2011-05-04 10:00:00 CEST
2011-05-04 10:00:07 CEST
REGULATED INFORMATION
Technopolis - Interim report (Q1 and Q3)
Technopolis Plc: Technopolis Group Interim Report January 1 - March 31, 2011
TECHNOPOLIS PLC INTERIM REPORT May 4, 2011 at 11:00
Technopolis Plc: Technopolis Group Interim Report January 1 - March 31, 2011
Highlights for period 1-3/2011 compared with 2010
- Net sales rose to EUR 22.2 million (EUR 19.4 million)
- EBITDA rose to EUR 10.3 million (EUR 10.0 million)
- Operating profit rose to EUR 16.0 million (EUR 10.3 million)
including a change of EUR 6.1 million (EUR 0.5 million) in the fair value of
investment properties
- Financial items include EUR 1,9 million in unrealized interest rate
swap-related earnings
- Profit before taxes totaled EUR 15.5 million (EUR 7.8 million)
- The financial occupancy rate rose to 94.5% (94.0%)
- The Group's equity ratio rose to 36.6% (36.2%)
- Earnings/share (undiluted) rose to EUR 0.18 (EUR 0.09) and diluted EUR 0.18
(EUR 0.09)
Keith Silverang, CEO:"The economy on Technopolis' main markets has stabilized, and the financial
occupancy climbed to 94.5%. Like-for-like rental growth was 2.7%, primarily due
to increasing occupancy rates and index increases. Organic growth is continuing
in Finland. New projects have been launched during the first quarter in
downtown Jyväskylä and Tampere.
Technopolis Pulkovo in St. Petersburg is semi-operational and will be fully
operational during the first half of the year. The pre-occupancy rate increased
to 68.2% at the end of the period under review. It rose to 74% on the strength
of several new deals closed in April and the prospect pipeline is strong. The
St. Petersburg market is continuing to recover, and we have targeted full
occupancy in Pulkovo by the end of the year. The St. Petersburg operations are
expected to be in the black by the end of 2011, provided that the occupancy
rates develop as planned.
The operations of Technopolis Ülemiste have developed favorably. The occupancy
rates are healthy, and rents, revenues and EBITDA are all rising owing to the
recovery of the Estonian market. Concept integration is proceeding according to
plan and we hope to launch the first expansion project on the campus this year.
Nokia's strategy shift may affect Technopolis' operations, but the 2011
guidance will not be changed. Technopolis has consistently strived to reduce
its risks related to the mobile sector. Nearly all premises leased to Nokia are
located in Oulu and Nokia's share has declined to six percent of the Group's
net sales. The figure will fall below four percent at the year end. According
to our estimate, the mobile sector as a whole is slightly under 10% of the
company's net sales."
Business Environment in Finland, St. Petersburg and Tallinn
The Finnish economy has been in recovery during the first months of 2011.
Forecasts for economic growth in 2011 vary between 3.0% and 4.0%. Inflation has
begun to accelerate hand in hand with economic growth, and inflation rate
forecasts vary between 1.2% and 2.3%.
The recovery has halted the decline in the office space market, which can be
seen in the launch of as many as fifteen new office building projects in the
Helsinki Metropolitan Area, with 100,000 square meters of office space under
construction (Catella, December 31, 2010). The positive economic development
has halted the increase in vacancy rates in the Helsinki Metropolitan Area
(Catella, March 31, 2011). The situation in domestic growth centers regarding
office space varies by city.
During the first quarter of 2011, the vacancy rate in the St. Petersburg office
market declined to the level of approximately 15% (Jones Lang LaSalle, St.
Petersburg Office Market Overview Q1 2011). Supply and demand are expected to
balance gradually by the end of 2012. The rents of office buildings have
remained stable throughout 2010 (Jones Lang LaSalle, St. Petersburg, Office
market, Q3/2010). The rents have remained unchanged in rubles but increased in
USDs following the strengthening of the ruble in the wake of increasing oil
prices.
The yield requirements of high-quality properties with high occupancy rates,
located in good areas and with good transportation connections are expected to
decline in St. Petersburg's Pulkovo area from the current level of 12.0%-12.5%
to 10.0%-10.5% by the beginning of 2012 (Jones Lang LaSalle Q4-2010).
The Estonian economy is a positive exception among the Baltic countries, and
after the country joined the euro, the interest of foreign investors in the
Estonian market has increased. According to the reliability indicator on the
Tallinn real estate market, the situation has remained favorable but the
expectations in the market vary (Colliers, December 2010.)
At the end of 2010, the average vacancy rate in Tallinn stood at 12%. Occupancy
rates and rents are expected to develop favorably in the office market.
Operations
Technopolis Group has three operating segments based on geographic units:
Finland, Russia, and Estonia. The segmentation presented is based on the
Group's existing internal reporting procedures and the organization of the
Group's operations.
During the first quarter of 2011, demand for innovation environments remained
favorable in the areas in which Technopolis operates and the Group's financial
occupancy rate was at 94.5 % at the end of the period (March 31, 2010 94.0% and
December 31, 2010 94.4%). The Group's financial occupancy rate has included the
lease stock of the Estonian subsidiary from December 31, 2010.
The competitive situation in Finnish growth centers remained stable during the
period under review. The company's occupancy rates are still above the average
in all domestic growth centers. In St. Petersburg, the first tenants of
Technopolis Pulkovo have moved in and the rental market is recovering. The aim
is to reach full occupancy in Technopolis Pulkovo by the end of the year. The
St. Petersburg unit's EBITDA for the period under review was EUR - 0.6 million,
but it is expected to exceed breakeven during the second half of the year at
the latest, provided that the occupancy rates develop as planned. Net sales and
EBITDA in Tallinn were at the expected level, and the financial occupancy rate
remained favorable in spite of the competitive situation in the office space
market.
