CapMan Plc Group Financial Statements Bulletin 1 January – 31 December 2004

•           Exit markets clearly improved and carried interest income increased to MEUR 9.1 (MEUR 0.2). CapMan exited from eleven companies in 2004 (ten exits in 2003). The most significant exits were from Eltel Networks Corporation and Karelia Corporation.
•           CapMan actively continued its investment operations, making ten new investments (nine new investments in 2003). The sum of new and follow-on investments in portfolio companies totalled MEUR 90.8 (MEUR 138.5).
•           CapMan launched operations in the Oslo office and made its first two investments in Norway. Investment teams in Stockholm and Copenhagen were strengthened.
•           Commitments in the new CapMan Mezzanine Fund IV totalled MEUR 142.5 at year-end.

Future outlook:

•           The funds managed/advised by CapMan have substantial remaining investment capacity. Investment activities are expected to continue actively, as far as making new investments and developing the existing portfolio is concerned.
•           Several exit negotiations are ongoing in the funds making direct investments in portfolio companies. CapMan’s result for 2005 will mostly depend on whether exits are made from portfolio companies owned by funds already generating carried interest, and the possible transfer of new funds to carry. In 2004 approx. MEUR 7.6 out of the MEUR 9.1 carried interest income was generated by an exceptionally good exit from Eltel Networks.
•           CapMan intends to start the fundraising for new buyout and life science funds in 2005.
•           CapMan will continue to study the possibilities to establish a Finnish private equity real estate fund and to negotiate the matter with institutional investors.

REPORT OF THE BOARD OF DIRECTORS

BUSINESS

CapMan’s core business is private equity fund management and advisory services. The Report of the Board of Directors for 2004 is divided into two sections: the investment activities of the funds managed/advised by CapMan and CapMan Group’s financial performance and events in 2004.

FUNDS MANAGED/ADVISED BY CAPMAN

The main investment activity of CapMan’s funds comprises direct investments in portfolio companies in Finland, Sweden, Denmark and Norway. Direct investments include middle market buyouts, technology investments and investments in the life science sector. Buyouts are made in manufacturing, service and retail industries; technology investments focus on strong growth companies in the IT and telecommunications sector; and life science investments focus on companies specialising in medical technology.

CapMan also has a 47.5% stake in Access Capital Partners, a fund of funds manager/advisor based in Paris and Guernsey. Access Capital Partners manages/advises two funds that invest in middle market buyout and technology funds throughout Europe. In addition it manages/advises private equity investment mandates.

Capital under management and investment capacity

At the end of 2004 CapMan managed/advised MEUR 1,280.0 (MEUR 1,159.3) in funds making direct investments in portfolio companies. During the year, capital under management was raised by fundraising for the new CapMan Mezzanine Fund IV and lowered by the closing down of Nordic Private Equity Partners I Fund and the Fenno Program/Others Fund.

When considering the assets managed/advised by Access Capital Partners, which are MEUR 622.5 (MEUR 559.7) in total, the total capital managed/advised by CapMan at 31 December 2004 amounted to MEUR 1,902.5 (MEUR 1,719.0) in capital calculated as total commitments in the funds.

Investments in portfolio companies at acquisition cost totalled MEUR 578.5 at the end of 2004. Of this, MEUR 428.8 or 74.1% was invested in buyouts, MEUR 121.5 or 21.0% in technology companies and MEUR 28.2 or 4.9% in life science companies. Several of the portfolio companies in the funds making direct investments offer substantial upside potential. At the same time the portfolios include companies that have higher risk levels than at the time of the initial investment.

Excluding realised and estimated future expenses, CapMan has an investment capacity of about MEUR 410 for new and follow-on investments in portfolio companies.

Investments in portfolio companies in 2004

CapMan’s funds investing directly in portfolio companies made ten new investments, four substantial follow-on investments and several smaller follow-on investments in 2004 (9 new investments, 9 substantial follow-on investments and several smaller follow-on investments in 2003). All in all, MEUR 90.8 (MEUR 138.5) was invested by CapMan funds during the financial year. In the comparative period, third quarter investments in Metallfabriken Ljunghäll AB and Noiro Oy had a significant impact of MEUR 72.2 on the sum of investments for 2003.

