2011-08-11 12:00:00 CEST
2011-08-11 12:00:13 CEST
REGULATED INFORMATION
Technopolis - Interim report (Q1 and Q3)
Technopolis Group Interim Report January 1-June 30, 2011
TECHNOPOLIS PLC INTERIM REPORT August 11, 2011 at 13:00
Technopolis Group Interim Report January 1-June 30, 2011
Highlights for 1 - 6/2011 compared with 2010
- Net sales rose to EUR 45.0 million (EUR 39.2 million)
- EBITDA rose to EUR 22.4 million (EUR 20.6 million)
- Operating profit rose to EUR 37.0 million (EUR 20.9 million) including a
change of EUR 15.5 million (EUR 0.7 million) in the fair value of investment
properties
- Financial items include EUR 1,7 million in unrealized interest rate
swap-related earnings
- Profit before taxes totaled EUR 33.2 million (EUR 15.8 million)
- The financial occupancy rate was 93.6% (92.8%)
- The Group's equity ratio was 36.3% (38.0%)
- Earnings per share ( undiluted) rose to EUR 0.39 (EUR 0.17) and diluted EUR
0.39 (EUR 0.17)
- The Group's Management estimates that both net sales and EBITDA will grow
11-13% in 2011 from the previous year. The previous forecast was that both net
sales and EBITDA would grow 9 - 11 %.
Keith Silverang, CEO:
“The financial occupancy rate of Technopolis reached 95.3% in Finland and 95.3%
in Tallinn (March 31, 2011 94.5%). The positive trend on the facilities market
in St. Petersburg has continued, and as of the publishing date of this Interim
Report, the agreements signed will increase the occupancy rate of Pulkovo to
98.8% by the end of this year.
Like-for-like rental growth was 3.5%, primarily due to rising occupancy and
index increases. EBITDA improved relative to both the same period in 2010 and
the first quarter of 2011, mainly as a result of a higher occupancy and a
relatively high inflation rate. The same trend will looks likely to continue
for the rest of 2011.
The operations of Technopolis Ülemiste have developed favorably. Occupancy
rates are good and, owing to the recovery of the Estonian market, the rental
and service revenues, as well as EBITDA, are improving. We have made the
decision to invest in the first growth project in Technopolis Ülemiste and
submitted the building permit application.
In Oulu, the changes affecting one major customer, Nokia Plc, will not affect
our earnings outlook for 2011. During the first half of the year, new business
opportunities have emerged in Oulu and Tampere, totaling some 5,500 square
meters. Based on our current information, we believe that the impact of the
mobile sector restructuring on Technopolis will be relatively minor.”
Business Environment in Finland, St. Petersburg, and Tallinn
Forecasts for economic growth in Finland in 2011 vary between 3.0 and 4.0% and
for inflation between 2.7 and 3.5%. Notwithstanding the relatively positive
outlook for the Finnish economy and economic growth in the eurozone, apart from
the countries suffering from a financial crisis, the threats related to the
Eurozone economy have increased considerably since the year end. (Source: The
Research Institute of the Finnish Economy)
Since the beginning of 2011, the situation on the facilities market has been
stable. In Finland, based on the preliminary data for June, vacancy rates in
the Helsinki Metropolitan Area are declining and there is demand for modern
office premises. The situation in domestic growth centers regarding the office
space market varies from city to city. In Oulu, vacancy rates decreased a
little during the first half of the year. Office premises, especially in the
city center, are in demand, whereas in the fringe areas there is some price
erosion (Source: Catella).
In St. Petersburg, the vacancy rate declined to 12.5% at the end of the second
quarter. Rents went up slightly in ruble terms, but increased considerably in
USD terms following the strengthening of the ruble. Supply and demand are
expected to balance gradually by the end of 2012. (Source: Jones Lang LaSalle)
The yield requirements for 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 to 10.0-10.5% by the beginning of 2012
(Source: Jones Lang LaSalle).
In the facilities market in Tallinn, vacancy rates for class A and B premises
have been declining during the first half of 2011 Demand is strongest for
premises in the city center. (Source: Jones Lang LaSalle) The vacancy rate for
class A office premises was 8.8% in June 2011. (Source: Colliers)
Operations
Technopolis Group has three operating segments based on geographic units:
Finland, Russia, and Estonia.
