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Report of the Board of Directors

Business operations
CapMan Group is a private equity fund manager operating in the Nordic countries and Russia, and also makes investments in its own funds. The guiding principle for the investment activities of the funds managed by CapMan is to work actively and directly towards increasing the value of investments. The Group has two operating segments: a Management Company business and a Fund Investment business.

Income from the Management Company business is derived from management fees paid by funds and carried interest received from funds. Management fees normally cover the company’s operating costs and generally represent a steady and highly predictable source of income.

Income from the Fund Investment business comes from changes in the fair value of investments and realised returns on CapMan’s own fund investments. Depending on the development of funds’ investments and the general market situation, these can have a significant positive or negative impact on the Group’s result.

As there may be considerable quarterly fluctuations in carried interest and the fair value of fund investments, the Group’s financial performance should be analysed over a longer time span than the quarterly cycle.

Group turnover and result in 2011
The Group’s turnover in 2011 was lower compared to 2010 and totalled MEUR 32.4 (2010: MEUR 38.2). Turnover was impacted by lower management fees compared to 2010.

Operating expenses totalled MEUR 34.9 (MEUR 42.8). The lower expenses booked in 2011 compared to 2010 were largely the result of the one-off expenses booked during the last quarter of 2010,which served to increase operating expenses for the year as a whole. Operating expenses were higher during the last quarter of 2011 than the other quarters of the year, mainly because of costs associated with reductions in personnel numbers during the quarter.

The Group recorded an operating profit of MEUR 11.1 (MEUR 21.0). This compares to an operating profit for 2010, excluding one-off items, of MEUR 6.3. The rise in operating profit compared to 2010 was largely the result of the positive development of the value of CapMan’s own fund investments.

Financial income and expenses amounted to MEUR 0.6 (MEUR 0.6). CapMan’s share of the profit of its associated companies was MEUR 2.1 (MEUR 2.4).

Profit attributable to the owners of the parent company was MEUR 10.9 (MEUR 17.3). Earnings per share were 10.1 cents (17.7 cents).

A quarterly breakdown of turnover and profit, together with turnover, operating profit/loss, and profit/loss by segment for the year are presented in the Notes to the Financial Statements in Section 2. Segment Information.

Management Company business
Turnover generated by the Management Company business during the year totalled MEUR 32.4 (MEUR 38.2). Management fees decreased, as expected, compared to 2010 and totalled MEUR 27.1 (MEUR 32.9). This was attributable to exits made after the 2010 financial year and the decision taken in the last quarter of 2010 to reduce the size of the CapMan Technology 2007 fund.

Following the sale of the real estate consulting business, income from real estate consulting was lower than in 2010 and totalled MEUR 1.0 (MEUR 1.6). The aggregate total of management fees and income from real estate consulting was MEUR 28.1 (MEUR 34.5).

Carried interest income totalled MEUR 3.1 (MEUR 2.6) and came mainly from the Finnventure V fund, following the exit from A&R Carton, and from the Finnmezzanine III B fund, following its transfer to carry after exiting OneMed Group.

The Management Company business recorded an operating loss of MEUR -1.1 (MEUR 18.9) and a loss for the year of MEUR -1,7 (MEUR 14.1). The status of the funds managed by CapMan is presented in more detail on the company’s website at www.capman.com/capman-group/funds.

Fund Investment business
Fair value changes related to fund investments during 2011 were MEUR 12.8 (MEUR 2.7) and represented a 21.8% increase in value over the year (4.2% increase in value during 2010). Fair value changes during the last quarter were MEUR 2.6 (MEUR 11.1) and represented a 3.9% increase in value during the quarter (1.6% increase in value during Q4 2010). Fair value development was good, despite negative developments in the fair value of listed peer companies, which forms part of the valuation criteria applied to CapMan’s portfolio companies. This positive trend was the result of the good financial progress made by portfolio companies during 2011. Completed exits accounted for approximately MEUR 5.0 of fair value changes or approximately 40% of total fair value changes. The aggregate fair value of fund investments as of 31 December 2011 was MEUR 70.2 (31 December 2010: MEUR 66.5).

