CapMan Plc Group Financial Statements Bulletin 1 Jan – 31 Dec 2002
^{A year of Nordic expansion and increased investment capacity}

Earnings per share on 31 December 2002 was EUR 0.05 (EUR 0.34). The Board of Directors proposes to the Annual General Meeting that for the year 2002 a dividend of EUR 0.10 per share, which corresponds to approximately 220 per cent of the net result, be paid to shareholders. Total dividends amount to EUR 7.5 million.

-          The most significant events in 2002 were the acquisition of Swedish venture capital company Swedestart Management AB in April, the new Nordic organisation implemented in the beginning of September, and the successful closing of CapMan’s newest equity fund CapMan Equity VII and affiliated company Access Capital Partners’ newest fund of funds Access Capital Fund II.

-          Total capital managed/advised by CapMan increased from EUR 1,177.2 million to EUR 1,652.3 million, or by 40 per cent, as a result of the aforementioned fundraising and acquisition. At the same time the amount of management fees received from the funds increased considerably.

-          The funds managed/advised by CapMan invested EUR 104.5 million in portfolio companies in 2002, which was a clear growth from 2001 (EUR 89.4 million).

-          CapMan funds have capital of approximately EUR 490 million for new and follow-on investments, which enables continued active investment activities also in 2003.

-          CapMan’s operations are organised into three Nordic Business Units that make investments (Buyout, Technology and Life Science) and two Support Units (Group Finances and Administration and Group Development). During 2002, CapMan’s human resources grew from 52 to 66 employees, mainly as a result of the Swedestart acquisition. The Nordic investment teams were strengthened, especially in Sweden with the appointment of new Senior Advisors. Recruitment has continued on an active level in Sweden and Denmark in early 2003.

-          Nordic integration has progressed well in CapMan’s investment activities and other functions. In 2002 the funds managed/advised by CapMan made their first three co-investments with Swedestart funds.

REPORT OF THE BOARD OF DIRECTORS

CapMan’s core business is private equity fund management and advisory services. The Group’s income derives from management fees from the funds, carried interest from funds generating carried interest, and a share of the result of affiliated companies. In the future, returns on direct fund investments will also have a greater influence on the company’s result. CapMan’s objective is to increase the size of investments from its balance sheet to between five and ten per cent of the capital in future CapMan funds.

CapMan’s Swedish subsidiary CapMan AB (formerly Swedestart Management AB), which became a wholly owned subsidiary of CapMan Plc on 18 April 2002, is included in the financial statements as of 1 May 2002.

The financial statements bulletin is divided into two sections: the funds managed/advised by CapMan and CapMan Group’s financial performance in 2002.

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 Finland, Sweden and Denmark. Buyouts are made in manufacturing, service and retail industries while technology investments focus on strong growth companies in the IT and telecommunications sectors. In spring 2002 the acquisition of Swedestart introduced life science investments to CapMan’s portfolio, with a focus on companies specialising in medical technology.

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

Substantial remaining capital for new investments

At the close of the financial year, CapMan managed/advised EUR 1,652.3 million (EUR 1,177.2 million) in capital calculated as total commitments in the funds. The 40 per cent growth in capital under management resulted from the closing of fundraising for the CapMan Equity VII and Access Capital Fund II funds during the year, and the acquisition of Swedestart Management AB managing three funds.

Of the managed/advised capital, EUR 1,125.0 million was in funds that invest directly in portfolio companies. As at the end of the financial year investments in portfolio companies at acquisition cost totalled EUR 486.8 million. Of this, 71.2 per cent was invested in traditional companies, 27.4 per cent in technology companies and 1.4 per cent in life science companies. About EUR 490 million remains to be invested in portfolio companies.

CapMan’s affiliated company Access Capital Partners managed/advised EUR 527.3 million (EUR 473.0 million). Of this, investments/commitments totalled EUR 306.7 million and remaining investment capacity totalled EUR 220.5 million.

