Stock Exchange Releases

Technopolis Group Financial Statements for 2011

TECHNOPOLIS PLC    FINANCIAL STATEMENTS RELEASE       February 1, 2012 at 7:00 p.m.

 

Technopolis Group Financial Statements for 2011

 

Highlights of 2011 compared to 2010:

– Net sales rose to EUR 92.8 (81.2) million
– EBITDA rose to EUR 47.5 (41.4) million
– Operating profit rose to EUR 72.0 (43.0) million and profit before taxes to EUR 60.0 (33.6) million;
both included a change of EUR 26.3 (2.7) million in the fair value of investment properties
– The financial occupancy rate was 95.1% (94.4%)
– The Group’s equity ratio was 35.8% (37.4%)
– Net rental revenues of investment properties amounted to 7.8% (7.7%)
– Earnings per share (undiluted) were EUR 0.74 (0.38) and diluted EUR 0.73 (0.38)
– Cash flow from operations per share was EUR 0.48 (0.41)
– Equity per share was EUR 5.21 (4.69)
– The Board of Directors proposes a dividend of EUR 0.20 (0.17) per share
Keith Silverang, CEO:

”Technopolis’ operations developed favorably in 2011. Our net sales increased to EUR 92.8 million and EBITDA to EUR 47.5 million. EBITDA level remained stable, amounting to 51.2% of net sales. Compared to the previous year, EBITDA improved by 14.8% and net sales by 14.4%. The favorable development was primarily the result of a higher occupancy rate, increase in rents and commissioning of facilities.

One of our key strategic objectives is to strengthen the contribution of health and education sector services. Currently, it accounts for approximately 18% of net sales. During 2011, we opened a healthcare innovation center with a patient hotel and eye center in Finnmedi. It has met an enthusiastic reception on the market, and there is interest in the duplicable concept also elsewhere in Finland. Also, the cooperation with Savonia University of Applied Sciences in Kuopio has progressed favorably, and their functions have moved to 2,500 square meters of our premises in 2011. In accordance with a frame agreement signed in 2011, the floor area may increase to 33,000 square meters by the end of 2015. Technopolis Ülemiste concluded a ten-year agreement with the Estonian Tax and Customs Board, which enabled the start-up of the joint venture’s first growth project. In St. Petersburg, first phase of Technopolis Pulkovo is full, and the growth prospects are promising.

The European debt crisis sets its own challenges, but the company’s financing is in order and we are confident about the year 2012.”

Business Environment

In Finland, the situation in the office rental market has been stable throughout 2011. Occupancy rates of offices have increased steadily in the Helsinki region, but new office buildings to be completed shortly may result in an increase in vacancy rates. The St. Petersburg office market has picked up and the ruble-denominated rent level has remained steady during the year. In Tallinn, the vacancy rates of modern offices have fallen below ten percent, and underutilization is expected to decrease slightly further during 2012.

The economic prospects for Europe continue to be uncertain, and the fear of the spreading of the euro area financial crisis has not disappeared, which has been observed in delays in decision-making by customers.

Operations

The Technopolis Group operates in real estate and the service business, divided into three operating segments based on geographic units: Finland, Russia, and Estonia.

During the second half of the year, demand recovered in the areas where Technopolis operates and the Group’s financial occupancy rate has risen to 95.1 (94.4) %. The company’s occupancy rates are still above the average.

The operations in Finland continued steadily, and both net sales and EBITDA developed favorably. The Group has consolidated its competence and offering in the healthcare and education segments.

In Tallinn, net sales and EBITDA were at a favorable level and financial occupancy rate decreased slightly to 90.7%. The occupancy rate is still above the average occupancy rate for class A offices in Tallinn, which was 89%. In December, Technopolis Ülemiste entered into an agreement with the Estonian Tax and Customs Board, resulting in Technopolis expanding the rentable space of its airport campus by 24,650 square meters.

In St. Petersburg, the occupancy rate of the Technopolis Pulkovo airport campus was 100% in December. The unit’s EBITDA was profitable in the fourth quarter, increasing to EUR 0.3 (-1.26) million. The full-year EBITDA was EUR -0.2 (-2.0) million.

