TECHNOPOLIS PLC STOCK EXCHANGE RELEASE 18.10.2007 at ...

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TECHNOPOLIS PLC STOCK EXCHANGE RELEASE 18.10.2007 at ...

TECHNOPOLIS PLC STOCK EXCHANGE RELEASE 18.10.2007 at 10.40 a.m.

TECHNOPOLIS GROUP INTERIM REPORT, January 1 - September 30, 2007

Highlights of 1-9/2007 compared with the corresponding period of 2006:

- The Group’s net sales rose to EUR 41.2 million (EUR 30.6 million), an

increase of 34.6 %.

- The Group’s EBITDA (Earnings before interest, taxes, depreciation and

amortization) rose to EUR 21.5 million (EUR 16.2 million), an increase of

32.9 %.

- Profit before taxes totaled EUR 23.6 million (EUR 24.1 million), a

decrease of 1.9 %.

- The effect on the pre-tax profit of the change in the fair value of

investment property was EUR 9.3 million (EUR 11.9 million).

Business

The Group’s net sales for the review period were EUR 41.2 million (EUR 30.6

million in 1-9/2006), representing growth of 34.6 %. EBITDA (Earnings before

interest, taxes, depreciation and amortization) for the review period was

EUR 21.5 million (EUR 16.2 million), an increase of 32.9 %. Operating profit

for the review period was EUR 30.4 million (EUR 27.8 million). Profit before

taxes for the review period was EUR 23.6 million (EUR 24.1 million).

The balance sheet total was EUR 513.7 million (EUR 377.1 million), an

increase of 36.2 %. The Group’s equity to assets ratio at the end of the

period was 36.9 % (39.5 %).

The fair value of the Group’s investment property at the end of the review

period was EUR 464.2 million (EUR 355.1 million). The change in the fair

value of investment property was due to the effect of the fair value of

property bought and constructed, a reduction in the return requirements of

the market, changes in future returns and modernization costs, the

revaluation of property owned throughout the review period, and increases in

acquisition cost recognized in separate companies during the review period.

The effect on profit of the change in the fair value of investment property

was EUR 9.3 million (EUR 11.9 million).

The Group’s total rentable surface area was 366,045 floor square meters at

the end of the review period (303,171 floor square meters at September 30,

2006). The Group’s average financial occupancy ratio at the end of the

review period was 96.6 % (93.7 %). The financial occupancy ratio describes

the rental revenue from the properties as a percentage of the combined total

of the rent for the leased space and the estimated market rent for the

vacant space. The Group’s leases at the end of the review period totaled EUR

119.8 million (EUR 101.5 million).

Group structure

The Technopolis Group includes the parent company, Technopolis Plc, which

has operations in Espoo, Jyväskylä, Lappeenranta, Oulu, Tampere and Vantaa,

and its subsidiaries Innopoli Oy in Espoo (100 % owned), Kiinteistö Oy

Innopoli II in Espoo (100 % owned), Medipolis Oy in Oulu (100 % owned) and

other subsidiaries.

The Group has executed a merger of the following Group subsidiaries with

their respective parent companies: Technopolis JSP Ltd, Technopolis JSPF Oy,

Technopolis Kareltek Ltd, Technopolis TSP Oy, Kiinteistö Oy Hermia Kymppi,

Kiinteistö- ja Sijoitusyhtiö Joreco Oy, Kiinteistöosakeyhtiö Teknologiantie


11, Kiinteistö Oy Oulun Teknologiatalot, Kiinteistö Oy Oulun Moderava and

Kiinteistö Oy Oulun Mediaani. In addition, the Group has commenced the

merger of its subsidiary Medipolis Oy with its parent company. The purpose

of the mergers is to increase the cost efficiency of the companies’

operations and streamline Group administration.

The parent company also has a minority holding in the associates

Technocenter Kempele Oy (48.5 %), Iin Micropolis Ltd (25.7 %), Jyväskylä

Innovation Ltd (24 %) and Lappeenranta Innovation Ltd (20 %). Technopolis

Plc has a 13 % holding in Oulu Innovation Ltd.

