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 operations.
CapMan Plc’s business areas
CapMan provides management and advisory services in two main 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 commercial properties in the Helsinki metropolitan area and property development 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 2006
CapMan’s turnover constitutes management fees, carried interest, realised returns on direct fund investments, income from real estate consulting and other returns. There was an increase in turnover for the 2006 financial year to MEUR 38.0 (MEUR 28.7 in 2005).
The sum of management fees paid by the funds increased to MEUR 24.9 (MEUR 20.3) as a result of management fees received from CapMan Real Estate I, CapMan Buyout VIII and CapMan Life Science IV funds. On the other hand, the sum of management fees received from older funds decreased with exits that were executed during the year.
Carried interest income received by CapMan Plc from funds generating carry totalled MEUR 9.4 (MEUR 6.6). Of this, approx. MEUR 3.4 was accrued as a result of the Tiimari exit, approx. MEUR 2.2 as a result of the PPTH-Norden exit, approx. MEUR 0.9 as a result of the Puulämpö Yhtiöt exit and approx. MEUR 1.7 as a result of the CTC Media exit. Of the carried interest received from the CTC Media exit, the minority interest was MEUR 1.0 and the share of the parent company’s owners was MEUR 0.7. The remainder of carried interest income, MEUR 1.2, was accrued from several smaller carried interests received from funds generating carry.
The impact of fund investments made from CapMan’s own balance sheet totalled MEUR 4.4 (MEUR 2.1). Realised returns on fund investments were MEUR 0.9 (MEUR 0.5) and they are mostly associated with the exits by Finnventure Fund V from Mehiläinen Oyj and Nordkalk Corporation, which were closed during the year. Fair value gains/losses associated with fund investments totalled MEUR 3.5 (MEUR 1.6), and they were related in particular to value creation in CapMan Equity VII fund. The fair value of all fund investments made from CapMan’s own balance sheet totalled MEUR 33.1 at 31 December 2006.
Returns on real estate consulting operations totalled MEUR 2.0. In 2005 consulting income was accrued for the period July–December and totalled MEUR 0.9. Other operating income within turnover was MEUR 0.8 (MEUR 0.4).
Operating expenses were MEUR 26.6 (MEUR 21.9). 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. The rise in personnel expenses is also partly accounted for by bonuses, which increased from the previous year in accordance with profit development.
The sale of Access Capital Partners’ shares that was executed in June had a positive effect of approx. MEUR 0.6 on CapMan Plc’s result for 2006. After the transaction CapMan Plc owns 35% of the advisory/management companies of Access and the management owns 65%. The carried interest rights of CapMan related to Access funds and mandates remain unchanged following the transaction.
Operating profit for the year increased to MEUR 15.6 (MEUR 8.4). The share from the result of CapMan’s associated companies was MEUR 1.3 (MEUR 0.3). Profit before taxes was MEUR 17.3 (MEUR 9.4) and profit after taxes totalled MEUR 12.4 (MEUR 7.0). Earnings per share was EUR 0.15 (EUR 0.09).
Balance sheet and financial position at 31 December 2006
The sum of non-current assets in the balance sheet grew to MEUR 57.1 in 2006 (MEUR 40.4). In line with CapMan’s strategy, the sum of CapMan’s own investments increased and their fair value totalled MEUR 33.1 at the end of the year (MEUR 20.3). There was also an increase in non-current receivables to MEUR 13.8 (MEUR 10.8). Of the receivables MEUR 10.1 (MEUR 8.2) 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, totalled MEUR 16.9 (MEUR 10.3). The Company has interest-bearing liabilities of MEUR 11.9 (MEUR 0.0).
Key ratios
|
|
31.12.06 |
31.12.05 |
|
Earnings/share, EUR |
0.15 |
0.09 |
|
Diluted, EUR |
0.15 |
0.09 |
|
Shareholders’ equity / share, EUR |
0.74 |
0.64 |
|
Share issue adjusted number of shares |
76 212 849 |
75 041 938 |
|
Number of shares at year-end |
77 158 698 |
75 923 348 |
|
Number of shares outstanding |
77 158 698 |
75 923 348 |
|
Return on equity, % |
23.4 |
14.8 |
|
Return on investment, % |
29.9 |
20.2 |
|
Equity ratio, % |
71.6 |
85.8 |
Turnover and profit quarterly as well as turnover and operating profit per segment are presented in the tables section of the Financial Statements.
