CapMan Plc Group Interim Report 1 Jan – 30 Jun 2003  
^{Focus still on new investments and developing existing portfolio}

Jan–Jun 2003 in short:

-          Management fees and operating expenses increased compared to the first half of 2002.

-          CapMan focused its investment activities on finding new portfolio companies and developing existing portfolio companies.

-          Exit markets remained unfavourable and therefore the amount of carried interest income was small.

BUSINESS

CapMan’s core business is private equity fund management and advisory services. The Group’s income is constituted of management fees received from the funds, carried interest from funds generating carried interest, and a share of the result of associated companies. In future returns on direct fund investments will contribute more and more to CapMan’s result, as the Company’s objective is to increase the size of investments made from its balance sheet to 5–10 per cent of the capital in future funds.

The interim report is divided into two sections: the investment and exit activities of the funds managed/advised by CapMan followed by CapMan Group’s financial performance and events for the first half of 2003.

FUNDS MANAGED/ADVISED BY CapMan

CapMan’s investments comprise direct investments in portfolio companies and European fund investments. Direct investments include mid-sized buyouts, technology investments and investments in the life science sector in the Nordic countries. Buyouts are made in manufacturing, service and retail industries. Technology investments focus mainly on strong growth companies in the IT and telecommunications sectors. In life science investments the focus is on companies that specialise in medical technology.

Fund investments are carried out throughout Europe by the associated company Access Capital Partners, of which CapMan owns 47.5 per cent. Access Capital Partners manages/advises two funds that invest in mid-sized growth, buyout and technology funds.

MEUR 460 remains for new investments

At the end of the review period, CapMan managed/advised MEUR 1,652.6 (MEUR 1,616.7) in capital calculated as total commitments in the funds. The growth in capital under management resulted mainly from fundraising for the CapMan Equity VII Fund that continued in the second half of 2002.

Of the total capital managed/advised by CapMan, MEUR 1,125.3 was in the funds investing directly in portfolio companies. Investments by these funds in portfolio companies at acquisition cost totalled MEUR 486.6 as at the end of the review period. Of this, 74.4% was invested in traditional companies, 23.7% in technology companies and 1.9% in life science companies. Approximately MEUR 460 remains for new investments in portfolio companies.

At the end of the review period, CapMan’s associated company Access Capital Partners managed/advised MEUR 527.3 (MEUR 527.3) in capital, of which investments/commitments totalled MEUR 346.1 and remaining investment capacity totalled MEUR 181.2.

Investments in portfolio companies from Jan-Jun

CapMan’s funds investing directly in portfolio companies made three new investments, two substantial follow-on investments and several smaller follow-on investments in the first half of 2003. In the comparative period of 2002, there were seven new investments and five substantial follow-on investments. All in all, MEUR 29.9 (MEUR 46.8) was invested by CapMan funds during the period under review.

Q2 Investments

In April Swedestart Life Science Fund invested in the Swedish medtech company Jolife AB. Jolife has developed a unique medical device for treating sudden cardiac arrest prior to hospital care.

In April Finnmezzanine Fund III made a substantial follow-on investment in Finnventure Fund V’s portfolio company Mehiläinen Oyj. Mehiläinen is the leading private health care service provider in Finland.

In June Swedestart Tech, Swedestart Life Science and CapMan Equity VII funds made a substantial follow-on investment together with Startupfactory, investing a total of MEUR 7.7 in the Swedish company Silex Microsystems AB. Swedestart Tech originally invested in the company in autumn 2001. Silex designs, develops and manufactures MEMS-based (Micro Electro Mechanical Systems) components such as sensors, actuators and precision structures for the life science and telecommunications industries.

Q1 Investments

In January Finnventure V ET, Swedestart Tech and CapMan Equity VII funds invested in the Swedish technology company Northlight Optronics AB, one of the leading suppliers of active fibre optic components for optical communication systems.

In February the funds managed/advised by CapMan closed a substantial buyout investment in Nordkalk Corporation, which is the leading producer of lime-based products in the Nordic countries. Finnventure V and CapMan Equity VII funds invested in the company together with a larger investor consortium.

Exits by the funds from Jan-Jun

The funds managed/advised by CapMan exited from five portfolio companies in the first half of 2003 (four exits in the comparative period of 2002). Exits at acquisition cost (including partial exits and mezzanine loan instalments) for the review period totalled MEUR 28.6 (MEUR 10.6). The acquisition cost was significantly affected by the exit from XFG-Holding Oy (formerly LPG Innovations Oy) and partial exit from Utfors AB.