The Group also includes Technopolis Ventures Oy in Espoo (fully owned by

Innopoli Oy). Technopolis Ventures Oy has the following wholly-owned

subsidiaries: Technopolis Ventures Kareltek Ltd in Lappeenranta (100 %

owned), Technopolis Ventures JSP Ltd in Jyväskylä (100 % owned) and

Technopolis Ventures Oulutech Oy in Oulu (70 % owned). Technopolis Ventures

Oy also has a 25 % holding in Otaniemi Development Ltd.

Technopolis has two Russian companies in St. Petersburg, Technopolis Neudorf

LLC and Technopolis St. Petersburg LLC, both fully owned by Technopolis.

Principal investments and development projects

In February, Technopolis decided to commence the construction of the Hermia

12 property in Tampere. The project’s cost estimate is EUR 9 million and the

gross area is 8,600 square meters, which includes a parking facility for 115

vehicles. 63 % of the facilities have so far been rented. Its total size is

5,000 floor square meters and it is expected to reach completion before the

end of February 2008.

In February, Technopolis reached a result in negotiations with the City of

Oulu and the Northern Ostrobothnia Hospital District concerning the purchase

of a total of 19,250 shares in Medipolis Oy. Following transactions with the

said parties and minority shareholders, Technopolis is the sole owner of

Medipolis Oy.

In May, Technopolis launched the construction of the first stage of its

technology center in Ruoholahti, Helsinki. The size of the stage is 6,600

floor square meters and the cost estimate is somewhat over EUR 20 million,

which includes the costs of parking spaces and site costs. The first stage

is estimated to be completed in August 2008.

In May, Technopolis launched the construction of the first stage of its

Lappeenranta City project. The stage measures 3,150 floor square meters and

is estimated to cost approximately EUR 6.5 million. 64 % of the facilities

have so far been rented. The planned completion is by the end of March 2008.

In spring, Technopolis commenced planning a new technology center in the

heart of Tampere, adjacent to the University of Tampere. In its meeting on

June 4, 2007, the City Board of Tampere approved Technopolis’s request to

reserve a plot of land containing the building rights to around 30,000 floor

square meters for Technopolis, for the purpose of implementing a new

technology center.

In June, Technopolis commenced the third and fourth extension stages of the

Kontinkangas technology center in Oulu. The size of the third extension is

3,500 gross square meters and the investment totals approximately EUR 5

million. 84 % of the third extension have so far been rented. Its estimated

time of completion is August 2008. The size of the fourth extension is 4,290

gross square meters and the investment totals approximately EUR 7.5 million.


Its estimated time of completion is September 2008. Approximately 70 % of

the fourth extension has been rented.

In June, Technopolis Plc signed a preliminary agreement with the City of

Espoo, the Etera Mutual Pension Insurance Company, and Sitra (the Finnish

Innovation Fund) on the acquisition of the entire stock of Kiinteistö Oy

Innopoli II (Innopoli II real estate company). The transaction price was EUR

54.2 million. About 19.4 % of the price was paid in new shares of

Technopolis Plc and the rest in cash. Kiinteistö Oy Innopoli II comprises a

building of 20,625 floor square meters and 1.9 hectares of land owned by the

company and located in the Otaniemi district of the City of Espoo. Completed

in 2002, the property houses some 90 high tech companies.

Implementation of the fifth stage of the Technopolis Helsinki-Vantaa

technology center commenced in September. The size of the stage is about

6,700 gross square meters and the investment will amount to about EUR 15

million. The fifth stage is expected to reach completion in late fall 2008.

In June, Technopolis signed an agreement with Stockmann plc to lease some

4,300 square meters of office space in the Nevsky Centre shopping center

currently under construction in St. Petersburg for the purpose of subletting

it to its customer companies. Located in Nevski Prospekt in downtown St.

Petersburg, the shopping center and office space will be completed in the

spring of 2009.

The district plan for the Pulkovo technology center in St. Petersburg is

expected to be ready by the end of this year. The estimate is that the

prerequisites for commencing work on the approximately 22,000-square-meter

first stage will be met in the first half of 2008.

Technopolis has commenced preliminary inquiries on launching technology

centre operations in the Moscow area. A memorandum of understanding

concerning the collaboration was signed with the City of Moscow in October.