During the second quarter of 2011, demand for innovation environments remained
favorable in the areas in which Technopolis operates. In Finland and Tallinn,
the financial occupancy rate reached 95.3%, an increase of 0.8 percentage
points from the first quarter. The Group's financial occupancy rate, now for
the first time including St. Petersburg's Technopolis Pulkovo, was 93.6% (June
30, 2010 92.8%). The figures for the Group's financial occupancy rates are not
comparable, as the lease stock of the Estonian subsidiary has been included in
the figures from December 31, 2010, and the lease stock of the St. Petersburg
subsidiary from June 30, 2011.
The competitive situation in Finnish growth centers remained stable during the
period under review. The company's occupancy rates are still above average in
all domestic growth centers. In the second quarter, financial occupancy rates
increased in Oulu, Jyväskylä, and Kuopio.
In Oulu, the share of one major customer, Nokia Plc, of the company's net sales
will fall from 6% to less than 4% by the year end. During the first part of the
year, Technopolis entered into new rental and service agreements for 5,500
square meters with mobile service and e-sales businesses in Oulu and Tampere.
In Kuopio, Technopolis and Savonia University of Applied Sciences proceeded
with an important pre-agreement, 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 leased 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.
Net sales and EBITDA in Tallinn were at the expected level, and the financial
occupancy rate remained good in spite of the high vacancy rate of 12% in the
office rental market.
Technopolis Pulkovo premises have been let out swiftly, the pre-occupancy rate
having now reached 98.8% as of the publishing date of this report. The St.
Petersburg unit's EBITDA recorded a loss of EUR 0.4 million, but it is expected
to exceed break-even during the second half of the year. By the end of the
period under review, a total of EUR 56.1 million had been committed to
operations in St. Petersburg.
The Group's financial occupancy rates*:
Financial Occupancy Rate June March December 31, 2010 June
30, 2011 31, 2011 30, 2010
-------------------------------------------------------------------------
Group 93.6% 94.5% 94.4% 92.8%
-------------------------------------------------------------------------
Finland 95.4% 94.6% 94.5% 92.8%
-------------------------------------------------------------------------
Oulu 92.8% 92.3% 91.7% 91.9%
-------------------------------------------------------------------------
HMA 96.9% 97.1% 98.0% 95.5%
Jyväskylä 96.2% 94.1% 94.6% 86.0%
Kuopio 97.2% 94.4% 96.3% 95.3%
Lappeenranta 98.2% 98.4% 94.4% 94.1%
Tampere 97.3% 97.3% 96.1% 95.7%
-------------------------------------------------------------------------
Estonia 93.7% 92.9% 93.5% -
-------------------------------------------------------------------------
St. Petersburg 61.7% - - -
-------------------------------------------------------------------------
*) The figures for the Group's financial occupancy rates are not comparable, as
the lease stock of the Estonian subsidiary has been included in the figures
from December 31, 2010, and the lease stock of the St. Petersburg subsidiary
from June 30, 2011.
The Group operates in real estate and service sector. Net sales for the period
under review were EUR 45.0 million (EUR 39.2 million), showing an increase of
14.8%. Rental revenues accounted for 86.7% (83.8% excluding the capital release
repayment) and service revenues for 13.3% (16.2%). Like-for-like rental growth,
that is, the rental revenue from comparable properties, was 3.5%, primarily due
to increasing occupancy rates and index increases.
The Group's EBITDA was EUR 22.4 million (EUR 20.6 million), an increase of 8.9%
over 2010. 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.
Breakdown of net sales and EBITDA by business function: (Figures from internal
reporting, excluding eliminations.)
Premises 1-6/2011 1-6/2010 1-12/2010
----------------------------------------
Net sales 39,1 34.1 70.3
EBITDA 25,1 23.0 47.1
----------------------------------------
EBITDA % 64,2% 67.4% 67.1%
Services 1-6/2011 1-6/2010 1-12/2010
----------------------------------------
Net sales 5,9 5.3 11.2
EBITDA 1,1 0.7 1.1
----------------------------------------
EBITDA % 18,3% 13.1% 10.2%
The Group's operating profit totaled EUR 37.0 million (EUR 20.9 million). The
increase in operating profit is, to a significant extent, due to a change of
EUR 15.5 million (EUR 0.7 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 3.8 million (EUR 5.0 million).