Investments in the fourth quarter

In November, Swedestart Life Science Fund invested in the Swedish medtech company Millicore AB. Millicore has developed the market’s first digital disposable chest drainage unit for the treatment of lung collapse.

The investment in the new Tokmanni Oy by CapMan Equity VII, Finnmezzanine III and CapMan Mezzanine IV funds was finalised in November. The new Tokmanni Oy is the second largest non-food discount store chain on the Finnish market. The company was formed in the acquisition of the non-food discount operations under the Tokmanni and Vapaa Valinta names from the Okman Group and Notex-Yhtiöt Oy.

CapMan Equity VII and Swedestart Tech funds invested in Swedish Gammadata Mätteknik i Uppsala AB (Gammadata) in November. The company develops and provides instrumentation based on fundamental nuclear and material physics.

In November, CapMan Equity VII and Swedestart Tech funds invested in Swedish technology company Animex AB, which provides industrial automation and IT solutions for the plastics industry.

In December, Finnventure V and Finnventure V ET funds made a substantial follow-on investment in Finnish Hantro Products Oy, provider of mobile multimedia technology.

Investments in January - September

In March CapMan Equity VII and Finnmezzanine III funds invested in the Danish company Anhydro Group, which specialises in evaporation and drying technologies.

In April, CapMan Equity VII and Swedestart Tech funds invested in Finnish technology company Solid Information Technology Oy.

CapMan Equity VII and Swedestart Tech funds invested in Swedish technology company Tritech Technology AB in April.

In May, Finnmezzanine Fund III invested in Norwegian transaction processing company EuroProcessing International ASA.

Swedestart Life Science Fund invested in Swedish biotech company InDex Pharmaceuticals AB in May.

In August, CapMan Equity VII and Swedestart Tech funds invested in Norwegian technology company Locus AS.

There were substantial follow-on investments in Swedish technology company Northlight Optronics AB, Finnish life science company Inion Oy and Finnish buyout investment Tiimari Oyj.

Exits by the funds in 2004

The funds managed/advised by CapMan exited in total from eleven companies in 2004 (nine exits in 2003). Exits at acquisition cost (including partial exits and mezzanine loan instalments) for the review period totalled MEUR 69.7 (MEUR 65.5).

Exits in the fourth quarter

In November the Fenno Program/Skandia II Fund exited from Finnish Takamaki Oy, which develops and licences photo-resolution 3D-coatings. The fund invested in the company in 2001.

In November, Swedestart II Fund exited from the Swedish software developer QlickTech International AB. The fund invested in the company in 2000.

Finnventure IV and V as well as Finnmezzanine II and III funds sold their holdings in Finnish Karelia Corporation to the Hartwall family in December. Karelia Corporation is Finland’s leading flooring manufacturer. The funds invested in the company in 2000.

The sale of Finnish Eltel Networks Corporation (Eltel) to a fund managed by Industri Kapital was closed in December. Eltel is specialised in design, construction and maintenance of electrical and telecommunications networks. Finnventure V, Finnmezzanine II B and Finnmezzanine III funds as well as the Fenno Program/Others and Fenno/Skandia II funds invested in the company in 2001.

Exits in January - September

During the first nine months of 2004 CapMan funds exited from Lohja Caravans Oy Ab, Finnhepo Oy, Ramirent Europe Oy, Handwise Oy and Kotipizza Oy and sold their shares in Displayit AB, Sweco AB and Satama Interactive Oyj. In addition, there were partial exits from SecGo Group Oy (now SecGo Software Oy) and AudioNord International A/S.

European fund investments

At the end of 2004 CapMan Plc’s affiliated company Access Capital Partners had MEUR 622.5 (MEUR 559.7) under management in two funds and mandates. Access Capital Fund has MEUR 250.3 in capital, and Access Capital Fund II has EUR 277.0 million in capital. In addition, Access Capital Partners manages/advises private equity investment mandates for a total consideration of MEUR 95.2. Additional information about Access Capital Partners can be found online at www.access-capital-partners.com.

Other events in 2004

Inion Oy, a Finnish portfolio company of Swedestart Life Science Fund, completed an Initial Public Offering with a listing on the Main List of the London Exchanges in early December. Inion specialises in the development and commercialisation of biodegradable polymer implants for orthopaedic fixation. The fund did not sell its Inion shares in connection with the IPO and continues in the company as an owner.

