Business
CapMan is an alternative asset manager and its core business is private equity fund management and advisory services. The funds under management invest mainly in unlisted Nordic companies or real estate assets. CapMan Plc’s income derives from management fees from the funds, carried interest from funds generating carried interest, returns on direct fund investments made from CapMan Plc’s own balance sheet, and returns on real estate consulting.
CapMan Plc’s business areas
CapMan has two business areas: CapMan Private Equity (management of private equity funds making investments in portfolio companies) and CapMan Real Estate (management of private equity funds making real estate investments and providing real estate consulting). The funds investing in portfolio companies focus mainly on the Nordic countries in three investment areas: middle market buyouts (CapMan Buyout); technology investments (CapMan Technology); and life science investments (CapMan Life Science). The private equity real estate funds focus on real estate targets mainly in Finland and Sweden.
Information about each business area is reported in its own segment in interim reports. The associated company Access Capital Partners has been included in the Group’s figures under CapMan Private Equity. As far as funds are concerned, Access Capital Partner’s figures are presented separately.
Turnover and financial performance in 2007
CapMan’s turnover in 2007 increased to MEUR 51.6 (2006: MEUR 38.0), mainly as a result of the growth in carried interest income.
The amount of management fees paid by the funds, MEUR 24.6 (MEUR 24.9), remained at the level of the previous year. CapMan started receiving management fees from CapMan Technology 2007 and CapMan RE II funds during the review period, whereas the amount of fees received from older funds decreased due to exits implemented during the year.
Carried interest income received by CapMan totalled MEUR 23.6 (MEUR 9.4). The sale of CapMan Real Estate I fund’s portfolio accrued carried interest totalling MEUR 21.0, of which the share belonging to the parent company shareholders was MEUR 13.4. The remaining MEUR 2.6 was accrued from carried interest received from other funds generating carry.
The impact of fund investments made from CapMan’s own balance sheet totalled MEUR 6.2 (MEUR 4.4). Realised returns on the investments were MEUR 0.5 (MEUR 0.9), and fair value gains/losses relating to fund investments were MEUR 5.7 (MEUR 3.5). Fair value losses were recorded in the last quarter due to valuation changes of certain individual investments and expenses incurred by new funds. As a whole the fair value of fund investments has developed favourably in 2007 and their return exceeds CapMan Plc’s targeted annual return level of 15%. The aggregate fair value of all fund investments made from CapMan’s own balance sheet was MEUR 44.2 at 31 December 2007.
Returns on real estate consulting operations totalled MEUR 2.1 (MEUR 2.0) and other operating income within turnover was MEUR 0.8 (MEUR 0.8). Operating expenses were MEUR 27.7 (MEUR 26.6). The slight increase in expenses reflects the organisation’s growth in 2007. The cost level in 2008 is expected to increase somewhat from the cost level in the last quarter of 2007 as a result of the establishment of CapMan Hotels RE fund.
The Group’s operating profit was up to MEUR 29.8 (MEUR 15.6). The share from the associated companies’ result increased to MEUR 1.9 (MEUR 1.3) mainly with value creation in the portfolios of the Maneq funds, which are included in CapMan’s associated companies. Profit before taxes was MEUR 32.7 (MEUR 17.3) and profit after taxes MEUR 24.2 (MEUR 12.4). Profit attributable to the parent company shareholders was MEUR 18.6 (MEUR 11.5), representing earnings per share of EUR 0.24 (EUR 0.15). The preliminary figures for earnings per share announced on 16 January 2008 were more closely defined with exact figures from associated company Access Capital Partners.
Carried interest income and fair values of fund investments may fluctuate strongly between quarters and therefore CapMan’s financial performance should be examined over a longer time span than quarterly.
Balance sheet and financial position at 31 December 2007
The amount of non-current assets in the balance sheet increased to MEUR 74.9 during the financial year (MEUR 57.1 at 31 December 2006). Fund investments from CapMan’s own balance sheet increased and their fair value at year-end was EUR 44.2 (EUR 33.1). Long-term receivables amounted to MEUR 16.2 (MEUR 13.8). Of the receivables, MEUR 11.6 (MEUR 10.1) was loan receivables from the Maneq funds. Maneq funds are co-investors in portfolio companies with the funds managed by CapMan, and their investors are CapMan and CapMan’s personnel. Goodwill was MEUR 4.8 (MEUR 4.8) and it was mainly allocated to the acquisition of Swedestart Management AB in 2002. The Company’s net cash assets including current investments were MEUR 34.6 (MEUR 16.9). The Company had interest-bearing liabilities worth MEUR 16.0 (MEUR 11.9).