Events related to the Technopolis share

At its meeting on January 4, 2007, the Board of Directors resolved, in

accordance with the authorization granted by the Annual General Meeting of

March 24, 2006, to increase the company’s share capital by a maximum of EUR

1,162,652.40, a total of 687,960 shares, through accepting subscriptions by

institutional investors. The purpose of the share offering was to finance

the investments included in the company’s investment plan, to secure the

company’s growth and to maintain the company’s equity-to-assets ratio.

The shares were offered in deviation from the pre-emptive subscription

rights of shareholders for subscription by Finnish and international

institutional investors. The share offering was implemented through a "book

building" process, in which institutional investors subscribed for the

shares to be issued in accordance with their subscription commitments made

during the reception period for such commitments, January 3-4, 2007. The

demand was about 3.5 times higher than the number of shares offered. The

subscription price was set at EUR 7.70 per share. The increase in share

capital was entered in the Trade Register on January 8, 2007, and trading in

the shares began on January 9, 2007.

In December 2006, a total of 26,131 Technopolis shares were subscribed with

year 2001 options. An increase in the share capital of EUR 44,161.39 was

entered in the Trade Register on February 13, 2007. Including earlier

subscriptions, a total of 98,399 Technopolis shares were subscribed by April

30, 2007 with year 2001 options. An increase in share capital of EUR


166,294.31 was entered in the Trade Register on June 12, 2007. The

subscription period for all of the year 2001 options expired on April 30,

2007.

The Board of Directors of Technopolis decided in August, pursuant to an

authorization by the Annual General Meeting of March 24, 2006, to issue

through a share offering to the City of Espoo, the Etera Mutual Pension

Insurance Company and Sitra (Finnish Innovation Fund) a total of 1,581,429

shares as payment for the shares in Kiinteistö Oy Innopoli II. The resulting

share capital increase of EUR 2,672,615.01 was entered in the Trade Register

on August 20, 2007. Trading in the new shares commenced on August 21, 2007.

Following these increases, the Technopolis share capital is EUR

71,364,476.69 and there are 42,227,501 shares.

Financing

The Group’s net financial expenses totaled EUR 6.8 million (EUR 3.7

million). The Group’s balance sheet total was EUR 513.7 million (EUR 377.1

million), of which liabilities accounted for EUR 324.9 million (EUR 228.8

million). The Group’s equity to assets ratio was 36.9 % (39.5 %). The

Group’s equity per share was EUR 4.47 (EUR 3.78).

The Group’s interest-bearing liabilities at the end of the review period

were EUR 280.1 million (EUR 197.6 million). The average interest rate of

loans was 4.68 % on September 30, 2007 (3.74 %).

Technopolis supplements its financing with a EUR 60.0 million domestic

commercial paper program which allows the company to issue commercial papers

with a maturity of less than a year. The commercial papers in issue totaled

EUR 35.2 million on September 30, 2007.

Organization and personnel

The Group Executive Board includes the President and CEO Pertti Huuskonen,

the directors Jukka Akselin, Satu Eskelinen, Marjut Hannelin, Martti

Launonen, Seppo Selmgren, Keith Silverang, Reijo Tauriainen, and Jarkko

Ojala who commenced as CFO on August 1, 2007.

The Group employed an average of 142 (93) people during the review period.

In premises activities there were 50 (29) people, in business services 32

(20) people and in development services 60 (44) people.

Decisions of the Annual General Meeting

The Annual General Meeting of March 29, 2007 confirmed the consolidated and

parent company income statements and balance sheets for the year 2006,

released those responsible for accounts from further liability and decided

on the distribution of a dividend of EUR 0.14 per share for the year that

ended on December 31, 2006.

The Board of Directors appointed by the Annual General Meeting comprises

Timo Parmasuo, chairman, Matti Pennanen, vice chairman, and Pekka Korhonen,

Erkki Veikkolainen and Juha Yli-Rajala. Pertti Huuskonen is the President

and CEO of Technopolis. The Group’s auditor is KPMG Oy Ab, Authorized Public

Accountants, and the principally responsible auditor is Tapio Raappana, APA.

The Annual General Meeting decided to amend the Group’s articles of

association. The amendments are largely the result of the Companies Act that

came into force on September 1, 2006, and are mostly technical in nature. In


addition, the Annual General meeting decided to authorize the Board of

Directors to decide on acquiring the company’s own shares, a share issue and

granting options and other special rights entitling to shares of the

company, granting options for the year 2007 to Group key personnel and

annulment of the 2005C options.