The Group’s financial occupancy rates on December 31, 2011:

 

Dec 31, 2011 Sep 30, 2011 June 30, 2011 March 31, 2011 Dec 31, 2010
Group 95.1% 95.7% 93.6% 94.5% 94.4%
Finland 95.1% 95.8% 95.4% 94.6% 94.5%
  Oulu 91.8% 94.7% 92.8% 92.3% 91.7%
  HMA 95.3% 95.3% 96.9% 97.1% 98.0%
  Jyväskylä 96.8% 96.9% 96.2% 94.1% 94.6%
  Kuopio 98.2% 97.4% 97.2% 94.4% 96.3%
  Lappeenranta 92.6% 95.6% 98.2% 98.4% 94.4%
  Tampere 98.5% 98.0% 97.3% 97.3% 96.1%
Estonia, Tallinn 90.7% 94.4% 93.7% 92.9% 93.5%
Russia, St. Petersburg 100.0% 95.3% 61.7%

*) The figures for the Group’s financial occupancy rates are not comparable, as the lease stock of the St. Petersburg subsidiary has been included in the figures from June 30, 2011.

The Group’s net sales for the period under review were EUR 92.8 (81.2) million, showing an increase of 14.4%. Rental revenue accounted for 86.7 (85.8) % and service revenue for 13.3 (14.2) % of net sales. Like-for-like rental growth, that is, the rental revenue from comparable properties, was 6.8%, primarily due to increasing occupancy rates and index increases.

The Group’s EBITDA was EUR 47.5 (41.4) million, an increase of 14.8%.

Breakdown of net sales and EBITDA by business function: (Figures from internal reporting, excluding eliminations.)

 

 

Premises 1-12/2011 1-12/2010
Net sales 80.7 70.3
EBITDA 52.9 47.1
EBITDA % 65.6% 67.1%
Services 1-12/2011 1-12/2010
Net sales 12.1 11.2
EBITDA 2.0 1.1
EBITDA % 16.4% 10.2%

 

The Group’s operating profit totaled EUR 72.0 (43.0) million. The increase in operating profit is primary due to the change in the fair market value of investment properties, which was EUR 26.3 (2.7) million. 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 12.0 (9.4) million. The net financial expenses include EUR 0.9 million of unrealized exchange rate losses due to the weakening of the Russian ruble. Financial items in comprehensive income include EUR 1.7 million in unrealized interest rate swap-related earnings from the 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 satisfy the criteria for hedge accounting. The Group’s interest fixing period was 1.2 (1.5) years. The Group’s result before taxes totaled EUR 60.0 (33.6) million.

The Group’s direct result was EUR 24.6 (20.9) million, an increase of 17.6%. The increase was due primarily to the financial occupancy rate exceeding expectations, service revenue, and cost-savings. 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.

Cash flow from operations/share was EUR 0.48 (0.41).

Total assets were EUR 962.9 (827.6) million, an increase of 16.3%. The Group’s equity ratio at the end of the period was 35.8 (37.4) %.

The fair market value of the Group’s completed investment properties at the end of the period was EUR 843.8 (727.7) million and the fair market value of investment properties under construction was EUR 61.7 (54.1) million.

The increase in the value of investment properties is primarily due to a decline in market yields and increase in occupancy rates. Net market yields on investment properties and properties under construction 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 December 31, 2011, the average net yield for Group properties was 8.0 (8.0) %. The average ten-year occupancy rate used in the fair value calculation was 95.4%. The Group has set a higher target for the financial occupancy rate than this. Over the period of 2002–2011, the Group’s average occupancy rate was 96.2%.

The Group’s total rentable space at the end of the period was 576,900 (527,800) square meters, with 34,300 square meters under construction. The Group’s financial occupancy rate at the end of the period was 95.7 (94.4) %. The Group’s financial occupancy rate in 2011 averaged 94.9 (93.7) %. 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 215.4 (135.3) million at the end of the reporting period. This figure does not include the lease stock of buildings under construction.

At the end of the period, the average lease period was 26 (19) months. Lease period data does not include the lease stock of buildings under construction.

