Business
CapMan is an alternative asset manager and its 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.
CapMan Plc’s business areas
CapMan provides management and advisory services in two business areas: CapMan Private Equity (funds making investments in portfolio companies) and CapMan Real Estate (private equity real estate funds making investments in real estate assets as well as real estate consulting). 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’s private equity real estate funds is on real estate targets in Finland.
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 profit development in January–June 2007
CapMan’s turnover for the first half of 2007 increased to MEUR 35.6 (MEUR 18.4 in January–June 2006) mainly as a result of the rise in carried interest income.
The sum of management fees paid by the funds remained at the level of the comparative period and was MEUR 12.3 (MEUR 12.4). CapMan started to receive management fees from CapMan Technology 2007 and CapMan RE II funds in the period under review, but on the other hand the sum of management fees received from older funds decreased with exits that were executed after the comparative period, for example as a result of the sale of CapMan Real Estate I fund’s portfolio.
Carried interest income received by CapMan totalled MEUR 21.4 (MEUR 3.8). The sale of CapMan Real Estate I fund’s real estate portfolio accrued carried interest totalling MEUR 21.0, of which the share belonging to the owners of the parent company was MEUR 13.4. The remaining MEUR 0.4 was accrued from carried interest income received from other funds generating carry.
The impact of fund investments made from CapMan’s own balance sheet totalled MEUR 4.9 (MEUR 2.4). Realised returns on fund investments were MEUR 0.3 (MEUR 0.7), and fair value gains/losses associated with fund investments were MEUR 4.6 (MEUR 1.7). The gains in fair value were positively influenced by value creation in Moventas Oy, from which CapMan Equity VII fund made a partial exit during the review period, by value creation in other portfolio companies of CapMan Equity VII fund and by value creation in the funds managed/advised by associated company Access Capital Partners. The main value creation drivers in CapMan’s investment operations are increase in sales, increase in profitability and utilisation of market conditions. The gains in fair value were negatively influenced by the expenses of new funds that are investment targets. The aggregate fair value of all fund investments made from CapMan’s own balance sheet was MEUR 40.8 at 30 June 2007.
Returns on real estate consulting operations totalled MEUR 1.1 (MEUR 1.1). Other operating income within turnover was MEUR 0.5 (MEUR 0.4). There was an increase in operating expenses to MEUR 13.8 (MEUR 13.1) as a result of a rise in staff numbers as well as the expenses incurred by new projects.
The Group’s operating profit increased to MEUR 26.5 (MEUR 7.6). The share from the result of CapMan’s associated companies was MEUR 1.1 (MEUR 0.0). Profit before taxes was MEUR 28.1 (MEUR 7.9) and profit after taxes MEUR 20.9 (MEUR 5.9). The share of profit belonging to the owners of the parent company was MEUR 15.3 (MEUR 5.8), on the basis of which earnings per share was EUR 0.20 (EUR 0.08).
The impact of especially carried interest income on profit development is demonstrated in the first two quarters of the year. As a result of fluctuations in accrued carried interest, CapMan’s financial development should be followed over a longer period of time instead of quarterly.
Balance sheet and financial position at 30 June 2007
The sum of non-current assets in the balance sheet grew to MEUR 68.4 during the period under review (MEUR 49.1 at 30 June 2006). In line with CapMan’s strategy, the sum of CapMan’s own investments increased and their fair value totalled MEUR 40.8 (MEUR 28.8) at the end of the review period. Non-current receivables totalled MEUR 17.4 (MEUR 11.7). Of the receivables MEUR 14.5 (MEUR 8.3) was loan receivables from Maneq funds, which make portfolio company investments along with CapMan funds and whose investors are CapMan employees in accordance with certain principles. Goodwill was MEUR 4.8 (MEUR 4.8), and is directed mainly at the acquisition of Swedestart Management AB in 2002. CapMan’s net cash assets, including current investments, were MEUR 25.5 (MEUR 7.0). The Company has interest-bearing liabilities of MEUR 10.0 (MEUR 4.4).
CapMan’s equity ratio at the end of the review period was 67.1% (77.6%). Return on equity for the period was 33.3% (11.9 %) and return on investment 38.6% (15.3%). The Company has target levels of at least 50% for the equity ratio and over 25% for return on equity.