Swedestart Tech Fund’s portfolio company Multichannel Instruments AB, the developer of patented spectroscopic instruments, filed for bankruptcy in March.

In April the shares of Swedestart II Fund’s portfolio company, the provider of embedded software solutions and consulting projects Tritech Teknik AB, were exchanged for shares of Nexus AB, which is listed on the O-listan of the Stockholm Exchanges. The shares were sold on the exchange in April - June. Swedestart II Fund invested in Tritech in 1996.

In April Swedestart II Fund sold its stake in Trio AB. The fund received the shares in Trio in connection with the exit from Netwise AB in 2000.

In June Swedestart Life Science Fund exited from Hemapure AB, which develops and markets Hemaport© continuous access ports for use by dialysis patients. The fund invested in the company in 1999.

Finnventure IV, V and V ET fund’s portfolio company, software company XFG-Holding Oy went into liquidation during the review period. The investment no longer holds an expected yield and its value has been written off. Therefore the funds are considered to have exited from the company finally in June.

In January, Finnmezzanine Fund II made a partial exit from the provider of broadband communication infrastructure solutions and services Utfors AB. The fund recovered about six per cent of total receivables in a lump-sum payment from Utfors, based on its investment in the company. The fund retained a small amount of Utfors shares in the exit.   

The exits in the review period are mainly associated with unsuccessful technology investments. For the most, the values of these investments were already either written down or written off in the fund valuations of the previous interim reports.

Information on the funds managed/advised by CapMan and their portfolio companies is presented online at www.capman.com.

European fund investments

CapMan Plc’s associated company Access Capital Partners manages/advises two funds with MEUR 527.3 (MEUR 527.3) of capital. Access Capital Fund (ACF) has MEUR 250.3 in capital and has committed to 23 European funds. Access Capital Fund II (ACF II) has MEUR 277.0 in capital and has committed to 14 funds as of the end of the period under review.

For additional information about Access Capital Partners please visit www.access‑capital‑partners.com.

Other events in the first half of 2003

On 27 May 2003 the Boards of Solagem Oy, a portfolio company of the Finnventure IV, V and V ET funds managed/advised by CapMan, and Iocore Plc, which is listed on the NM List of the Helsinki Exchanges, approved a plan for Solagem and Iocore to merge. At the same time, Finnventure V and V ET funds agreed with Mican Ltd and Starbrook International Holding B.V to buy their share of Iocore for approximately EUR 4.6 million. The funds’ investment in the new listed company Sentera Oyj, which was formed in the merger, was closed after the end of the review period in July.

CapMan GROUP

Financial performance in Jan-Jun

CapMan’s turnover in the first half of 2003 was MEUR 9.0 (MEUR 7.9). Management fees from the funds increased to MEUR 8.6 (MEUR 6.6). The amount of carried interest income received from exits by the funds remained small and was MEUR 0.1, compared to MEUR 1.0 in the comparative period of 2002.

The share from the result of CapMan’s associated companies was MEUR 0.1 (MEUR 0.1).

Profit after taxes and minority interests was MEUR 0.6 (MEUR 1.4). Operating profit for the first half was MEUR 0.9 (MEUR 1.5) and earnings per share was 0.7 cent (2.0 cents). On 30 June 2003 shareholders’ equity per share was EUR 0.60 (EUR 0.68) and cash assets totalled MEUR 15.7 (MEUR 27.3). The Company has no interest-bearing debt. Return on equity was 1.2 per cent (2.5 per cent).

Personnel

At the end of the first half of 2003 CapMan had 67 (63) employees. There were 46 (45) employees in Helsinki, 14 (12) in Stockholm and 7 (6) in Copenhagen. In addition there were seven Senior Advisors as consultants for CapMan, four in Finland, two in Sweden and one in Denmark.

Board of Directors

The Annual General Meeting of CapMan Plc held on 9 April 2003 re-elected the following Members to the Board of Directors: Mr Lauri Koivusalo, Managing Director of Etera Mutual Pension Insurance Company (formerly LEL Employment Pension Fund), Mr Teuvo Salminen, Executive Vice President of Jaakko Pöyry Group Oyj, Mr Ari Tolppanen, CEO of CapMan Plc and CapMan’s Senior Partners Mr Lennart Jacobsson and Mr Vesa Vanha-Honko.