CapMan’s equity ratio at the end of the fiscal year was 57.6% (71.6%). Return on equity for the period was 38.9% (23.4%) and return on investment 44.2% (29.9%). The Company has target levels of at least 50% for the equity ratio and over 25% for return on equity.
Key figures
|
|
31.12.2007 |
31.12.2006 |
|
Earnings/share, EUR |
0.24 |
0.15 |
|
Earnings/share, diluted, EUR |
0.24 |
0.15 |
|
Shareholders’ equity/share, EUR |
0.86 |
0.74 |
|
Share issue adjusted number of shares |
78 142 867 |
76 212 849 |
|
Number of shares at year-end |
79 968 819 |
77 158 698 |
|
Number of shares outstanding |
79 968 819 |
77 158 698 |
|
Return on equity, % |
38.9 |
23.4 |
|
Return on investment, % |
44.2 |
29.9 |
|
Equity ratio, % |
57.6 |
71.6 |
Turnover and profit quarterly as well as turnover and operating profit per segment are presented in the tables section of the Financial Statements Bulletin.
Proposal of the Board of Directors for profit distribution
CapMan Plc’s objective is to distribute at least half of the net profit in dividends. The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.16 per share (EUR 0.12), which equals to 67% (80%) of the net profit, will be distributed to shareholders for the year 2007.
Fundraising
Funds investing in portfolio companies
On 9 February 2007 CapMan established a new technology fund CapMan Technology 2007, which has investment focus on expansion and later stage technology companies in the Nordic countries. Commitments totalling MEUR 140.3 had been raised to the fund as at the end of 2007 and the fund held a final close in January 2008 at MEUR 142.3. CapMan’s own commitment to the fund is MEUR 15, and division of any carried interest generated by the fund will be 50% for CapMan and 50% for the Technology team.
CapMan Life Science IV fund held a final close in May at MEUR 54. The fund invests in medical technology companies mainly in the Nordic countries. CapMan’s own commitment to the fund is MEUR 10 and the division of any carried interest generated by the fund will be 50% for CapMan and 50% for the Life Science team.
Real estate funds
The CapMan RE II fund reached its maximum investment capacity of MEUR 600 on 31 March 2007. The aim is to finance an average 75% of the fund’s investments with debt, in which case the MEUR 600 investment capacity comprises MEUR 150 of shareholders’ equity with the remainder being debt financing. The investment focus of CapMan RE II is on property development targets in Finland. The fund’s management company CapMan RE II GP Oy has an investment commitment of MEUR 2 to the fund. CapMan Plc’s share of any carried interest from CapMan RE II is 60% and the combined share of the Real Estate investment team and Corintium Oy, the management company’s other owner, is 40%.
Capital under management
As at 31 December 2007, CapMan managed a total of MEUR 3,016.1 in capital (MEUR 2,549.6 at 31 December 2006). The capital under management in funds making direct portfolio investments in companies increased during the year as a result of fundraising for CapMan Technology 2007 and CapMan Life Science IV funds and amounted to MEUR 1,916.1 (MEUR 1,773.6) at year-end. The capital under management in real estate funds increased during the year as a result of fundraising for CapMan RE II, and amounted to MEUR 1,100 at 31 December 2007 (MEUR 776 at 31 December 2006).
Capital under management by associated company Access Capital Partners
The capital under management by CapMan Plc’s associated company Access Capital Partners increased substantially in 2007 and totalled MEUR 2,326.5 at year-end (MEUR 1,637.5 at 31 December 2006). Of this, MEUR 1,164.5 (MEUR 918.1) was in the funds of funds and MEUR 1,162.0 (MEUR 719.4) in private equity investment mandates. The assets were increased especially during the second half when Access received a MEUR 300 private equity investment mandate from the French government’s pension fund and established a fourth-generation buyout fund of funds ACF IV Growth Buy-out Europe. The size of the fund was MEUR 241.0 as at 31 December 2007 and fundraising continues.
CapMan Plc owns 35 per cent of the share capital in Access Capital Partners. The shares are valuated in the balance sheet at acquisition cost.
Investments and exits by funds in 2007
Funds investing in portfolio companies
In 2007 the funds made 11 new investments and add-on investments worth MEUR 164.7 in total. New investment targets include Curato AS, Global Intelligence Alliance Group Ltd, IT2 Treasury Solutions, KMW Energi AB, Komas Oy, Mawell Oy, Mirasys Ltd, Movial Applications Oy, Nacka Närsjukhus Proxima AB, Skandia Autologistics Oy and Walki Group Oy. In addition, a substantial add-on investments in OneMed Group Oy and Metallfabriken Ljunghäll AB were announced during the year.