Geographically, the Group’s property portfolio is diversified between the Oulu region, the Helsinki Metropolitan Area, Jyväskylä, Kuopio, Lappeenranta, Tampere, St. Petersburg, and Tallinn. No single customer accounts for more than 5% of the Group’s net sales. The Group has a total of approximately 1,300 customers across a wide range of sectors.
 

Investment properties December 31, 2011 Fair value, EUR million Net yield requirement, % m2
Finland Oulu 231.6 8.3% 192,900
HMA 181.5 6.9% 77,600
Tampere 120.3 7.4% 65,200
Kuopio 88.3 8.3% 53,900
Jyväskylä 75.8 7.9% 47,100
Lappeenranta 29.3 8.8% 27,300
Finland Finland, total 726.7 7.7% 464,100
Estonia Tallinn 64.7 8.4% 79,200
Russia St. Petersburg 52.4 10.1% 24,100
Group’s investment properties Total 843.8 8.0% 567,400
Investment properties under construction* 5 different 61,7 34,300
Other properties (holdings, rented) 9,500

* 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.

Technopolis facilities are located next to good traffic connections, comprising university, airport and downtown campuses and other innovation campuses.

Major Investments and Development Projects

At the end of the period under review, Technopolis had office facilities under construction in the Helsinki Metropolitan Area, Tampere, Kuopio, and Jyväskylä in Finland as well as in Tallinn, Estonia. The projects expand existing centers.

Projects completed during 2011:

 

Campus type Area m2 EUR million Initial yield % Completed
Pulkovo, Phase 1 Airport campus St. Petersburg 19,500 52.8 10.6 6/2011
Helsinki-Vantaa 5, Part 2 Airport campus HMA 2,900 6.0 7.0 5/2011
Finnmedi campus University campus Tampere 12,900 27,9 7.4 11/2011

 

Projects under construction on December 31, 2011:

 

Campus type Area ‑{}‑m2 EUR million Occupancy rate % December 31, 2011 Initial yield % Due for completion
Ruoholahti 2 Downtown HMA 9,000 27.7 48.0 6.3 5/2012
Yliopistonrinne 2 Downtown Tampere 7,900 22.5 50.0 7.0 9/2012
Innova 2 Downtown Jyväskylä 9,200 19.8 94.0 7.6 2/2012
Hermia 15 B University Tampere 4.800 10.9 100.0 7.5 1/2012
Viestikatu 2B Other campus Kuopio 3,400 4.7 100.0 8.4 1/2012

 

Planed projects on 31.12.11:

 

Campus type Status Area m2 Estimated launch
Ülemiste Lõõtsa 8 Airport campus No investment decision Tallinn 22,000 01/2012
Pulkovo 2 Airport campus No investment decision St. Petersburg 22,400 02/2012
Viestikatu 7 Other campus No investment decision Kuopio 10,200 02/2012

 
Strategy and Financial Targets

In September, the company’s Board of Directors confirmed the company’s financial targets for the period 2012–2016 as follows:

– net sales and EBITDA by an annual average of 15% (previous target 10% annually)
– over EUR 50 million net sales outside Finland by 2016
– at least 6% return on capital employed annually
– equity ratio over 35% over the cycle
– the aim is to distribute annually 40%–50% of net profit excluding changes in fair value as dividends

The company aims to strengthen the contribution of the health and education sector in its customer portfolio by investing in these segments and specific services employed by them. Technopolis aims to diversify its customer portfolio both between business sectors and regionally.

Technopolis has been continuously analyzing potential international investment targets in the Baltic Sea region 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. In addition, the project must have a positive impact on earnings per share, and the customer base of the property must match the Technopolis concept. In accordance with the environmental strategy, all new Technopolis buildings and potential existing properties will apply for LEED environmental certification.

Financing

At the end of the reporting period, funds available to Technopolis consisted of EUR 63.0 (111.0) million in untapped credit facilities, and cash amounting to EUR 12.5 (4.5) million. The credit facilities contained a EUR 45.0 (100.8) million credit line and a EUR 18.0 (10.2) million revolving credit facility. Use of the available credit limit facilities requires collateral arrangements. In addition, the company has a EUR 120 million commercial paper program, of which EUR 25.0 million was issued at the end of the reporting period.