Financial items in comprehensive income include EUR 1.7 million in unrealized
interest rate swap-related earnings from period January 1 - April 30, 2011. As
of May 1, 2011 Technopolis Group has recorded interest rate swaps in accordance
with the IAS 39 criteria for hedge accounting, in order to eliminate the effect
of the changes in the fair value of derivative instruments on the Group's
result and to reduce volatility in the fiscal year results. Most of the Group's
current interest rate swaps meet the criteria for hedge accounting. By carrying
out interest rate swaps, the Group has extended the interest rate fixing period
of its loans to 1.5 years (June 30, 2010 1.0 years). The Group's profit before
taxes totaled EUR 33.2 million (EUR 15.8 million).
The Group's direct result was EUR 11.6 million (EUR 10.5 million), an increase
of 11.2%. 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 increase of the direct result is
primarily due to growing rental revenues and diminishing operative taxes.
Total assets in the balance sheet were EUR 891.6 million (EUR 752 million), an
increase of 18.6%. The Group's equity ratio at the end of the period was 36.3%
(38.0%).
The fair market value of the Group's investment properties at the end of the
period was EUR 789.9 million (EUR 649.4 million) and the fair market value of
investment properties under construction was EUR 50.4 million (EUR 39.9
million). The earnings impact of the change in the fair value of investment
properties was EUR 15.5 million (EUR 0.7 million) during the period under
review.
The increase in the fair market value of investment properties is mainly the
result of a slight decline in market yields. 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
June 30, 2011, the average net yield for Group properties was 8.1% (8.0% on
June 30, 2010 and 8.0% on December 31, 2010). The average ten-year occupancy
rate used in the fair value calculation was 95.8%. 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 564,000 square
meters (460,082 square meters), with 47,200 square meters under construction.
The Group's financial occupancy rate at the end of the period was 93.6%
(92.8%). 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 141.8 million (EUR 109.4 million) at the end of the reporting
period. The figure does not include the lease stock of buildings under
construction.
The Group's property portfolio is geographically diversified with the portfolio
comprising Oulu, 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 June Fair value, EUR Net m2
30, 2011 million yield, %
--------------------------------------------------------------------------------
Finland Oulu 236.4 8.3 192,900
HMA 170.9 6.8 77,600
Jyväskylä 71.0 8.2 47,100
Kuopio 85.8 8.3 53,900
Lappeenrant 29.5 8.8 27,300
a
Tampere 84.3 7.4 52,400
Finland Finland, 677.9 7.9 451,200
total
Russia St. 49.5 10.6 24,100
Petersburg
Estonia (share of ownership Tallinn 62.5 8.6 79,200
51%)
--------------------------------------------------------------------------------
Group's investment properties 789.9 8.1 554,500
total
--------------------------------------------------------------------------------
Investment properties under 50.4 several 47,200
construction*
--------------------------------------------------------------------------------
Other properties (holdings, 9,500
rented)
--------------------------------------------------------------------------------
* Investment properties under construction have been valued at fair value and
recognized on the basis of their rate of completion on the balance sheet date.
Major Investments and Development Projects
Projects completed during the quarter:
Area m2 EUR Occupancy rate % Net Comple
millio June 30, 2011 yield ted
n
--------------------------------------------------------------------------------
Pulkovo Phase 1 St. 24,100 52.8 61,7 10.6 6/2011
Petersbu
rg
Helsinki-Vantaa HMA 2,900 6.0 100.0 7.0 5/2011
5, Part 2
--------------------------------------------------------------------------------
At the end of the reporting period, Technopolis had office space under
construction in Finland in the Helsinki Metropolitan Area, Tampere, Kuopio, and
Jyväskylä. The projects expand existing centers.
Projects under construction on June 30, 2011:
Area m2 EUR Occupancy rate % Net Due for
million June 30, 2011 yield completion
--------------------------------------------------------------------------------
Finn-Medi Tamper 12,900 31.5 96.1 7.3 11/2011
campus e
Ruoholahti 2 HMA 9,000 27.7 14.0 6.5 5/2012
Yliopistonri Tamper 7,900 22.5 31.1 6.9 9/2012
nne 2 e
Innova 2 Jyväsk 9,200 19.8 42.0 7.6 2/2012
ylä
Hermia 15 B Tamper 4,800 10.8 87.7 7.3 1/2012
e
Viestikatu Kuopio 3,400 3.9 61.1 8.3 1/2012
2B
--------------------------------------------------------------------------------
Planned projects:
Status Area m2 Estimated launch
--------------------------------------------------------------------------------
Pulkovo 2 Planning St. Petersburg 22,400 2011-2012
--------------------------------------------------------------------------------
Ülemiste Lõõtsa 8 Investment decision Tallinn 7,200 9/2011
--------------------------------------------------------------------------------
The decision to invest in the first growth project in Technopolis Ülemiste has
been taken and the construction license application has been submitted.