The Group's financial occupancy rates:
Financial Occupancy Rate, % March 31, 2011 March 31, 2010 December 31, 2010
------------------------------------------------------------------------------
Group 94.5 94.0 94.4
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Finland 94.6 94.0 94.5
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Oulu 92.3 94.0 91.7
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HMA 97.1 95.6 98.0
Jyväskylä 94.1 86.5 94.6
Kuopio 94.4 96.5 96.3
Lappeenranta 98.4 93.6 94.4
Tampere 97.3 97.0 96.1
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Estonia 92.9 - 93.5
------------------------------------------------------------------------------
The final commissioning of Technopolis Pulkovo (St. Petersburg) was carried out
in phases during the first half of 2011, after which the site will begin to
influence the Group's financial occupancy rate.
The Group's net sales for the period under review were EUR 22.2 million (EUR
19.4 million), showing an increase of 14.6 %. Rental revenue accounted for
86.6% (85.2%) and service revenues for 13.4% (14.8%) of net sales.
Like-for-like rental growth was 2.7%, primarily due to increasing occupancy
rates and index increases.
The Group's EBITDA was EUR 10.3 million (EUR 10.0 million), an increase of
3.4%. EBITDA increased less than net sales primarily due to the slower than
expected start in the rental operations of the St. Petersburg subsidiary and
growth investments.
The Group operates in the real estate business and services. Breakdown of net
sales and EBITDA by business area. (The figures are from management accounting
without eliminations.)
Premises 1-3/2011 1-3/2010 1-12/2010
----------------------------------------
Net sales 19.3 16.8 70.3
EBITDA 11.6 11.0 47.1
----------------------------------------
EBITDA % 60.2 % 65.1 % 67.1 %
Services 1-3/2011 1-3/2010 1-12/2010
----------------------------------------
Net sales 2.9 2.6 11.2
EBITDA 0.5 0.4 1.1
----------------------------------------
EBITDA % 15.7 % 14.6 % 10.2 %
The Group's operating profit totaled EUR 16.0 million (EUR 10.3 million). The
increase in operating profit is, to a significant extent, due to a write-up of
EUR 6.1 million (EUR 0.5 million) in the fair market value of investment
properties. The change in the fair market value of investment properties has no
impact on the Group's net sales, EBITDA or cash flow.
The Group's net financial expenses totaled EUR 0.6 million (EUR 2.6 million),
including EUR 1.9 million of unrealized gains from interest rate swaps. The
Group has extended the interest rate fixing period of its loans by carrying out
interest rate swaps. The Group's profit before taxes totaled EUR 15.5 million
(EUR 7.8 million).
The Group's direct result was EUR 5.2 million (EUR 5.4 million), a decrease of
3.3 %. The direct result shows the company's result for the financial period,
excluding changes in the fair market value of investment properties and
financial instruments during the period, as well as any non-recurring items and
tax effects related to these items. The weakening of the direct result is
primarily due to the slower than expected ramp-up of rental operations of the
St. Petersburg subsidiary, growth investments, as well as rising real estate
maintenance, financing costs and depreciation.
Total assets were EUR 847.4 million (EUR 718.9 million), an increase of 17.9%.
The Group's equity ratio at the end of the period was 36.6 % (36.2%).
The fair market value of the Group's investment properties at the end of the
period was EUR 737.1 million (EUR 600.1 million) and the fair market value of
investment properties under construction was EUR 67.8 million (EUR 58.6
million). The earnings impact of the change in the fair value of investment
properties was EUR 6.1 million (EUR 0.5 million) during the period under
review. The increase in the fair market value of investment properties mainly
resulted from a slight decline in market yields. Uncertainties concerning the
development of the Russian market have been taken into account in the fair
market value of property under construction in Russia.
Net market yields are calculated by taking the average of the upper and lower
ranges of net market yield, as reported by two independent appraisal agencies
for each individual region. On March 31, 2011, the average net yield for Group
properties was 7.9% (8.1% on March 31, 2010 and 8.0% on December 31, 2010). The
average ten-year occupancy rate used in the fair value calculation was 95.6%.
The Group has set a higher target for the financial occupancy rate than this.
Over the period of 2001-2010, the Group's average occupancy rate was 96.7%.
The Group's total rentable space at the end of the period was 537,000 square
meters (453,600 square meters), with 71,100 square meters under construction.
The Group's financial occupancy rate at the end of the period was 94.5%
(94.0%). The financial occupancy rate depicts rental revenues from the
properties as a percentage of the aggregate of the rents for occupied premises
and the estimated market rent for vacant space. The lease stock held by the
Group totaled EUR 129.6 million (EUR 115.8 million) at the end of the reporting
period.
Geographically, the Group's property portfolio is diversified between the Oulu
region, the Helsinki Metropolitan Area, Jyväskylä, Kuopio, Lappeenranta,
Tampere, St. Petersburg in Russia, and Tallinn in Estonia. No single customer
accounts for more than 6% of the Group's net sales. The Group has a total of
approximately 1,300 customers across a wide range of sectors.
Investment properties March 31, Fair market value EUR Net yield, m2
2011 million %
--------------------------------------------------------------------------------
- Finland 667.5 7.9% 448,300
Oulu 236.2 8.3% 192,900
HMA 162.7 6.9% 74,700
Jyväskylä 70.9 8.2% 47,100
Kuopio 84.1 8.3% 53,900
Lappeenranta 29.5 8.8% 27,300
Tampere 84.2 7.4% 52,400
- Russia, St. Petersburg (land 7.1
plot)
- Estonia, Tallinn (share of 62.4 8.6% 79,200
ownership 51%)
--------------------------------------------------------------------------------
Group investment properties total 737.1 7.9% 527,500
--------------------------------------------------------------------------------
Investment properties under 67.8 various 71,100
construction*
--------------------------------------------------------------------------------
Other properties (holdings, 9,500
rented)
--------------------------------------------------------------------------------
* Investment properties under construction have been assessed at fair value
and recognized on the basis of their rate of completion on the balance sheet
date.