Operating profit for the Fund Investment business was MEUR 12.2 (MEUR 2.1) and profit for the year MEUR 12,8 (MEUR 3.5). CapMan’s share of the result of its Maneq associated companies impacted profit performance. Changes in the fair value of Maneq fund investments impacted the performance of Maneq companies.

CapMan made new investments in its funds totalling MEUR 11.9 (MEUR 11.8) during 2011. The majority of these were made in the CapMan Buyout IX and CapMan Public Market funds. CapMan received distributions from funds totalling MEUR 19.5 (MEUR 6.8), the majority coming from the CapMan Buyout VIII fund following its exits from OneMed and Proxima. CapMan did not make any new commitments to funds during the review period.

The amount of remaining commitments totalled MEUR 24.4 as of 31 December 2011 (31 December 2010: MEUR 36.3). The aggregate fair value of existing investments and remaining commitments as of the same date was MEUR 94.6 (MEUR 102.8). CapMan’s objective is to invest 1-5% of the original capital in the new funds that it manages, depending on fund size, fund demand, and CapMan’s own investment capacity.

Investments in portfolio companies are valued at fair value in accordance with the International Private Equity and Venture Capital Valuation Guidelines (IPEVG), while real estate assets are valued in accordance with the value appraisals of external experts.Investments at fair value and remaining investment capacity by investment area are presented in the Notes to the Financial Statements in Section16. Investments at fair value through profit and loss and Section 29. Commitments and contingent liabilities.

Balance sheet and financial position as of 31 December 2011
CapMan’s balance sheet totalled MEUR 142.5 as of 31 December 2011 (31 December 2010: MEUR 155.8). Non-current assets amounted to MEUR 111.3 (MEUR 112.7), of which the carrying amount of goodwill totalled MEUR 6.2 (MEUR 6.4). A goodwill write-down of approximately MEUR 0.2 was made as a result of the sale of the real estate consulting business during the third quarter.

Fund investments booked at fair value totalled MEUR 70.2 (MEUR 66.5). Long-term receivables amounted to MEUR 19.6 (MEUR 24.8), of which MEUR 18.7 (MEUR 23.5) were loan receivables from Maneq funds. Both CapMan Plc and CapMan personnel are investors in Maneq funds. The expected returns from CapMan’s Maneq investments are broadly in line with the return expectations for CapMan’s other investments in its own funds, and Maneq funds pay market rate interest on loans they receive from CapMan Plc.

Current assets amounted to MEUR 27.7 (MEUR 39.6). Liquid assets (cash in hand and at banks, plus other financial assets at fair value through profit and loss) amounted to MEUR 22.3 (MEUR 35.0) as a result of the OneMed and Proxima exits made during the review period.

The size of CapMan Plc’s hybrid bond stands at MEUR 29.0. Due to the dividends paid, the interest on the bond for the financial year is deducted from equity in line with the terms of the loan. The interest on the bond is payable semi-annually. CapMan Plc had a bank financing package totalling MEUR 44.4 (MEUR 50.6) available as of 31 December 2011, of which MEUR 34.4 (MEUR 40.6) was utilised. Trade and other payables totalled MEUR 15.3 (MEUR 17.4). The Group’s interest-bearing net debts amounted to MEUR 12.7 (MEUR 6.6).

The Group’s cash flow from operations totalled MEUR -8.2 (MEUR 6.0). Income from fund management fees is paid semi-annually, in January and July, and is shown under working capital in the cash flow statement. Cash flow from investments totalled MEUR 14.6 (MEUR 20.0) and is related to fund investments and repaid capital received by the company. Cash flow before financing totalled MEUR 6.4 (MEUR 26.0), while cash flow from financing was MEUR -18.6 (MEUR -9.9). Cash flow from financing includes the dividend paid to shareholders in April, which totalled MEUR 10.3.