The Group’s net financial expenses totaled EUR 12.0 (9.4) million. The net financial expenses include EUR 0.9 million of unrealized exchange rate losses due to the weakening of the Russian ruble. The result for the period includes EUR 1.7 million in unrealized interest rate swap-related earnings from the period January 1 – April 30, 2011. Financial items recognized directly in shareholders’ equity and the statement of comprehensive income include EUR -3.2 million in changes in the fair value of interest rate swaps from the period May 1 – December 31, 2011, taking tax effects into consideration. 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 satisfy the criteria for hedge accounting.

The Group’s interest coverage ratio was 3.7 (4.9). The interest coverage ratio indicates the relation between EBITDA and accrual-based interest expenses.

The Group’s total assets were EUR 962.9 (827.6) million, of which liabilities totaled EUR 619.7 (520.0) million. The Group’s equity ratio was 35.8 (37.4) %. At the end of the period, the Group’s net gearing was 156.0 (147.4) %. The Group’s equity per share was EUR 5.21 (4.69).

At the end of the period, the Group’s interest-bearing liabilities amounted to EUR 547.7 (457.9) million, and the average capital-weighted loan period was 8.7 (8.8) years.  The average interest rate on interest-bearing liabilities was 2.80 (2.42) % on December 31, 2011. Of interest-bearing liabilities, 63.0 (67.5) %  were floating rate loans and 37.0 (32.5) % were fixed rate loans at the end of the period.

Technopolis prepared for a potential increase in interest rates early in the financial period by increasing the number of interest swaps. The Group’s interest fixing period was 1.2 (1.5) years at year’s end. A one percentage point change in market rates would cause a EUR 2.6 million change in the interest costs per annum. At the end of the reporting period, there were interest rate swaps covering EUR 170.0 (136.9) 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 60.0 (58.0) %. The Group has interest-bearing liabilities from credit institutions worth EUR 547.7 (457.9) million, of which EUR 252.9 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 40.0 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. At the end of the reporting period, Technopolis Ülemiste’s debt service ratio was 1.4 and loan-to-value rate 53.7%.

Loans amounting to EUR 212.9 (185.5) 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 40.6 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 33%–35%, 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 less than 33%, 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 141.8 million in loans granted by European Investment Bank (EIB). The bank guarantees for the loans granted by the EIB, 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.  EUR 10.0 million of these bank guarantees will expire by the end of 2013, and the plan is to extend them.

During the 12-month period following the period under review, EUR 78.9 million in existing interest-bearing loans will mature.

The financing of Technopolis Pulkovo, Phase 1, has been arranged through a European Bank for Reconstruction and Development (EBRD) loan of EUR 30.5 million and the parent company’s investments in shareholders’ equity.

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 13.05.11

Organization and Personnel 

The CEO of Technopolis Plc is Keith Silverang. 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 operative organization consists of three units: Finland, Russia, and Estonia. The Group organization also has matrix support functions for the Group’s real estate development, services and support services.

During the period, the Group employed an average of 158 (135) people. Facilities operations employed 89 (66) people, Business Services 50 (35) people and Development Services 19 (34) people. At the end of the period under review, the Group’s personnel totaled 174 (134). During the reporting period personnel increased especially in Reception Services, where Group insourced 15 employees to guarantee high service quality. Transfer did not have cost effect.

Technopolis has 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, 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 mutual real estate companies Microkatu 1 (91.37%), Viestikatu  7 (wholly owned) and Viestikatu 1–3 (wholly owned) in Kuopio. In addition, the parent company has four other subsidiaries in Finland.

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 associated companies Kiinteistö Oy Bioteknia (28.5%), Iin Micropolis Oy (25.7%), Jyväskylä Innovation Ltd (24%), and Kuopio Innovation Ltd (24%). In addition, the parent company owns 35% of Otaniemi Marketing Ltd and 50% of Rehaparkki Oy.

In 2011 Innopoli Ltd and Technopolis Ventures Ltd were merged to the parent company.

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.

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 nomination committee will continue until a new nomination committee is appointed, unless the general meeting resolves otherwise. The 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 nominations committee of the Board of Directors, cannot be appointed to the nominating committee. The shareholders’ nominating committee will also fulfill the requirements of independence in relation to the company as set out in the Code.