Major Investments and Development Projects
Projects under construction on March 31, 2011:
Area m2 EUR Occupancy rate % Net Due for
millio March 31, 2011 yield completion
n
--------------------------------------------------------------------------------
Pulkovo Phase St. 24,100 52.3 68.2* 11.3 Q2/2011
1 Petersbu
rg
Finn-Medi Tampere 12,900 31.5 95.0 7.3 11/2011
campus
Ruoholahti 2 Helsinki 9,900 27.7 14.0 6.5 5/2012
Yliopistonrin Tampere 7,900 22.5 31.0 6.9 9/2012
ne 2
Innova 2 Jyväskylä 9,100 19.8 36.0 7.6 2/2012
Hermia 15 B Tampere 4,800 10.8 65.0 7.3 1/2012
Helsinki-Vant HMA 2,400 6.0 100.0 7.0 5/2011
aa 5, Part 2
--------------------------------------------------------------------------------
* Occupancy rose to 74% at the end of April
Phase 1 of Technopolis Pulkovo has been issued all of the required permits from
the authorities. The property is not yet finished and has not been handed over
by the contractor. The building was brought on line in phases during the first
half of 2011, after which the property will influence the Group's financial
occupancy rate. The occupancy of Phase 1 with pre-leases rose to 74% at the end
of April. In terms of the development of the lease stock, Pulkovo has succeeded
well among the class A office properties in St. Petersburg. By the end of the
period under review, a total of EUR 52.2 million had been committed to
operations in St. Petersburg.
At the end of the reporting period, Technopolis had premises under construction
in Helsinki-Vantaa and Ruoholahti in the Helsinki Metropolitan Area; in
Yliopistonrinne in downtown Tampere and Hermia in Hervanta, Tampere; and Phase
2 of Innova in downtown Jyväskylä. In addition, a campus for well-being
services and life sciences is under construction in the Finn-Medi area in
Tampere, where the Eye Center of the Pirkanmaa Hospital District, a Patient
Hotel for Norlandia Care Oy and office premises will be located. The projects
will expand existing centers.
Planned projects: Status Area m2 Estimated launch
------------------------------------------------------------------------
Pulkovo 2 Planning St. Petersburg 22,400 2011-2012
Technopolis Ülemiste Planning Tallinn 7,500 2011
Viestikatu 2B Planning Kuopio 3,600 2011
------------------------------------------------------------------------
Technopolis will divest properties that do not suit innovation center
operations, or are not part of the core business.
Strategy
In accordance with its strategy, Technopolis aims to operate in the best
knowledge-intensive cities in Finland, Russia, Estonia, and two or three other
countries by 2015. The Group aims to increase net sales by an annual average of
10%. The goal is that 25% of the net sales will be generated outside of Finland
by 2015 with growth generated through both organic expansion and acquisitions.
The Group's equity ratio target is a minimum of 35%.
Technopolis has been continuously analyzing potential international investment
targets in Europe for growth. The key criteria for potential acquisitions are
the sufficient size and growth potential of the target, excellent location in
growth centers, high-quality and flexible property portfolio, and positive cash
flow. The customer base of the targeted property must be suitable for the
Technopolis concept. In addition, the project must have a positive effect on
earnings per share.
Financing
Technopolis can finance all Board approved investments with its existing credit
facilities. At the end of the reporting period Technopolis' available funds
consisted of EUR 198.7 million in untapped credit facilities, and cash
amounting to EUR 4.9 million. These contained a EUR 103.0 million commercial
paper program, a EUR 85 million credit line and a EUR 10.7 million revolving
credit facility. Use of the available credit limit facilities requires
collateral arrangements. At the end of the reporting period, the value of
commercial paper issued by Technopolis totaled EUR 17.0 million. After the end
of the period under review, the revolving credit facility has been used by
taking a EUR 20.0 million loan from the European Investment Bank.
The Group's net financial expenses totaled EUR 0.6 million (EUR 2.6 million),
including EUR 1.9 million of unrealized gains from interest rate swaps. The
Group's interest coverage ratio was 4.1 (5.2). The interest coverage ratio
indicates the relation between EBITDA and accrual-based interest expenses.
The Group's total assets were EUR 847.4 million (EUR 718.9 million), of which
liabilities totaled EUR 538.8 million (EUR 460.1 million). The Group's equity
ratio was 36.6% (36.2%). At the end of the period, the Group's net gearing was
149.5% (150.1%). The Group's equity per share was EUR 4.70 (EUR 4.51).
At the end of the period, the Group's interest-bearing liabilities amounted to
EUR 466.1 million (EUR 392.8 million), and the average capital-weighted loan
period was 8.4 years (10.1 years). The average interest rate on
interest-bearing liabilities was 2.55% (1.98%) on March 31, 2011. Of
interest-bearing liabilities, 69.4% (84.3%) were floating rate loans and 30.6%
(15.7%) were fixed rate loans at the end of the period.
Technopolis has prepared for a potential increase in interest rates by
increasing the number of interest swaps and by decreasing the 12-month market
rate dependency. A one percentage point change in market rates would cause a
EUR 2.5 million change in the interest costs per annum. At the end of the
period under review, there were interest rate swaps covering EUR 107.9 million,
and additional interest rate swaps have been entered into for a further EUR 50
million.
The Group's loan to value ratio, that is, the ratio of interest-bearing
liabilities to the fair value of investment properties and properties under
construction, was 57.6% (58.7%). The Group has interest-bearing liabilities
from credit institutions worth EUR 411.4 million, of which EUR 183.4 million
include covenants related to equity ratio, debt service ratio or loan-to-value.
A covenant related to the debt service ratio and loan-to-value is included in
the EUR 40.9 million borrowings of Technopolis Ülemiste (Technopolis holdings
51%). In terms of the aforementioned loan, the subsidiary's debt service ratio
must be at a minimum of 1.1 and its loan-to-value no more than 70%. If the
covenants are breached, the lender may terminate the loan.
