CEO Heikki Westerlund comments on the events and result of the review period and on future prospects:
“After long preparation we have now taken two important steps forward in implementing our strategy. Geographical expansion into Russia and the establishment of a fund investing in public markets broaden our business portfolio and offer new growth opportunities in the future. With the proceeds we receive from the sale of our minority holding in Access Capital Partners, once the transaction is closed, we will finance growth while still retaining carried interest potential from Access’s existing funds and mandates.”
“Over the short-term the exit market will be fairly weak as a result of a general slowdown in economic growth and the nervousness of debt markets. Our current portfolio, however, contains several well-developed companies. With the sale of Access the earnings per share for 2008 is estimated to be at the same level as in the previous year.”
Business operations
CapMan is an alternative asset manager with two business areas: CapMan Private Equity (manages funds that invest in portfolio companies) and CapMan Real Estate (manages funds that invest in real estate and also provides real estate consulting). The guiding principle for funds’ investment activities is to directly and actively work towards increasing the value of investments. Information about each business area is reported in a separate segment in the company’s interim reports.
CapMan Plc’s income is derived from management fees paid by funds, from carried interest received from funds, from returns on fund investments made from CapMan Plc’s own balance sheet, and from income generated by real estate consulting. There can be considerable quarterly fluctuation in carried interest as well as in the fair value of fund investments. For this reason CapMan’s financial performance should be analysed over a longer time span than the quarterly cycle.
Turnover and profit for January–June 2008
CapMan’s turnover for the review period was MEUR 19.5 (MEUR 35.6 for Jan–Jun 2007). The main factors affecting turnover and profit are described in more detail in their own sections of this Interim Report.
The Group’s operating profit totalled MEUR 3.7 (26.5). Profit before taxes amounted to MEUR 3.7 (28.1) and the profit after taxes to MEUR 2.7 (20.9).
The parent company equity holders’ share of the profits was MEUR 2.6 (15.3), and earnings per share based on it were 3.3 (19.7) cents.
The quarterly breakdown of turnover and profit as well as turnover and profit by segment are presented in the tables section of this Interim Report.
Management fees, real estate consulting income and operating expenses
The amount of management fees grew during the review period to MEUR 13.6 (12.5). Growth in management fees was largely due to establishment of the new CapMan Hotels RE real estate fund during the review period.
Income from real estate consulting totalled MEUR 1.3 (1.1). The aggregate total of management fees and income from real estate consulting was MEUR 14.9 (13.6), and it covered the operating expenses of MEUR 14.6 (13.8).
Carried interest
CapMan receives carried interest income from funds that have already repaid paid-in capital to their investors and paid an annual preferential return on the capital. As a result of the exit from Staffpoint implemented during the review period, carried interest totalled MEUR 4.1. Carried interest for the comparison period amounted MEUR 21.4, which accrued primarily through the sale of CapMan Real Estate I fund’s real estate portfolio.
The status of funds managed by CapMan is presented in more detail in Appendix 1.
Income from CapMan’s own fund investments and investment commitments
Fair value changes related to fund investments were MEUR -1.3 (4.6). The changes were affected by the general market development in the first half of the year and by the funds’ costs. The multiples used in fair value calculations decreased as a result of the declining multiples of portfolio companies’ listed peers. Funds’ portfolios also saw positive value adjustments for individual companies, and portfolios are overall in sound condition.
The change in fair value during the comparable period was exceptionally large and broadly attributable to a value adjustment in CapMan Equity VII funds’ portfolio company Moventas, from which there was a partial exit during the comparison period. Realised returns from fund investments amounted to MEUR 0.2 (0.3). Fund investments made from CapMan’s own balance sheet had an overall impact of MEUR -1.1 (4.9) on profit for the period. CapMan Plc’s financial target is a 15% annual return to fund investors.
CapMan made new investments in its funds during the review period amounting to MEUR 14.6 (10.7). Most of these investments were made in the CapMan Buyout VIII and CapMan Hotels RE funds. The aggregate fair value of CapMan’s fund investments from its own balance sheet was MEUR 54.7 on 30 June 2008 (MEUR 40.8 on 30 June 2007).
CapMan will invest in its future funds 2–10% of their original capital depending on the fund’s demand and CapMan’s own investment capacity. CapMan made a MEUR 5 investment commitment to the CapMan Hotels RE fund during the review period. The amount of remaining investment commitments at the end of the review period was MEUR 47.0 (60.1). The aggregate fair value of existing investments and remaining investment commitments on 30 June 2008 was MEUR 101.8 (MEUR 100.9 on 30 June 2007).
