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–March 2007
CapMan’s turnover for the first quarter of 2007 increased to MEUR 28.1 (MEUR 8.9 in January–March 2006) mainly as a result of the rise in carried interest income.
The sum of management fees paid by the funds increased slightly and was MEUR 5.8 (MEUR 5.6). 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 21.2 (MEUR 2.6). 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 0.2 of carried interest income was accrued from the transfer of Finnventure Fund V to carry.
The impact of fund investments made from CapMan’s own balance sheet totalled MEUR 4.4 (MEUR 2.2). Realised returns on fund investments were MEUR 0.3 (MEUR 0.0). Fair value gains/losses associated with fund investments totalled MEUR 4.1 (MEUR 2.2). Of the gains in fair value MEUR 1.5 was related to value creation in Moventas Oy, from which CapMan Equity VII fund made a partial exit during the period, MEUR 1.5 was mostly related to value creation in other portfolio companies of CapMan Equity VII fund and MEUR 1.1 to value creation in funds managed/advised by Access Capital Partners. Value creation is based on portfolio company valuations, which are made in accordance with EVCA guidelines and with the realised development in 2006 and the outlook for 2007 taken into consideration. The aggregate fair value of all fund investments made from CapMan’s own balance sheet was MEUR 38.4 at 31 March 2007.
Returns on real estate consulting operations totalled MEUR 0.6 (MEUR 0.5) and other operating income within turnover was MEUR 0.2 (MEUR 0.2). Operating expenses were MEUR 6.8 (MEUR 6.0).
The Group’s operating profit for the review period increased to MEUR 25.4 (MEUR 5.2). The share from the result of CapMan’s associated companies was MEUR 0.9 (MEUR -0.2). Profit before taxes was MEUR 26.7 (MEUR 5.1) and profit after taxes MEUR 19.9 (MEUR 3.7). The share of profit belonging to the owners of the parent company was MEUR 14.3 (MEUR 3.6), on the basis of which earnings per share was EUR 0.19 (EUR 0.05).
Balance sheet and financial position at 31 March 2007
The sum of non-current assets in the balance sheet grew to MEUR 60.6 (MEUR 41.6) during the period under review. In line with CapMan’s strategy, the sum of CapMan’s own investments increased and their fair value totalled MEUR 38.4 (MEUR 22.9) at the end of the review period. Non-current receivables totalled MEUR 12.1 (MEUR 10.2). Of the receivables MEUR 9.0 (MEUR 8.1) 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, increased to MEUR 43.7 (MEUR 8.0) as a result of carried interest received from CapMan Real Estate I fund. The Company has interest-bearing liabilities of MEUR 10.0 (MEUR 0.0).
CapMan’s equity ratio at the end of the review period was 61.9% (87.4%). Return on equity for the period was 32% (7.6%) and return on investment 36.7% (10.6%). The Company has target levels of at least 50% for the equity ratio and over 25% for return on equity.
Key ratios
|
|
31.3.07 |
31.3.06 |
31.12.06 |
|
|
|
|
|
|
Earnings/share, EUR |
0.19 |
0.05 |
0.15 |
|
Diluted, EUR |
0.18 |
0.05 |
0.15 |
|
Shareholders’ equity/share, EUR |
0.80 |
0.62 |
0.74 |
|
Share issue adjusted number of shares |
77 158 698 |
75 923 348 |
76 212 849 |
|
Number of shares at the end of the period |
77 158 698 |
75 923 348 |
77 158 698 |
|
Number of shares outstanding |
77 158 698 |
75 923 348 |
77 158 698 |
|
Return on equity, % |
32.0 |
7.6 |
23.4 |
|
Return on investment, % |
36.7 |
10.6 |
29.9 |
|
Equity ratio, % |
61.9 |
87.4 |
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 127 had been raised to the fund as at the end of the first quarter. 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 defined 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. The fund has a target size of MEUR 150 and its fundraising continues.
During the first quarter it was decided that fundraising for CapMan Life Science IV fund, which was established in March 2006, will continue until May 2007. The fund invests in medical technology companies mainly in the Nordic countries. The lack of venture allocations by institutional investors has reflected on CapMan Life Science IV’s fundraising, but additional investments to the fund are still expected. 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 established in September 2006 reached its maximum investment capacity of MEUR 600 during the review period. 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, and the fund made its first investments in the period under review. 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 31 March 2007 CapMan managed a total of MEUR 2,996.1 in capital (MEUR 2,245.3 at 31 March 2006). Capital under management in funds making direct portfolio company investments totalled MEUR 1,896.1 (MEUR 1,745.3). There was a growth in capital during the year as a result of fundraising for CapMan Buyout VIII and CapMan Technology 2007 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 (MEUR 1,139.1) in total assets as at 31 March 2007. Of this, MEUR 923.5 (MEUR 720.0) was in funds of funds and MEUR 738.6 (MEUR 419.1) in private equity investment mandates.
Investments and exits by the funds in January–March
Funds investing in portfolio companies
In the first quarter of 2007, the funds made three new investments, four substantial add-on investments and smaller add-on investments, investing MEUR 58.1 in total. There were new investments in Komas Oy, John Nurminen Vehicle Logistics Unit and Mirasys Ltd. Add-on investment decisions were made in Savcor Group, Aerocrine AB, Jolife AB and Millicore AB. Additionally new investments in Walki Wisa Group and Novintel Oy were announced during the review period.
The funds exited in total from Distocraft Oy and made a partial exit from Moventas Oy during the first quarter. Additionally the funds sold their shares in SysOpenDigia Plc. Exits at acquisition cost (including mezzanine loan instalments and partial exits) totalled MEUR 25.5 for the review period.
