CapMan Plc Group Interim Report 1 January – 31 March 2006

• Capital under management grew to MEUR 2,245.3 in the first quarter of 2006 (MEUR 1,376.1 at 31 March 2005).
• Turnover increased to MEUR 8.9 (MEUR 5.5 in January-March 2005).
• Management fees were MEUR 5.6 (MEUR 5.3).
• Carried interest income totalled MEUR 2.6. There was no carried interest in the comparative period. The funds exited from one company in total in the first quarter of 2006 (five exits in January-March 2005).
• Other operating income within turnover was MEUR 0.7 (MEUR 0.2), mainly comprising income from real estate consulting activities for the period.
• The impact of fund investments made from CapMan’s own balance sheet totalled MEUR 2.2 (MEUR 0.5) and they wholly comprised of gains in the fair value of investments, as in the comparative period.
• Operating profit was up to MEUR 5.2 (MEUR 1.5).
• Profit before taxes for the period increased to MEUR 5.1 (MEUR 1.6) and profit after taxes to MEUR 3.7 (MEUR 1.3).

Business

CapMan’s core business is private equity fund management and advisory services. The funds under management invest mainly in unlisted Nordic companies or real estate assets. CapMan Plc’s income derives from management fees from the funds, carried interest from funds generating carried interest, returns on direct fund investments made from CapMan Plc’s own balance sheet and returns on real estate consulting activities.

As a private equity fund management company, CapMan begins to receive carried interest after the investors have regained their investment in addition to a preferred annual return, usually 6–8%. In the case of CapMan funds that were established before 2004, carried interest is typically a 20–25% share of a fund’s cash flow through exits from its portfolio companies. For funds established in 2004 and thereafter, a share of carried interest will be distributed to the members of the investment team responsible for the fund’s investment activities during its life cycle (typically 10 years), in accordance with common practice in the private equity investment industry. The share of possible carried interest that is allocated to teams varies from 20% to a maximum of 50%. The Board of Directors decides on the share of potential carried interest to be allocated to the investment team in connection with the establishment of the fund in question.

CapMan Plc’s returns on direct fund investments made from its own balance sheet will have a greater impact on the Company’s result in the next few years, as since 2002 CapMan has been a significant investor in the funds managed by the Group. CapMan invests 5-10% of the total capital in CapMan funds investing in portfolio companies. The investments made have been valued at fair value in accordance with EVCA guidelines as specified in Appendix 1. There may be quarterly changes in fair value gains and/or losses and, in addition to the value creation of portfolio companies, these are affected by executed realisations.

CapMan Plc’s business areas

CapMan provides management and advisory services in two main business areas: funds making investments in portfolio companies (CapMan Private Equity) and private equity real estate funds making investments in real estate assets (CapMan Real Estate). CapMan expanded its operations into private equity real estate fund management in June 2005. Investments by CapMan funds investing in portfolio companies focus mainly on the Nordic countries in three investment areas, which are middle market buyouts (CapMan Buyout), technology investments (CapMan Technology) and life science investments (CapMan Life Science). The investment focus of CapMan Real Estate I is on commercial properties in the Helsinki metropolitan area.

Information on each business area is reported in its own segment in Interim Reports. Associated company Access Capital Partners has been included in the Group’s figures under CapMan Private Equity. As for funds, Access Capital Partners’ figures have been presented separately.

Turnover and result development in Q1 2006

CapMan’s turnover constitutes management fees, carried interest, realised returns on direct fund investments and other returns including income from real estate consulting activities. There was an increase in turnover for the first quarter of 2006 to MEUR 8.9 (MEUR 5.5).

The sum of management fees paid by the funds increased slightly and was MEUR 5.6 (MEUR 5.3). The growth resulted mainly from management fees received from CapMan Buyout VIII and CapMan Real Estate I funds that were established in 2005, but then again there was a fall in the sum of management fees received from older funds with exits that were executed after the comparative period. Fundraising still continues for CapMan Buyout VIII and CapMan Life Science IV funds, and management fees from these funds will fully impact on turnover when the funds have held a final close.

Carried interest income received by CapMan Plc from funds generating carried interest totalled MEUR 2.6. There were no exits from funds generating carried interest in the comparative period. The impact of fund investments made from CapMan’s own balance sheet totalled MEUR 2.2 (MEUR 0.5). Realised returns on fund investments were MEUR 0.0 (MEUR 0.0), and fair value gains/losses associated with fund investments totalled MEUR 2.2 (MEUR 0.5). The gains were related in particular to value creation in CapMan Equity VII, where CapMan is a substantial investor (5%), as well as to value creation in Finnventure Fund V, for which the investee company Mehiläinen Oyj was valued at exit value at 31 March 2006. The fair value of all fund investments made from CapMan’s balance sheet totalled MEUR 22.9 at 31 March 2006.