Events after the close of the year

The sale of NeoPharma AB to Solvay Pharmaceuticals, which was announced in December 2004, was finalised in January 2005. NeoPharma has developed the Duodopa drug delivery system for the treatment of advanced Parkinson’s disease. Swedestart II Fund, which exited NeoPharma, invested in the company in 1999.

Netseal Oy, the Finnish provider of data security software and portfolio company of Finnventure IV, V and V ET funds, filed for bankruptcy in January. The funds invested in Netseal in 2000.

In February, Swedestart Life Science Fund invested in the Swedish medtech company SciBase AB. SciBase has developed instrumentation for the diagnosis and monitoring of malignancies in the skin and skin cancers.

CapMan GROUP

Financial performance in 2004

CapMan’s turnover for 2004 increased compared to the previous year and was MEUR 28.1 (MEUR 18.7). Management fees from the funds totalled MEUR 17.8 (MEUR 17.8).

There was a rise in the amount of carried interest income received by CapMan to MEUR 9.1 (MEUR 0.2). The most substantial carried interest income were generated by Fenno Program (approx. MEUR 7.6 following the sale of Eltel Networks), Finnventure Fund I (approx. MEUR 0.9 following the sale of Lohja Caravans) and Finnmezzanine Fund I (MEUR 0.4 following the sale of Kotipizza).

The share from the result of CapMan’s affiliated companies was MEUR 0.4 (MEUR 0.3).

Operating profit for the year grew to MEUR 9.3 (MEUR 1.8) as a result of higher carried interest income. Profit after taxes and minority interests increased to MEUR 6.3 (MEUR 1.1). Earnings per share was 8.4 cents (1.5 cents).

Shareholders’ equity per share was 64.1 cents (60.6 cents) and CapMan’s cash assets on 31 December 2004 totalled MEUR 15.5 (MEUR 13.9). The Company has no interest-bearing debt. Return on equity was 13.8% (2.3%).

Dividend

The Board of Directors of CapMan Plc decided on 10 February 2005 to amend CapMan Plc’s dividend policy as of 2005 so that the CapMan’s objective is to use at least 50% of the net profit either for dividend payments or purchase of the Company’s own shares. The Board of Directors proposes to the AGM that a dividend of EUR 0.06 per share, which equals to 71% of the net profit, will be distributed to shareholders for the year 2004.

Funds generating carried interest

Finnventure Fund I, which exited from Lohja Caravans, began to generate carried interest in 1997. Finnventure Fund III, which sold its shares in Satama, has been generating carried interest since 2000 and Finnmezzanine Fund I, which exited Kotipizza, since 2001. Additionally, Finnventure Fund II has been generating carried interest since 1997. Following the sale of Eltel, the Fenno/Skandia II and Fenno/Others funds co-managed by CapMan and Fenno Management Oy began to generate carried interest. Eltel was the only portfolio company in the Fenno/Others Fund, and after the exit the fund’s operations were closed.

During 2004 Finnventure Fund V moved significantly closer to the point where the fund will begin to generate carried interest, as a result of the sale of its holdings in Eltel, Karelia Corporation and Sweco. Finnventure Fund V’s share of the accrued cash flows from the Eltel sale was approx. MEUR 65. The other CapMan funds that moved closer to carry were Finnventure Fund IV following the sales of Karelia Corporation and Sweco shares, and Finnmezzanine Fund III following the sales of Eltel and Karelia Corporation.

New mezzanine fund

CapMan established its fourth mezzanine fund CapMan Mezzanine IV in 2004. The focus of the fund is on investments in middle market buyouts in the Nordic countries. Part of the fund is securitised by offering institutional investors an opportunity to participate by subscribing secured bonds listed on the Helsinki Stock Exchange.

By the end of the year, the fund had 25 investors and commitments totalling MEUR 142.5. CapMan Plc’s own commitment to the fund is MEUR 3.0. The management fee and carried interest arrangements of the fund are in accordance with common practice in the industry. CapMan will continue fundraising for the fund in the first quarter of 2005.