Proposal of the Board of Directors for profit distribution
CapMan Plc’s objective is to distribute at least half of the net profit in dividends. The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.12 per share (EUR 0.07 per share), which equals to 80% (78%) of the net profit, will be distributed to shareholders for the year 2006.
Financial objectives
The Board of Directors of CapMan Plc approved redefined financial objectives for the Group in November. At the same time the Board approved the Group’s revised vision, mission and values.
The redefined financial objectives are:
- Average capital growth of funds under management at least 15% p.a.
- Return on equity over 25% p.a.
- Equity fund performance above 15% net IRR to fund investors p.a.
- Finance about 50% of CapMan Plc’s future fund investments with debt financing
- Equity ratio at least 50%
- Dividend payout ratio at least 50% of the net profit
Fundraising
Funds investing in portfolio companies
The final close of CapMan Buyout VIII fund was held on 14 June 2006 at MEUR 440. The fund invests in middle market buyout transactions in the Nordic countries. CapMan’s own commitment into the fund is MEUR 37.5, and the allocation of possible carried interest that will be received from the fund is 70% for CapMan and 30% for the Buyout team.
As of the end of 2006 capital totalling MEUR 46.1 had been committed into the CapMan Life Science IV fund, which was established on 23 March 2006. The fund invests in Nordic medical technology companies and its fundraising still continues. 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.
Additionally, CapMan commenced fundraising for the CapMan Technology 2007 fund during the second half of 2006.
Real estate funds
CapMan held the first close of its second private equity real estate fund CapMan RE II Ky on 26 September 2006 with commitments totalling MEUR 69 from eight institutional investors. The aim is that an average 75% of the fund’s investments are financed with debt financing, in which case the fund has an investment capacity totalling MEUR 276. CapMan RE II’s investment focus is on property development targets in Finland. The fund’s management company, CapMan Plc’s subsidiary 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 December 2006 CapMan managed a total of MEUR 2,549.6 in capital (MEUR 2,176.1 at 31 December 2005). Capital under management in funds making direct portfolio company investments totalled MEUR 1,773.6 (MEUR 1,676.1). There was a growth in capital during the year as a result of fundraising for CapMan Buyout VIII and CapMan Life Science IV funds and a fall in capital as a result of the termination of investment operations by Swedestart II fund, Finnmezzanine Fund I and Alliance ScanEast Fund. Capital under management in real estate funds grew as a result of fundraising for CapMan RE II Fund and totalled MEUR 776 (MEUR 500).
Capital under management by associated company Access Capital Partners
CapMan Plc’s associated company Access Capital Partners managed/advised MEUR 1,637.5 (MEUR 1,076.7) in total assets as at 31 December 2006. Of this, MEUR 918.1 (MEUR 671.7) was in funds of funds and MEUR 719.4 (MEUR 405.0) in private equity investment mandates.
Fundraising for Access Capital Fund III continued in 2006. The fund consists of buyout and technology subfunds. Access Capital Fund III Technology Europe held a final close at MEUR 83.5 during the last quarter of 2006. The Access Capital Fund III Mid-market Buyout Europe subfund held a final close at the end of the year at MEUR 307.4.
Investments and exits by the funds in 2006
Funds investing in portfolio companies
In 2006 the funds made eight new investments, nine substantial add-on investments and several smaller add-on investments, investing MEUR 158.8 in total. There were new investments in Maintpartner Oy, MQ Sweden AB, Neoventa Medical AB, OneMed Group Oy (formerly Tamro MedLab Oy), 42Networks AB (acquired later by PacketFront Sweden AB), ProstaLund AB, QuickCool AB and Spintop Netsolution AB. Substantial add-on investments were made in Animex AB, Ascade AB, InfoCare Holding AS, OneMed Group Oy, Tokmanni Oy, TriTech Technology AB, SciBase AB, Silex Microsystems AB and Solid Information Technology Ltd. Additionally a new investment in Komas Oy was announced in the last quarter and finalised in early 2007.