Shares

A total of 2,313,937 (11,526,581) CapMan Plc B shares with an approximate value of MEUR 3.5 (MEUR 30.7) were traded on the Helsinki Stock Exchange during the first half of the year. The share’s highest trading price was EUR 1.76 and the lowest trading price was EUR 1.33. The average price of trades was EUR 1.50. The closing price on the first day of trading for the year was EUR 1.66 and on the last trading day 30 June 2003 it was EUR 1.43. The market value of CapMan Plc’s B shares at the end of the review period was MEUR 95.4 (MEUR 132.0) and the Company’s total market capitalisation, including CapMan A shares, was MEUR 106.8 (MEUR 147.6).

The AGM resolved to lower the Company’s share capital by EUR 10,130, or from EUR 756,946.30 to EUR 746,816.30, by invalidating 1,013,000 CapMan Plc B shares held by the Company. The share invalidation was entered in the Trade Register on 30 April 2003, after which the total number of CapMan B shares was 66,681,630.

The AGM authorised the Board of Directors of CapMan Plc to resolve upon an increase in the Company’s share capital, regardless of the subscription rights of existing shareholders, by a maximum of 3,500,000 new B shares in one or more instalments via a new share subscription or convertible loan agreement. Additionally, the AGM authorised the Board to resolve upon the repurchase of a maximum of 3,500,000 of the Company’s own B shares. Both authorisations are valid for one year from the date of resolution.

On 6 May 2003, the Board of Directors of CapMan Plc resolved to repurchase a maximum of 3,500,000 of the Company’s B shares as per the authorisation adopted by the AGM. No shares had been acquired as at the end of the period under review.

There were no significant changes in ownership or notices of flagging during the first half of 2003. CapMan Plc had 6,167 shareholders at the end of the review period.

Dividend

The AGM confirmed that a dividend of EUR 0.10 per share will be paid to shareholders for the 2002 financial year. Payment of dividend was made on 23 April 2003.

Warrant scheme

The AGM resolved to adopt the warrant scheme 2003. A total of 1,250,000 warrants will be issued. As a result of the share subscriptions from the 2003 warrants, the share capital of the Company may be increased by a maximum of EUR 12,500 and the number of shares by a maximum of 1,250,000 new B shares. The warrants will be marked 2003A and 2003B and they will be gratuitously distributed to key persons within or recruited to the CapMan Group or to the Members of the Board of Directors.         

The share subscription price for stock option 2003A shall be the trade volume weighted average price of the CapMan B share traded during the period 1 December – 31 December 2003. The share subscription price for stock option 2003B shall be the trade volume weighted average price of the CapMan B share traded during the period 1 June – 30 June 2004. The subscription period for stock option 2003A shall be 1 October 2006 – 31 October 2008 and for 2003B it shall be 1 October 2007 – 31 October 2009.  

In addition the AGM resolved to amend the terms and conditions of the warrant scheme 2000, such that the right to options can be issued without consideration and in deviation from the shareholders’ pre-emptive right to subscription, also to Members of the Board of Directors.

EVENTS AFTER THE CLOSE OF THE REVIEW PERIOD

Funds managed/advised by CapMan

The investment in Sentera Oyj formed from the merger of Solagem Oy and Iocore Oyj, which was announced at the end of May, was closed at the beginning of July. Sentera Plc is an important business-critical information system and integration solution provider in Finland.

In July, CapMan announced a substantial investment by Finnventure V, CapMan Equity VII and Finnmezzanine III funds in the Swedish company Metallfabriken Ljunghäll AB. The investment, which is expected to be closed in August, is CapMan’s first Swedish buyout investment following the expansion of the CapMan Buyout Business Unit to Sweden last March. Metallfabriken Ljunghäll is the leading manufacturer of technically advanced aluminium die-cast products in the Nordic countries.

FUTURE OUTLOOK

Funds managed/advised by CapMan

CapMan’s acquisitions in Denmark and Sweden have increased the Company’s recognition and strengthened its position as one of the leading private equity investors in the Nordic countries. In

turn, companies seeking private equity investors are more attracted to CapMan and the number of suitable potential investments for CapMan’s investment strategy grows. CapMan will continue to focus its investment strategy on a Nordic level in mid-sized buyouts, technology investments in IT and telecommunications and life science investments in medical technology.