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
At the end of the reporting period, funds available to Technopolis consisted of
EUR 58.1 million in untapped credit facilities, and cash amounting to EUR 11.6
million. The credit facilities contained an EUR 45.0 million credit line and an
EUR 13.1 million revolving credit facility. Use of the available credit limit
facilities requires collateral arrangements. In addition, Technopolis has an
EUR 120 million commercial-paper program, of which EUR 10.0 million was issued
at the end of the reporting period.
The Group's net financial expenses totaled EUR 3.8 million (EUR 5.0 million).
Financial items in comprehensive income include EUR 1.7 million in unrealized
interest rate swap-related earnings from period January 1 - April 30, 2011. As
of May 1, 2011 Technopolis Group registers interest swaps in accordance with
the IAS 39 criteria for hedge accounting, in order to eliminate the effects of
the changes in the fair value of derivative instruments on the Group's result
and to reduce volatility in the result of the fiscal year. Most of the Group's
current interest rate swaps meet the criteria for hedge accounting.
The Group's interest coverage ratio was 4.0 (5.6). The interest coverage ratio
indicates the relation between EBITDA and accrual-based interest expenses.
The Group's total assets were EUR 891.6 million (EUR 752.0 million), of which
liabilities totaled EUR 569.7 million (EUR 467.9 million). The Group's equity
ratio was 36.3% (38.0%). At the end of the period, the Group's net gearing was
152.4% (136.7%). The Group's equity per share was EUR 4.90 (EUR 4.84).
At the end of the period, the Group's interest-bearing liabilities amounted to
EUR 502.2 million (EUR 405.8 million), and the average capital-weighted loan
period was 9.2 years (9.6 years). The bank guarantees for the loans granted by
the European Investment Bank, amounting to EUR 123.3 million, have been covered
with shorter agreements than the actual loan period. If the bank guarantees
cannot be renewed, it will be necessary to rearrange the loans. The average
interest rate on interest-bearing liabilities was 2.83% (2.08%) on June 30,
2011. Of interest-bearing liabilities, 61.7% (75.0%) were floating rate loans
and 38.3% (25.0%) 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. By carrying out interest rate swaps, the Group has extended
the interest rate fixing period to 1.5 years (June 30, 2010 1.0 years). A one
percentage point change in market rates would cause an EUR 2.3 million change
in the interest costs per annum. At the end of the reporting period, there were
interest rate swaps covering EUR 157.9 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 59.3% (57.9%). The Group has interest-bearing liabilities
from credit institutions worth EUR 502.2 million, of which EUR 222.3 million
include covenants related to equity ratio, debt service ratio or loan-to-value.
The covenant relating to debt service ratio and loan-to-value rate is included
in the EUR 40.5 million borrowing of Technopolis Ülemiste (share of ownership
51%). In terms of the aforementioned loan amount, the subsidiary's debt service
ratio must be at a minimum 1.1 and its loan-to-value rate 70% at a maximum. If
the covenants are breached, the lender may terminate the loan.
Loans amounting to EUR 181.8 million include covenants relating to the equity
ratio. A decline in the equity ratio may lead to higher interest rate margins
or premature repayment in these 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 40.8 million includes a repayment term. The repayment term is
met if the equity ratio falls below 30%.
If the Group's equity ratio at the end of the reporting period was 35% or less,
and the covenant equity ratio covenant took effect immediately, the impact on
the Group's interest rate expenses would be EUR 0.1 million per annum.
Correspondingly, if the equity ratio was 33% or less, the impact on the Group's
interest rate expenses would be EUR 0.4 million per annum.
Bank guarantees to the amount of EUR 126.0 million have been given as security
for the EUR 123.3 million in loans granted by the EIB. EUR 10.0 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.
During the 12-month period following the period under review, EUR 56.0 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.
On May 11, 2011, the Finnish Financial Supervisory Authority approved
Technopolis' registration document. The registration document is valid for 12
months following its publication. The details of the registration are provided
in a stock exchange release published on May 13, 2011.