Loans from related parties
CapMan Plc’s receivables from Maneq funds are specified in more detail in the Notes to the Financial Statements in Section 31. Related party disclosures.

Key figures
CapMan’s equity ratio as of 31 December 2011 was 61.9% (31 December 2010: 58.5%), its return on equity 12.4% (20.8%), and its return on investment 11.9% (19.7%). Taking one-off items into account, the return on equity for 2010 was 8.7% and the return on investment 6.7%. The target level for the company’s equity ratio is at least 60% and over 20% for return on equity.

Key figures

 

 

 

31 Dec 11

31 Dec 10

Earnings per share, cents

10.1

17.7**

Earnings per share, diluted, cents

10.1

17.7**

Shareholders’ equity / share, cents*

104.7

107.7

Share issue-adjusted number of shares

84,255,467

84,255,467

Number of shares as of 30.9

84,281,766

84,281,766

Number of shares outstanding

84,255,467

84,255,467

Number of company shares held by CapMan as of 30.9

26,299

26,299

Return on equity, % p.a.*

12.4

20.8**

Return on investment, % p.a.

11.9

19.7**

Equity ratio, %

61.9

58.5

Net gearing, %

14.4

7.3

* In line with IFRS standards, the MEUR 29.0 hybrid bond has been included in equity when calculating equity per share and return on equity. The net interest on the hybrid bond for the review period has been included when calculating earnings per share.

** Figures include one-off items.

Board’s proposal for distribution of profit
CapMan Plc’s goal is to distribute at least 50% of net profit as dividends. CapMan Plc’s distributable assets amounted to MEUR 13.8 on 31 December 2011 (MEUR 17.4 on 31 December 2010). CapMan Plc’s Board of Directors will propose to the Annual General Meeting to be held on 14 March 2012 that a dividend of EUR 0.07 per share should be paid from the distributable assets for 2011 to shareholders, equivalent to a total of approx. MEUR 5.9. A dividend of EUR 0.12 per share was paid for 2010.

Fundraising in 2011 and capital under management as of 31 December 2011
Capital under management refers to the remaining investment capacity of funds and capital already invested at acquisition cost. Capital increases as fundraising for new funds progresses and declines as exits are made.

Increased economic uncertainty during the second half of 2011 was reflected in the global fundraising market. The slow-down in the M&A market delayed the exits made by private equity funds and the resulting distributions made to investors. The reduction in the amount of capital repaid to investors has affected their ability to make new investment commitments.* Over the short term, investors’ interest in private equity funds has also declined as a result of the lower value generated by other classes of investments and increased regulation affecting the industry. Globally, the overall amount of capital raised for new funds was historically at a low level during 2011*, and the fundraising market is expected to continue to remain challenging during 2012.

CapMan continued fundraising for its CapMan Mezzanine V fund during 2011, and the final size of the fund reached MEUR 95. CapMan also initiated fundraising preparations for a Nordic real estate fund. CapMan’s next significant new fundraising rounds will take place in 2012. Despite the challenging market situation, CapMan’s fundraising is well-placed to succeed, thanks to CapMan’s strong market position, long-term investor relations, historically good levels of returns, and more than 20 years’ experience in the private equity industry.

Capital under management totalled MEUR 3,065.9 as of 31 December 2011 (31 December 2010: MEUR 3,231.1). The reduction in the size of this capital compared to 2010 is attributable to the exits made in 2011. Of total capital under management, MEUR 1,632.0 (MEUR 1,795.2) was held in funds making investments in portfolio companies and MEUR 1,433.9 (MEUR 1,435.9) in real estate funds.

Group structure
The companies belonging to the CapMan Group are detailed in the Notes to the Financial Statements in Section 31. Related party disclosures.

CapMan Plc’s Board of Directors and Management Group
The members of CapMan Plc’s Board of Directors as of the end of 2011 were Heikki Westerlund (Chairman), Teuvo Salminen (Vice Chairman), Koen Dejonckheere, Conny Karlsson, Nora Kerppola, and Claes de Neergaard.

