Technology Parks

ANNUAL REPORT 2019 L-Bank in Figures OVERVIEW 2015–2019 in EUR millions 2015 2016 2017 2018 2019 Total assets 73,294.92 75,075.39 70,669.98 69,608.87 77,622.56 Equity 2,765.31 2,814.64 2,865.23 2,963.98 3,013.96 Net interest income1 365.41 368.93 323.41 331.37 302.04 Net income 50.63 49.33 50.59 50.18 49.98 2015 2016 2017 2018 2019 ‘Hard’ Tier I capital ratio (CET1 ratio) 16.38% 18.00% 18.67% 18.59% 20.06% Total capital ratio 19.00% 20.29% 20.73% 20.59% 22.20% Return on equity 10.28% 12.19% 5.44% 6.29% 4.39% Cost-income ratio 42.82% 41.65% 52.39% 44.53% 53.45% Leverage ratio 3.91% 4.37% 4.81% 5.12% 4.86% 2019 Moody’s Standard & Poor’s Rating Aaa AAA 1 Based on business operations. Annual Report 2019 L-Bank 03 A Letter to our Business Partners Dear Business Partners, A good result, important strategic decisions for the future… although 2019 was a challenging year for L-Bank, there were many positive outcomes. We were delighted by the European Parliament’s positive decision, taken on 16 April 2019, to take Germany’s legally independent development banks out of the European Single Supervisory M echanism (SSM). This means that development banks now operate in a more appropriate regulatory environment. Among the important factors influencing the political decision-making process, our objection to banking supervision by the ECB undoubtedly played a part. On the one hand, the European Court of Justice had unfortunately perpetuated what we considered to be an erroneous judgement by the European Court of First Instance. Annual Report 2019 L-Bank 04 On the other, in making our objection, we took what has proved to be a correct and significant step, in that it helped European policymakers to better understand and appre- ciate the business model of regional development banks. L-Bank was also able to make its mark on the capital market. In November 2018, we were the first European development bank to issue a floating-rate bond with an interest rate linked to the SOFR. In April 2019, we continued this pioneering role by issuing a second, similar bond. Also last year, L-Bank was the world’s first institution to issue a bond linked to the new ESTR reference rate. Thus we have made our future direction clear at an early stage: Despite all attempts at reform, Interbank Offered Rates (IBORs) such as EURIBOR and LIBOR do not appear to have good long-term prospects. The future belongs to risk- free rates recently created for overnight money, such as ESTR, SOFR and SONIA, from which interest rates for typical EURIBOR maturities can also be derived. With the implementation of our online application system for parental allowances, we have opened a new chapter in our service provision. The digitisation of applications simplifies and accelerates the whole application process, both for our clients and for ourselves. This has clearly resulted in a huge gain in efficiency, with more than 50,000 applications approved to date. We also attained an important housing development objective, by consolidating the turnaround in the provision of social accommodation for rent in Baden-Württemberg. In 2019, we once again exceeded the bare minimum threshold of 1,500 residential units per year by a substantial margin, providing development finance for a total of 2,600 residential units (of which around 2,100 were new builds). In the process, more residential units were created than ceased to be eligible for regulated tenancies. For Baden-Württemberg’s business community, last year was economically challenging. This situation is unlikely to change in the near future: A combination of political and economic risks are making investments and capital expenditure less attractive. Despite pervasively low interest rates, it is likely that these lacklustre business conditions will continue into 2020. How can we counteract this trend? Innovation is the antidote. Baden-Württemberg is well positioned for the next generation of innovative projects. No other federal state can boast as many market leaders or such broad and deep industrial expertise, not to men- tion a research community that combines world-leading scientific activity with a focus on practical applications. As we face the future, we will continue to trust in our business community’s ability to innovate. Our funding figures are an early indication that this trust is wellfounded. More than 4,300 businesses have taken advantage of our Digitisation Premium and Innovation Finance programmes. The excellent, wide-ranging outcomes of these programmes show that firms are working intensively on solutions for the future. But as a development bank, we too must continue to evolve. We must anticipate the ongoing decline of interest rates by preparing to issue development loans at negative interest rates. Annual Report 2019 L-Bank 05 Innovation needs more than just suitable funding programmes, however. As they say in the football world: Money alone doesn’t