The foundations for value creation of CapMan’s portfolio companies are organic growth or mergers and acquisitions, improved profitability and cash flows and sophisticated financing structures. CapMan strives to secure its portfolio companies with a strategic market position that will arouse the interest of industrial buyers and stock markets alike. CapMan actively evaluates the optimal time and method of exit, depending on the development stage of the portfolio company and the prevailing market conditions. Profitable realisations from portfolio companies are not solely dependent on the stock market. Trade sales to industrial buyers or other private equity investors have become a typical exit method in the private equity business.

In the second half of 2003, CapMan will continue to focus on making new investments and developing the existing portfolio of investee companies. The prevailing market conditions are not favourable for large-scale exit activities.

CapMan Group

Private equity investment in Europe is estimated to show growth in the mid and long term. Consolidation will continue in both buyout and technology sectors. Other important trends in all of the countries where CapMan has activities are the privatisation of public services and functions, and the rising affluence and ageing of the population - which in turn grows the demand of the service sector. Family businesses are also increasingly turning to private equity investors to finance their management successions.

In CapMan’s home market in the Nordic area, growth is also supported by strong investment in technology research and development and increasing entrepreneurial activity. However the outlook for technology companies in 2003 is still uncertain. Competition between private equity investors for investments in the technology sector has decreased and company valuations have fallen to a more realistic level than before. This offers interesting opportunities to CapMan’s Technology Business Unit, who can compare investee companies and company valuations on a Nordic level. Opportunities for realisation of investments will remain slight, particularly in the case of small technology companies. CapMan will continue to focus its activities on the development of existing portfolio companies and the search for potential new investments.

The life science sector is expected to show strong growth in the future, due to changing demography patterns and rising demand for innovative and cost-efficient methods of care. Sweden in particular is a pioneer in the development of life science products and services. Public and private health care systems in the Nordic countries produce world-class research and development in life sciences. Because of the nature of the sector, portfolio companies usually need more than one round of financing before a product or service can be profitably launched on the market. In 2003, CapMan will focus its activities in life science less on exits than on making new investments and creating value in existing investments.

Private equity funds have long life spans, usually 10 years. Private equity fund management companies begin to receive carried interest after the investors have regained their investment in addition to a preferred annual return, usually 6 to 8 per cent. Carried interest is typically 20 to 25 per cent of the fund’s cash flow through exits from its portfolio companies. Five of the funds managed/advised by CapMan (see attachment 3) are already generating carried interest. These funds have MEUR 97.6 in capital, which represents 8.7 per cent of the total capital in CapMan funds that invest directly in portfolio companies (MEUR 1,125.3).

The portfolios of the funds that invest directly in portfolio companies, totalling MEUR 486.6 at acquisition cost, include traditional manufacturing and service companies, technology companies and life science companies. To date, 74.4 per cent of the capital invested by funds in portfolio companies is invested in traditional companies, 23.7 per cent in technology companies and 1.9 per cent in life science companies. Several of the portfolio companies offer substantial upside potential. The portfolios also include companies with clearly higher risk levels than at the time of investment.

2003 is a year for CapMan to focus on new investments. CapMan is well positioned to continue as an active player in the private equity market, as its funds have approximately MEUR 460 in capital for new investments. The associated company Access Capital is in a similar position. Its funds have abundant capital available for new fund investments.

The management fees CapMan receives from the funds are expected to well cover the Company’s expenses. CapMan’s result in 2003 will depend largely on exits from portfolio companies owned by funds generating carried interest. Several exit discussion are under way. However, the exit market is difficult and large scale exit activities are not necessarily in the interest of CapMan funds. As a result we estimate that the carried interest income in 2003 will be moderate and that CapMan’s profit in 2003 will be for this reason lower than in 2002. Prevailing market conditions will in the first place offer good opportunities for new investments and the development of the existing portfolio.

CapMan Plc’s interim report for the period 1 January – 30 September 2003 will be published on 4 November 2003.           

Helsinki 6 August 2003

CAPMAN PLC

The Board of Directors

Appendices:   
Group income statement, balance sheet and cash flow statement  
Turnover and profit quarterly
CapMan Group funds as of 30 June 2003

APPENDIX 1:

GROUP INCOME STATEMENT, BALANCE SHEET AND GROUP'S CASH FLOW