EIF Chief Executive's Activity Report 2003

2003 was a year of great progress. Among the outstanding events was the achievement of a AAA/Aaa/AAA credit rating by the rating agencies Standard & Poor's, Moody's and Fitch. This led to the approval, in early 2004, by the Basel Committee of Multilateral Development Bank status for EIF, meaning a 0% weighting under the new Basel II Capital Accord and a 20% weighting under the current Basel I. Further highlights were: a EUR 500m increase in resources, meaning more than 1 000m additional investment capacity allocated to EIF for venture capital under the EIB's Risk Capital Mandate (RCM), which was unanimously approved by the Board of Governors of the EIB; a third-party venture capital mandate to leverage the EIF's operations; the signing of the first advisory contracts; and finally, the addition of four new shareholders to the EIF. Furthermore, 2003 was a successful year thanks to a considerable rise in EIF's guarantee activity, which has increased the overall level of EIF operations despite adverse market conditions that continue to affect the venture capital side of its business.

New guarantee volumes increased significantly in 2003, with signatures exceeding EUR 2 251m (MAP: EUR 1 657m; Own Risk: EUR 594m). These signatures are the result of, on the one hand, the development of the European securitisation market and credit enhancement operations, and on the other, the increased demand for the European Commission's Multiannual Programme (MAP), coming in part from the Acceding/Accession Countries. The MAP's micro-credit window has been especially successful as several new guarantees agreements have been signed, meaning that micro-credit coverage and mentoring services are available from financial institutions in six countries.

As for its venture capital activity, EUR 135m in new commitments were signed in 2003. Although this amount was lower than forecast, EIF still plays a leading role in the European venture capital market with a continuous presence achieved through ongoing disbursements (which remain at a level comparable to that of previous years) to its existing funds. Through these disbursements, EIF attempts to balance its portfolio composition by stage (for example, through second and third-round investments) and, where possible, by vintage year (for example, through secondary transactions). In addition, EIF aims to complement its early-stage tech funds with later-stage tech funds that have above average expected performance.

One development in 2003 that holds significant implications for EIF's venture capital business in 2004 and beyond was the launch of a EUR 250m ERP-EIF Facility for investments in venture capital funds targeting German high-tech companies. The EIF is to be responsible for the management of this Facility on a mandate granted by the German Federal Ministry of Economics and Labour, which represents the first mandate EIF operates on behalf of a non-shareholder.

In addition, in 2003 four advisory contracts were signed with regional authorities in three EU countries as well as with the European Commission's DG Transport/Energy, indicating a successful beginning for EIF's newest activity, which was launched just over one year ago.

The financial year 2003 showed an audited net profit of EUR 19.7m, compared to 18.8m in 2002. Ordinary income remains stable and amounts to EUR 47.3m as the result of a slight decrease in treasury income and the fact that realised gains from venture capital operations were offset by an increase in guarantees fee income and management fees. The cash and equivalent position remains unchanged at EUR 530m.

Francis Carpenter
Chief Executive