Key ratios
|
|
30.6.07 |
30.6.2006 |
31.12.06 |
|
|
|
|
|
|
Earnings/share, EUR |
0.20 |
0.08 |
0.15 |
|
Diluted, EUR |
0.20 |
0.08 |
0.15 |
|
Shareholders’ equity/share, EUR |
0.89 |
0.66 |
0.74 |
|
Share issue adjusted number of shares |
77 479 731 |
76 008 900 |
76 212 849 |
|
Number of shares at the end of the period |
78 314 418 |
76 339 548 |
77 158 698 |
|
Number of shares outstanding |
78 314 418 |
76 339 548 |
77 158 698 |
|
Return on equity, % |
33.3 |
11.9 |
23.4 |
|
Return on investment, % |
38.6 |
15.3 |
29.9 |
|
Equity ratio, % |
67.1 |
77.6 |
71.6 |
Turnover and profit quarterly as well as turnover and operating profit per segment are presented in the tables section of the Interim Report.
Fundraising
Funds investing in portfolio companies
CapMan established a new technology fund CapMan Technology 2007 on 9 February 2007, and commitments totalling MEUR 134.7 had been raised to the fund as at the end of the first half of the year. Fundraising for the fund has progressed well, even though the interest of institutional investors is still directed first and foremost to different buyout products. The fund’s investment focus on expansion and later stage technology companies in the Nordic countries has supported the fundraising. CapMan’s own commitment into CapMan Technology 2007 is MEUR 15, and the allocation of possible carried interest that will be received from the fund is 50% for CapMan and 50% for the Technology team. Commitments to the fund have risen to MEUR 140 after the review period, and its fundraising still continues. The fund has a target size of MEUR 150.
CapMan Life Science IV fund held a final close in May at MEUR 54. The fund invests in medical technology companies mainly in the Nordic countries. CapMan’s own commitment into the fund is MEUR 5, and the allocation of possible carried interest that will be received from the fund is 50% for CapMan and 50% for the Life Science team.
Real estate funds
The CapMan RE II fund reached its maximum investment capacity of MEUR 600 on 31 March 2007. The aim is that an average 75% of the fund’s investments are financed with debt financing, in which case the fund’s investment capacity of MEUR 600 comprises MEUR 150 of shareholders’ equity and the remainder debt financing. The investment focus of CapMan RE II is on property development targets in Finland. The fund’s management company CapMan RE II GP Oy has a commitment of MEUR 2 into the fund. CapMan Plc’s share of possible carried interest that will be received from CapMan RE II is 60% and the aggregate share of the Real Estate investment team and the management company’s other owner Corintium Oy is 40%.
Capital under management
As at 30 June 2007 CapMan managed a total of MEUR 3,013.2 in capital (MEUR 2,322.7 at 30 June 2006). Capital under management in funds making direct portfolio company investments totalled MEUR 1,913.2 (MEUR 1,822.7). There has been a growth in capital after the comparative period as a result of fundraising for CapMan Technology 2007 and CapMan Life Science IV funds and a fall in capital as a result of the termination of operations by Swedestart II and Finnmezzanine I funds as well as Alliance ScanEast Fund in 2006. Capital under management in real estate funds grew as a result of fundraising for CapMan RE II fund and totalled MEUR 1,100 (MEUR 500) at the end of the review period.
Capital under management by associated company Access Capital Partners
CapMan Plc’s associated company Access Capital Partners managed/advised MEUR 1,662.1 in total assets as at 30 June 2007 (MEUR 1,262.9 as at 30 June 2006). Of this, MEUR 923.5 (MEUR 793.5 as at 30 June 2006) was in funds of funds and MEUR 738.6 (MEUR 469.4 as at 30 June 2006) in private equity investment mandates. After the review period Access has held the first closing of its European mid-market buyout fund of funds of fourth generation, ACF IV Growth Buy-out Europe. In addition, Access received a new mandate of MEUR 300 in early August, raising the total capital managed/advised by Access to over EUR 2 billion.
Investments and exits by the funds in the review period
Funds investing in portfolio companies
In the first half of 2007, the funds made seven new investments, four substantial add-on investments and smaller add-on investments, investing MEUR 120.7 in total. There were new investments in IT2 Treasury Solutions, Komas Oy, Mirasys Ltd, Movial Applications Oy, Novintel Oy, Skandia Autologistics Oy and Walki Group. The most substantial add-on investments were made in Aerocrine AB, Jolife AB, Millicore AB and Savcor Group. Additionally new investments in KMW Energi AB and Nacka Närsjukhus Proxima AB were announced during the review period.
The funds exited in total from Distocraft Oy, LindPlast A/S, Medianorth Oy and Synerco AB and made a partial exit from Moventas Oy during the period under review. Additionally the funds sold their shares in SysOpenDigia Plc. Exits at acquisition cost (including mezzanine loan instalments and partial exits) totalled MEUR 44.2 for the review period. In addition, the funds announced exits from Secgo Software Oy and Hantro Products Oy during the period under review.