Real estate funds
The Real Estate funds made three new investments in the review period. The new assets are Kiinteistö Oy Helsingin Kalevankatu 20 in Helsinki as well as Kiinteistö Oy Kasarmikatu 4 and Kiinteistö Oy Parolantie 104 in Hämeenlinna. In addition new investments were announced in Kiinteistö Oy Viinikankatu 49 in Tampere and in Tokmanni’s logistics centre project in Mäntsälä, which is scheduled mainly for 2008. The sum of gross investments for the period under review was MEUR 19.4.
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
|
|
1-3/2007 |
1-3/2006 |
1-12/2006 |
|
New and follow-on investments |
|
|
|
|
|
|
|
Funds investing in portfolio companies |
58.1 |
|
21.7 |
|
158.8 |
|
|
Buyout |
|
54.2 |
|
15.3 |
|
127.8 |
|
Technology |
|
2.3 |
|
5.6 |
|
16.8 |
|
Life Science |
|
1.6 |
|
0.8 |
|
14.2 |
|
Real estate funds |
19.4 |
|
21.3 |
|
78.7 |
|
|
Total |
77.5 |
|
43.0 |
|
237.5 |
|
|
|
|
|
|
|
|
|
|
Exits* |
|
|
|
|
|
|
|
Funds investing in portfolio companies |
25.5 |
|
23.4 |
|
173.8 |
|
|
Buyout |
|
22.5 |
|
23.4 |
|
144.7 |
|
Technology |
|
3.0 |
|
- |
|
24.7 |
|
Life Science |
|
- |
|
- |
|
4.4 |
|
Real estate funds |
304.4 |
|
- |
|
- |
|
|
Total |
329.9 |
|
23.4 |
|
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 31 March 2007
Funds investing in portfolio companies
Investments in portfolio companies at acquisition cost totalled MEUR 602.4 at 31 March 2007. The fair value of investments was MEUR 723.7. 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 770 for new and follow-on investments in portfolio companies. Of this, approx. MEUR 540 is reserved for buyout investments (incl. mezzanine), approx. MEUR 190 for technology investments and approx. MEUR 40 for life science investments.
Real estate funds
At the end of the first quarter, the funds’ investments in real estate assets at acquisition cost totalled MEUR 19.4 and the fair value of investments was MEUR 19.0. The current portfolio is wholly comprised of assets acquired during the period under review. The majority of these assets are investment targets of CapMan RE II fund, which has investment focus on property development. The funds have an investment capacity of about MEUR 710 for new investments.
Funds’ gross portfolio* as at 31 March 2007, MEUR
|
|
Portfolio at |
Portfolio at |
Share of |
|
|
acquisition |
fair |
portfolio |
|
|
cost |
value |
(fair |
|
|
MEUR |
MEUR |
value) % |
|
Funds investing in portfolio companies |
602.4 |
723.7 |
97.4 |
|
Real estate funds |
19.4 |
19.0 |
2.6 |
|
Total |
621.8 |
742.7 |
100.0 |
|
|
|
|
|
|
Funds investing in portfolio companies |
|
|
|
|
Buyout |
462.8 |
587.9 |
81.2 |
|
Technology |
104.9 |
104.1 |
14.4 |
|
Life Science |
34.7 |
31.7 |
4.4 |
|
Total |
602.4 |
723.7 |
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 an exceptionally low level.
Funds generating carried interest as at 31 March 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 value |
|
|
of cash flows* |
31.3.2007 |
|
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 % |
21.3 |
|
CapMan Real Estate I**: |
25 % |
7.2 |
* 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.
At 31 March 2007 the current portfolios of funds generating carried interest at fair value totalled MEUR 88.3, which represents 11.9% of fair value of portfolios of all funds at 31 March 2007 (MEUR 742.7). 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’s objective is to invest about 5–10% of the total capital in future funds from its own balance sheet. 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 with coming years 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.
CapMan, like other investors in the funds, gives commitments to the funds when they are established. As at 31 March 2007 the total sum of current investments at fair value and remaining commitments was MEUR 96.4, of which remaining commitments totalled MEUR 58.0. Of these commitments MEUR 25.4 is targeted for CapMan Buyout VIII and MEUR 15 for CapMan Technology 2007, 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 gradually within the next 3–5 years as new investments are made. Fund investments for the review period totalled MEUR 7.4 (MEUR 1.5). 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 38.4 as at 31 March 2007.
CapMan’s investments and commitments in the funds as at 31 March 2007, MEUR
|
|
Investments |
Remaining |
In total |
|
|
at fair |
commitments |
|
|
|
value |
|
|
|
Funds investing in portfolio companies |
|
|
|
|
Equity funds |
27.6 |
48.6 |
76.2 |
|
Mezzanine funds |
3.0 |
4.5 |
7.5 |
|
Funds of funds* |
7.7 |
2.2 |
9.9 |
|
|
38.3 |
55.3 |
93.6 |
|
|
|
|
|
|
Real estate funds |
0.1 |
2.7 |
2.8 |
|
Total |
38.4 |
58.0 |
96.4 |
* Managed/advised by CapMan’s associated company Access Capital Partners.
CapMan’s own investments in the funds 1 January – 31 March 2007, MEUR
|
|
1-3/2007 |
1-3/2006 |
1-12/2006 |
|
Funds investing in portfolio companies |
|
|
|
|
Equity funds |
5.6 |
0.5 |
9.8 |
|
Mezzanine funds |
1.5 |
0.1 |
0.7 |
|
Funds of funds* |
0.3 |
|