Evaluation of operational risks and uncertainty factors

The most significant risks to Technopolis’ business operations are mainly

financial risks and customer risks.

Technopolis’ main financial risk is the interest rate risk on the loan

portfolio. The objective of interest rate risk management is to lower or

remove the negative impact of market rate fluctuations on the Group’s

performance, balance sheet and cash flow. The company’s financing policy

aims to diversify the interest rate risk of loan contracts over various loan

periods on the basis of the market situation reigning at any particular time

and the interest rate prognosis created in the company. If necessary, the

company will employ forward rate agreements, interest rate swaps and

interest rate options. In order to manage financial risk, Technopolis uses a

wide range of financing companies and maintains a high capital adequacy

level.

Technopolis only uses derivatives to reduce or remove financial risks in the

balance sheet.

With the structure of the Technopolis loan portfolio at the end of the

review period, a one percentage point increase in money market rates would

increase interest rate costs by EUR 1.2 million per annum.

Due to the interest rate risk related to loans, a policy of diversification

has been followed. On September 30, 2007, 73.3 % of the loan portfolio was

bound either to the 3-12 month Euribor rate or the base rate. Of the loans,

26.7 % were fixed-interest loans of 13 to 60 months. The average capitalweighted

outstanding loan period was 9.9 years. Technopolis supplements its

total financing with a EUR 60.0 million domestic commercial paper program

which allows the company to issue commercial papers with a maturity of less

than a year. The commercial papers in issue totaled EUR 35.2 million on

September 30, 2007.

Changes in the exchange rates between the Russian ruble and euro may have an

effect on the company’s financial situation and operations. Business

transactions denominated in rubles are recorded at the exchange rate of the

transaction date. Any translation differences are entered in the income

statement under other operating expenses or financial income and expenses

depending on the nature of the transaction. The purchase of land in St.

Petersburg was financed in local currency. Currency risks have been

minimized by applying a currency swap.

Customer risk management aims to minimize the negative impact of any changes

in customers’ financial situation on the business and the company’s profit.

In customer risk management, the emphasis is on familiarity with the

customer’s business and active monitoring of customer information. As part

of customer risk management, Technopolis’s leases include rent collateral

arrangements. Properties are insured with full value insurance.

The Group’s property portfolio is divided geographically between the

Helsinki metropolitan area, Jyväskylä, Lappeenranta, Tampere and the Oulu

region. No single customer accounts for more than 13 % of the Group’s net

sales. The Group has arranged the leases of its biggest customers to end at


different times. The Group has a total of more than 1,000 customers, which

operate in several different sectors.

Technopolis is protected against business-cycle fluctuations by fixed leases

which totaled EUR 119.8 million on September 30, 2007. Of the leases, 0.5 %

will expire in 2007, 23.5 % will expire in 2008-2010, 33 % in 2011-2013, 5 %

in 2014-2016, and 38 % in 2017 or later.

In new building projects, Technopolis focuses on quality determination and

the manageability of the property’s entire lifecycle. In the design phase,

all the building’s maintenance and repair requirements are taken into

account, with the aim of implementing environmentally friendly solutions in

terms of energy consumption, the adaptability of office facilities, and

recycling possibilities. In connection with property purchases, Technopolis

carries out the normal property and environmental assessments before

committing to the transaction.

Changes in market return requirements may have a substantial effect on

profit performance. When return requirements increase, the fair value of

properties decreases and when they decrease, the fair value of properties

increases. The changes have either an increasing or decreasing effect on the

Group operating profit.

Outlook for the future

Technopolis management expects that demand for the company’s high tech

operating environments will be satisfactory in 2007 and that the occupancy

ratio of its facilities and demand for their services will remain good.

Technopolis estimates that its net sales and EBITDA for 2007 will grow by

22-26 % on the previous year.

As part of its strategy for growth, Technopolis aims to operate in top high

technology cities in Finland, as well as in Russia and 1–2 other countries

by 2010. The Group aims to increase its net sales by an average of 15 %

annually. It seeks to grow organically as well as through acquisitions.