Members of the Nomination Board are Risto Murto, Executive Vice-President of Varma Mutual Pension Insurance Company, Harri Sailas, President and CEO of Ilmarinen Mutual Pension Insurance Company and Timo Kenakkala, Deputy Mayor of City of Oulu as well as Pertti Huuskonen, chairman of Technopolis Plc’s board of directors. Risto Murto acts as chairman of the Nomination Board.

The other resolutions of the general meeting are presented in the stock exchange release 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.

Varma Mutual Pension Insurance Company disclosed in January 2011 that its holding had increased to above 15% and in August 2011, Varma announced that its direct holding of Technopolis Plc’s share capital and votes had increased above one-fifth (20%) as a result of a share transaction carried out on August 25, 2011. After the transaction, the proportion of Technopolis Plc’s share capital and votes controlled directly by Varma Mutual Pension Insurance Company is 12,834,529 shares and 20.25%, respectively.

Technopolis 2007B Stock Options were listed on the trading list of NASDAQ OMX Helsinki 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, 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%.

Post-fiscal Events

On January 27, 2012, Technopolis Ülemste AS announced to start Tallinn airport campus expansion. Expansion is connected to agreement with the Estonian Tax and Customs Board whereby it leases approximately 11,650 square meters for ten years from the Technopolis Ülemiste airport campus.

Board of Directors’ Proposal for Distribution of Profit

At the end of the period distributable funds of the parent company were EUR 31,900,524. The Board of Directors proposes that a dividend of EUR 0.20 (0.17) per share be paid, totaling EUR 12,677,009. The Board proposes that the remainder be left in the retained earnings account. The proposed dividend is 49% of the earnings per share excluding changes in the fair value of investment properties.

There have been no significant changes to the company’s financial status after the end of the financial period. According to the opinion of the Board of Directors, the company’s liquidity is good and the proposed distribution of profit will not negatively influence the company’s solvency.
Evaluation of Operational Risks and Uncertainties

Technopolis’ most significant business 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 2.6 million per annum.

Because of the interest rate risk associated with loans, a policy of diversifying interest bases is pursued. 34.5% of interest-bearing liabilities were pegged to the under 3-month Euribor rate and 28.5% were pegged to the 3–12 month Euribor rate. Of the interest-bearing liabilities, 37.0% 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 8.7 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.

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 53.7 (43.3) % of the lease stock. The term of notice for these agreements is broken down as shown in the table below.

 

 

Notice period months Dec 31, 2011
% of lease stock
Dec 31, 2010
% of lease stock
0 – 3 13.1 2.6
3 – 6 28.7 9.3
6 – 9 6.2 23.2
9 – 12 5.7 8.3
Total 53.7 43.3

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, covenant terms 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 estimates that net sales and EBITDA will grow 12%–15% in 2012 from the previous year.

The Group’s financial performance depends on the development of the overall business environment, customer operations, financial markets and the development for yield requirements for the properties. Developments in these areas may result 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.

Vantaa, February 1, 2012

TECHNOPOLIS PLC

Board of Directors

 

Additional information:

Keith Silverang
CEO
tel. +358 40 566 7785
APPENDICES:

Tables

A presentation of the Financial Statements Release in pdf format is available on the company’s website at www.technopolis.fi/for investors/presentations. The Financial Statements Release 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 www.technopolis.fi/for_investors/presentations. Individuals who sign up with the service will receive the company’s bulletins electronically.

Year 2012 Annual General Meeting and Annual Report 2011

Year 2012 Annual General Meeting will be held at Espoo March 27, 2012. A shareholder who wishes to include a certain matter on the agenda of the Annual General Meeting should submit such request in writing to the address Technopolis Oyj/Board of Directors, Hiilikatu 3, 00180 Helsinki, by February 14, 2011.

The company’s Annual Report will be published on week 9 on the company’s website.

