Privanet as an investment

Privanet Group is a Finnish investment service group that is specialized in trading securities of unlisted companies and financing arrangements of companies. It serves both private citizens and companies, the market of unlisted securities as its main business area. The group is actively developing knowledge and liquidity of the asset class and invests heavily in the development of both primary and secondary markets for the benefit of the whole investment industry. The group has a wide selection of services that aims at bringing together companies in need of funding and investors.

Privanet Group consists of the parent company Privanet Group Plc and its fully owned subsidiary companies Privanet Capital Markets Ltd and Privanet Securities Ltd. Privanet Capital Markets Ltd concentrates on arranging emissions, trading financial instruments on its own account, as well as intermediating unlisted securities. Privanet Securities Ltd concentrates on maintaining a secondary marketplace, Premarket, for unlisted securities, financing arrangements especially through crowdfunding, as well as Certified Adviser’s role on the First North trading venue.

Privanet Group serves clients all over Finland and it has offices in nine cities. In addition, the Norwegian branch office of Privanet Securities Ltd that belongs to the Privanet Group operates in Oslo and Bergen. Operations of the group are supervised by the Financial Supervisory Authority.

Financial period 2018

Business environment

In connection with the half-yearly report the Company stated that risks for the weakening of stock markets and financial sentiment at the end of the year 2018 are significant. The depressing factors in the background were the escalating trade war between USA and China, as well as the tightening monetary policy of the central banks. Also, the forecasts for economic growth and forecasting indicators had started to weaken. The view of the Company was rather correct, and a very turbulent end of the year was seen in stock markets, and the VIX index, also known as the fear index, increased intermittently to critical levels during the end of the year.

Trade war and central bank policy are likely to remain as the theme of the economy also at the beginning of 2019. Beside these, realization of Brexit is ascending to be a significant determiner of the direction of the economy. The IMF has had to lower its global forecast for economic growth again in January. The biggest decrease in the forecast is targeted right at the euro area, and difficulties related to Britain’s departure from the EU are likely behind the latest decrease in the forecast.

The forecasts for economic growth still don’t predict an actual economic recession, but recession risk has increased however, and the so-called surprise indexes of the economy have become negative in Europe, in the USA and in China.

It is clear that the fussing of the market affects the behavior of investors also in new financing sectors, although the historical correlation is rather low between regulated stock markets and unlisted securities, for example. This naturally means that the offering of financing rounds and the sales of securities must be invested in more strongly and professionally than ever before.

The beginning of the year has shown that the so-called “deal flow” remains to be strong. Very interesting growth funding projects have come to Privanet’s drawing board, and great growth companies will be seen in AROUND in 2019 as well. There are also several new projects on the table in the Realinvest service, and their size is larger than before. This proves that alternatives for bank funding are still growing strongly.

Privanet also believes that the reorganization of the company and putting the strategy into practice will allow the company and its employees to get on with their work, ensuring the SME companies the funding that they need. Thus, Privanet gives its own contribution for the prosperity of the society, and at the same time ensures its own position by being a significant financier for SME companies also in the future.

Business operations

Result of the group for the year 2018 did not meet the expectations. The operating result was depressed among others by the weakening of the sales proceeds, heavy cost structure, as well as non-recurring write-downs.

The turnover of the group, i.e. income from the investment services, was 8.29 million euros (13.97 million euros in the corresponding period in 2017). The majority of the business expenses are administrative expenses that primarily consist of personnel expenses. The personnel expenses were 4.69 million euros (4.25 million euros). Other administrative expenses were 3.20 million euros (2.36 million euros) including, among others, expenses relating to legal and consulting services and marketing, as well as costs of software and maintenance in the IT administration. The administrative expenses have increased as a result of expanding the administrative organization and sales personnel, as well as the growth of legal and consulting costs related to certain projects. Also, depreciations from the consolidated goodwill have increased as a result of the change in the group structure that was carried out in December 2017, in which Privanet Group acquired the entire capital stock of the subsidiary Privanet Securities Ltd to the ownership of the group. Write-offs and impairment losses of the financial assets were 1.31 million euros altogether. The operating profit therefore decreased to -3.37 million euros.

In 2018, a substantial amount of funding was again raised for Finnish growth companies. On the AROUND platform, a total of 14 million euros of funding was raised. During the two and a half years of operating, approximately 52 million euros of funding have already been raised on the platform. Also, the Realinvest service has continued its strong growth. In 2018, already more than five million euros of funding was raised on the platform. The service has been developed along the year, and the most prominent development project has been the allocator that is ready to be used in the service at the beginning of 2019. Other than crowdfunding emissions were carried out a total of 53 million euros, and the trading volume in Privanet’s secondary marketplace was short of 11 million euros.

The operations of the branch office that Privanet Securities Ltd has established in Norway have begun during the financial period. The branch office provides investment services on the AROUND crowdfunding platform, whose Norwegian version is used to arrange financing rounds for Norwegian growth companies. A joint venture, Privanet Norge AS, has been established together with the local responsible persons to share the expanses and profits of the branch. In Finland, new offices were opened in Hämeenlinna and Äänekoski.