The funds exited from a total of seven companies in 2007, including Avitec AB, Copterline Oy, Distocraft Oy, LindPlast A/S, MediaNorth Group Corporation, Savcor Group and Synerco AB, and sold their shares in Affecto Plc and SysOpenDigia Plc. In addition, the funds made a partial exit from Moventas Corporation and Inflight Service AB repaid its mezzanine and equity loans. The acquisition costs of exits executed during the year (including mezzanine loan instalments and partial exits) totalled MEUR 93.2. The funds also announced exits from Secgo Software Oy, Hantro Products Ltd and Solid Information Technology Oy in 2007.
Real estate funds
The Real Estate funds announced 16 new investments or investment decisions in 2007. Of these, 13 were in completed properties and three in properties under construction. Six of the completed properties are located in Helsinki, two in Hämeenlinna, two in Turku, one in Jyväskylä, one in Tampere and one in Vantaa, and they are all mostly office properties. The properties under construction are Entresse shopping centre in Espoo, Tokmanni’s logistics centre in Mäntsälä and Skanssi shopping centre in Turku. Investments totalling MEUR 160.0 were made during the fiscal year and the funds have additionally committed a total of MEUR 302.1 to finance the aforementioned real estate acquisitions and projects in the next few years.
CapMan Real Estate I fund exited from a total of 22 properties when the sale of the fund’s real estate portfolio to Samson Properties Ltd, The Royal Bank of Scotland (RBS) and Ajanta Oy was finalised on 31 January 2007. The acquisition price of the portfolio was MEUR 304.4 and the sale price MEUR 377.5.
Investments and exits at acquisition cost, MEUR
|
|
1-12/2007 |
1-12/2006 |
|
New and follow-on investments |
|
|
|
|
|
Funds investing in portfolio companies |
164.7 |
|
158.8 |
|
|
Buyout |
|
126.7 |
|
127.8 |
|
Technology |
|
28.6 |
|
16.8 |
|
Life Science |
|
9.4 |
|
14.2 |
|
Real estate funds |
160.0 |
|
78.7 |
|
|
Total |
324.7 |
|
237.5 |
|
|
|
|
|
|
|
|
Exits* |
|
|
|
|
|
Funds investing in portfolio companies |
93.2 |
|
173.8 |
|
|
Buyout |
|
74.1 |
|
144.7 |
|
Technology |
|
19.1 |
|
24.7 |
|
Life Science |
|
- |
|
4.4 |
|
Real estate funds |
304.4 |
|
- |
|
|
Total |
397.6 |
|
173.8 |
|
* includes partial exits and mezzanine loan instalments.
The investment activities of the funds managed by CapMan are described in more detail in Appendix 2.
Status of CapMan funds as at 31 December 2007
Funds investing in portfolio companies
Investments in portfolio companies at acquisition price totalled MEUR 640.6 at the end of the year. The fair value of the investments was MEUR 792.2. The fund’s portfolios are valued at fair value in compliance with EVCA’s guidelines, as specified in Appendix 1.
Excluding actual and estimated expenses, CapMan funds had an investment capacity of some MEUR 690 for new and follow-on investments in portfolio companies. Of this, some MEUR 470 is reserved for buyout investments (including mezzanine investments), some MEUR 175 for technology investments, and about MEUR 45 for life science investments.
Real estate funds
At the end of 2007 the funds’ investments in real estate assets at acquisition price totalled MEUR 160.0 and the fair value of investments was MEUR 160.5. The portfolio is wholly comprised of assets acquired during 2007. The vacancy rate of the portfolio’s completed properties was 8.2% at year-end. As at 31 December 2007 the funds had also committed a total of MEUR 302.1 to finance real estate acquisitions and projects over the next few years. The funds have an investment capacity of some MEUR 340 for new real estate investments.
Funds’ gross portfolio* as at 31 December 2007, MEUR
|
|
Portfolio at |
Portfolio at |
Share of |
|
|
acquisition |
fair |
the portfolio |
|
|
cost |
value |
(fair value) |
|
|
MEUR |
MEUR |
% |
|
Funds investing in portfolio companies |
640.6 |
792.2 |
83.2 |
|
Real estate funds |
160.0 |
160.5 |
16.8 |
|
Total |
800.6 |
952.7 |
100.0 |
|
|
|
|
|
|
Funds investing in portfolio companies |
|
|
|
|
Buyout |
483.7 |
648.1 |
81.8 |
|
Technology |
114.7 |
104.5 |
13.2 |
|
Life Science |
42.2 |
39.6 |
5.0 |
|
Total |
640.6 |
792.2 |
100.0 |
* Gross portfolio of all portfolio companies and real estate assets managed by CapMan funds.