The members of CapMan Plc’s Management Group as of the end of 2011 were CEO Lennart Simonsen, CFO Niko Haavisto, Head of Sales, Marketing, IR, and Communications Jerome Bouix, Head of CapMan Buyout Kai Jordahl, Head of CapMan Russia Hans Christian Dall Nygård, Head of CapMan Public Market Joakim Rubin, and Head of CapMan Real Estate Mika Matikainen.

Other events during the review period
CapMan sold its real estate consulting business to the business’ management at the end of June. The transaction did not have a substantive impact on CapMan’s 2011 result. Following the divestment, CapMan Real Estate will focus on managing the company’s real estate funds. CapMan Partner Mika Matikainen was appointed Head of the CapMan Real Estate team as of 1 July 2011.

CapMan acquired Corintium Oy’s 20% stake in the managing companies of CapMan’s current real estate funds at the end of June and now owns these companies in full. These transactions did not have a substantive impact on CapMan’s result for 2011 or the administration and carried interest agreements related to existing real estate funds.

CapMan signed a partnership agreement in September with NEP Partners, a real estate investment and management company founded in 2005 that operates mainly in Sweden. The aim of the new partnership is to extend CapMan Real Estate’s operations to the broader Nordic market, and, in line with this, CapMan has initiated fundraising preparations for establishing a Nordic real estate private equity fund.

Events after the end of the review period
CapMan Plc issued a flagging notice on 3 January 2012 linked to the change in Legg Mason Inc.’s ownership of CapMan Plc that took place on 28 December 2011, stating that the total number of CapMan Plc shares held by Legg Mason Inc. had fallen below 5%.

Based on the recommendation by the Remuneration Committee, CapMan Plc’s Board of Directors decided on 2 February 2012 to increase the proportion of carried interest payable to the Buyout team to reflect general practice in the field and investors’ requirements regarding compensation of investment professionals. The aim is to align the interests of fund investors and investment professionals and thereby create the basis for even more successful fund management business operations over the long term. The share of carried interest payable to the investment teams was changed in respects of the CapMan Equity VII A, B, C, and Sweden funds and in the CapMan Buyout VIII fund. Investment professionals’ share of CapMan’s carried interest is approximately 40% in the CapMan Buyout VIII fund and 25% on average in CapMan Equity VII funds.

Personnel
CapMan employed a total of 122 people as of 31 December 2011 (31.12.2010: 150), of whom 79 (103) worked in Finland and the remainder in the other Nordic countries, Russia, and Luxembourg. The drop in personnel numbers during 2011 is largely attributable to the sale of the real estate consulting business and efficiency enhancement measures carried out during the year. A breakdown of personnel by country and team is presented in the Notes to the Financial Statements in Section 4.Employee benefit expenses.

Authorisations held by the Board of Directors
Following a decision by the Annual General Meeting, CapMan Plc’s Board of Directors is authorised to purchase CapMan B shares and accept them as pledges, and decide on a share issue and the issuance of stock option rights and other entitlements related to CapMan shares. These authorisations will remain in force until 30 September 2012.

The authorisation to purchase CapMan shares and accept them as pledges covers a maximum of 8,000,000 B shares. Shares may be purchased to finance or carry out acquisitions or other business transactions to develop the company's capital structure or improve the liquidity of the company's shares, or to be disposed for other purposes or cancelled. CapMan shares may be accepted as pledges on the basis of the authorisation to finance or carry out acquisitions or other business transactions. The authorisation cannot be used for incentive schemes.

Only CapMan’s unrestricted equity can be used to purchase shares on the basis of the authorisation, and purchases reduce the company’s distributable assets as a result. The Board of Directors decides how company shares shall be repurchased and/or accepted as pledge. Shares can be repurchased using, inter alia, derivatives. Company shares can be repurchased otherwise than in proportion to the shareholdings of the shareholders (directed repurchase). CapMan shares can be repurchased at a price determined by public trading on the date of the repurchase or otherwise at a price determined by the market. As of 31 December 2011, 8,000,000 B shares would have represented 9.5% of CapMan’s shares and 5.9% of votes.

