Spinnova: Business Finland granted the company low-cost R&D funding

Translation: Original published in Finnish on 10/29/2024 at 8:48 am EET.

The total cost estimate for the multi-year work, which is at the core of the company's strategy and already included, at least to a large extent, in our forecasts, is 25 MEUR, half of which will be covered by Business Finland's low-cost debt financing. In our view, Spinnova's financial position is strong and we had expected the company to survive on its cash position for the next few years. However, due to the inherently low interest rate of the Business Finland funding, we believe that Spinnova will benefit from the debt financing available for the targeted R&D project. 

Loan represents half of total R&D project cost estimate

Spinnova announced yesterday that Business Finland has granted the company an R&D loan of a maximum of 12.7 MEUR for its research and development work for the period July 5, 2024–December 31, 2027, which is divided into two phases. The loan amount in the first phase totals 7.7 MEUR, lasting two years. The loan amount of the second phase, lasting one and a half years, is evaluated to be 4.9 MEUR. A prerequisite for granting the second phase is certain technical and commercial criteria, which must be met in the first phase of the R&D project. The loan amount represents 50% of the project’s total cost estimate, which totals 25 MEUR, including both phases.

The first phase of the project focuses on process efficiency, further fiber recipe development, and automatization development of Spinnova’s technology.  In the second phase, the focus will be on product development for new textile and other applications, in addition to process efficiency. The loan’s amortizations will start in 2029, and the interest rate is three percentage points below the base interest rate, defined by the Ministry of Finance Finland (currently 3.75%) or at least one percent.

This R&D project supports the scaling of Spinnova’s technology sales.  The project work is part of Spinnova’s R&D roadmap for lowering the capital expenditure and operational expenses of production technology, presented earlier this year at Spinnova’s Capital Markets Day.

Business Finland loan offers Spinnova very low-cost financing

Applying for and securing the loan was not particularly surprising news, as Business Finland usually provides affordable funding for high-risk R&D activities such as those underway at Spinnova. The project, which is related to reducing the capital expenditure and operating costs of Spinnova's technology, is in our view absolutely critical to the competitiveness and commercial success of Spinnova's technology. As such, the project is strategically very important for the company.

Spinnova's cash position at the end of H1 was at a strong level of 54 MEUR and we have estimated that it will be fully sufficient for the next few years without any additional funding. However, due to the low interest rate of the Business Finland loan (i.e. presumably around 1% considering market interest rate expectations), we believe that it makes a lot of sense for the company to use the funding. Therefore, the loan will have little impact on our projections. On the other hand, the costs of the project, which is part of the company's ongoing development activities, are at least for the most part already included in our forecasts for Spinnova's costs and investments in the coming years.

Our Initiation of coverage report on Spinnova, published in May, is still very current and freely accessible here.