score goals! The important thing is to ensure that the whole team is well prepared and to invest in good support structures. The same thing applies to business. While attractive financing options provide a vital incentive, contacts, stimuli and networks are at least as important for generating and implementing ideas. Innovations are the result of positive interactions between many players inside and out- side a company – interactions that help the business to identify a customer need and create the right product to satisfy it. Our technology parks, deliberately situated close to universities and major research insti- tutions, provide firms with an environment that makes it easier to identify promising advances and transform them into real-world solutions. We commissioned Prognos AG, working with ZEW, to evaluate our existing technology parks (TPK, STEP, TTR) while pin- pointing the factors that have made them so successful, and to identify other potential locations for technology parks in Baden-Württemberg. Our technology parks have chalked up some impressive achievements. In this annual report, we summarise the findings of the Prognos/ZEW study and use them to extrapolate how best to build upon these successes in the future. This study is the next in a series of studies systematically evaluating our development services and establishing a solid basis for evolutionary refinement. Over the last few years, we have successfully resolved the many challenges we have faced. For this, I offer my heartfelt thanks to all our members of staff – just as I thank you all for your confidence in me. Dr. Axel Nawrath Chief Executive Officer, L-Bank Annual Report 2019 L-Bank 06 Contents A Letter to our Business Partners 03 Greetings from the State Premier 07 Business Zone Development 09 An evaluation of L-Bank’s technology parks L-Bank’s Development Finance Activities 27 A development bank dedicated to Baden-Württemberg’s welfare Corporate Governance Report 49 Management Report 52 Report of the Board of Management of L-Bank for fiscal year 2019 Separate Non-financial Report 91 Report of the Board of Management of L-Bank for fiscal year 2019 Report of the Supervisory Board 100 Financial Statements 102 Annual Report 2019 L-Bank 07 GREETINGS Greetings from the State Premier Today, Baden-Württemberg is one of the world’s leading innovation and technology hubs. At the same time, we are facing unprecedented challenges to our economic strength. Digitisation and artificial intelligence, along with advanced technologies such as quantum computing, are transforming our society and economy. The automotive industry – one of the key sectors in the federal state’s economy and guarantor of huge numbers of jobs – is facing the single most disruptive structural transformation since the invention of the automobile. For Baden-Württemberg to emerge from this period of transformation as an even stronger and more capable global competitor, we need innovative entrepreneurs as well as creative business founders with the courage and determination to turn their visions into reality. Baden-Württemberg thrives because is nurtures clever minds with good ideas. This is, and always has been, one of the keys to our success. Annual Report 2019 L-Bank 08 It is just as important, however, that the surrounding conditions should be right. Businesses and start-ups need an environment that is conducive to innovation and cutting-edge technology. This is why the state government has drawn up its latest budget based on high-priority, long-term criteria for encouraging innovation. Thus, among other initiatives, GREETINGS EUR 100 million has been made available for funding projects associated with the federal government’s AI strategy. This includes developing Tübingen’s Cyber Valley, which has already become Europe’s leading research centre for artificial intelligence. Another EUR 40 million has been set aside for establishing a Centre of Excellence in quantum computing in Baden-Württemberg. And a further EUR 50 million has been budgeted for projects under the aegis of the Baden-Württemberg Healthcare Forum (‘Forum Gesundheitsstandort’). In all these activities, L-Bank acts as one of the state government’s most supportive and powerful partners. It provides companies from first-time start-ups through to well- established SMEs with turnkey development funding programmes. L-Bank’s very satis- factory development, which continued throughout 2019, provides impressive proof of the institution’s engagement. The federal state’s L-Bank-sponsored technology parks make an important contribution to creating appropriate conditions for innovation. They provide an environment that makes it easier for corporate tenants to concentrate on their business objectives. Because the technology parks are located so close to universities, they also support technology transfer from academia to industry.

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