Personnel and company management

CapMan had 74 (71) employees at the end of 2004. There were 46 (47) employees in Helsinki, 15 (17) in Stockholm, 9 (7) in Copenhagen and 4 (0) in Oslo. In addition there were five Senior Advisors acting as consultants for CapMan, three in Finland, one in Sweden and one in Denmark. Many employees in the Helsinki office work actively with business generation also in other Nordic countries.

In December, Partner Petri Niemi was appointed Head of CapMan Technology and member of CapMan’s Nordic Steering Group as of 1 January 2005. Senior Partner Lars Hagdahl was appointed Deputy Head of CapMan Technology as of 1 January 2005. Mr Niemi’s predecessor Lennart Jacobsson continues as a member of the technology team with responsibilities in Swedestart and CapMan funds. He is also a member of the Board of CapMan Plc.

Changes in ownership

On 2 March 2004, some Senior Partners and other employee owners of CapMan Plc Group sold a total of 10,000,000 CapMan Plc B shares to international and Finnish institutional investors. Following the sales, the Senior Partners and other employees of CapMan Plc hold 56.3% of shares and 77.7% of voting rights. There was one disclosure of change in ownership related to the share sale, when the combined ownership of Ari Tolppanen and Aristo Invest Oy, a corporation under his control, decreased to less than three-twentieths (3/20) or 13.5%. CapMan Plc had 6,256 shareholders as at 31 December 2004.

Shares and warrants

A total of 31,016,971 (10,740,016) CapMan Plc B shares with an approx. value of MEUR 56.3 (MEUR 17.5) were traded on the Helsinki Stock Exchange in 2004. Compared to the previous year there was a significant rise in trading, of which approx. half or 10,000,000 shares is accounted by the share sale by the Senior Partners and other employee owners of CapMan in March. Share sale adjusted trading turnover increased significantly compared to the previous year, almost doubling in terms of number of shares traded and more than doubling in terms of value.

The B share’s highest trading price for the year was EUR 2.42 and the lowest trading price was EUR 1.49, with an average price of trades of EUR 1.82. The opening price on the first day of trading for the year was EUR 1.75 and the closing price on 31 December 2004 was EUR 2.30. The Company’s total market capitalisation, including CapMan A shares, was MEUR 171.8 (MEUR 130.7).

The year 2000A warrants’ highest trading price was EUR 1.52, the lowest was EUR 0.85 and the average price of trades was EUR 1.14. The opening price on the first day of trading for the year was EUR 0.94 and the closing price on 31 December 2004 was EUR 1.35. A total of 1,268,500 A warrants with a value of MEUR 1.4 were traded in 2004 (421,000 warrants with a value of MEUR 0.3 in October-December 2003). As at 31 December 2004, 27,700 CapMan Plc B shares had been subscribed for with warrants. The share subscription will be entered in the trade register during February 2005.

Decisions adopted by the AGM

The Annual General Meeting (AGM) of CapMan Plc held on 1 April 2004 elected the following members to the Board of Directors: Mr Tapio Hintikka, Mr Lauri Koivusalo, Mr Lennart Jacobsson, Mr Claes de Neergaard, Mr Teuvo Salminen, Mr Ari Tolppanen and Mr Vesa Vanha-Honko. Of the Board members, Mr Hintikka, Mr Koivusalo, Mr de Neergaard and Mr Salminen are independent of the Company. The AGM also approved the authorisations of the Board to increase the Company’s share capital by a maximum of EUR 35,000.00 and to acquire a maximum of 3,500,000 of the Company’s own B shares.

Share repurchase

On 26 May 2004 the Board of Directors of CapMan Plc resolved that the Company will acquire a maximum of 3,500,000 of the Company’s own B shares, on the basis of the authorisation given by the AGM. However, the Company has not repurchased shares to date.

Changes in CapMan’s compensation system

In July, the Board of Directors of CapMan Plc decided to enhance the Company’s compensation system so that 20-30% of the possible carried interest of CapMan’s future funds will be distributed to the members of the specific investment team in question. Targeting part of a certain fund’s carried interest to the members of a specific investment team is common practice in the private equity industry. The objective is that this practice will gradually replace CapMan’s current system, where part of the carried interest income that CapMan receives from the funds it manages/advises is paid to team members as annual bonuses based on the Company’s result.