Real estate funds
In the first half of 2007 the Real Estate funds announced ten new investments, of which seven were in finished properties, two in properties under construction and one in land. Of the assets Kiinteistö Oy Helsingin Kalevankatu 20, Kiinteistö Oy Malminkaari 9 and Kiinteistö Oy Lönnrotinkatu 20 are located in Helsinki, Kiinteistö Oy Kasarmikatu 4 and Kiinteistö Oy Parolantie 104 are in Hämeenlinna and Kiinteistö Oy Viinikankatu 49 is in Tampere. Mastola’s logistics centre and the Kivistö land are located in Vantaa, the shopping centre Entresse is under construction in Espoo and Tokmanni’s logistics centre is under construction in Mäntsälä. Immediately after the review period the funds made an investment decision in the shopping centre Skanssi that is under construction in Turku. Investments totalling MEUR 41.2 were made in the period under review, and including the Skanssi investment decision as at 3 July 2007 the funds had additionally committed a total of MEUR 310.8 to finance real estate acquisitions and projects in the next few years.
CapMan Real Estate I fund exited in total from 22 properties during the review period when the sale of its real estate portfolio to Samson Properties Ltd, The Royal Bank of Scotland (RBS) and Ajanta Oy was finalised on 31 January 2007. The acquisition cost of the real estate portfolio was MEUR 304.4 and its sale price was MEUR 377.5.
Investments and exits at acquisition cost, MEUR
|
|
1-6/2007 |
1-6/2006 |
1-12/2006 |
|
New and follow-on investments |
|
|
|
|
|
|
|
Funds investing in portfolio companies |
120.7 |
|
108.2 |
|
158.8 |
|
|
Buyout |
|
101.7 |
|
90.1 |
|
127.8 |
|
Technology |
|
17.0 |
|
7.6 |
|
16.8 |
|
Life Science |
|
2.0 |
|
10.5 |
|
14.2 |
|
Real estate funds |
41.2 |
|
66.4 |
|
78.7 |
|
|
Total |
161.9 |
|
174.6 |
|
237.5 |
|
|
|
|
|
|
|
|
|
|
Exits* |
|
|
|
|
|
|
|
Funds investing in portfolio companies |
44.1 |
|
68.0 |
|
173.8 |
|
|
Buyout |
|
36.2 |
|
50.0 |
|
144.7 |
|
Technology |
|
7.9 |
|
13.8 |
|
24.7 |
|
Life Science |
|
- |
|
4.2 |
|
4.4 |
|
Real estate funds |
304.4 |
|
- |
|
- |
|
|
Total |
348.5 |
|
68.0 |
|
173.8 |
|
* incl. partial exits and mezzanine loan instalments
The investment activities of the funds managed by CapMan are described in more detail in Appendix 2.
Status of CapMan funds as at 30 June 2007
Funds investing in portfolio companies
Investments in portfolio companies at acquisition cost totalled MEUR 647.0 at 30 June 2007. The fair value of investments was MEUR 780.4. The funds’ portfolios are valued to fair value in accordance with the guidelines of EVCA as specified in Appendix 1.
Excluding realised and estimated future expenses, CapMan funds had an investment capacity of about MEUR 720 for new and follow-on investments in portfolio companies. Of this, approx. MEUR 490 is reserved for buyout investments (incl. mezzanine), approx. MEUR 180 for technology investments and approx. MEUR 50 for life science investments.
Real estate funds
At the end of the first half, the funds’ investments in real estate assets at acquisition cost totalled MEUR 41.2 and the fair value of investments was MEUR 44.1. The portfolio is wholly comprised of assets acquired during the period under review, and is divided evenly between the real estate funds. Additionally as at 3 July 2007 the funds had committed a total of MEUR 310.8 to finance real estate acquisitions and projects in the next few years. The funds have an investment capacity of about MEUR 445 for new investments.
Funds’ gross portfolio* as at 30 June 2007, MEUR
|
|
Portfolio at |
Portfolio at |
Share of |
|
|
acquisition |
fair |
portfolio |
|
|
cost |
value |
(fair |
|
|
MEUR |
MEUR |
value) % |
|
Funds investing in portfolio companies |
647.0 |
780.4 |
94.7 |
|
Real estate funds |
41.2 |
44.1 |
5.3 |
|
Total |
688.2 |
824.5 |
100.0 |
|
|
|
|
|
|
Funds investing in portfolio companies |
|
|
|
|
Buyout |
496.5 |
626.9 |
80.4 |
|
Technology |
115.1 |
118.8 |
15.2 |
|
Life Science |
35.4 |
34.7 |
4.4 |
|
Total |
647.0 |
780.4 |
100.0 |
* Gross portfolio of all portfolio companies and real estate assets managed by CapMan funds.