Organization and Personnel
The CEO of Technopolis Plc is Keith Silverang, MBA. Mr. Reijo Tauriainen, CFO,
is the company's Deputy CEO.
The Group Management Team comprises Keith Silverang, Reijo Tauriainen, Satu
Eskelinen, Marko Järvinen, Kari Kokkonen, Jukka Rauhala, and Sami Juutinen. 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 146 (133) people.
Facilities operations employed 86 (63) people, Business Services 43 (35) people
and Development Services 17 (35) people. At the end of the period under review,
the Group's personnel totaled 144 (146).
Technopolis key personnel have a share incentive program decided on by the
Board of Directors, 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, mutual real estate company Innopoli II in Espoo (wholly owned),
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%). The Group owns 35% of Otaniemi
Marketing Ltd.
In May 2011, Innopoli Ltd. and Technopolis Ventures Ltd. were merged into
Technopolis Plc. The mergers did 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 Board 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.
Following the AGM, the Board appointed within itself an audit committee and a
remuneration committee. The audit committee consists of Mr. Timo Ritakallio,
chair, and Carl-Johan Granvik, and Pekka Korhonen. The remuneration committee
consists of Mr. Pertti Huuskonen, chair, and Teija Andersen and Matti Pennanen.
The Annual General Meeting held on March 30, 2011, decided to form a
shareholders' nominating committee to prepare proposals for the next Annual
General Meeting on the composition and remuneration of the Board of Directors.
The nominating 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 shareholders' nominating committee will continue until a
new nominating committee is appointed, unless the general meeting resolves
otherwise. The shareholders' nominating committee prepares the above-mentioned
proposals also for extraordinary general meetings, if needed. A person who
could not, according to the applicable Finnish Corporate Governance Code, be
appointed to a nominating committee of the Board of Directors, cannot be
appointed to the shareholders' nominating committee. The shareholders'
nominating 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 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 longer than until 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.
Technopolis 2007B Stock Options were listed on the trading list of the OMX
Nordic Exchange on May 2, 2011. The details of the registration are provided in
a stock exchange release published on April 19, 2011.
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 by under one twentieth (5%) 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
indirectly controlled by OP-Pohjola Group is 2,649,543 shares and 4.180%.
Evaluation of Operational Risks and Uncertainties
Technopolis' most significant risks relate primarily to financial development
associated with financing and customers as well as 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 2.3 million per annum.
Because of the interest rate risk associated with loans, a policy of
diversifying interest bases is pursued. On June 30, 2011, 9.4% of
interest-bearing liabilities were pegged to the under 3-month Euribor rate and
52.4% were pegged to the 3-12 month Euribor rate. Of the interest-bearing
liabilities, 38.3% were 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 period was
9.2 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.
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 the general economic environment may have an adverse effect on the
company's clients and hence on the Group's business 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 198,300 (187,600 on June 30, 2010) square meters of allocated
space, equaling 41.8% (44.3% on June 30, 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.
June 30, 2011 June 30, 2011 June 30, 2010 June 30, 2010
Notice period Allocated sq % of lease Allocated sq % of lease
months m stock m stock
--------------------------------------------------------------------------------
0-3 57,000 12.0 9,700 2.3
--------------------------------------------------------------------------------
3-6 99,300 20.9 45,100 10.7
6-9 15,600 3.3 94,000 22.2
9-12 26,400 5.6 38,800 9.2
--------------------------------------------------------------------------------
Total 198,300 41.8 187,600 44.3
--------------------------------------------------------------------------------
At the end of the period, the average lease period was 17 (19) 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.
Future Outlook
The Group's Management has reviewed the guidance for 2011 and estimates that
both net sales and EBITDA will grow 11-13% in 2011 from the previous year. The
previous forecast was that both net sales and EBITDA would grow 9 - 11 %.
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, August 11, 2011
TECHNOPOLIS PLC
Board of Directors
Keith Silverang
CEO
tel. +358 40 566 7785
APPENDICES:
Financial Reports
A presentation on the details of the Interim Report is publicly available on
the company's website at http://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 paper copy of the document, please call +358
(0)46 712 0000/Technopolis info.