Returns on real estate consulting activities, totalling MEUR 0.5, also had a growth effect on turnover.

Operating expenses were MEUR 6.0 (MEUR 4.5). The rise in expenses was mainly influenced by CapMan Real Estate’s operating expenses, fundraising expenses during the period for CapMan Buyout VIII and CapMan Life Science IV funds as well as development and preparation expenses for other investment activities and fundraising.

Operating profit for the period increased to MEUR 5.2 (MEUR 1.5). The share from the result of CapMan’s associated companies was MEUR –0.2 (MEUR –0.1). Profit before taxes increased to MEUR 5.1 (MEUR 1.6) and profit after taxes to MEUR 3.7 (MEUR 1.3). Earnings per share was EUR 0.05 (EUR 0.02).

Balance sheet and financial position

The sum of non-current assets in the balance sheet grew to MEUR 41.6 in the review period (MEUR 31.6). In line with CapMan’s strategy, the sum of CapMan’s own investments increased and totalled MEUR 22.9 at the end of the period (MEUR 16.7). There was also an increase in receivables to MEUR 10.2 (MEUR 5.6). Of the receivables MEUR 8.1 (MEUR 4.9) was loan receivables from Maneq funds, which make portfolio company investments along with CapMan funds and whose investors are CapMan’s investment professionals and other key personnel. Goodwill was MEUR 4.8 (MEUR 4.5), and is directed mainly at the acquisition of Swedestart Management AB in 2002. CapMan’s net cash assets totalled MEUR 8.0 (MEUR 16.3).

Key ratios

	31.3.06	31.3.05	31.12.05
Shareholders’ equity / share, EUR	0.62	0.56	0.64
Share issue adjusted number of shares	75 923 348	74 709 330	75 041 938
Number of shares at 31.3.2006	75 923 348	74 709 330	75 923 348
Number of shares outstanding	75 923 348	74 709 330	75 923 348
Return on equity, %	7.6	2.9	14.8
Return on investment, %	10.6	3.9	20.2
Equity ratio, %	87.4	81.2	85.8

Turnover and profit quarterly as well as turnover and operating profit per segment for the review period are presented in the tables section of the Interim Report.

Fundraising

Funds investing in portfolio companies

Fundraising for the CapMan Buyout VIII Fund that was established in November 2005 continued during the review period. 24 institutional investors had committed MEUR 339.2 into the fund as at 31 March 2006. CapMan’s own commitment into the fund is 10% of committed capital, or MEUR 33.9. The fund invests in middle market buyout transactions in the Nordic countries, and its target size is MEUR 375. Fundraising for the fund will continue during 2006. The allocation of possible carried interest that will be received from the fund is 70% for CapMan and 30% for the Buyout team.

CapMan Plc established its fourth life science fund in March. The first closing of CapMan Life Science IV was held on 23 March 2006 at MEUR 45. CapMan’s own commitment into the fund is MEUR 5. The fund will invest in Nordic medical technology companies, and its fundraising still continues. The allocation of possible carried interest that will be received from the fund is 50% for CapMan and 50% for the Life Science team.

Additionally, CapMan commenced fundraising preparations for new technology fund during the first quarter of 2006.

Capital under management

As at 31 March 2006 CapMan managed a total of MEUR 2,245.3 in capital (MEUR 1,376.1 at 31 March 2005), of which MEUR 1,745.3 (MEUR 1,376.1) was in funds investing in portfolio companies and MEUR 500 was in CapMan Real Estate I investing in real estate assets. Capital under management in funds making direct portfolio company investments was increased during the period as a result of fundraising for CapMan Buyout VIII and CapMan Life Science IV funds.

Capital under management by associated company Access Capital Partners

CapMan Plc’s associated company Access Capital Partners managed/advised MEUR 1,139.1 (MEUR 905.1) in total assets as at 31 March 2006. Of this, MEUR 720.0 (MEUR 527.3) was in funds of funds and MEUR 419.1 (MEUR 377.8) in private equity investment mandates.

Fundraising for Access Capital Fund III continued during the review period and commitments to the fund totalled MEUR 192.7 at 31 March 2006. The fund consists of two separate subfunds, which are Access Capital Fund III Mid-market Buyout Europe (target size MEUR 250) and Access Capital Fund III Technology Europe (target size MEUR 100). Fundraising for Access Capital Fund III will continue in 2006.