As a result of the real estate portfolio sale that was realised in January 2007 and the short holding period of the current real estate portfolio, the proportional share of real estate targets in the gross portfolio of all funds managed by CapMan is at a low level.
Funds generating carried interest as at 31 December 2007
A private equity fund begins to generate carried interest after the investors have regained their investment and generate a preferred annual return, usually 7–8%. During the year CapMan Real Estate I and Finnventure V funds began to generate carried interest, and of these funds CapMan Real Estate I is still in the active investment phase. At the end of 2007 the following funds were in carry:
|
|
CapMan’s |
Portfolio at fair |
|
|
share of |
value 31.12.2007 |
|
|
cash flows* |
MEUR |
|
Finnventure II and III and Finnmezzanine II B funds in total: |
20–35 % |
2.8 |
|
Finnventure Fund V: |
20 % |
54.5 |
|
Fenno Program (Fenno Fund, Skandia I and II) in total: |
10–12 % |
11.7 |
|
CapMan Real Estate I: |
25 % |
92.5** |
* Net share of cash flows, taking into consideration Fenno Management Oy’s share as far as Fenno Program is concerned and Corintium Oy’s and the investment team’s shares as far as CapMan Real Estate I is concerned.
** The fund still continues active investment operations. Of the portfolio at fair value, MEUR 56.1 is financed with debt.
The current portfolios of funds generating carried interest amounted to MEUR 161.5 at fair value, which is 17.0% of the total fair value of all portfolio funds at 31 December 2007 (MEUR 952.7). Information about each fund’s investment targets is presented on CapMan’s website at www.capman.com/En/Funds.
CapMan’s share of carried interest received from funds generating carry is generally 20–25% of a fund’s cash flow in respect of funds that were established before 2004, and 10–15% with respect to newer funds. The lower carried interest percentage for newer funds results from a share of the carried interest being distributed to the members of the investment team who have been responsible for the funds’ investment activities during the funds’ life cycle (generally 10 years), in accordance with common practice in the private equity investment industry.
CapMan’s own investments in the funds
Since 2002 CapMan Plc has been a substantial investor in the funds managed by the Group. The Company invests from its own balance sheet about 5–10% of the total capital in equity funds that invest in portfolio companies. The aim of investing in own funds is to improve the Company’s return on equity and to even out fluctuations in income with returns from these investments. The investments made have been valued at fair value in accordance with EVCA guidelines as specified in Appendix 1. There may be quarterly variations in fair value gains/losses due to changes in the value of investment targets as well as to realised exits and the expenses incurred by funds.
CapMan, like other investors, gives commitments to the funds when they are established. As at 31 December 2007 the total sum of current investments at fair value and remaining commitments was MEUR 100.2 (MEUR 83.6 at 31 December 2006), of which remaining commitments totalled MEUR 56.0 (MEUR 50.5). Of these, MEUR 23.2 is allocated to the CapMan Buyout VIII Fund, MEUR 12.4 to the CapMan Technology 2007 fund and the remainder mainly to the CapMan Life Science IV, CapMan Mezzanine IV, CapMan Equity VII and Access Capital Fund II funds. The commitments will be drawn down gradually within the next 3–5 years as new investments are made. Fund investments for the year totalled MEUR 15.4 (MEUR 13.2). The majority of investments were made in CapMan Buyout VIII fund. The fair value of cumulative fund investments made from CapMan’s own balance sheet was MEUR 44.2 (MEUR 33.1) at year-end.
CapMan’s investments and commitments in the funds as at 31 December 2007, MEUR
|
|
Investments |
Remaining |
Total |
|
|
at fair value |
commitments |
|
|
Funds investing in portfolio companies |
|
|
|
|
Equity funds |
33.7 |
47.1 |
80.8 |
|
Mezzanine funds |
2.3 |
4.5 |
6.8 |
|
Funds of funds* |
7.7 |
2.2 |
9.9 |
|
|
43.7 |
53.8 |
97.5 |
|
|
|
|
|
|
Real estate funds |
0.5 |
2.2 |
2.7 |
|
Total |
44.2 |
56.0 |
100.2 |
* Managed by CapMan’s associated company Access Capital Partners.