Investments in portfolio companies are valued at fair value in accordance with the International Private Equity and Venture Capital Valuation Guidelines (IPEVG), and real estate assets are valued in accordance with the value appraisements of external experts, as detailed in Appendix 1.
Balance sheet and financial position on 30 June 2008
There were no significant changes in CapMan’s balance sheet in January–June 2008, and the balance sheet amounted to MEUR 107.1 at the end of the review period (MEUR 102.8 on 30 June 2007). Non-current assets increased during the review period to MEUR 90.3 (68.4), mainly due to investments made in funds and to growth in receivables. Long-term receivables amounted to MEUR 21.6 (17.4), of which MEUR 17.2 (14.5) was loan receivables from the Maneq funds. Current assets declined in the first half of the year to MEUR 16.8 (34.5) owing to dividends paid out and investments made in funds. Liquid assets (cash and bank plus other financial assets at fair value through profit and loss) amounted to MEUR 6.8 (25.5). In the comparison period liquid assets were exceptionally high due to the carried interest income received from CapMan Real Estate I fund as a result of its real estate portfolio sale.
CapMan Plc signed a MEUR 50 loan agreement on 7 May 2008. Interest-bearing liabilities increased to MEUR 32.0 (10.0), as CapMan pursued its strategy of using debt financing to finance some of its investments in funds. The amount of trade and other payables was MEUR 12.9 (15.3). The Group’s interest-bearing net debts amounted to MEUR 25.2 (-15.5).
Key figures
CapMan’s equity ratio on 30 June 2008 was 54.5% (67.1% on 30 June 2007). Return on equity was 4.3% (33.3%) and return on investment was 5.3% (38.6%). The target level for the equity ratio is at least 50% and for return on equity at least 25%.
|
|
30 Jun 2008 |
30 Jun 2007 |
31 Dec 2007 |
|
|
|
|
|
|
Earnings per share, cents |
3.3 |
19.7 |
23.8 |
|
Diluted, cents |
3.3 |
19.6 |
23.7 |
|
Shareholders' equity / share, cents |
72.0 |
89.0 |
86.4 |
|
Share issue adjusted number of shares |
79,977,875 |
77,479,731 |
78,142,867 |
|
Number of shares at the end of period |
80,007,632 |
78,314,418 |
79,968,819 |
|
Number of shares outstanding |
80,007,632 |
78,314,418 |
79,968,819 |
|
Return on equity, % |
4.3 |
33.3 |
38.9 |
|
Return on investment, % |
5.3 |
38.6 |
44.2 |
|
Equity ratio, % |
54.5 |
67.1 |
57.6 |
|
Net gearing, % |
43.8 |
-28.1 |
-27.5 |
Expansion into Russia
On 26 May 2008 CapMan Plc signed an agreement to acquire the management companies of Norum Russia Fund III (“Norum”) from the company’s senior management, DnB NOR Bank ASA and Sitra Management Ltd. The closing of the transaction requires that necessary regulatory approvals are obtained in Guernsey. Expanding operations into Russia is a significant strategic step for CapMan.
In the first phase of the transaction 51% of Norum Russia Fund III’s management company’s and 100% of the advisory company’s share capital and voting rights will be transferred to CapMan Plc’s ownership against the payment of a purchase price of approx. EUR 3.4 million, whereupon the Norum Russia III fund will be placed under CapMan’s management. The size of the fund is MEUR 88, including CapMan’s commitment of MEUR 13.5, and fundraising is continuing under the CapMan Russia name. The purchase price of the companies will be adjusted according to the final size of the fund. CapMan Plc is financing the acquisition with cash and a directed share issue to the sellers.
CapMan Plc will have the right to buy the remaining 49% of Norum shares and voting rights when the investment period for CapMan Russia Fund ends, that is at the latest in July 2012. The sellers have the right to sell their remaining Norum shares to CapMan at any time. Depending on the final size of the CapMan Russia Fund, the transaction price for the remaining shares will be approx. MEUR 3.3–4.4. The payable transaction price per share will however be the same as the fundraising adjusted transaction price in the first phase of the transaction.
Norum has operated in the Russian private equity market since 1995 and is one of the most experienced investors in this market. CapMan Russia will form a separate investment area, which will be headed by CapMan’s senior partner Mr Petri Saavalainen. Mr Hans Christian Dall Nygård, the former Managing Director of Norum and now a partner in CapMan, will be responsible for all the investment activities of CapMan Russia. CapMan Russia will be included in the CapMan Private Equity business area in CapMan Plc’s future financial reporting.
