Loan Amount: EUR 15,000,000 Ranking: Senior Security: Unsecured Tenor: 5 years, bullet Pricing: Cash interest + variable element Borrower: KIOSKED OY AB Other: English law EIB investment rationale The EIB loan will support the fast growing expansion of the company contributing to the creation of highly skilled jobs by supporting the company's expansion plan, and help Kiosked maintain its competitive edge by providing financing for the company's RDI activities Kiosked has been recognized as an Innovative early stage company with significant market potential established by numerous technology and start-up awards (most recently Finnish Growth Company of 2015 and Forbes Top 5 Finnish Start-up) European Investment Bank 29

30 InnovFin Product Overview European Investment Bank 30

31 How does InnovFin Large Projects work? EIF Direct Lending EUR 25m - EUR 300m Large Projects EUR 50m EUR 600m Senior debt (pari-passu with other senior lenders) Eligible project required. EIB can only finance 50% of R&D and innovation investments Comprehensive due diligence including project due diligence EIB standard documentation European Investment Bank 31

32 InnovFin Product Overview European Investment Bank 32

33 How does InnovFin Energy Demo Projects work? EIF Direct Lending Up to EUR 75m Projects Broad range of instruments EIB can only finance 50% of project costs Comprehensive due diligence (legal, financial, technical, etc.) EIB standard documentation under English or Luxembourgish law European Investment Bank 33

34 Which projects can be supported? Eligible Projects Renewable energy Fuel Cells, Hydrogen Pre-commercial stage Loan amount: min EUR 7.5m, max EUR 75m Loan maturity: max 15 years Currency: EUR and local currency European Investment Bank 34

35 How does InnovFin Infectious Diseases work? Direct Lending Up to EUR 75m Projects Broad range of products - standard debt instruments (i.e. senior, subordinated, and mezzanine) to risk sharing instruments (RSL) with forgiveness options EIB can only finance 50% of project costs Comprehensive due diligence (legal, financial, technical, etc.) EIB standard documentation under English or Luxembourgish law European Investment Bank 35

36 InnovFin Product Overview European Investment Bank 36

37 Innovation Finance Advisory- What do we do? Project Advisory Improve bankability/investment readiness Enable earlier/ faster access to finance Horizontal Activity Improve framework conditions for financing Develop business case for new financing mechanisms in RDI sectors Hydrogen Mobility Germany Myrrha European Lead Factory (ELF) European Spallation Source (ESS) Global TB Vaccine Partnership Light Project Advisory (LPA) pipeline Infectious Diseases Financing Facility (IDFF) Circular Economy (CE) Key Enabling Technologies (KETs) Bio -Economy Strategic Energy Technology Plan (SET Plan) Financing options for Pan- European RI Web tool to guide innovative companies Enable maximum access to finance for innovative projects European Investment Bank 37

38 Current portfolio of Horizontal Activities KETs IDFF RTOs Web-tool Financing Pan-EU RI Circular economy Pilot LPA SET Bio economy European Investment Bank 38

39 Background Following a workshop in April 2015 with representation of RTOs and EIB/EIF operational staff, the EARTO President asked the EIB and EC (DG R&I) for a dedicated InnovFin Advisory mandate to develop new funding models for RTOs, also in the context of the EFSI. This new horizontal activity was approved by the InnovFin Advisory Steering Committee and the advisory mandate kick-started in Q3 2015, in close collaboration with EARTO European Investment Bank 39

40 Some Preliminary findings to be further explored General The majority of RTOs are public entities. Statutes (very) often do not allow them to take on loans. Size in terms of revenues and total assets vary: Revenue indication: from below EUR 10 to over EUR 400 million Asset size: from around EUR 25 million to close to EUR 400 million All RTOs have public and private revenues sources, but the ratio varies Finance-related challenges: Budgetary constraints, RTOs but also partners (cash-flow generation) Risk aversion from the private sector side (technology/product uncertainty) European Investment Bank 40

41 European Investment Bank 41