Q1 Investments and exits by the funds

Funds investing in portfolio companies

During the period under review the funds made one new investment in 42Networks AB, one substantial add-on investment in Tokmanni Oy and several smaller add-on investments, investing MEUR 21.7 in total.

The funds exited in total from PPTH-Norden Oy during the review period. Additionally Finlayson & Co repaid its mezzanine loans. Exits at acquisition cost (including partial exits and mezzanine loan instalments) for the period totalled MEUR 23.4.

Real estate funds

In January, some of the real estate acquisitions that were agreed in connection with the establishment of CapMan Real Estate I Fund were closed. The acquisition cost of these transactions was MEUR 21.3.

Investments and exits at acquisition cost, MEUR

	1-3/2006			1-3/2005			1-12/2005
New and follow-on investments
Funds investing in portfolio companies	21.7			7.2			127.3
Buyout		15.3			0.2			96.7
Technology		5.6			4.7			25.6
Life Science		0.8			2.3			5.0
Real estate funds	21.3			-			225.7
Total	43.0			7.2			353.0
Exits*
Funds investing in portfolio companies	23.4			33.8			118.7
Buyout		23.4			20.8			78.0
Technology		-			7.0			31.8
Life Science		-			6.0			8.9
Real estate funds	-			-			-
Total	23.4			33.8			118.7

* incl. partial exits and mezzanine loan instalments

The investment and exit activities of the funds managed by CapMan are described in more detail in Appendix 2.

Status of CapMan funds as at 31 March 2006

Funds investing in portfolio companies

Investments in portfolio companies at acquisition cost totalled MEUR 583.2 at the end of the period under review. The fair value of investments was MEUR 699.1. The funds’ portfolios are valued to fair value in accordance with the guidelines of EVCA as described in Appendix 1.

Excluding realised and estimated future expenses, CapMan has an investment capacity of about MEUR 740 for new and follow-on investments in portfolio companies. Of this, approx. MEUR 605 is reserved for buyout investments, approx. MEUR 75 for technology investments and approx. MEUR 60 for life science investments.

Real estate funds

At the end of the review period, the funds’ investments in real estate assets at acquisition cost totalled MEUR 247.0 and the fair value of investments was MEUR 244.6. The focus of the current portfolio is on properties with a medium level risk/return profile. The vacancy rate of the properties was 3.4% and average length of lease contracts 4.5 years as at 31 March 2006. The fund has an investment capacity of about MEUR 250 for new investments.

Funds’ gross portfolio* as at 31 March 2006, MEUR

	Portfolio	Portfolio	Share of
	at acquisition	at fair	portfolio
	cost	value	(fair
	MEUR	MEUR	value) %
Funds investing in portfolio
companies	583.2	699.1	74.0
Real estate funds	247.0	244.6	26.0
Total	830.2	943.7	100.0
Funds investing in portfolio
companies
Buyout	440.0	572.4	81.9
Technology	119.3	105.5	15.1
Life Science	23.9	21.2	3.0
Total	583.2	699.1	100.0

*Gross portfolio of all portfolio companies and real estate assets managed by CapMan funds.

Funds generating carried interest as at 31 March 2006

The CapMan funds already generating carried interest were Finnventure Fund II (since 1997); Finnventure Fund III (since 2000); Finnmezzanine Fund I (since 2001); the Fenno/Skandia II (since 2004), Fenno/Skandia I (since 2005) and Fenno (since 2005) funds co-managed by CapMan and Fenno Management Oy; and Finnmezzanine Fund II B (since 2006). The initial capital in these funds (Appendix 1) is MEUR 149.0 or some 8.5% of total capital in funds making investments in portfolio companies (MEUR 1,745.3) and 6.6% of total capital managed by CapMan (MEUR 2,245.3). The fair value of the current portfolios of funds generating carried interest at 31 March 2006 totalled MEUR 47.8, which represents 6.8% of fair value of portfolios of all funds investing directly in portfolio companies (MEUR 699.1) and 5.1% of fair value of portfolios of all funds at 31 March 2006 (MEUR 943.7). Information on each fund’s investment targets is presented on CapMan’s website at www.capman.com/En/InvestorRelations/Funds.

Finnmezzanine Fund II B began to generate carried interest during the period under review, following Finlayson & Co Oy’s repayment of its mezzanine loan to the fund.

Carried interest income received by CapMan from funds generating carry totalled MEUR 2.6 for the review period, of which MEUR 2.2 was carried interest received from Fenno Fund as a result of the exit from PPTH Norden. 