Financial Reports

The accounting policies applied in the Financial 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 financial 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 10-12/ 10-12/ 1-12/ 1-12/
Currency unit: EUR million 2011 2010 2011 2010
Net sales 24.87 22.82 92.83 81.18
Other operating income 1) 0.56 0.73 1.22 1.57
Other operating expenses -12.58 -13.25 -46.52 -41.34
Change in fair value of investment properties 0.59 4.53 26.28 2.74
Depreciation -0.48 -0.39 -1.83 -1.13
Operating profit/loss 12.96 14.44 71.99 43.01
Finance income and expenses -2.50 -2.18 -11.98 -9.43
Result before taxes 10.45 12.26 60.01 33.59
Current taxes 1.19 -3.33 -11.22 -10.13
Net result for the period 11.64 8.92 48.80 23.46
Other comprehensive income items
Translation difference 0.68 0.00 0.06 0.00
Available-for-sale financial assets 0.00 -0.01 0.05 0.02
Derivatives -0.60 0.00 -4.39 0.00
Taxes related to other comprehensive income items 0.16 0.00 1.13 -0.01
Other comprehensive income items after taxes for the period 0.23 0.00 -3.15 0.02
Comprehensive income for the period, total 11.87 8.92 45.64 23.48
Distribution of profit for the period:
To parent company shareholders 10.96 8.72 46.70 23.25
To non-controlling shareholders 0.68 0.21 2.10 0.21
11.64 8.92 48.80 23.46
Distribution of comprehensive income for the period:
To parent company shareholders 11.19 8.71 43.55 23.27
To non-controlling shareholders 0.68 0.21 2.10 0.21
11.87 8.92 45.64 23.48
Earnings per share based on result of flowing to parent company shareholders:
Earnings/share, basic (EUR) 0.17 0.14 0.74 0.38
Earnings/share, adjusted for dilutive effect (EUR) 0.17 0.14 0.73 0.38

 

  1. Other operating income consists of operating subsidies received for development services; an equal amount is recorded under operating expenses for development services.

 

STATEMENT OF FINANCIAL POSITION, ASSETS
Currency unit: EUR million 12/31/2011 12/31/2010
Non-current assets
Intangible assets 6.72 4.05
Tangible assets 12.02 11.12
Investment property 843.78 727.67
Investments 61.70 54.06
Deferred tax assets 12.30 13.05
Non-current assets 2.47 4.41
Current assets 938.99 814.36
Assets, total 23.89 13.25
STATEMENT OF FINANCIAL POSITION, ASSETS 962.88 827.61
STATEMENT OF FINANCIAL POSITION, SHAREHOLDERS’ EQUITY AND LIABILITIES
Currency unit: EUR million 12/31/2011 12/31/2010
Shareholders’ equity
Share capital 96.91 96.91
Premium fund 18.55 18.55
Other funds 81.10 84.22
Translation difference -0.64 0.00
Other shareholders’ equity 0.41 -0.07
Retained earnings 87.01 74.48
Net result for the period 46.70 23.25
Parent company’s shareholders’ interests 330.04 297.35
Non-controlling interests 13.13 10.25
Shareholders’ equity, total 343.17 307.60
Liabilities
Non-current liabilities
Interest-bearing liabilities 468.84 409.92
Non-interest-bearing liabilities 1.04 1.30
Deferred tax liabilities 45.97 41.44
Non-current liabilities, total 515.85 452.65
Current liabilities
Interest-bearing liabilities 78.87 47.95
Non-interest-bearing liabilities 24.99 19.41
Current liabilities, total 103.86 67.36
Liabilities, total 619.71 520.01
Shareholders’ equity and liabilities, total 962.88 827.61

 