The Group’s financial performance is dependent on trends in the general

operating environment, in customer business, in the financial markets and in

the return requirements for properties. Factors in these areas may affect

the Group’s result through changes in occupancy ratios, the use of services,

financing costs, the fair values of properties and office rent levels.

Oulu, October 18, 2007

TECHNOPOLIS PLC

Board of Directors

Pertti Huuskonen

President and CEO

Further information:

Pertti Huuskonen, tel. +358 400 680 816 or +358 8 551 3213

A PDF version of this interim report is available at www.technopolis.fi.

Requests for a printed version can be made to Teija Koskela, tel. +358 8 511

3242.


Technopolis Plc has a news release service, which can be subscribed to on

the Internet. Service subscribers will receive the Group’s releases by

email.

Investment properties are measured at fair value. The direct internal and

external costs of construction are included in the acquisition cost of

investment properties during the period of construction, as provided for in

the IAS 16 standard. Interest expenses on loans for the construction period

are allocated to the acquisition cost of properties under construction, as

provided for in the IAS 23 standard.

The figures are unaudited.

INCOME STATEMENT

EUR million 7-9/ 7-9/ 1-9/ 1-9/ 1-12/

2007 2006 2007 2006 2006

Net sales 13.32 11.92 41.15 30.58 44.84

Other operating income 1) 1.30 0.78 3.91 2.17 3.86

Other operating expenses -6.71 -6.44 -23.51 -16.54 -26.00

Change in fair value of

investment properties 3.92 1.41 9.34 11.92 16.07

Depreciation according to plan -0.17 -0.17 -0.49 -0.36 -0.56

Operating profit 11.66 7.49 30.40 27.77 38.21

Financial income and expense -2.49 -1.48 -6.77 -3.69 -5.17

Profit before taxes 9.17 6.02 23.63 24.08 33.05

Income taxes -2.52 -1.81 -6.33 -6.21 -8.46

Net profit for the period 6.65 4.21 17.30 17.88 24.59

Distribution of profit for the period:

To parent company shareholders 6.64 4.11 17.27 17.37 23.74

To minority shareholders 0.01 0.10 0.03 0.51 0.85

BALANCE SHEET, ASSETS

EUR MILLION Sept 30, Sept 30, Dec 31,

2007 2006 2006

Non-current assets

Intangible assets 2.50 2.64 2.63

Tangible assets 14.77 3.40 2.44

Investment property 464.19 355.11 392.16

Investments 22.41 2.06 21.82

Deferred tax assets 1.83 1.79 1.77

Total non-current assets 505.70 365.00 420.83

Current assets 7.99 12.09 10.57

Total assets 513.69 377.09 431.39

BALANCE SHEET, SHAREHOLDERS’ EQUITY AND LIABILITIES

EUR million

Equity

Share capital 71.36 64.41 67.32

Premium fund 18.49 18.55 18.55

Other funds 19.44 0.03 7.37

Other shareholders’ equity 0.17 0.32

Retained earnings 62.09 43.40 43.40

Net profit for the period 17.27 17.37 23.74

Parent company’s shareholders’ interests 188.66 143.92 160.70

Minority interests 0.16 4.41 4.58

Total shareholders’ equity 188.82 148.33 165.28


Liabilities

Long-term liabilities

Interest-bearing liabilities 233.59 155.53 183.16

Non-interest-bearing liabilities 1.44 1.53 1.51

Deferred tax liabilities 32.87 18.47 22.68

Short-term liabilities

Interest-bearing liabilities 46.53 42.03 46.33

Non-interest-bearing liabilities 10.44 11.20 12.44

Total liabilities 324.86 228.76 266.12

Total shareholders’ equity

and liabilities 513.69 377.09 431.39

CONSOLIDATED STATEMENT OF CASH FLOWS

EUR million 1-9/ 1-9/ 1-12/

2007 2006 2006

Cash flows from operating activities

Operating profit 30.40 27.77 38.21

Change in fair value of

investment properties -9.34 -11.92 -16.07

Depreciation 0.49 0.36 0.56

Other non-cash adjustments to

operating profit 0.38 0.19 0.32

Increase/decrease in working capital 0.91 1.35 0.46

Interests received 0.63 0.03 0.29

Interests and fees paid -7.77 -3.81 -5.50

Income from other investments

in non-current assets 0.01 0.01

Taxes paid -2.13 -1.35 -1.92

Net cash provided by

operating activities 13.58 12.62 16.35

Cash flows from investing activities

Investments in other securities -1.56 -0.02

Investments in investment properties -16.68 -26.30 -40.66

Investments in tangible and

intangible assets -0.28 -0.16 -0.44

Repayments of loan receivables 0.01 0.03 0.04

Sales proceeds from other investments 0.04 0.09 0.15

Acquisition of subsidiaries -47.66 -7.53 -18.17

Net cash used in investing activities -66.13 -33.88 -59.10

Cash flows from financing activities

Increase in long-term loans 67.89 15.00 31.49

Decrease in long-term loans -17.34 -8.91 -12.39

Dividends paid -5.68 -4.66 -4.66

Paid share issue 5.51 1.12 1.12

Change in short-term loans 0.40 22.79 27.60

Net cash provided by

financing activities 50.77 25.33 43.16

Net increase/decrease in liquid assets -1.77 4.08 0.40

Liquid assets at beginning of period 2.80 2.40 2.40

Liquid assets at end of period 1.03 6.48 2.80

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

EUR million

Share Premium Other Retained Minority Share-

capital fund funds earnings interest holders’

equity

Shareholders’ equity


Dec 31, 2005 60.59 12.73 0.02 48.07 3.39 124.81

Share capital increase 3.82 3.82

Share offering 5.85 5.85

Dividend distribution -4.66 -4.66

Net profit for the period 17.37 0.50 17.87

Other changes -0.03 0.16 0.52 0.65

Shareholders’ equity

Sept 30, 2006 64.41 18.55 0.02 60.94 4.41 148.33

Share capital increase 2.91 2.91

Share offering 7.32 7.32

Net profit for the period 6.36 0.35 6.71

Other changes 0.03 0.16 -0.18 0.01

Shareholders’ equity

Dec 31, 2006 67.32 18.55 7.37 67.46 4.58 165.28

Share capital increase 0.21 0.21

Share offering 3.84 12.05 15.89

Dividend distribution -5.68 -5.68

Net profit for the period 17.27 0.03 17.30

Other changes -0.06 0.02 0.31 -4.44 -4.17

Shareholders’ equity

Sept. 30, 2007 71.36 18.49 19.44 79.36 0.16 188.82

KEY INDICATORS 1-9/ 1-9/ 1-12/

2007 2006 2006

Change in net sales, % 34.6 33.6 41.3

Operating profit/net sales, % 73.9 90.8 85.2

Equity to assets ratio, % 36.9 39.5 38.5

Employees in Group companies 142 93 113

Gross expenditure on non-current

assets, EUR 1,000 66,179 33,995 59,286

Net rental income of

property portfolio, % 2) 7.8 7.9 7.7

Financial occupancy ratio, % 96.6 93.7 94.4

Earnings/share, EUR

undiluted, EUR 0.42 0.47 0.63

diluted, EUR 0.42 0.47 0.63

Average (issue-adjusted) no.

of shares

undiluted 40,800,453 36,858,338 37,472,329

diluted 40,840,228 36,997,000 37,619,867

CONTINGENT LIABILITIES

EUR million Sept 30, Sept 30, Dec 31,

2007 2006 2006

Pledges and guarantees on own debt

Mortgages 200.22 186.49 195.50

Land lease liabilities 1.06 0.59 0.53

Other mortgage liabilities 0.93 0.93 0.93

Pledged investment properties 97.65 9.26 35.21

Interest rate and currency swaps:

nominal values 7.28 8.00 11.26

market values 0.15 -0.09 -0.07

VAT return liability 20.96 17.84 13.27

Project liabilities 0.32 2.10 0.01

Collateral given on behalf of associates

Guarantee 0.50 0.50 0.50

Other guarantee liabilities 0.10 0.10 0.10


Leasing liabilities, machinery

and equipment 0.48 0.33 0.38

1) Other operating income comprises operating subsidies received for

development services, for which the same amount of development service

expenses have been recorded as operating expenses.

2) Does not include properties taken into use and acquired during the year.

Distribution:

OMX Nordic Exchange Helsinki

Main news media

www.technopolis.fi

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