Investments in portfolio companies increased in 2002

CapMan’s funds that invest directly in portfolio companies made twelve new investments and six substantial follow-on investments in 2002 (seven new investments and nine follow-on investments in 2001). All in all, EUR 104.5 million (EUR 89.4 million) was invested by CapMan funds during the financial year.

Investments in the last quarter

There were two new investments in the fourth quarter of 2002, both in the technology sector. In November, the CapMan Equity VII and Swedestart Tech funds invested in the Swedish Ascade AB. Ascade is a software and consulting company that develops solutions and provides integration services for telecom carriers. In December, the CapMan Equity VII, Finnventure V ET and Swedestart Tech funds invested in Danish Eco-Dan A/S. Eco-Dan has developed a high-tech guidance system for automatic precision guidance of agricultural implements, self-propelled machines and tractors.

Investment in January–September

New investments in the buyout sector were made in Finland’s leading staffing company Extra Personnel Services, multi-sector family business Savcor Group, and Danish company RGS90 A/S. RGS90 provides versatile waste management services especially to industrial customers, and was CapMan’s first investment in the environmental technology and recycling sector. The most significant follow-on investments in the buyout sector in 2002 were folding cartons manufacturer Å&R Carton AB, leisure travel company Holiday Club Finland Oy, health care group Mehiläinen Oyj and accounting company chain Pretax Oy.

New investments in the technology sector were made in provider of mobile multimedia solutions Hantro Products Oy, Finland’s leading IT training provider Knowledgepool Tieturi Oy, provider of communications, interactive media and CRM consultation services Digiscope AB, and supplier of repeaters and repeater systems used to improve the radio coverage in all types of networks Avitec AB. The most significant follow-on investments in the technology sector in 2002 were developer of XML technologies Republica Oy and multimedia company Aktivist Network Oy (now Medianorth Group Oy).

New investments in the life science sector were made in developer and marketer of special products for the treatment of incontinence Eutech Medical AB, specialist in biomaterials and their surgical applications Inion Oy, and developer of a new technology for the sterilisation of surgical instruments Otre AB.

Exits by the funds in 2002

The funds managed/advised by CapMan exited from a total of five portfolio companies during 2002 (eight exits in 2001). The acquisition price of all realisations during the financial year (including partial realisations and mezzanine loan payments) totalled EUR 16.6 million (EUR 14.0 million).

In December, Finnventure Funds I, II and III as well as Finnmezzanine Fund I exited from Teknikum Group Ltd. The funds made their initial investment in the company in summer 1996 and their combined shareholding was 26 per cent.

The most significant realisation in 2002 was the sale of shares in the restaurant chain Royal-Rest Oy to MK-Rest Oy in May. Finnventure Fund IV and Finnmezzanine Fund II invested in Royal-Rest in 1999 and held a 43.7 per cent stake of the company.

Finnventure Funds II and III exited Euran Kuluttajatuotteet Oy in June. The funds made their initial investment in the company in 1997 and their combined shareholding was 30.5 per cent.

Finnventure Fund III sold its 1.5 per cent share in Arcorus Oyj to Swedish Ratos AB in April. The fund invested in Arcorus in 1997 and made a partial realisation of the investment in spring 2000.

Finnventure Funds II and III made a partial exit from the manufacturer of wood-fired heating products and fireplaces UPL Holding Oy in January.

Finnventure Fund II’s portfolio company Mytek Oy, which specialised in shiitake mushroom growing and sales, filed for bankruptcy in March.

For information on the funds managed/advised by CapMan and their portfolio companies, please visit CapMan’s website www.capman.com.

European fund investments

CapMan Plc’s affiliated company Access Capital Partners is one of Europe’s leading fund of fund managers, with EUR 527.3 million (EUR 473.0 million) of capital managed/advised in two funds. Access Capital Fund (ACF) has EUR 250.3 million in capital and has made investments in 22 European funds. Access Capital Fund II (ACF II) was closed at the end of July 2002 with a final size of EUR 277.0 million. The fund had made seven investments as of the end of the financial year.