Loans amounting to EUR 142.5 million include covenants related to the equity
ratio. A decline in the equity ratio may lead to higher interest rate margins
or premature repayment in some loans. The margins of some loans and bank
guarantees may rise as the equity ratio falls. Potential changes in the margins
take effect in accordance with the contractual provisions of each loan. Of
these loans, EUR 47.9 million have call-in clauses. The call-in can be executed
if the equity ratio falls below 30%.
If the Group's equity ratio would fall to 35% and the covenants would take
effect immediately, the impact on the Group's interest rate expenses would be
EUR 0.1 million. Correspondingly, if the equity ratio would be 33% or less, the
impact on the Group's interest rate expenses would be EUR 0.4 million.
Bank guarantees in the amount of EUR 106.0 million have been given as security
for the EUR 103.7 million in loans granted by the European Investment Bank. EUR
21.0 million of these bank guarantees will expire by the end of 2013, and the
plan is to extend them. The extension of these bank guarantees may result in
increased loan guarantee margins. Of the EIB borrowing mentioned above, EUR
20.0 million was raised in April, after the end of the period under review.
During the 12-month period following the period under review, EUR 62.1 million
in existing interest-bearing loans will mature.
The financing of Technopolis Pulkovo, Phase 1, has been arranged through the
parent company's investments in shareholders' equity and with an EBRD loan of
EUR 31.6 million.
Organization and Personnel
The CEO of Technopolis Plc is Keith Silverang, MBA. Mr. Reijo Tauriainen is the
company's Deputy CEO.
The Group Management Team comprises Keith Silverang (CEO), Reijo Tauriainen
(CFO), Satu Eskelinen, Marko Järvinen, Kari Kokkonen, Jukka Rauhala and Sami
Juutinen. Sami Juutinen assumed his position as Director of International
Operations on February 14, 2011.
The Technopolis line organization consists of three units: Finland, Russia, and
Estonia. The Group organization also has matrix support functions for the
Group's real estate development, business services, business development, and
support services.
During the period, the Group employed an average of 144 (129) people.
Facilities operations employed 85 (61) people, Business Services 42 (35) people
and Development Services 17 (33) people. At the end of the period under review,
the Group's personnel totaled 150 (129).
Technopolis key personnel have a share incentive program decided on by the
Board of Directors as authorized by the Annual General Meeting, offering the
key personnel the opportunity to earn a maximum of 150,000 shares in 2011. The
earning criteria for the performance shares are weighted and consist of the
growth of the company's earnings per share (60% weight) and the increase in the
like-for-like rental income (40% weight).
Group Structure
Technopolis Group comprises the parent company Technopolis Plc, which has
operations in Espoo, Helsinki, Jyväskylä, Kuopio, Lappeenranta, Oulu, Tampere,
and Vantaa, and its subsidiaries, Innopoli Ltd and Kiinteistö Oy Innopoli II,
both wholly owned and located in Espoo, mutual real estate company Finnmedi 6-7
(wholly owned), and mutual real estate company Hermia (63.9%) in Tampere as
well as other subsidiaries.
Technopolis has established two Russian companies in St. Petersburg,
Technopolis Neudorf LLC and Technopolis St. Petersburg LLC, both wholly owned.
In Estonia, Technopolis has Technopolis Baltic Holding OÜ (wholly owned), which
manages the holdings in Technopolis Ülemiste AS (51%).
The parent company has non-controlling interests in the affiliated companies
Technocenter Kempele Oy (48.5%), Kiinteistö Oy Bioteknia (28.5%), Iin
Micropolis Oy (25.7%), Jyväskylä Innovation Ltd (24%), Kuopio Innovation Ltd
(24%), and Lappeenranta Innovation Ltd (20%). Technopolis Plc has a 13% holding
in Oulu Innovation Ltd. Technopolis Group owns 35% of Otaniemi Marketing Ltd.
The Group also includes Technopolis Ventures Ltd, wholly owned by Innopoli Ltd,
in Espoo. The Group plans to merge Innopoli Ltd. and Technopolis Ventures Ltd.
into the parent company Technopolis Plc by the end of May 2011. The mergers
will not affect the personnel.
Annual General Meeting
The Annual General Meeting of Shareholders (AGM) of Technopolis Plc was held on
March 30, 2011. The AGM 2011 adopted the Group and parent company's financial
statements for the financial year 2010 and discharged the company's board of
directors and CEO from liability. The annual general meeting decided, in
accordance with the proposal of the Board of Directors, to distribute a
dividend of EUR 0.17 per share. The dividend was paid to shareholders who were
registered in the company shareholders register kept by Euroclear Finland Ltd
on the record date of April 4, 2011. The dividend payment date was April 11,
2011.
The number of members on the Board of Directors was confirmed at six. Teija
Andersen, Carl-Johan Granvik, Pertti Huuskonen, Pekka Korhonen, Matti Pennanen,
and Timo Ritakallio were elected members of the Board for a term that ends at
the close of the next Annual General Meeting. Pertti Huuskonen was elected the
Chairman of the Board and Carl-Johan Granvik the Vice Chairman of the Board.
KPMG Oy Ab, authorized public accountants, was elected as auditor of the
company, with Mr. Tapio Raappana, APA, as the Auditor-in-Charge.
The Annual General Meeting held on March 30, 2011, decided to form a
shareholder nominations committee to prepare proposals for the next Annual
General Meeting on the composition and remuneration of the Board of Directors.
The nominations committee will be composed of the Chairman of the Board of
Directors and three members representing the three largest shareholders, who
may not be members of the Board of Directors of the company. The member
appointed by the largest shareholder will act as Chairman of the Committee. The
term of office of the nomination committee will continue until a new nomination
committee is appointed, unless the general meeting resolves otherwise. The
nomination committee prepares the above-mentioned proposals also for
extraordinary general meetings, if needed. A person who may not, according to
the applicable Finnish Corporate Governance Code, be appointed to a nominations
committee of the Board of Directors, cannot be appointed to the nominations
committee. The nominations committee will also fulfill the requirements of
independence in relation to the company as set out in the Code.