The funds exited in total from 14 companies in 2006: AtBusiness Communications Corporation, CTC Media Inc., Drobe VAB, Kultajousi Oy, Matkatoimisto Oy Matka-Vekka, Mehiläinen Oyj, Modultek Oy, Nordkalk Corporation, PPTH-Norden Oy, ProstaLund AB, Puulämpö Yhtiöt Oy, Quartal Oy, RGS90 A/S and Tiimari Plc. Additionally Finlayson & Co Oy and Staffpoint Oy repaid their mezzanine loans and Lumene Oy made a substantial mezzanine loan repayment. Exits at acquisition cost (including partial exits and mezzanine loan instalments) for the year totalled MEUR 173.8.
Real estate funds
CapMan Real Estate I Fund made four new investments in 2006. The new assets are Kiinteistöosakeyhtiö Erottajankatu 15–17, Kiinteistöosakeyhtiö Malmin Nova, Kiinteistö Oy Tikkurilantie 136 and the building and leasing rights to the site located at Henry Fordinkatu 6. Additionally, the last of the real estate acquisitions that were agreed in connection with the establishment of CapMan Real Estate I Fund were closed in January. The sum of gross investments for the financial year was MEUR 78.7.
Investments and exits at acquisition cost, MEUR
|
|
1-12/2006 |
1-12/2005 |
|
New and follow-on investments |
|
|
|
|
|
Funds investing in portfolio companies |
158.8 |
|
127.3 |
|
|
Buyout |
|
127.8 |
|
96,7 |
|
Technology |
|
16.8 |
|
25,6 |
|
Life Science |
|
14.2 |
|
5,0 |
|
Real estate funds |
78.7 |
|
225.7 |
|
|
Total |
237.5 |
|
353.0 |
|
|
|
|
|
|
|
|
Exits* |
|
|
|
|
|
Funds investing in portfolio companies |
173.8 |
|
118.7 |
|
|
Buyout |
|
144.7 |
|
78,0 |
|
Technology |
|
24.7 |
|
31,8 |
|
Life Science |
|
4.4 |
|
8,9 |
|
Real estate funds |
- |
|
- |
|
|
Total |
173.8 |
|
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 December 2006
Funds investing in portfolio companies
Investments in portfolio companies at acquisition cost totalled MEUR 571.8 at year-end. The fair value of investments was MEUR 677.5. 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 700 for new and follow-on investments in portfolio companies as at 31 December 2006. Of this, approx. MEUR 590 is reserved for buyout investments (incl. mezzanine), approx. MEUR 65 for technology investments and approx. MEUR 45 for life science investments.
Real estate funds
At the end of 2006, the funds’ investments in real estate assets at acquisition cost totalled MEUR 304.4 and the fair value of investments was MEUR 377.5. The fair value of assets is based on the transaction that was announced in December and closed at the end of January 2007 whereby CapMan Real Estate I Fund sold its portfolio of 22 properties to an international consortium of investors. The focus of the portfolio at year-end was on properties with a medium level risk/return profile. As at 31 December 2006 the vacancy rate of the properties was 3.2% and average length of lease contracts 4.4 years. After the second closing of CapMan RE II fund at the start of February 2007, the funds have an investment capacity of about MEUR 750 for new investments.
Funds’ gross portfolio* as at 31 December 2006, MEUR
|
|
Portfolio at |
Portfolio at |
Share of |
|
|
acquisition |
fair |
portfolio |
|
|
cost |
value |
(fair |
|
|
MEUR |
MEUR |
value) % |
|
Funds investing in portfolio companies |
571.8 |
677.5 |
64.2 |
|
Real estate funds |
304.4 |
377.5 |
35.8 |
|
Total |
876.2 |
1 055.0 |
100.0 |
|
|
|
|
|
|
Funds investing in portfolio companies |
|
|
|
|
Buyout |
431.0 |
539.5 |
79.6 |
|
Technology |
106.8 |
105.7 |
15.6 |
|
Life Science |
34.0 |
32.3 |
4.8 |
|
Total |
571.8 |
677.5 |
100.0 |
* Gross portfolio of all portfolio companies and real estate assets managed by CapMan funds.
Funds generating carried interest as at 31 December 2006
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%. At the end of 2006 the CapMan funds already generating carried interest were Finnventure Fund II (since 1997); Finnventure Fund III (since 2000); 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). Finnmezzanine II B began to generate carried interest following Finlayson & Co Oy’s repayment of its mezzanine loan to the fund during the year, and the exits from Mehiläinen Oyj and Nordkalk Corporation moved Finnventure Fund V close to carry.