The authorisation to decide on a share issue covers a maximum of 12,000,000 B shares. The authorisation can be used to finance and carry out acquisitions or other business transactions and investments, as well as to improve CapMan’s capital structure. It cannot be used for incentive schemes.

Shares and share capital
There were no changes in CapMan Plc’s share capital during 2011. Share capital as of 31 December 2011 totalled EUR 771,586.98. Although no changes took place in the total of number of shares, the numbers of B and A shares changed following the share conversion announced on 22 December 2011, which resulted in the number of B shares as of the end of the year standing at 78,531,766 and the number of A shares at 5,750,000. As of the end of 2010, the number of B shares totalled 78,281,766 and the number of A shares 6,000,000.

B shares entitle holders to one vote per share and A shares to 10 votes per share. As of the end of 2011, A shares entitled holders to 42.27% of the company’s voting rights and B shares to 57.73%. A shares are held by CapMan Plc’s current senior partners. Both classes of shares have an equal dividend entitlement. CapMan Plc’s shares are included in the Finnish book-entry system. Redemption obligation clauses associated with shares are detailed in the Notes to the Financial Statements in Section 23. Share capital and shares.

Shareholders and management’s shareholding
The number of CapMan Plc shareholders increased by over 15% during 2011 and totalled 5,659 as of 31 December 2011 (31 December 2010: 4,834). Five flagging notices were issued during the year.

As a result of share transactions carried out by shareholders of CapMan Plc A shares on 6 October 2011, the Ilmarinen Mutual Pension Insurance Company’s share of the total number of CapMan Plc’s shares and voting rights exceeded 5%, while Ari Tolppanen’s and Oy Aristo-Invest Ab’s combined share of the total number of shares in CapMan Plc fell below 10% and their combined share of voting rights in CapMan Plc exceeded 20%. Heikki Westerlund’s and Heiwes Oy’s combined share of the voting rights in CapMan Plc exceeded 10%, and CapMan Partners B.V.’s share of the total number of shares fell below 5% and voting rights in CapMan Plc fell below 20%. Flagging notices related to the above changes in share ownership were issued on 6 October 2011.

In addition, a flagging notice was issued on 22 December 2011 announcing that Ari Tolppanen and Oy Aristo-Invest Ab’s combined share of voting rights in CapMan Plc had fallen below 20%.

CapMan Plc issued a flagging notice on 3 January 2012 linked to the change in Legg Mason Inc.’s ownership of CapMan Plc that took place on 28 December 2011, stating that the total number of CapMan Plc shares held by Legg Mason Inc. had fallen below 5%.

As of 31 December 2011, the members of the Board of Directors and the CEO held a total of 3,603,406 A and B shares either directly or through companies they control, representing 4.28% of CapMan Plc’s shares and 11.5% of voting rights. The Chairman of the Board of Directors and the CEO also held a total of 125,000 2008A options and 290,000 2008B options as of the end of the year, entitling them to subscribe to an equivalent number of B shares, representing 0.5% of CapMan Plc’s shares and 0.3% of voting rights.

Details on CapMan Plc’s owners by sector and size, together with the company’s major shareholders, nominee-registered shares, and redemption obligation clauses covering company shares are presented in the Notes to the Financial Statements in Section 23. Share capital and shares.

Company shares
As of 31 December 2011, CapMan Plc held a total of 26,299 CapMan Plc B shares, representing 0.03% of both classes of shares and 0.02% of voting rights. There were no changes in the number of shares held by CapMan Plc during the year.

Stock option programmes
As of 31 December 2011, CapMan Plc had one stock option programme in place – Option Programme 2008 – as part of its incentive and commitment arrangements for personnel. The maximum number of stock options issued under Option Programme 2008 will be 4,270,000, which will carry an entitlement to subscribe to a maximum of 4,270,000 new B shares. The programme is divided into A and B series, both of which cover a maximum of 2,135,000 option entitlements. The share subscription price of the 2008A options is EUR 2.53 and of the 2008B option EUR 0.96. The subscription period for 2008A options started on 1 May 2011 and will start on 1 May 2012 for 2008B options. Receivables from shares subscribed to under these options will be entered in the company’s unrestricted shareholders’ equity. As of the end of December 2011, 1,809,750 2008A stock option entitlements and 1,490,000 2008B stock option entitlements were allocated.