Events after the close of the year

In January, CapMan Plc announced that the Company was studying the possibilities to establish a Finnish private equity real estate fund and negotiating the matter with institutional investors.

Claes de Neergaard, member of the CapMan Plc Board, was appointed as President of the Swedish venture capital investor Industrifonden (The Swedish Industrial Development Fund) as of 2 February 2005. Due to this appointment de Neergaard resigned from the CapMan Plc Board of Directors.

ADOPTION OF IFRS STANDARDS (IAS)

As of 1 January 2005, CapMan Plc will adopt International Financial Reporting Standards (IFRS) in its financial reporting. The changeover date to IFRS is 1 January 2004, for which an opening IFRS balance sheet is prepared. The effects of IFRS on the opening balance sheet as well as on shareholders’ equity 1 January 2004 are presented in Appendix 4. Comparison information on the income statement and balance sheet in line with IFRS and Finnish Accounting Standards (FAS) will be published quarterly in connection of the Interim Reports in 2005.

FUTURE OUTLOOK

Funds managed/advised by CapMan

Private equity investment in Europe is estimated to show growth in the mid and long term. In CapMan’s home market in the Nordic area, growth is accelerated by consolidation in various sectors, privatisation of public services and functions, strong investment in research and development in technology and life science sectors, and increasing entrepreneurial activity.

CapMan will continue to focus its investment strategy on a Nordic level. The focus of the funds’ investment activities will remain on developing the existing portfolio and finding new investee companies. CapMan is well positioned to continue as an active player in the private equity market, as its funds making direct investments have approx. MEUR 410 in capital for new and follow-on investments.

The competition for middle market buyouts has increased as a result of new players entering the market and new funds being established by existing private equity investors. The local presence in all Nordic countries enables CapMan’s Buyout team to proactively look for new portfolio companies in the Nordic area, which is increasingly important in the current market situation. In comparison, there is less competition and good opportunities to syndicate investments in technology and life science sectors.

There was a gradual improvement in exit markets during 2004 and we expect this trend to continue also in 2005. Several exit negotiations are ongoing in the funds making direct investments in portfolio companies.

CapMan Group

The Group’s income derives from management fees from the funds, carried interest from funds generating carried interest, a share of the result of affiliated companies and returns on direct fund investments made from CapMan’s own balance sheet. The returns from direct fund investments will also have a greater influence on the Company’s result in the future, as CapMan’s objective is to make investments from its balance sheet corresponding to 3-5% of the capital in future CapMan funds.

As a management company CapMan begins to receive carried interest after the investors have regained their investment in addition to a preferred annual return, usually 6 to 8%. Carried interest is typically 20 to 25% of the fund’s cash flow through exits from its portfolio companies. Five of the funds managed/advised by CapMan (see Appendix 3) are already generating carried interest. The original capital in these funds is MEUR 92.2, which represents approximately 7.2% of the total capital in CapMan funds that invest directly in portfolio companies (MEUR 1,280.0).

The management fees CapMan receives from the funds are expected to cover the Company’s expenses in 2005, and the share from affiliated companies is estimated to remain at the same level as the previous year. CapMan’s result for 2005 will mostly depend on whether exits are made from portfolio companies owned by funds already generating carried interest, and the possible transfer of new funds to carry. The funds making direct investments in portfolio companies have several exit discussions underway.

CapMan Plc will publish its interim report for the period 1 January – 31 March 2005 on 10 May 2005.

Helsinki 11 February 2005

CAPMAN PLC

Board of Directors

For further information, please contact:

Mr Ari Tolppanen, CEO, tel. +358 9 6155 8307 or +358 500 407 343

Mr Olli Liitola, CFO, tel. +358 9 6155 8306 or +358 400 605 040

Distribution:

Helsinki Exchanges, Principal media

Appendices:    

Appendix 1:      Group income statement, balance sheet and cash flow statement

Appendix 2:      Turnover and profit quarterly, Other information

Appendix 3:      CapMan Plc Group funds as at 31 December 2004

Appendix 4:      The effects of IFRS on the opening balance sheet and on shareholders’ equity

                        The figures are audited.

APPENDIX 1: GROUP INCOME STATEMENT, BALNCE SHEET AND CASH FLOW STATEMENT