As a result of the real estate portfolio sale that was finalised in January and the short holding period of the current real estate portfolio, the relative proportion of real estate assets in the gross portfolio of all funds managed by CapMan is at a low level.
Funds generating carried interest as at 30 June 2007
A private equity fund begins to generate carried interest after the investors have regained their investment in addition to a preferred annual return, usually 7–8%. CapMan Real Estate I and Finnventure V funds began to generate carried interest during the period under review, and of these funds CapMan Real Estate I is still in the active investment phase. At the close of the review period the following funds were in carry:
|
|
CapMan’s share |
Portfolio at fair |
|
|
of cash flows* |
value 30.6.2007 |
|
Finnventure Fund II, Finnventure Fund III |
|
|
|
and Finnmezzanine Fund II B in total: |
20–35 % |
2.9 |
|
Finnventure Fund V: |
20 % |
56.9 |
|
Fenno Program (Fenno Fund, Skandia I |
|
|
|
and Skandia II) in total: |
10–12 % |
21.5 |
|
CapMan Real Estate I**: |
25 % |
24.5 |
*Net share of cash flows, taking into consideration Fenno Management Oy’s share as far as Fenno Program is concerned, and of Corintium Oy’s and the investment team’s shares as far as CapMan Real Estate I is concerned.
** The fund still continues active investment operations. Of the portfolio at fair value MEUR 15.1 is financed with debt.
At 30 June 2007 the current portfolios of funds generating carried interest at fair value totalled MEUR 105.8, which represents 12.8% of the portfolios of all funds at fair value at 30 June 2007 (MEUR 824.5). Information on each fund’s investment targets is presented on CapMan’s website at www.capman.com/En/InvestorRelations/Funds.
CapMan’s share of carried interest received from funds generating carry is typically 20–25% of a fund’s cash flow in the case of CapMan funds that were established before 2004, and 10–15% for newer funds. The lower carried interest percentage for newer funds results from the distribution of a share of their carried interest to the members of the investment team responsible for the funds’ investment activities during its life cycle (typically 10 years), in accordance with common practice in the private equity investment industry.
CapMan’s own investments in the funds
Since 2002, CapMan Plc has been a substantial investor in the funds managed by the Group. The Company invests about 5–10% of the total capital in equity funds investing in portfolio companies from its own balance sheet. The objective of investments in own funds is to improve the Company’s return on equity and to even out fluctuations in income with returns from these investments. 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 and the funds’ expenses.
CapMan, like other investors in the funds, gives commitments to the funds when they are established. As at 30 June 2007 the total sum of current investments at fair value and remaining commitments was MEUR 100.9 (MEUR 82.5 at 30 June 2006), of which remaining commitments totalled MEUR 60.1 (MEUR 53.7). Of these commitments MEUR 25.1 is targeted for CapMan Buyout VIII, MEUR 13.2 for CapMan Technology 2007 and 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 gradually within the next 3–5 years as new investments are made. Fund investments for the review period totalled MEUR 10.8 (MEUR 8.1). The majority of investments were made in CapMan Buyout VIII fund. The fair value of cumulative fund investments made from CapMan’s own balance sheet was MEUR 40.8 as at 30 June 2007 (MEUR 28.8).
CapMan’s investments and commitments in the funds as at 30 June 2007, MEUR
|
|
Investments |
Remaining |
In total |
|
|
at fair |
commitments |
|
|
|
value |
|
|
|
Funds investing in portfolio companies |
|
|
|
|
Equity funds |
30.5 |
50.7 |
81.2 |
|
Mezzanine funds |
2.9 |
4.5 |
7.4 |
|
Funds of funds* |
7.2 |
2.3 |
9.5 |
|
|
40.6 |
57.5 |
98.1 |
|
|
|
|
|
|
Real estate funds |
0.2 |
2.6 |
2.8 |
|
Total |
40.8 |
60.1 |
100.9 |
* Managed/advised by CapMan’s associated company Access Capital Partners.
CapMan’s own investments in the funds 1 January – 30 June 2007, MEUR
|
|
1-6/2007 |
1-6/2006 |
1-12/2006 |
|
Funds investing in portfolio companies |
|
|
|
|
Equity funds |
8.9 |
5.9 |
9.8 |
|
Mezzanine funds |
1.5 |
0.7 |
0.7 |
|
Funds of funds* |
0.3 |
1.5 |
2.6 |
|
|
10.7 |
8.1 |
13.1 |
|
|
|
|
|
|
Real estate funds |