Technopolis provides a newsletter service that you can subscribe to at
http://www.technopolis.fi/for_investors/releases_service. Anyone subscribing to
the service will be sent 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, apart
from hedge accounting in accordance with the IAS 39 standard. The accounting
policy has been changed as follows:
Technopolis Group employs derivative instruments (mainly rate swaps) for
hedging risks relating to market rate fluctuations. As of May 1, 2011, the
Group implements hedge accounting in accordance with IAS 39. Consequently,
changes in the fair value of derivative instruments designated as effective
hedges are recognized directly as comprehensive income in the consolidated
financial statements. Changes in the fair value of ineffective hedges are
recognized immediately in the income statement. Most of the Group's current
interest rate swaps meet the criteria for hedge accounting.
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 4-6/ 4-6/ 1-6/ 1-6/ 1-12/
Currency unit: EUR million 2011 2010 2011 2010 2010
--------------------------------------------------------------------------------
Net sales 22.77 19.83 44.98 39.2 81.18
Other operating income 0.13 0.27 0.53 0.59 1.57
Other operating expenses -10.81 -9.49 -23.08 -19.18 -41.34
Change in fair value of investment 9.34 0.23 15.47 0.69 2.74
properties
Depreciation -0.45 -0.27 -0.88 -0.43 -1.13
--------------------------------------------------------------------------------
Operating profit/loss 20.98 10.57 37.03 20.87 43.01
Finance income and expenses -3.28 -2.47 -3.83 -5.02 -9.43
--------------------------------------------------------------------------------
Result before taxes 17.7 8.1 33.20 15.85 33.59
Current taxes -4.14 -3.23 -8.12 -5.66 -10.13
--------------------------------------------------------------------------------
Net result for the period 13.55 4.87 25.08 10.18 23.46
Other comprehensive income items
Translation difference -0.07 0.00 0.25 0.00 0.00
Available-for-sale financial assets 0.03 -0.01 0.05 0.01 0.02
Derivatives -0.93 0.00 -0.93 0.00 0.00
Taxes related to other comprehensive 0.23 0.00 0.23 0.00 -0.01
income items
--------------------------------------------------------------------------------
Other comprehensive income items after -0.74 0.00 -0.4 0.01 0.02
taxes for the period
Comprehensive income for the period, 12.82 4.86 24.68 10.19 23.48
total
Distribution of profit for the period:
To parent company shareholders 13.41 4.87 24.58 10.18 23.25
To non-controlling shareholders 0.14 0.00 0.50 0.00 0.21
---------------------------------------
13.55 4.87 25.08 10.18 23.46
-----------------------------------------
Distribution of comprehensive income for
the period:
To parent company shareholders 12.67 4.86 24.19 10.19 23.27
To non-controlling shareholders 0.14 0.00 0.5 0.00 0.21
--------------------------------------- 12.82 4.86 24.68 10.19 23.48
-----------------------------------------
Earnings per share based on result of flowing to parent company
shareholders:
Earnings/share, basic (EUR) 0.21 0.08 0.39 0.17 0.38
Earnings/share, adjusted for dilutive 0.21 0.08 0.39 0.17 0.38
effect (EUR)
STATEMENT OF FINANCIAL POSITION, ASSETS
Currency unit: EUR million 06/30/20 06/30/20 12/31/20
11 10 10
Non-current assets
Intangible assets 3.95 4.02 4.05
Tangible assets 61.09 53.71 65.17
Investment property 789.94 649.4 727.67
Investments 13.09 11.71 13.05
Deferred tax assets 2.64 2.78 4.41
--------------------------------------------------------------------------------
Non-current assets 870.71 721.62 814.36
--------------------------------------------------------------------------------
Current assets 20.92 30.39 13.25
--------------------------------------------------------------------------------
Assets, total 891.63 752.00 827.61
--------------------------------------------------------------------------------
STATEMENT OF FINANCIAL POSITION, SHAREHOLDERS'
EQUITY AND LIABILITIES
Currency unit: EUR million 06/30/20 06/30/20 12/31/20
11 10 10
Shareholders' equity
Share capital 96.91 96.91 96.91
Premium fund 18.55 18.55 18.55
Other funds 84.35 84.26 84.22
Translation difference 0.25 0.00 0.00