Additional information about Access Capital Partners can be found at www.access-capital-partners.com.

Other events in 2002

In December the funds managed/advised by CapMan announced a significant buyout investment in Nordkalk Corporation, the leading producer of limestone-based products in Northern Europe. The transaction was made by a syndicate of investors lead by CapMan and Ahlström Capital Oy and was implemented in early February 2003.

One of the portfolio companies in Finnmezzanine Fund II, the Swedish provider of telecommunications infrastructure and services Utfors AB, filed for financial restructuring on 16 September 2002. On 18 November 2002, Utfors announced that Norwegian Telenor would acquire 90 per cent of the company, and on 19 November 2002 CapMan announced that Finnmezzanine Fund II would exit from Utfors in connection with the acquisition. As a part of the arrangement, Finnmezzanine Fund recovered about six per cent of total receivables in a lump-sum payment from Utfors in January 2003, based on its investment in the company. The fund still holds 978,315 Utfors AB shares and its final exit from the company is expected to be realised during 2003.

The Danish Nordic Private Equity Partners I fund, which is managed/advised by CapMan, began to generate carried interest in 2002.

CapMan GROUP

Financial performance in 2002

CapMan’s turnover in 2002 was EUR 20.0 million (EUR 13.1 million in 2001). Management fees from the funds increased to EUR 15.9 million (EUR 8.6 million). Carried interest received by CapMan from the funds decreased to EUR 3.0 million (EUR 3.9 million). Finnventure Fund IV is not generating carried interest at present, but the realisation of its investment in restaurant chain Royal-Rest Oy during 2002 moves the fund considerably closer to the point when it will begin to generate carried interest.

Carried interest for 2002 was received from the five funds that have begun to generate carried interest. These five funds have capital of EUR 97.6 million, which represents 8.7 per cent of the total capital in CapMan funds (EUR 1,125.0 million) as listed in appendix 3. As can be seen in the appendix, the portfolios of funds that have not begun to generate carried interest are mainly in good condition. It may prove difficult for Finnmezzanine Fund II to begin generate carried interest because its investment in Swedish Utfors AB was in large part lost. Because CapMan’s investment as the fund’s management company was small, the loss of the investment did not have an effect on CapMan’s result for 2002.

The share from the result of CapMan’s affiliated companies increased slightly from the previous year and was EUR 0.6 million (EUR 0.5 million).

Profit after taxes and minority interests was EUR 3.4 million (EUR 21.7 million). The fall in profit resulted from the sale of CapMan’s Sampo plc shares in 2001, for which CapMan received dividends totalling EUR 6.6 million and a pre-tax profit of EUR 18 million. The combined effect of the share sale and dividend on CapMan’s profit after taxes in 2001 was approximately EUR 17.5 million. Operating profit in 2002 was EUR 4.7 million, which increased from the previous year excluding the sale of Sampo plc shares (EUR 4.0 million). Shareholder’s equity per share at year-end was EUR 0.71 (EUR 0.92). CapMan’s cash assets on 31 December 2002 totalled EUR 26.9 million (EUR 53.5 million). The company has no interest-bearing debt. Return on equity was 5.95 per cent (50.1 per cent).

EUR 253.3 million raised on new equity fund

CapMan began to raise the new Nordic equity fund CapMan Equity VII in autumn 2001, and at the first closing on 31 January 2002 it had raised commitments totalling EUR 166 million. Fundraising continued successfully throughout 2002 in spite of unfavourable market conditions. The final size of the fund at the year-end close of the second fundraising round was EUR 253.3 million. CapMan Equity VII is the largest of the funds managed/advised by CapMan that invest directly in portfolio companies.