CapMan’s own investments in the funds

Since 2002, CapMan Plc has been a substantial investor in the funds managed by the Group. According to the decision adopted by the Board of Directors on 9 May 2005, the Company’s objective is to invest about 5–10% of the total capital in future equity funds from its own balance sheet. The previous level has been 3–5%. The investment strategy, which applies to investments by equity funds investing in portfolio companies, aims to improve the Company’s return on equity and to even out fluctuations in income in coming years via returns from these investments.

CapMan, like other investors in the funds, gives commitments to the funds when they are established. As at 31 March 2006 the total amount of current investments at fair value and remaining commitments was MEUR 79.4, of which remaining commitments totalled MEUR 56.5. Of the commitments MEUR 33.5 is targeted for CapMan Buyout VIII, with the remainder targeting mainly CapMan Life Science IV, CapMan Mezzanine IV, CapMan Equity VII and Access Capital Fund II funds. The commitments will be drawn down within the next 3-4 years as new investments are made. Fund investments (the used commitments) for the review period totalled MEUR 1.5 (MEUR 2.1). The majority of investments were made in CapMan Equity VII, Access Capital Fund II and Swedestart Tech funds. The fair value of cumulative fund investments made from CapMan’s own balance sheet was MEUR 22.9 as at 31 March 2006.

CapMan’s investments and commitments in the funds as at 31 March 2006, MEUR

	Investments	Remaining	In total
	at fair	commitments
	value
Funds investing in portfolio companies
Equity funds	15.8	44.9	60.7
Mezzanine funds	1.3	6.5	7.8
Funds of funds*	5.6	4.3	9.9
	22.7	55.7	78.4
Real estate funds	0.2	0.8	1.0
Total	22.9	56.5	79.4

* Managed/advised by CapMan’s associated company Access Capital Partners.

CapMan’s own investments in the funds for the period 1 January – 31 March 2006, MEUR

	1-3/2006	1-3/2005	1-12/2005
Funds investing in portfolio companies
Equity funds	0.5	1.5	5.0
Mezzanine funds	0.1	0.1	0.3
Funds of funds*	0.9	0.5	2.2
	1.5	2.1	7.5
Real estate funds	0.0	-	0.2
Total	1.5	2.1	7.7

* Managed/advised by CapMan’s associated company Access Capital Partners.

Personnel

	31.3.2006	31.3.2005	31.12.2005
CapMan Buyout	21	24	20
CapMan Technology	12	14	14
CapMan Life Science	6	5	5
CapMan Real Estate	19	-	15
Finances and Administration	28	24	25
Business Development	3	3	3
Fundraising, IR & Communications	6	3	5
Total	95	73	87

As at 31 March 2006 the Group had 95 (73) employees, of whom 67 (45) were located in Finland and the remainder in other Nordic countries. The number of CapMan employees grew compared to the comparative period as a result of the establishment of real estate investment operations in particular. In addition there were five Senior Advisors acting as consultants for CapMan, four in Finland and one in Denmark.

Decisions adopted by the AGM

The Annual General Meeting (AGM) of CapMan Plc held in Helsinki on 22 March 2006 confirmed the 2005 financial statements and granted discharge from liability to the Board of Directors and the CEOs for the 2005 financial year. In accordance with the proposal of the Board of Directors, the AGM decided that a dividend of EUR 0.07 (EUR 0.06) per share, which equals to 78% (71%) of the net profit, would be distributed to shareholders for the 2005 financial year.

The AGM elected Swedish Board professional Urban Jansson as a new member to the Board of Directors. In addition Tapio Hintikka, Lennart Jacobsson, Teuvo Salminen and Ari Tolppanen, who were all members in the previous term, were re-elected to the Board. The organisation meeting of the Board that was held immediately after the AGM elected Ari Tolppanen as Chairman of the Board and Teuvo Salminen as Vice Chairman of the Board. The Board concluded that Hintikka, Jansson and Salminen are independent of the Company.

The AGM elected that PricewaterhouseCoopers Oy, corporation of authorised public accountants, will continue as the Company’s auditors with Jan Holmberg, APA (Auditor approved by the Central Chamber of Commerce), as the Lead Auditor. Terja Artimo, APA, will act as Holmberg’s deputy.

The AGM also authorised the Board of Directors to resolve to increase the Company’s share capital by a maximum of EUR 150,000.00 and to repurchase or dispose of a maximum of 7,500,000 of the Company’s own B shares.

Shares and shareholders

CapMan Plc’s share capital totalled EUR 759,233.48 at 31 March 2006. There were 67,923,348 CapMan B shares and 8,000,000 A shares. The nominal share value is EUR 0.01. There were no changes in share capital during the period under review.

Trading and price development of shares and options

	B shares		2000A/B options
	1-3/2006	1-3/2005	1-3/2006