Other shareholders' equity 0.24 0.31 0.66
Retained earnings 85.98 73.81 73.75
Net result for the period 24.58 10.18 23.25
--------------------------------------------------------------------------------
Parent company's shareholders' interests 310.87 284.04 297.35
Non-controlling interests 11.04 0.01 10.25
--------------------------------------------------------------------------------
Shareholders' equity, total 321.91 284.05 307.60
Liabilities
Non-current liabilities
Interest-bearing liabilities 446.26 357.08 409.92
Non-interest-bearing liabilities 1.05 1.20 1.30
Deferred tax liabilities 45.36 37.66 41.44
--------------------------------------------------------------------------------
Non-current liabilities, total 492.80 395.94 452.65
Current liabilities
Interest-bearing liabilities 55.98 48.72 47.95
Non-interest-bearing liabilities 20.95 23.29 19.41
--------------------------------------------------------------------------------
Current liabilities, total 76.93 72.01 67.36
Liabilities, total 569.72 467.95 520.01
--------------------------------------------------------------------------------
Shareholders' equity and liabilities, total 891.63 752.00 827.61
--------------------------------------------------------------------------------
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 1-6/ 1-6/ 1-12/
Currency unit: EUR million 2011 2010 2010
----------------------------------------------------------------------------
Cash flows from operating activities
Net result for the period 25.08 10.18 23.46
Adjustments:
Change in fair value of investment properties -15.47 -0.69 -2.74
Depreciation 0.88 0.43 1.13
Share in affiliate profits -0.11 0.01 0.03
Gains from disposals -2.01
Other adjustments for non-cash transactions 0.32 0.37 0.70
Financial income and expenses 3.94 5.01 9.40
Taxes 8.12 5.66 10.13
Increase / decrease in working capital 0.83 -1.51 1.65
Interests received 0.09 0.21 0.40
Dividends received 0.01 0.01 0.01
Interests paid and fees -4.41 -3.55 -7.16
Other financial items in operating activities -1.01 -1.21 -3.09
Taxes paid -2.79 -3.33 -6.84
----------------------------------------------------------------------------
Net cash provided by operating activities 15.47 11.60 25.05
Cash flows from investing activities
Investments in other securities -0.01 -0.41 -0.47
Investments in investment properties -41.31 -23.85 -54.17
Investments in tangible and intangible assets -0.50 -2.22 -2.41
Granted loans -0.03 -0.04
Repayments of loan receivables 0.06 3.07 4.07
Proceeds from sale of investments 0.01 1.52
Proceeds from sale of tangible and intangible assets 0.05 2.21
Acquisition of subsidiaries -2.38 -11.88
----------------------------------------------------------------------------
Net cash used in investing activities -41.74 -25.82 -61.13
Cash flows from financing activities
Increase in long-term loans 62.90 17.50 43.74
Decrease in long-term loans -17.06 -14.44 -31.56
Dividends paid -10.77 -8.60 -8.60
Paid share issue 20.20 20.49
Capital investment by the minority 0.29
Change in short-term loans -2.01 12.68 11.98
----------------------------------------------------------------------------
Net cash provided by financing activities 33.35 27.34 36.05
Net increase/decrease in cash assets 7.08 13.12 -0.03
Effects of exchange rate fluctuations on cash held -0.01
Cash and cash equivalents at period-start 4.49 4.52 4.52
Cash and cash equivalents at period-end 11.56 17.64 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
Share issue 20.24 20.24
Dividend -8.60 -8.60
distribution
Comprehensive 0.01 10.18 10.19
income for
the period
Other changes 0.06 0.31 0.37
EQUITY June 96.91 18.55 84.26 84.31 0.01 284.05
30, 2010
EQUITY Dec 96.91 18.55 84.22 97.67 10.25 307.60
31, 2010
Dividend -10.78 -10.78
distribution
Comprehensive 0.04 0.25 23.90 0.50 24.68
income for
the period
Other changes 0.09 0.02 0.29 0.40
EQUITY June 96.91 18.55 84.35 0.25 110.81 11.04 321.91
30, 2011
Financial Information by Segment
On June 30, 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 4-6/ 4-6/ 1-6/ 1-6/ 1-12/
Currency unit: EUR million 2011 2010 2011 2010 2010