23 institutional investors committed to the CapMan Equity VII fund. Of the commitments, 58 per cent originate from international, mainly Nordic investors and 42 per cent from Finnish investors. More than 70 per cent of commitments to the fund are from pension funds and life insurance companies. About half of the commitments originate from new investors and the remainder are from investors who have already committed to earlier CapMan funds. CapMan has committed EUR 16 million to the fund.

The investment strategy of CapMan Equity VII is to invest about two-thirds of the capital in mid-sized buyouts and about one-third in technology companies in the IT and telecommunications sectors. The main focus is on investments in Nordic companies. CapMan Equity VII has commenced investment activities and its portfolio companies include RGS90 A/S, Avitec AB and Nordkalk Corporation among others.

New Nordic organisation

CapMan Plc strengthened its position as one of the leading private equity investors in the Nordic countries via the EUR 17 million acquisition of the Swedish venture capital company Swedestart Management AB (now CapMan AB) in spring 2002, and the acquisition of Danish Nordic Private Equity Group (now CapMan Invest A/S) in 2001. Subsequent to the acquisitions, CapMan announced a reorganisation of the Group in August. The reorganisation combines the separate domestic organisations into pan-Nordic business and support units with the aim to achieve synergies at the Nordic level. The new organisation came into effect on 2 September 2002 and consists of three Nordic Business Units (Buyout, Technology and Life Science) as well as two Nordic Support Units (Group Finances and Administration and Group Development).

Those appointed as heads of the new units were Mr Heikki Westerlund, Senior Partner (Head of Buyout Business Unit), Mr Lennart Jacobsson, Senior Partner (Head of Technology Business Unit), Mr Jan Lundahl, Senior Partner (Head of Life Science Business Unit), Mr Olli Liitola, Senior Partner (Head of Group Finances and Administration) and Mr Vesa Vanha-Honko, Senior Partner (Head of Group Development).

Personnel

At the end of 2002, CapMan had 66 (52) employees. There were 48 (47) employees in Helsinki, 12 in Stockholm and 6 (5) in Copenhagen. In addition there were seven Senior Advisors acting as consultants for CapMan, four in Finland and three in Sweden.

Increase in share capital in 2002

The Extraordinary General Meeting of CapMan Plc held on 31 May 2001 authorised the Board to decide on increasing the share capital of the company by a maximum of EUR 70,000 via the issue of a maximum of 7,000,000 new B shares. The company’s share capital was increased by EUR 45,000 in 2002, via a direct share issue to the three owners of Swedestart Management AB with the acquisition of Swedestart on 18 April 2002. In accordance with the authorisation, 1,130,000 shares were issued in 2001 and the resolution was valid until 31 May 2002.

The company’s registered share capital on 31 December 2002 was EUR 756,946.30.

Shares and shareholders in 2002

The total number of CapMan A shares did not change during 2002 and was 8,000,000.The total number of CapMan B shares increased from 63,194,630 to 67,694,630 during the financial year. The increase in shares resulted from the aforementioned direct share issue made as consideration to the three owners of Swedestart Management AB.

A total of 15,930,043 (6,465,207) CapMan Plc B shares with a value of EUR 37.4 million (EUR 13.7 million) were traded on the Helsinki Stock Exchange during 2002. The share’s highest trading price was EUR 2.90 and the lowest trading price was EUR 1.25. The closing price on the first day of trading 2 January 2002 was EUR 2.30 and on the last trading day 30 December 2002 it was EUR 1.59. The average price of trades was EUR 2.35. The market value of CapMan Plc’s B shares at year-end was EUR 107.6 million (EUR 143.5 million) and the company’s total market capitalisation, including CapMan A shares, was EUR 120.4 million (EUR 161.6 million).

CapMan Plc had 6,150 shareholders at the end of 2002. One notice of flagging was made during the year, when Fennogens Investment S.A’s holding in CapMan Plc decreased to less than five per cent of total shares and voting rights on 26 March 2002.