The impact of these stock option programmes and option issues on the number of CapMan shares and voting rights is described in more detail in the Notes to the Financial Statements in Section 30. Share-based payments.

Trading and market capitalisation
CapMan Plc’s B shares closed at EUR 1.01 on 31 December 2011 (31 December 2010: EUR 1.78). The average price during the year was EUR 1.39 (EUR 1.98). The highest price paid was EUR 1.84 (EUR 1.98) and the lowest EUR 0.90 (EUR 1.28). The number of CapMan Plc B shares traded was significantly higher than during 2010, with a total of 24.1 million (14.1 million) shares traded, valued at MEUR 32.0 (MEUR 22.0).

The market capitalisation of CapMan Plc B shares as of 31 December 2011 was MEUR 79.3 (31 December 2010: MEUR 139.3). The market capitalisation of all company shares, including A shares valued at the closing price of B shares, was MEUR 85.1 (MEUR 150.0).

Publication of the Financial Statements and the Report of the Board of Directors, and the Annual General Meeting for 2012
The key details of the CapMan Group’s Financial Statements and the Report of the Board of Directors for 2011 will be published in the company’s Annual Report for 2011 in Week 8. CapMan Plc’s 2012 Annual General Meeting will be held on Wednesday 14 March 2012 at 10.00 am in Helsinki. Complete financial statements, as required under the terms of the Finnish Companies Act, will be available on CapMan’s website by 22 February 2012 at the latest.

Corporate Governance Statement
CapMan Plc’s Corporate Governance Statement will be published separately from the Report of the Board of Directors as part of the company’s electronic Annual Report for 2011 in Week 8 and will be available on the company’s website.

Significant risks and short-term uncertainties
CapMan’s Management Company business is generally profitable on an annual basis, but a major element of uncertainty is associated with forecasting the company’s overall financial performance because of the timing of revenue generated from possible carried interest and the development of the fair value of fund investments. Should the current uncertainty surrounding general economic developments continue, it will impact CapMan’s operations through a weakening of the exit market and a decline in the fair value of CapMan’s own fund investments.

If prolonged, the uncertainty in the market is also likely to impact fundraising by reducing fund investors’ willingness to make new commitments as a result of postponed distributions and the denominator affecting allocations between different asset classes. The fundraising environment is expected to remain challenging during 2012, which could impact the outcome of fundraising during the year. The EU’s Basel III and Solvency II legislative initiatives limit the ability of European banks and insurance companies to invest in private equity funds, and could also impact CapMan’s fundraising and the amount of capital that it has under management, as well as any new management fees that CapMan might receive.

The risks associated with CapMan Plc’s operations and the company’s risk management are described in more detail in the Notes to the Financial Statements in Section 32. Financial risk management, and in the company’s Corporate Governance Statement.

Business environment
Long-term growth prospects in terms of the demand for private equity funds continue to remain good, but the current market turmoil and its impact have reduced activity in the private equity industry. It is difficult at the moment to predict how the prevailing uncertainty will affect investors’ willingness to make new commitments in the near future. International investor interest is currently focused primarily on small and mid-cap buyout funds. Compared to other areas of Europe, interest in the Nordic countries has increased in relative terms as a result of the European debt crisis.

Private equity has consolidated its position in financing M&A activities and growth, and continues to focus typically on sector consolidation, family successions, and the privatisation of public services and functions. Real estate funds, for their part, have gained an established share of institutional investors’ investment allocations.