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 1-12/ 1-12/
Currency unit: EUR million 2011 2010
Cash flows from operating activities
Net result for the period 48.80 23.46
Adjustments:
 Change in fair value of investment properties -26.28 -2.74
 Depreciation 1.83 1.13
 Share of profits of associates -0.03 0.03
 Gains from disposals 0.03 -2.01
 Other adjustments for non-cash transactions 0.60 0.70
 Financial income and expenses 12.01 9.40
 Taxes 11.22 10.13
Increase / decrease in working capital -0.90 1.65
Interests received 0.18 0.40
Dividends received 0.01 0.01
Interests paid and fees -10.24 -7.16
Other financial items in operating activities -2.40 -3.09
Taxes paid -4.35 -6.84
Net cash provided by operating activities 30.47 25.05
Cash flows from investing activities
Investments in other securities -0.01 -0.47
Investments in investment properties -98.13 -54.17
Investments in tangible and intangible assets -4.36 -2.41
Granted loans -0.08
Repayments of loan receivables 0.13 4.07
Proceeds from sale of investments 0.41 1.52
Proceeds from sale of tangible and intangible assets 0.16 2.21
Acquisition of subsidiaries -11.88
Acquisition of associates -0.72
Proceeds from sales of associates 0.87
Net cash used in investing activities -101.74 -61.13
Cash flows from financing activities
Increase in long-term loans 113.32 43.74
Decrease in long-term loans -36.83 -31.56
Dividends paid -10.77 -8.60
Paid share issue 20.49
Capital investment by the minority 0.78
Change in short-term loans 12.87 11.98
Net cash provided by financing activities 79.38 36.05
Net increase/decrease in cash assets 8.10 -0.03
Effects of exchange rate fluctuations on cash held -0.08
Cash and cash equivalents at period-start 4.49 4.52
Cash and cash equivalents at period-end 12.51 4.49

 

 

 

STATEMENT OF CHANGES IN EQUITY
Currency unit: EUR million Share capital Premium fund Other funds Trans-lation diffe-rence Retain-ed earn-ings Non-controlling share-holders Shareholders’ equity
EQUITY December 31, 2009 96.91 18.55 63.94 82.42 0.01 261.84
Share issue 20.19 20.19
Dividend distribution -8.60 -8.60
Comprehensive income for the period 0.02 23.25 0.21 23.48
Other changes 0.06 0.59 10.03 10.69
EQUITY December 30, 2010 96.91 18.55 84.22 97.67 10.25 307.60
EQUITY December 31, 2010 96.91 18.55 84.22 97.67 10.25 307.60
Dividend distribution -10.78 -10.78
Comprehensive income for the period -3.21 0.06 46.70 2.10 45.64
Other changes 0.09 -0.18 0.78 0.70
EQUITY December 30, 2011 96.91 18.55 81.10 0.06 133.42 13.13 343.17

 

 

 

Financial Information by Segment

On reporting date, 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.

 

 

SEGMENT INFORMATION 10-12/ 10-12/ 1-12/ 1-12/
Currency unit: EUR million 2011 2010 2011 2010
Net sales
  Finland 22.46 21.80 85.19 79.92
  Russia 1.23 -0.02 2.93 0.27
  Estonia 1.16 1.04 4.67 1.04
  Unallocated and eliminations 0.02 -0.01 0.04 -0.05
Total 24.87 22.82 92.83 81.18
EBITDA
  Finland 12.17 10.55 44.82 42.22
  Russia 0.29 -1.26 -0.23 -1.97
  Estonia 0.68 0.78 3.13 0.78
  Unallocated and eliminations -0.29 0.24 -0.18 0.37
Total 12.85 10.30 47.54 41.40
Assets
  Finland 840.19 728.73
  Russia 62.52 47.87
  Estonia 79.04 73.64
  Eliminations -18.87 -22.63
Total 962.88 827.61

 

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 10-12/ 10-12/ 1-12/ 1-12/
Currency unit: EUR million 2011 2010 2011 2010
Net sales 24.87 21.65 92.83 79.17
Other operating income 1) 0.52 0.78 1.12 1.53
Other operating expenses -12.56 -13.25 -46.49 -41.34
Depreciation -0.48 -0.39 -1.83 -1.13
Operating profit/loss 12.35 8.78 45.64 38.22
Finance income and expenses, total -2.50 -2.71 -13.68 -8.88
Taxes for direct result items 9.84 6.07 31.95 29.34
Result before taxes 0.69 -1.90 -5.23 -8.20
Non-controlling interests -0.68 -0.21 -2.10 -0.21
Direct result for the period 9.84 3.97 24.62 20.94
INDIRECT RESULT
Non-recurring items 0.02 1.12 0.07 2.05
Change in fair value of investment properties 0.59 4.53 26.28 2.74
Operating profit/loss 0.61 5.66 26.36 4.79
Change in fair value of financial instruments 0.53 1.71 -0.55
Result before taxes 0.61 6.19 28.06 4.24
Taxes for indirect result items 0.50 -1.44 -5.99 -1.93
Indirect result for the period 1.11 4.75 22.08 2.31
Result for the period to the parent company shareholders, total 10.96 8.72 46.70 23.25
Earnings per share, diluted 2)
From direct result 0.15 0.06 0.39 0.34
From indirect result 0.02 0.08 0.35 0.04
From net result for the period 0.17 0.14 0.73 0.38

2) Earnings per share calculated according to EPRA’s instructions.