At 31 December 2006 the fair value of the current portfolios of funds generating carried interest totalled MEUR 22.2, which represents 3.3% of fair value of portfolios of all funds investing directly in portfolio companies (MEUR 677.5) and 2.1% of fair value of portfolios of all funds at 31 December 2006 (MEUR 1,055.0). 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 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 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 equity 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 in 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 December 2006 the total amount of current investments at fair value and remaining commitments was MEUR 83.6, of which remaining commitments totalled MEUR 50.5. Of these commitments MEUR 30.8 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 gradually within the next 3–5 years as new investments are made. Fund investments (the called-in commitments) for the year totalled MEUR 13.2 (MEUR 7.7). The majority of investments were made in CapMan Buyout VIII, Swedestart Tech and Access Capital Fund II funds. The fair value of cumulative fund investments made from CapMan’s own balance sheet was MEUR 33.1 as at 31 December 2006.
CapMan’s investments and commitments in the funds as at 31 December 2006, MEUR
|
|
Investments |
Remaining |
In total |
|
|
at fair |
commitments |
|
|
|
value |
|
|
|
Funds investing in portfolio companies |
|
|
|
|
Equity funds |
24.1 |
39.2 |
63.3 |
|
Mezzanine funds |
1.7 |
6.0 |
7.7 |
|
Funds of funds* |
6.7 |
2.5 |
9.2 |
|
|
32.5 |
47.7 |
80.2 |
|
|
|
|
|
|
Real estate funds |
0.6 |
2.8 |
3.4 |
|
Total |
33.1 |
50.5 |
83.6 |
* Managed/advised by CapMan’s associated company Access Capital Partners.
CapMan’s own investments in the funds 1 January – 31 December 2006, MEUR
|
|
1-12/2006 |
1-12/2005 |
|
Funds investing in portfolio companies |
|
|
|
Equity funds |
9.8 |
5.0 |
|
Mezzanine funds |
0.7 |
0.3 |
|
Funds of funds* |
2.6 |
2.2 |
|
|
13.1 |
7.5 |
|
|
|
|
|
Real estate funds |
0.1 |
0.2 |
|
Total |
13.2 |
7.7 |
* Managed/advised by CapMan’s associated company Access Capital Partners.
Personnel
|
|
31.12.2006 |
31.12.2005 |
|
CapMan Private Equity |
38 |
39 |
|
CapMan Real Estate |
24 |
15 |
|
General functions |
36 |
33 |
|
Total |
98 |
87 |
As at 31 December 2006 the Group had 98 (87) employees, of whom 72 (59) were located in Finland and the remainder in other Nordic countries. In addition there were five Senior Advisors and two other advisors acting as consultants for CapMan. Four of the Senior Advisors were located in Finland and one in Denmark.
Changes in management
On 15 May 2006 Senior Partner Petri Saavalainen was appointed as a member of the Management Group of CapMan Plc, effective 1 August 2006, with responsibility for Group Business Development. Senior Partner Vesa Vanha-Honko resigned his post as a member of the Management Group as of 1 August 2006 and he transferred from operational duties in CapMan as of 1 September 2006. As of 1 August 2006 the reporting of the real estate business has transferred under Senior Partner Olli Liitola, CFO.
Shares and shareholders
The share capital of CapMan Plc was increased by EUR 12,353.50 during the year when CapMan B shares were subscribed with 2000A/B options. At 31 December 2006 the Company’s share capital totalled EUR 771,586.98, the number of B shares was 69,158,698 and the number of A shares was 8,000,000. The nominal share value is EUR 0.01.
Trading and price development of shares and options
|
|
B shares |
2000A/B stock options |
2003A stock options |
|
|
1–12/2006 |
1–12/2005 |
1–12/2006 |
1–12/2005 |
10–12/2006 |
|
Trading turnover, number |
21 162 823 |
19 141 024 |
1 574 249 |
1 868 300 |
92 450 |
|
Trading value, MEUR |
58.3 |
49.9 |
3.3 |
3.4 |
0.1 |
|
Trading price, EUR |
|
|
|
|
|
|
Highest |
3.15 |
3.23 |
2.28 |
2.45 |
1.53 |
|
Lowest |
2.33 |
2.24 |
1.62 |