The other resolutions of the general meeting are presented in the release on
the resolutions of the Annual General Meeting published on March 30, 2011.
Board Authorizations
The company's Annual General Meeting held on March 30, 2011, authorized the
Board of Directors to decide on the issuance of shares and special rights
entitling to shares as referred to in Chapter 10, Section 1 of the Limited
Liability Companies Act as follows: Pursuant to this authorization, the maximum
number of shares to be issued will be 12,677,000, equaling approximately 20% of
the company's shares. The Board of Directors decides on all the terms and
conditions of the issuance of shares and of special rights entitling to shares.
The issuance of shares and of special rights entitling to shares may be carried
out in deviation from the shareholders' pre-emptive rights (directed issue).
However, the authorization cannot be used for incentive schemes. The
authorization supersedes the authorizations given to the Board of Directors by
the General Meeting of March 26, 2009, to decide on the issuance of shares and
of special rights entitling to shares. The authorization is effective until the
end of the next Annual General Meeting; however, no later than June 30, 2012.
If the authorization regarding the issuance of shares is exercised in full, the
nominal dilution effect will be 20%.
The AGM of 2009 decided to adopt a performance share incentive plan for key
personnel in Technopolis Group. Based on the plan, a maximum of 390,000 shares
may be given as remuneration.
The share incentive plan has been implemented and, in 2011, the company key
personnel have the opportunity to earn a maximum of 150,000 shares. If the
total of 150,000 shares is earned, the nominal dilution effect will be 0.2%.
Stock-Related Events and Disclosures of Changes in Holdings
The number of the company's shares is 63,385,044 shares. The shares are in a
single series, and each share entitles the holder to one vote at the Annual
General Meeting. The company's share capital is EUR 96,913,626.29, and the
subscription price of new shares is registered in the company's unrestricted
equity reserve.
On January 19, 2011, Varma Mutual Pension Insurance Company announced that its
direct holding of Technopolis Plc's share capital and votes had increased above
two twentieths (15%) as a result of a share transaction carried out on January
18, 2011. After the transaction, the proportion of Technopolis Plc's share
capital and votes controlled directly by Varma Mutual Pension Insurance Company
is 10,279,371 shares and 16.22%, respectively.
On January 19, 2011, OP-Pohjola Group Central Cooperative announced that the
proportion of Technopolis Plc's share capital and votes held by OP-Pohjola
Group and its related parties as well as OP-Pohjola Group affiliates and the
mutual funds managed by them, had decreased under one twentieth (5%) as a
result of a share transaction carried out on January 18, 2011. The proportion
of Technopolis Plc's share capital and votes indirectly controlled by
OP-Pohjola Group is 2,649,543 shares and 4.180%, respectively.
Evaluation of Operational Risks and Uncertainties
The most significant risks concerning Technopolis' operations are primarily
those associated with economic and financial trends, manifesting themselves in
the form of financing and customer risks, as well as operational and
international business risks.
The objective of interest rate risk management is to mitigate the negative
impact of market rate fluctuations on the Group's earnings, financial position,
and cash flow. If necessary, the company uses forwards, interest rate swaps and
interest rate options to hedge interest rate risks. The company's policy
concerning interest rate risks also aims to diversify the interest rate risk of
loan contracts over different loan periods based on the prevailing market
situation and the interest rate forecast created by the company.
Indicative of the structure of Technopolis' loan portfolio at the end of the
period is the equation that a one percentage point change in the money market
rates would change interest rate costs by EUR 2.5 million per annum.
Because of the interest rate risk associated with loans, a policy of
diversifying interest bases is pursued. On March 31, 2011, 16.7% of
interest-bearing liabilities were pegged to the under 3-month Euribor rate and
52.7% were pegged to the 3-12 month Euribor rate. 30.6% of interest-bearing
liabilities were fixed-rate loans with maturities of 13-60 months.
After the end of the period under review, interest swaps were acquired for
capital of EUR 50 million, altering the fixing period structure so that 9.8% of
the interest-bearing liabilities are now pegged to the under 3-month Euribor
rate, 50.6% are pegged to the 3-12 month Euribor rate, and 39.6% being
fixed-rate loans with maturities of 13-60 months.
The objective of refinancing risk management is to ensure that the Group's loan
portfolio is sufficiently diversified with regard to repayment schedules and
financing instruments. The average capital-weighted outstanding loan maturity
was 8.4 years. In order to manage financing risk, Technopolis draws upon the
resources of a wide range of financers and a variety of financing instruments,
and maintains a sufficient degree of solvency.
Uncertainty in the financial markets may adversely affect the availability of
growth financing and refinancing and their margins in the future.
The differences between Russian, Estonian, and Finnish legislation and
administrative procedures may create risks. If the Pulkovo premises cannot be
leased as planned, the Pulkovo technology center pose financial risks. Once
completed, the Pulkovo technology center will account for approximately 4.9% of
the fair value of the Group's entire investment property portfolio.
Changes in the exchange rates between the Russian ruble and the euro may have
an effect on the company's financial performance and operations.
Ruble-denominated transactions are recorded at the exchange rate of the
transaction date. Any translation differences are entered in the income
statement under other operating expenses or finance income and expenses
according to the type of transaction involved.
Changes in general economic conditions may have an adverse effect on the
company's clients and hence on the Group's operations.
Customer risk management aims to minimize the negative impact of potential
changes in the customers' financial position on the company's business and
financial performance. Customer risk management focuses on having a profound
understanding of the customer's business and active monitoring of customer
information. Customer risks are diversified by acquiring customers from all
technology sectors, knowledge-intensive operations, and the public sector. As
part of client risk management, Technopolis leases include rental security
arrangements.
The company's leases fall into two categories: fixed-term and open-ended. The
company aims to apply both lease types depending on the market situation, the
property in question, and the sector in which the internal customer operates.