 

 

CHANGE IN VALUE OF INVESTMENT
PROPERTIES
10-12/
2011
10-12/
2010
1-12/
2011
1-12/
2010
Change in fair value, Finland 0,4 8,6 15,4 18,8
Change in fair value, Russia 3,0 -2,7 4,7 -2,7
Change in fair value, Estonia 0,8 2,7 2,5 2,7
Change in fair value 4,2 8,6 22,6 18,8
Changes in acquisition costs of investment properties in financial year -7,9 -3,9 -9,2 -8,8
Changes in fair value of projects in progress 4,3 -0,2 12,9 -7,3
Effect on profit of change in value of investment properties 0,6 4,5 26,3 2,7

 

 

KEY INDICATORS 1-12/ 1-12/
2011 2010
Change in net sales, % 14.4 6.3
Operating profit/loss/net sales, % 77.5 53.0
Interest coverage ratio 3.7 4.9
Equity ratio, % 35.8 37.4
Loan to value, % 60.0 58.0
Group company personnel during the period, average 158 135
Gross expenditure on assets, EUR million 150.0 134.4
Net rental revenue of investment properties, % 3) 7.8 7.7
Financial occupancy rate, % 95.7 94.4
Earnings/share
basic, EUR 0.74 0.38
diluted, EUR 0.73 0.38
Cash flows from operating activities/share, EUR 0.48 0.41
Equity/share, EUR 5.21 4.69
Average issue-adjusted number of shares
Basic 63.385.044 61.040.730
Diluted 63.556.767 61.186.677
Issue-adjusted number of shares at year-end 63.385.044 63.385.044
P/E ratio 4.55 10.71
Dividend/share, EUR 4) 0.20 0.17
Dividend payout ratio, % 27.15 44.62
Effective dividend yield 5.97 4.17
OTHER KEY INDICATORS
Market value of shares, EUR million, Dec 31 212.34 258.61
Share turnover, shares 30.084.022 22.547.191
Share turnover out of average number of shares, % 47.46 36.94
Share prices, EUR
Highest price 4.42 4.24
Lowest price 2.61 2.96
Average price 3.59 3.59
Price Dec 31 3.35 4.08

 

3) The figure does not include properties commissioned and acquired during the fiscal year.
4) Proposal for distribution of 2011 dividends
 

CONTINGENT LIABILITIES
Currency unit: EUR million 12/31/2011 12/31/2010
Pledges and guarantees on own debt
Mortgages of properties 472.49 351.90
Book value of pledged securities 208.24 171.52
Other guarantee liabilities 60.87 46.50
Collateral given on behalf of associates 0.00 0.50
Leasing liabilities, machinery and equipment 4.30 3.78
Project liabilities 0.18 0.15
Interest rate and currency swaps
Nominal values 169.96 136.89
Fair values -3.87 -1.27

 

 

Value added tax (VAT) adjustment liability on property investments
Technopolis Group  10-year adjustment period
Currency unit: EUR million 2008 2009 2010 2011 Total
property investment expense (net) 57.4 32.4 38.8 37.3 165.9
VAT on property investment 12.6 7.1 8.4 8.6 36.8
Annual share of VAT on investment 1.3 0.7 0.8 0.9 3.7
VAT deducted 12.6 7.1 8.5 8.6 36.7
Annual share of the VAT deducted 1.3 0.7 0.9 0.9 3.7
Number of years remaining in the adjustment period 6 7 8 9
Refundable amount of deduction 12/31/2011 7.5 5.0 6.8 7.7 27.0
VAT adjustment liability 12/31/2011 27.0
VAT adjustment liability 12/31/2010 22.3
Change 4.7

 

 

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