CapMan Hotels RE fund
On 18 January 2008 CapMan Plc established a new private equity fund focusing on hotel real estate, CapMan Hotels RE Ky. The size of the hotel fund at present is MEUR 844.9, and the maximum fund size is MEUR 1,100. The fund acquired a MEUR 805 hotel portfolio of 39 properties from Northern European Properties Ltd (NEPR) in conjunction with its establishment. Seven professionals in the hotel business transferred to CapMan Group through the transaction. The management company of CapMan Hotels RE Ky is CapMan Hotels RE Oy, of which CapMan Plc owns 80%. The establishment of the fund is estimated to have a slightly positive impact on CapMan’s result for 2008 as a consequence of the management fees paid by the fund.
Fundraising
In addition to fundraising for the CapMan Hotels RE, CapMan Russia and CapMan Public Market funds, preparations were made during the review period for fundraising for the next buyout fund, CapMan Buyout IX.
Capital under management on 30 June 2008
Capital under management refers to funds’ remaining investment capacity and capital already invested at acquisition cost. As a result of the establishment of the CapMan Hotels RE fund, the capital under management grew by some 37% in January–June from MEUR 2,189.7 on 31 December 2007 to MEUR 3,005.8 on 30 June 2008 (MEUR 2,233.3 on 30 June 2007). At the end of June MEUR 1,365.3 (1,437.5) was in funds making investments in portfolio companies and MEUR 1,640.5 (795.6) in real estate funds. Capital was raised during the review period as follows:
|
Fund |
Established |
Capital |
Capital |
CapMan |
CapMan |
|
|
|
31 Dec 2007 |
30 Jun 2008 |
Group’s |
Group’s |
|
|
|
MEUR |
MEUR |
commitment |
carried |
|
|
|
|
|
MEUR |
interest |
|
|
|
|
|
|
(net*) |
|
CapMan Technology 2007 |
9 Feb 2007 |
140.3 |
142.3 |
15.0 |
10% |
|
CapMan Hotels RE Ky |
18 Jan 2008 |
0.0 |
844.9 |
5.0 |
12% |
* Taking into account carried interest due to management companies’ other owners and investment teams after the fund has started generating carried interest. Carried interest = share of the fund’s cash flows after it has transferred into carry.
Exits made during the review period reduced the amount of capital under management. The Nordic Private Equity Partners II fund is no longer included in managed funds owing to the exit at the end of the review period June from its last remaining investment.
Capital under management has increased after the review period by MEUR 178 as a result of the CapMan Russia and CapMan Public Market funds.
More detailed information about managed funds and their investment activities is presented in Appendices 1 and 2.
Personnel
On 30 June 2008 CapMan employed altogether 126 people (100 people on 30 June 2007), of whom 100 (76) worked in Finland and the remainder worked in other Nordic countries. The establishment of the new hotel fund in particular contributed to growth in the number of personnel. A breakdown of personnel by country and by team is presented in the tables section of this Interim Report.
Shares and share capital
There were no changes in CapMan Plc’s share capital during the review period. Share capital on 30 June 2008 was EUR 771,586.98 (EUR 771,586.98 on 30 June 2007). The number of listed B shares rose by 38,813 when 2003A options to subscribe for shares were exercised. The number of B shares on 30 June 2008 was 74,007,632 and the number of unlisted A shares 6,000,000. The company’s B shares have one vote per share and A shares 10 votes per share.
No shares were subscribed for by exercising 2003B options during the review period. Another 536,759 B shares can still be subscribed for with 2003A options and 625,000 B shares with 2003B options. The subscription period for 2003A options expires on 31 October 2008, and for 2003B options on 31 October 2009. The subscription prices of the shares will be entered in the invested unrestricted equity account.
Shareholders
CapMan Plc had 4,467 shareholders on 30 June 2008 (4,695 on 30 June 2007). There were no significant changes in the ownership of the company during the review period and no flagging notices were issued. Neither CapMan Plc nor any of its subsidiaries held the company’s own shares.
Market capitalisation and trading
CapMan Plc’s B shares had a closing price of EUR 2.50 on 30 June 2008 (EUR 4.03 on 30 June 2007). The average price during the review period was EUR 2.69 (3.39). The highest price was EUR 3.40 (4.07) and the lowest EUR 2.30 (2.86). The trading of the company’s shares, in terms of volume and value, declined appreciably with respect to the comparable period. Altogether 6.3 million (19.3 million) CapMan Plc B shares were traded during the review period for a total of MEUR 16.9 (65.2).