At the end of the period under review, open-ended leases in the lease portfolio
that could be terminated and renegotiated within the next 12 months covered
approximately 227,100 (185,800 on March 31, 2010) square meters of allocated
space, equaling 48.3% (45% on March 31, 2010) of the weighted area in the
entire property portfolio. The term of notice for these agreements is broken
down as shown in the table below.
March 31, March 31, 2011 March 31, March 31, 2010
2011 2010
Notice period Allocated sq % of lease Allocated sq % of lease
months m stock m stock
--------------------------------------------------------------------------------
0-3 61.900 13.2 19,300 4.7
--------------------------------------------------------------------------------
3-6 96.600 20.5 44,100 10.8
6-9 42.300 9.0 91,600 22.3
9-12 26.300 5.6 30,800 7.5
--------------------------------------------------------------------------------
Total 227.100 48.3 188,200 45.3
--------------------------------------------------------------------------------
At the end of the period, the average lease period was 19 (21) months. The
figure does not include the lease stock of properties under construction.
Declining financial occupancy rates may reduce rental and service revenue and
profit, and reduce the fair value of investment properties and, thus, the
equity ratio. The current lease structure allows customers to flexibly adjust
the space they need as their business needs change. Although the flexibility of
the lease structure may pose a risk to the Group, it is an essential element of
Technopolis' service concept. The company has solid and long-term experience in
this business model over a wide variety of economic cycles.
In new construction projects, Technopolis focuses on quality and the management
of the property's entire life cycle. In the design phase, consideration is
given to the property's maintenance and repair requirements in order to
implement environmentally sustainable solutions for energy consumption,
adaptability of premises, and recycling potential. When purchasing properties,
Technopolis carries out standard property and environmental audits before
committing to the transaction. All properties are covered by full value
insurance.
Changes in market yields may have a significant impact on the company's
financial performance through the fair value of investment properties. As the
yields increase, the fair value of properties decreases. Conversely, as the
yields decrease, the fair value of properties increases. Such changes either
decrease or increase the Group's operating profit. Changes in market yields do
not have any direct impact on the company's net sales, EBITDA, or cash flow,
but a negative change in the value of investment properties may reduce the
company's equity ratio and, as a result of this, covenants of the leases may be
triggered. In that case, the change in value will have an impact on the cash
flow and result for the period.
Post-Fiscal Events
At the end of April a series of deals were closed that boosted the pre-let rate
of Technopolis Pulkovo to approximately 74%. The largest agreement covering
1,000 square meters was signed with Eltech SPb that provides high technology
solutions to the Russian semiconductor industry. For more detail see the stock
exchange release dated May 2, 2011.
Technopolis made the following announcement in connection with Nokia Plc's
stock exchange release of April 27, 2011 concerning its labor negotiations. The
Technopolis Plc guidance for year 2011 will not be changed. The share of Nokia
Plc has declined to six per cent of the Group's net sales and will decline
below four per cent at the year end.
Technopolis and Savonia University of Applied Sciences proceeded to a
pre-agreement in Kuopio, according to which Savonia will move its operations
into Technopolis premises in phases. The first lease in connection with the
pre-agreement was signed on April 13, 2011. Savonia University of Applied
Sciences will lease approximately 2,000 square meters from June 30, 2011, for a
rental period of twenty-five years. In addition to the premises, the agreement
also covers a variety of services. Additional information on the pre-agreement
is disclosed in the stock exchange release issued on April 13, 2011.
Future Outlook
The Group's Management estimates that both net sales and EBITDA will grow 9-11%
in 2011 from the previous year.
The Group's financial performance depends of the development of the overall
business environment, customer operations, as well as the yield requirements
from the financial markets and properties. Developments in these areas and
resulting changes in the occupancy rate, use of services, financing costs, the
fair value of properties, and facilities rents may have an impact on the
Group's sales and earnings.
Oulu, May 4, 2011
TECHNOPOLIS PLC
Board of Directors
Keith Silverang
CEO
tel. +358 40 566 7785
APPENDICES:
Financial Reports
A presentation of the interim report is available on the company's website at
www.technopolis.fi/for_investors/presentations. The interim report is available
in PDF-format on the company's website at www.technopolis.fi. To request a
hardcopy of the document, please call +358 46 712 000 /Technopolis info.
Technopolis offers a service for receiving reports and releases at the
company's website at http://www.technopolis.fi/for_investors/releases_service.
Individuals who sign up with the service will receive the company's reports and
releases electronically.
Financial Reports
The accounting policies applied in the interim report and the formulas for
calculating key indicators are the same as in the 2010 annual report. The
interim report has been prepared in accordance with the IFRS recognition and
valuation principles; the IAS 34 requirements have also been complied with.
The figures are unaudited.