------------------------------------------------------------------
Net sales
Finland 20.97 19.83 41.69 38.88 79.92
Russia 0.62 0.01 0.94 0.34 0.27
Russia 1.17 0.00 2.33 0.00 1.04
Unallocated and eliminations 0.01 -0.02 0.02 -0.02 -0.05
Total 22.77 19.83 44.98 39.20 81.18
------------------------------------------------------------------
EBITDA
Finland 11.03 10.45 21.11 20.72 42.22
Russia 0.19 -0.44 -0.37 -0.47 -1.97
Russia 0.82 0.00 1.63 0.00 0.78
Unallocated and eliminations 0.03 0.59 0.04 0.36 0.37
Total 12.06 10.60 22.41 20.61 41.40
------------------------------------------------------------------
Assets
Finland 772.07 740.45 728.73
Russia 56.06 48.47 47.87
Russia 74.79 0.00 73.64
Eliminations -11.30 -36.92 -22.63
Total 891.63 752.00 827.61
------------------------------------------------------------------
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 4-6/ 4-6/ 1-6/ 1-6/ 1-12/
Currency unit: EUR million 2011 2010 2011 2010 2010
--------------------------------------------------------------------------------
Net sales 22.77 18.99 44.98 38.36 79.17
Other operating income 0.12 0.25 0.51 0.51 1.53
Other operating expenses -10.81 -9.49 -23.08 -19.18 -41.34
Depreciation -0.45 -0.27 -0.88 -0.43 -1.13
--------------------------------------------------------------------------------
Operating profit/loss 11.63 9.48 21.53 19.26 38.22
Finance income and expenses, total -3.13 -1.88 -5.54 -3.83 -8.88
--------------------------------------------------------------------------------
Taxes for direct result items 8.50 7.60 15.99 15.43 29.34
Result before taxes -1.90 -2.51 -3.87 -4.96 -8.20
Non-controlling interests -0.14 0.00 -0.50 0.00 -0.21
--------------------------------------------------------------------------------
Direct result for the period 6.45 5.10 11.63 10.46 20.94
INDIRECT RESULT
Non-recurring items 0.01 0.85 0.03 0.92 2.05
Change in fair value of investment 9.34 0.23 15.47 0.69 2.74
properties
--------------------------------------------------------------------------------
Operating profit/loss 9.35 1.08 15.50 1.61 4.79
Change in fair value of financial -0.15 -0.59 1.71 -1.19 -0.55
instruments
--------------------------------------------------------------------------------
Result before taxes 9.20 0.49 17.20 0.42 4.24
Taxes for indirect result items -2.24 -0.72 -4.26 -0.70 -1.93
--------------------------------------------------------------------------------
Indirect result for the period 6.95 -0.23 12.95 -0.28 2.31
Result for the period to the parent 13.41 4.87 24.58 10.18 23.25
company shareholders, total
Earnings per share, diluted *)
From direct result 0.10 0.09 0.18 0.18 0.34
From indirect result 0.11 0.00 0.20 0.00 0.04
--------------------------------------------------------------------------------
From net result for the period 0.21 0.08 0.39 0.17 0.38
KEY INDICATORS 1-6/ 1-6/ 1-12/
2011 2010 2010
--------------------------------------------------------------------------------
Change in net sales, % 14.8 2.7 6.3
Operating profit/loss/net sales, % 82.3 53.2 53
Interest coverage ratio 4.0 5.6 4.9
Equity ratio, % 36.3 38 37.4
Loan to value, % 59.3 57.9 58
Group company personnel during the period, 146 133 135
average
Gross expenditure on assets, EUR million 44.3 44.3 134.4
Net rental revenue of investment properties, 7.6 7.5 7.7
% 2)
Financial occupancy rate, % 93.6 92.8 94.4
Earnings/share
basic, EUR 0.39 0.17 0.38
diluted, EUR 0.39 0.17 0.38
Equity/share, EUR 4.90 4.84 4.69
Average issue-adjusted number of shares
basic 63.385.044 58.690.929 61.040.730
diluted 63.583.063 58.814.950 61.186.677
CONTINGENT LIABILITIES
Currency unit: EUR million 06/30/2011 06/30/2010 12/31/2010
Pledges and guarantees on own debt
Mortgages of properties 431.42 353.9 351.9
Book value of pledged securities 193.44 157.06 171.52
Other guarantee liabilities 61.13 12.9 46.5
Collateral given on behalf of associates 0.00 0.5 0.5
Leasing liabilities, machinery and equipment 3.78 3.10 3.78
Project liabilities 0.33 0.15 0.15
Interest rate and currency swaps
Nominal values 157.87 95.20 136.89
Fair values -0.59 -1.91 -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.
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