CapMan’s own investments in the funds
|
|
1-12/2007 |
1-12/2006 |
|
Funds investing in portfolio companies |
|
|
|
Equity funds |
13.0 |
9.8 |
|
Mezzanine funds |
1.5 |
0.7 |
|
Funds of funds* |
0.3 |
2.6 |
|
Total |
14.8 |
13.1 |
|
|
|
|
|
Real estate funds |
0.6 |
0.1 |
|
Total |
15.4 |
13.2 |
* Managed by CapMan’s associated company Access Capital Partners.
Personnel
As at 31 December 2007 CapMan had 110 (98) employees, of whom 86 (72) were located in Finland and the remainder in the other Nordic countries.
|
|
31.12.2007 |
31.12.2006 |
|
CapMan Private Equity |
37 |
38 |
|
CapMan Real Estate |
30 |
24 |
|
Investor Services |
25 |
21 |
|
Internal Services |
18 |
15 |
|
Total |
110 |
98 |
Six Senior Advisors also acted as consultants for CapMan. Five of the Senior Advisors were located in Finland and one in Denmark. In addition to the Senior Advisors, CapMan’s Nordic Advisor Network comprises 15 Industrial Advisors.
Changes in Group management
CapMan Plc announced changes in the Group’s management and organisation on 20 September 2007. Kaisa Arovaara was appointed as CFO of CapMan Plc and member of the Management Group responsible for the new Internal Services team, which comprises the Group’s finances and administration as well as IT and office functions. Senior Partner Olli Liitola continues as Deputy CEO, to whom CapMan Real Estate reports. Jerome Bouix was nominated as a Senior Partner and he transferred to head the new Investor Services team, which is responsible for the Group’s fundraising, fund administration, investor relations, communications and product development. Torben von Lowzow was nominated as a Partner and member of the Management Group. Senior Partner Kai Jordahl, Group HR Director Hilkka-Maija Katajisto and Senior Legal Counsel Martti Timgren were also appointed as members of the Management Group. All of the changes came into effect on 1 October 2007.
Changes in Group ownership
The owners of the Company’s A series shares sold a total of 3,000,000 CapMan Plc A shares and 2,000,000 CapMan Plc B shares to the newly established company CapMan Partners B.V. in the share transactions that were announced on 4 May 2007 and executed on 16 May 2007. CapMan Partners B.V. is owned by corporations under control of the Senior Partners of CapMan with equal shares. In connection with the same transaction, the Board of Directors of CapMan Plc approved an application for the conversion of a total of 2,000,000 unlisted CapMan Plc A shares entitling to voting rights into listed CapMan Plc B shares. Due to these share transactions and conversions, CapMan Partners B.V. became the second largest shareholder and the largest holder of voting rights in CapMan Plc. A total of seven statutory notices of changes were issued in May with respect to these share transactions.
CapMan Plc issued a flagging announcement in late November, when the holding of US-based Legg Mason Inc. had surpassed one-twentieth (5%) of the Company’s share capital as a result of a share transaction concluded on 20 November 2007.
CapMan Plc had 4,489 shareholders (5,103 shareholders) at the end of 2007. The number of shareholders has declined from the previous year while the proportion of foreign and nominee-registered shareholders (excluding the 6.3% holding of CapMan Partners B.V.) has increased from 30.8% to 35.9%.
Share capital, share trading and share price
CapMan Plc’s share capital totalled EUR 771,586.98 at the end of the financial year. The Company had 73,968,819 listed B shares and 6,000,000 unlisted A shares. B shares have one (1) vote each and A shares ten (10) votes each.
The trading volume of B shares increased by nearly 50% compared to the previous year and the value of shares traded almost doubled. The closing price of the B share was EUR 3.25 at year-end. The Company had a market capitalisation of MEUR 240.4 (MEUR 208.9) on 31 December 2007 and the Company’s total market value, including CapMan A shares, was MEUR 259.9 (MEUR 233.0).
A total of 454,188 2003A stock options, listed in October 2006, were traded during 2007. The number of 2003A stock options issued is 625,000 pieces and the share subscription period ends on 31 October 2008. A total of 49,428 B shares in CapMan Plc had been subscribed for with the stock options 2003A in 2007. The share subscription price, EUR 70,187.76, has been recorded in the Company’s invested unrestricted shareholders’ equity.
2003B stock options were listed on OMX Nordic Exchange Helsinki on 1 October 2007. The number