Share repurchase

On 19 August 2002 the Board of Directors of CapMan Plc resolved to acquire a maximum of 3,500,000 of the company’s own B shares, in accordance with the authorisation granted by the Annual General Meeting held on 3 April 2002. The shares will be acquired through public trading on the Helsinki Stock Exchange at the publicly quoted market price at the time of purchase, as provided by the regulations on public trading of shares. The acquisition of shares began on 27 August 2002 and will end no later than 2 April 2003. The B shares will be acquired for use by the company as consideration in prospective business acquisitions, to develop the capital structure of the company, or to be assigned or invalidated in some other way.

As at the end of 2002 CapMan had acquired a total of 881,000 own shares at a cost of EUR 1,279,576. At the close of the financial year CapMan held 867,000 shares according to the shareholder register, which represents 1.15 per cent of the company’s shares and 0.59 per cent of voting rights.

Dividend policy

CapMan’s policy is to distribute at least 50 per cent of the net profit in dividends.

Consistent with the decisions adopted by the Annual General Meeting held on 3 April 2002, CapMan Plc distributed a dividend per share of EUR 0.26 for the 2001 financial year. The Board of Directors proposes to the AGM to be held on 9 April 2003, that for the year 2002 a dividend of EUR 0.10 per share or a total of EUR 7.5 million will be distributed to shareholders.

Authorisations of the Board at the end of 2002

In addition to the above authorisation on the repurchase of own shares, the Annual General Meeting held on 3 April 2002 resolved to authorise the Board to decide on increasing the share capital regardless of the former shareholders’ subscription privilege by new subscription or by a convertible loan agreement in one or more instalments as well as to decide on the more detailed conditions of the authorised directed share issue or the convertible loan agreement.

Based on this authorisation, the share capital of the Company can be increased by a maximum of EUR 35,000 by issuing a maximum of 3,500,000 new B shares at a nominal value of EUR 0.01 in one lot or in instalments, based on a new directed share issue or a convertible loan. The new B share issue can, according to the Board’s decision, be made against consideration in kind or by setting off a receivable. The authorisation is valid for one year from the resolution.

The authorisation had not been used as of the end of 2002.

EVENTS AFTER THE CLOSE OF THE YEAR

Funds managed/advised by CapMan

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

The investment in Nordkalk Corporation that was announced by CapMan in early December 2002 was implemented in early February 2003. The Finnventure V and CapMan Equity VII funds invested in the company.

CapMan Group

A total of 76,500 own B shares at a cost of EUR 127,526.14 have been acquired by CapMan in January 2003. On 13 February 2003 the number of CapMan Plc B shares held by the company totalled 957,500. As a result of the share repurchases in 2003, CapMan’s distributable equity has been reduced by an amount equal to the acquisition price.

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 investment business.

Above all, 2003 will be a year for CapMan to make new investments and develop the existing portfolio of investee companies. Although realisations are likely, 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. Sweden’s and Finland’s public and private health care systems 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 (appendix 3) are already generating carried interest. These funds have EUR 97.6 million in capital, which represents 8.7 per cent of the total capital in CapMan funds that invest directly in portfolio companies (EUR 1,125.0 million).

The portfolios of the funds that invest directly in portfolio companies, totalling EUR 486.8 million at acquisition cost, include traditional manufacturing and service companies, technology companies and life science companies. To date, 71.2 per cent of the capital invested by funds in portfolio companies is invested in traditional companies, 27.4 per cent in technology companies and 1.4 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 will be a year for CapMan to make new investments. CapMan is well positioned to continue as an active player in the private equity market, as its funds have approximately EUR 490 million in capital for new investments. The affiliated 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 but the outcome of these is difficult to estimate. Due to prevailing market conditions year 2003 will in the first place offer good opportunities for new investments and the development of the existing portfolio.

CapMan Plc will publish its interim report for the period 1 January – 31 March 2003 on 7 May 2003.

Helsinki 14 February 2003

CAPMAN PLC
Board of Directors

APPENDIX 1: GROUP INCOME STATEMENT AND BALANCE SHEET