The market capitalisation of CapMan Plc B shares on 30 June 2008 was MEUR 185.0 (291.4). The market capitalisation of all shares, in which the A shares are valued at the closing price for the review period of B shares, was MEUR 200.0 (315.6).
Board authorisations
By decision of the Annual General Meeting, CapMan Plc’s Board of Directors is authorised to decide on a share issue as well as to issue stock options and other entitlements to shares, and is also authorised to purchase the Company's own shares and to accept them as a pledge. The authorisations are valid until 30 June 2009, and the terms and conditions attached to them were specified in more detail in the Stock Exchange release issued on 27 March 2008.
Events after the review period
CapMan Public Market fund
On 11 July 2008 CapMan Plc established a new equity fund, CapMan Public Market, investing in Nordic public companies. Altogether EUR 90 million in investment commitments had been raised by the fund’s first closing, of which CapMan Plc’s share is EUR 15 million. The CapMan Public Market fund will invest in Nordic public companies that have a market capitalisation of EUR 100–1,000 million, and it will utilise private equity style value creation methods in public markets. The fund’s fundraising continues.
The establishment of the fund is the start of CapMan’s sixth investment area, CapMan Public Market, which will be headed by Jukka Ruuska, LL.M., MBA. The establishment of the fund will not have a substantial impact on CapMan Plc’s result for 2008. CapMan Public Market will be included in the CapMan Private Equity business area in CapMan Plc’s future financial reporting.
The sale of Access Capital Partners shares
On 25 July 2008 CapMan Plc and N+1 Group signed an agreement for the sale of CapMan’s 35 per cent stake in Access Capital Partners to N+1 Group, a Spanish corporation. The transaction price for Access shares is at maximum EUR 23.3 million, and the transaction will have an impact of EUR 18.0 million on CapMan Plc’s result for 2008. N+1 Group will pay EUR 16.5 million of the transaction price at the closing of the transaction and the remaining share in 2012. A portion of the remaining transaction price is linked to Access’ development over the next few years. The taxes payable in 2008 are estimated to be approximately EUR 2.2 million. CapMan will still retain return potential from Access’s current products as CapMan’s right to any carried interest income accrued from funds and private equity mandates currently managed by Access will remain unchanged after the transaction, excluding the Access Capital Fund IV Growth Buy-out fund.
Access Capital Partners is a leading European manager and advisor of private equity funds of funds and mandates, with assets totalling approx. EUR 2.5 billion. CapMan was a co-founder of Access in 1999 together with the current Access managing partners.
The closing of the transaction requires i.a. the approval of the relevant regulatory authorities and is expected to be closed in the fourth quarter of the year.
The funds and mandates managed by Access Capital Partners are presented in Appendix 3.
Business environment
The demand for alternative assets has continued its growth, and an increasing number of institutional investors are allocating a growing proportion of their investments to this asset class. Private equity investment has consolidated its position in financing M&A and growth, and its growth in the Nordic countries is further accelerated by consolidation in various sectors, family successions, privatisation of public services and functions, the strong contribution of R&D in the technology and life science sectors and increasing entrepreneurial activity. Real estate market growth is speeded up by accelerated structural change, in which particularly pension companies transfer real estate investments from their balance sheets into funds.
CapMan will continue to implement its investment strategy in the Nordic countries and Russia as far as the funds investing in portfolio companies are concerned. The nervousness of debt markets has been reflected in CapMan’s operating area also. Nordic banks are still offering financing for middle-market buyouts and real estate transactions, but more moderate debt ratios are being offered and the price of money has risen appreciably during the first half of the year. The number of new potential portfolio companies has remained at a good level and our private equity teams are in a good position for making new investments. However, the nervousness of debt markets is reflected in the exit market through lower prices and longer times to exit.
The slowdown in growth of the real economy has been seen in our investment targets, especially in those sectors that are linked, for instance, to US consumer demand. Overall, our portfolio companies’ development has been favourable. A steep decline in listed market valuations was reflected in the fair value of our investment targets.
Instability in debt markets has weakened the liquidity of the real estate market during the first quarter of 2008. Higher interest rates and tighter bank credit will continue to affect both competition and the valuation levels in the real estate sector. Consequently, we expect to see increased use of equity for the financing of real estate transactions. Good core assets will continue to command high prices, but requirements for returns on more opportunistic investments are expected to rise. On the leasing market, the occupancy rate and demand for office and retail are in a good level. Numerous new construction projects are in progress this year, which will in time affect the supply of office premises in particular.
All CapMan’s investment teams are in a good position and have adequate resources to implement their investment strategies in the Nordic countries and Russia. The funds investing in portfolio companies have some MEUR 800 for making new and follow-on investments, while the real estate funds have roughly a MEUR 330 investment capacity for identifying new investment targets and developing existing portfolio.