Technopolis Group:
STATEMENT OF COMPREHENSIVE INCOME 1-3/ 1-3/ 1-12/
Currency unit: EUR million 2011 2010 2010
--------------------------------------------------------------------------------
Net sales 22.21 19.37 81.18
Other operating income 1) 0.40 0.33 1.57
Other operating expenses -12.27 -9.69 -41.34
Change in fair value of investment properties 6.13 0.46 2.74
Depreciation -0.43 -0.16 -1.13
----------------------------------------------------------
Operating profit/loss 16.05 10.31 43.01
----------------------
Finance income and expenses -0.55 -2.55 -9.43
----------------------------------------------------------
Result before taxes 15.50 7.75 33.59
----------------------
Income taxes -3.98 -2.43 -10.13
----------------------------------------------------------
Net result for the period 11.52 5.32 23.46
----------------------
Other comprehensive income items
Translation difference 0.33 0.00 0.00
Available-for-sale financial assets 0.02 0.01 0.02
Taxes related to other comprehensive income items 0.00 0.00 -0.01
--------------------------------------------------------------------------------
Other comprehensive income items after taxes for the 0.34 0.01 0.02
period
Comprehensive income for the period, total 11.86 5.33 23.48
Distribution of profit for the period:
To parent company shareholders 11.17 5.32 23.25
To non-controlling shareholders 0.35 0.00 0.21
11.52 5.32 23.46
--------------------------------------------------------------------------------
Distribution of comprehensive income for the period:
To parent company shareholders 11.51 5.33 23.27
To non-controlling shareholders 0.35 0.00 0.21
11.86 5.33 23.48
--------------------------------------------------------------------------------
Earnings per share based on result of flowing to parent
company shareholders:
Earnings/share, basic (EUR) 0.18 0.09 0.38
Earnings/share, adjusted for dilutive effect (EUR) 0.18 0.09 0.38
STATEMENT OF FINANCIAL POSITION
Currency unit: EUR million 03/31/2011 03/31/2010 12/31/2010
ASSETS
Non-current assets
Intangible assets 4.01 3.63 4.05
Tangible assets 76.40 71.41 65.17
Investment properties 737.08 600.13 727.67
Investments 13.06 25.56 13.05
Deferred tax assets 4.18 2.78 4.41
-------------------------------------------------------------------------------
Non-current assets 834.72 703.51 814.36
-------------------------------------------------------------------------------
Current assets 12.71 15.40 13.25
-------------------------------------------------------------------------------
Assets, total 847.43 718.91 827.61
-------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY AND LIABILITIES 03/31/2011 03/31/2010 12/31/2010
Shareholders' equity
Share capital 96.91 96.91 96.91
Premium fund 18.55 18.55 18.55
Other funds 84.23 63.95 84.22
Translation difference 0.33 0.00 0.00
Other shareholders' equity 0.14 0.21 0.66
Retained earnings 86.67 73.82 73.75
Net result for the period 11.17 5.32 23.25
-------------------------------------------------------------------------------
Parent company's shareholders' interests 298.00 258.77 297.35
Non-controlling interests 10.60 0.01 10.25
-------------------------------------------------------------------------------
Shareholders' equity, total 308.60 258.78 307.60
Liabilities
Non-current liabilities
Interest-bearing liabilities 404.00 357.13 409.92Non-interest-bearing liabilities 1.15 1.23 1.30
Deferred tax liabilities 43.68 33.79 41.44
-------------------------------------------------------------------------------
Non-current liabilities, total 448.83 392.15 452.65
Current liabilities
Interest-bearing liabilities 62.14 35.63 47.95
Non-interest-bearing liabilities 27.86 32.35 19.41
-------------------------------------------------------------------------------
Current liabilities, total 90.00 67.98 67.36
Liabilities, total 538.83 460.13 520.01
-------------------------------------------------------------------------------
Shareholders' equity and liabilities, total 847.43 718.91 827.61
-------------------------------------------------------------------------------
Since the beginning of 2011, the Russian subsidiary has reported to the parent
company in rubles. Because of this, translation differences occur for the first
time in 2011. Translation differences arise when converting foreign
subsidiary's financial statements in the reporting currency of the parent
company.
STATEMENT OF CASH FLOWS 1-3/ 1-3/ 1-12/
Currency unit: EUR million 2011 2010 2010
----------------------------------------------------------------------------
Cash flows from operating activities
Net result for the period 11.52 5.32 23.46
Adjustments:
Change in fair value of investment properties -6.13 -0.46 -2.74
Depreciation 0.43 0.16 1.13
Share in affiliate profits -0.04 0.01 0.03
Gains from disposals -2.01
Other adjustments for non-cash transactions 0.14 -0.01 0.70
Financial income and expenses 0.58 2.54 9.40
Taxes 3.98 2.43 10.13
Increase / decrease in working capital 1.39 0.78 1.65
Interests received 0.06 0.07 0.40
Dividends received 0.01
Interests paid and fees -2.25 -2.34 -7.16
Other financial items in operating activities -0.63 -0.90 -3.09
Taxes paid -1.10 -0.46 -6.84
----------------------------------------------------------------------------
Net cash provided by operating activities 7.95 7.15 25.05
Cash flows from investing activities
Investments in other securities -0.02 -0.26 -0.47
Investments in investment properties -15.38 -9.57 -54.17
Investments in tangible and intangible assets -0.15 -0.71 -2.41
Repayments of loan receivables 0.03 0.09 4.07
Proceeds from sale of investments 0.00 1.52
Proceeds from sale of tangible and intangible assets 0.04 2.21
Acquisition of subsidiaries -11.88
----------------------------------------------------------------------------
Net cash used in investing activities -15.48 -10.45 -61.13
Cash flows from financing activities
Increase in long-term loans 15.81 10.00 43.74
Decrease in long-term loans -12.83 -6.97 -31.56
Dividends paid -8.60
Paid share issue 20.49
Change in short-term loans 4.99 0.03 11.98
----------------------------------------------------------------------------
Net cash provided by financing activities 7.97 3.07 36.05
Net increase/decrease in cash assets 0.44 -0.23 -0.03
Effects of exchange rate fluctuations on cash held -0.03
Cash and cash equivalents at period-start 4.49 4.52 4.52
Cash and cash equivalents at period-end 4.90 4.28 4.49
STATEMENT OF CHANGES
IN EQUITY
Currency Share Premiu Other Trans-lat Retaine Non-contro Sharehold
unit: EUR capita m fund funds ion d lling ers'
million l diffe-ren earning share-hold equity
ce s ers
EQUITY Dec 96.91 18.55 63.94 82.42 0.01 261.84
31, 2009
Dividend -8.60 -8.60
distribution
Comprehensive 0.01 5.32 5.33
income for
the period
Other changes 0.21 0.21
EQUITY March, 96.91 18.55 63.95 79.35 0.01 258.78
31, 2010
EQUITY Dec 96.91 18.55 84.22 97.67 10.25 307.60
31, 2010
Dividend -10.78 -10.78
distribution
Comprehensive 0.01 0.33 11.17 0.35 11.86
income for
the period
Other changes -0.09 -0.09
EQUITY March 96.91 18.55 84.23 0.33 97.98 10.60 308.60
31, 2011
Financial Information by Segment
On March 31, 2011, Technopolis Group has three operating segments based on
geographical units: Finland, Russia and Estonia. Estonia became the third
segment due the establishment of the new subsidiary in Tallinn in October
2010.The segment division presented in this interim report is based on the
Group's existing internal reporting procedures and the organization of the
Group's operations.