CapMan funds investing in portfolio companies will continue to implement their investment strategies. Bank financing continues to be available especially for small and mid-sized M&A transactions and real estate investments in the Nordic countries. Continued financial turmoil reduces the visibility of both deal flow and bank financing during the early part of the year. As a result, the future development of the exit market is uncertain. The portfolios of CapMan’s funds contain a number of investments that the company is now ready to exit.

The development of our portfolio companies during 2011 was largely good, and profit and growth projections for 2011 were generally achieved. The turnover and profit projections for portfolio companies in 2012 are also largely positive. In accordance with IPEVG criteria, the fair value development of portfolio companies will also be impacted by how the profit projections and market valuations of listed companies develop and by how the currencies used in our areas of operations perform against the Euro. We plan to keep sufficient reserves in our funds to support the growth and financing of portfolio companies. Long-term cooperation with the Nordic banks is particularly important for us, and has worked well.

In the real estate market, a significant proportion of transactions in recent years have taken place between Finnish investors, mainly institutional investors. International investor interest in the Finnish real estate market has mainly focused on prime properties with a lower risk ratio, but the number of these on offer has been small. Demand for higher-risk properties was low in 2011 and led to a low overall number of real estate transactions. This low volume was also impacted in part by the lower level of loan capital available. The leasing market remained reasonably stable, although some downward pressure on rate levels was seen. Growth in the retail sector continued during the fourth quarter, although at a significantly lower level than during the third quarter.

CapMan funds investing in portfolio companies have some MEUR 537 available for making new and add-on investments, while real estate funds have an investment capacity of approximately MEUR 61, mainly for developing their existing portfolios.

The European Directive on Alternative Investment Fund Managers (AIFM directive) came into force on 21 July 2011, after which member states will have 24 months to integrate it into national legislation. The directive stipulates an operating license for participants, as well as other significant requirements, including fund investor and authority reporting. Thanks to its organisation and operating model, CapMan is in a good position to operate within the requirements of these new regulations.

Changes in reporting
We have amended the table of funds presented in CapMan’s internet pages at www.capman.com/capman-group/funds/key-figures-for-funds and in the Funds-section of CapMan’s Annual Report 2011. The purpose of the change is to make it easier for investors to evaluate the carried interest potential of our funds. The biggest changes affect the way that funds are categorised and the projections provided regarding when they will transfer to carry. We estimate that funds in exit and value creation phase will transfer to carry within 1-5 years. In respect of funds in this category, we also report the cash flow as of the reporting date that must be repaid to investors before the funds in question can transfer to carry. In the future, we will not provide any projections on the timetable under which individual funds are expected to transfer to carry.

We have also changed the method we use for calculating the capital managed by our real estate funds. This new method has been adopted as of 31 December 2011. Under this, calculations of the amount of capital managed by CapMan’s real estate funds do not take account of uninvested loan capital, on which no management fee is payable under fund agreements. As a result, the figure given for the amount of capital under management provides a better picture of the management fee base represented by CapMan’s funds. The adoption of the new calculation method reduced the amount of capital managed by CapMan as of 31 December 2011 by MEUR 271.8. To ensure comparability, the figures for 31 December 2010 have been restated using the new method in respect of capital under management.

Future outlook
CapMan’s next major fundraising rounds will take place in 2012. The development of the company’s management fees during 2012 will depend on the timing of exits made from current funds and the size and timing of new funds to be established.

Our operating expenses will continue to decline as a result of various efficiency enhancement measures taken. Due to our fundraising efforts, management fees will not fully cover operating expenses until the new funds currently in the process of being established reach an adequate size.

The fair value of CapMan’s fund investments developed favourably during 2011. We believe that our portfolio companies are well-placed to continue performing well in this respect during 2012, which would have a positive effect on the fair value development of our fund investments.

The Group’s overall result for 2012 will mainly depend on whether new exits are made by funds already generating carried interest, whether new funds will transfer to carry, and on how the value of investments develops in those funds in which CapMan is a substantial investor. Due to difficulties to forecast these developments, CapMan will not issue guidance on its result for the full year.

 

CapMan Plc

Board of Directors

 

 

* Preqin Private Equity Spotlight, December 2011