Short-term risks and uncertainties
Should the crisis in the debt market deepen, the consequent credit squeeze could result in both a slowdown in investment activity and a postponement of exits. The effect of turbulence in the credit market on growth of the real economy may weaken the business operations of funds’ portfolio companies.
Future outlook
CapMan’s strategy is to exploit growth opportunities within the alternative asset class. CapMan’s projects for expanding operations geographically in Russia and for establishing a fund investing in public markets based on CapMan’s value creation expertise have been implemented, and fundraising for these funds continues in the autumn. The fundraising preparations for a new buyout fund have also started. Depending on the funds’ demand and CapMan’s own investment capacity CapMan will invest in its future funds 2–10% of the funds’ total commitments.
Management fees and income from real estate consulting cover CapMan’s fixed expenses in 2008. Carried interest income in 2008 will be clearly lower than in 2007. The funds have several exit processes underway, and we expect CapMan Equity VII A, B and Sweden funds, Finnventure Fund IV fund and Finnmezzanine III A and B funds to start generating carried interest by the end of 2009.
We expect our portfolio companies and real estate assets to continue to develop favourably in 2008. However the prevailing instability in financial markets may be reflected in the fair value of CapMan Plc’s fund investments also in the second half of 2008.
The Group’s full-year result for 2008 will depend on how many new exits are made by funds already generating carried interest, on whether new funds start generating carried interest, and on how the value of investments develops in those funds in which CapMan is a substantial investor. With the sale of Access earnings per share for 2008 is estimated to be at the same level as in the previous year.
CapMan Plc’s Interim Report for 1 January – 30 September 2008 will be published on Thursday 30 October 2008.
Helsinki, Finland
8 August 2008
CAPMAN PLC
Board of Directors
Press conference:
A press conference for analysts and the media will be held today at 12 noon in CapMan’s offices at Korkeavuorenkatu 32, Helsinki, Finland. CapMan’s CEO Heikki Westerlund will present the result for the first half of the year and review the market situation. A light lunch will be served at the event.
Presentation material for the press conference will be published in Finnish and English on CapMan Plc Group’s internet website once the conference has started.
Further information:
Heikki Westerlund, CEO, tel. +358 207 207 504 or +358 50 559 6580
Kaisa Arovaara, CFO, tel. +358 207 207 583 or +358 50 370 3715
Distribution:
Helsinki Stock Exchange
Principle media
www.capman.com
Appendices (after the tables section):
Appendix 1: CapMan Plc Group’s funds under management at 30 June 2008, MEUR
Appendix 2: Operations of CapMan’s funds under management, 1 Jan – 30 Jun 2008
Appendix 3: Capital and mandates under management of associated company Access Capital Partners on 30 June 2008
|
GROUP BALANCE SHEET (IFRS) |
|
|
|
|
|
|
|
|
|
TEUR |
30.6.08 |
30.6.07 |
31.12.07 |
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
Tangible assets |
1,000 |
893 |
819 |
|
Goodwill |
5,338 |
4,845 |
4,845 |
|
Other intangible assets |
1,300 |
759 |
1,001 |
|
Investments in associated companies |
1,827 |
2,580 |
3,407 |
|
Investments at fair value through profit and loss |
|
|
|
|
Investments in funds |
54,734 |
40,770 |
44,230 |
|
Other financial assets |
973 |
868 |
878 |
|
Receivables |
21,607 |
17,388 |
16,191 |
|
Deferred income tax assets |
3,547 |
270 |
3,547 |
|
Tangible assets |
90,326 |
68,373 |
74,918 |
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
Trade and other receivables |
8,933 |
8,931 |
7,837 |
|
Other financial assets at fair value |
|
|
|
|
through profit and loss |
378 |
9,774 |
14,857 |
|
Cash and bank |
6,387 |
15,760 |
19,741 |
|
|
15,698 |
34,465 |
42,435 |
|
|
|
|
|
|
Non-current assets for sale |
1,087 |
0 |
0 |
|
|
|
|
|
|
Total assets |
107,111 |
102,838 |
117,353 |
|
|
|
|
|
|
EQUITY AND LIABILITIES |
|
|
|
|
|
|
|
|
|
Capital attributable to the Company's equity holders |
|
|
|
|
Share capital |
772 |
772 |
772 |
|
Share premium account |
38,968 |
38,968 |
38,968 |
|
Other reserves |
3,010 |
1,929 |
2,961 |
|
Translation difference |
161 |
258 |
133 |
|
|