The Group's net sales or EBITDA do not include significant inter-segment items.
Items after the EBITDA, such as depreciation, financing items and taxes, are
not presented in the segment information because they are not allocated to
segments.
SEGMENT INFORMATION 1-3/ 1-3/ 1-12/
Currency unit: EUR million 2011 2010 2010
--------------------------------------------------
Net sales
Finland 20.73 19.04 79.92
Russia 0.31 0.33 0.27
Estonia 1.16 1.04
Unallocated 0.01 0.00 -0.05
Total 22.21 19.37 81.18
--------------------------------------------------
EBITDA
Finland 10.09 10.27 42.22
Russia -0.56 -0.03 -1.97
Estonia 0.80 0.78
Unallocated 0.01 -0.23 0.37
Total 10.34 10.01 41.40
--------------------------------------------------
Assets
Finland 732.39 705.55 728.73
Russia 52.24 45.07 47.87
Estonia 73.94 73.64
Eliminations -11.14 -31.71 -22.63
Total 847.43 718.91 827.61
--------------------------------------------------
Direct and Indirect Result
Technopolis presents its official financial statements by applying the IFRS
standards. The statement of comprehensive income includes a number of items
unrelated to the company's actual business operations. Therefore, the company
presents its direct result, which better reflects its real result.
The direct result presents the company's financial result for the period
excluding the change in the fair value of investment properties, the change in
the fair value of financial instruments and any non-recurring items, such as
gains and losses on disposals. As the company has interest rate and currency
swaps that do not satisfy the IFRS criteria for hedge accounting, the changes
in the fair value of these financial instruments are recognized in the
statement of comprehensive income. Additionally, the statement of comprehensive
income showing the direct result presents the related taxes and deferred tax
assets and liabilities.
Items excluded from the direct result and their tax effects are presented in
the statement of income showing the indirect result. Earnings per share have
been calculated both from the direct and indirect results in accordance with
the instructions issued by the European Public Real Estate Association EPRA.
The direct and indirect result and the earnings per share calculated from them
are consistent with the company's financial result and earnings per share for
the period.
Technopolis Group
DIRECT RESULT 1-3/ 1-3/ 1-12/
Currency unit: EUR million 2011 2010 2010
--------------------------------------------------------------------------------
Net sales 22.21 19.37 79.17
Other operating income 0.39 0.26 1.53
Other operating expenses -12.27 -9.69 -41.34
Depreciation -0.43 -0.16 -1.13
--------------------------------------------------------------------------------
Operating profit/loss 9.90 9.78 38.22
Finance income and expenses, total -2.41 -1.95 -8.88
--------------------------------------------------------------------------------
Taxes for direct result items 7.50 7.82 29.34
Result before taxes -1.96 -2.47 -8.20
Non-controlling interests -0.35 -0.21
--------------------------------------------------------------------------------
Direct result for the period 5.18 5.35 20.94
INDIRECT RESULT
Non-recurring items 0.01 0.07 2.05
Change in fair value of investment properties 6.13 0.46 2.74
--------------------------------------------------------------------------------
Operating profit/loss 6.14 0.53 4.79
Change in fair value of financial instruments 1.86 -0.60 -0.55
--------------------------------------------------------------------------------
Result before taxes 8.01 -0.07 4.24
Taxes for indirect result items -2.01 0.03 -1.93
--------------------------------------------------------------------------------
Indirect result for the period 5.99 -0.04 2.31
Result for the period to the parent company shareholders, 11.17 5.32 23.25
total
Earnings per share, diluted *)
From direct result 0.08 0.09 0.34
From indirect result 0.09 0.00 0.04
--------------------------------------------------------------------------------
From net result for the period 0.18 0.09 0.38
*) Earnings per share calculated according to EPRA's
instructions.
KEY INDICATORS 1-3/ 1-3/ 1-12/
2011 2010 2010
--------------------------------------------------------------------------------
Change in net sales, % 14.6 -0.1 6.3
Operating profit/loss/net sales, % 72.3 53.2 53.0
Interest coverage ratio 4.1 5.2 4.9
Equity ratio, % 36.6 36.2 37.4
Loan to value, % 57.6 58.7 58.0
Group company personnel during the period, 144 129 135
average
Gross expenditure on assets, EUR million 14.7 12.4 134.4
Net rental revenue of investment properties, 7.7 7.8 7.7
% 2)
Financial occupancy rate, % 94.5 94.0 94.4
Earnings/share
basic, EUR 0.18 0.09 0.38
diluted, EUR 0.18 0.09 0.38
Equity/share, EUR 4.70 4.51 4.69
Average issue-adjusted number of shares
basic 63.385.044 57.345.341 61.040.730
diluted 63.600.941 57.483.297 61.186.677
CONTINGENT LIABILITIES
Currency unit: EUR million 03/31/2011 03/31/2010 12/31/2010
Pledges and guarantees on own debt
Mortgages of properties 428.6 353.9 351.9
Book value of pledged securities 184.6 164.6 171.5
Other guarantee liabilities 61.7 12.6 46.5
Collateral given on behalf of associates 0.5 0.5 0.5
Leasing liabilities, machinery and equipment 3.8 2.2 3.8
Project liabilities 0.3 0.2 0.2
Interest rate and currency swaps
Nominal values 107.9 75.0 136.9
Fair values 0.75 -1.15 -1.27
1) Other operating income consists of operating subsidies received for
development services; an equal amount is recorded under operating expenses for
development services.
2) The figure does not include properties commissioned and acquired during the
fiscal year.
Distribution:
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