Sponda Plc's interim report January - March 2005

 | Quelle: Sponda Oy Sponda Oy

 
- Consolidated net sales up 3 % to EUR 26.1 (25.3) million.
- Operating profit improved 44 % to EUR 14.8 (10.3) million due to more positive development of property market values than in the first quarter 2004.
- Cash flow per share from operating activities and before investing activities was EUR 0.14 (0.10).
- The market value of Sponda's property portfolio was EUR 1.25 billion (31 Dec. 2004: EUR 1.22 billion) and net assets per share was EUR 6.94 (7.74). This figure includes the deduction of the EUR 0.50 per share dividend paid in April 2005 but the comparison figure for 2004 does not include the deduction of the dividend paid in 2004 (EUR 0.30 per share).
- Earnings per share were EUR 0.08 (0.02).
 
Sponda adopted the IFRS reporting standards on 1 January 2005. All the figures presented in this report have been calculated according to IFRS.
 
Sponda's economic occupancy rate is expected to remain unchanged and rent levels to stay stable. The cash flow from operating activities are forecast to stay at the corresponding levels in 2004.

Business environment

GDP in Finland is forecast to be approximately 3 % during 2005 and the employment situation will improve slightly. New jobs are being created primarily in private services and the public sector. Inflation is expected to remain moderate, 1 %, during 2005.

In pace with economic growth, demand for office premises in the Helsinki metropolitan area is expected to rise but this is not entirely supported by the forecast increase in the number of new jobs in 2005 and 2006. In the Helsinki Metropolitan Area the vacancy rate of office properties overall is 9.4 %, the highest figure (12.5 %) being in Espoo. Owing to the large regional differences in the Helsinki Metropolitan Area, the vacancy rate considered normal is expected to rise in the future. No major changes are expected in rent levels.

The vacancy rate of retail premises in the Helsinki Metropolitan Area is still low, at 1.9 %. Both demand for retail premises and their rent levels remained stable during the first quarter of the year. The supply of retail premises will rise between autumn 2005 and spring 2006 by altogether 150,000 m2 as several building and extension projects are completed. The increase in supply will increase the vacancy rate of retail premises.
The vacancy rate of logistics facilities in the Helsinki Metropolitan Area is 3.2 %. Rent levels have continued to be stable. The volume of new-building has been low but is expected to increase in the years ahead.
 
The overall value of property transactions in 2004, EUR 3.2 billion, stood at the same level as in 2003. International investors represented 41 % of this figure. Investment interest among foreign investors remains be strong and they will continue to occupy a significant position in the Finnish real estate market.
 
In its interim report in December 2004, the working group set up by the Ministry of Finance to consider ways of developing Finland's law on real estate mutual funds proposed that the law on investment funds be amended to make open-end real estate funds possible. At this stage no tax relief was proposed for limited liability companies engaged in real estate investment. The final report of the working group is currently expected to be published by 31 May 2005.
 
 
Leasing activities
 
Net operating income from Sponda's properties totalled EUR 19.4 million (31 Mar. 2004: EUR 18.6 million), of which 65 % was derived from office properties, 4 % from retail premises and 31 % from logistics facilities. Net operating income was divided by region as follows: Helsinki Business District 48 %, Helsinki Metropolitan Area 19 %, logistics properties in Helsinki Metropolitan Area 24 % and rest of Finland 9 %.
 
Demand for Sponda's office premises was somewhat livelier during the first quarter of 2005 compared to the same period in 2004. The main reason was corporate relocations but slight growth in demand for office premises was evident in the IT and advertising sectors among others. Demand remain brisk for both retail and logistics premises.
 
The economic occupancy rate of Sponda's properties declined slightly compared to the same period last year to 87.8 (88.6) %, but improved compared to the situation at the end of 2004. The economic occupancy rate of office premises decreased as expected but the economic occupancy rates of both retail and logistics premises were higher than in the first quarter last year.
 
 

 
 
The value of Sponda's portfolio of leasing contracts on 31 March 2005 was EUR 487 million (31 Mar. 2004: EUR 395 million) and the average length of the contracts was 4.6 (3.8) years. Altogether 50 contracts were signed during the first quarter, 14, 19,900 m², of which were renewed contracts and 36 ,7,300 m2, were new contracts, making a total of approximately 27,200 m2. The number of expired contracts was 46, 18,800 m2. Sponda's large customer sectors are retail (27 % of total rental income), banking and investment (18 %), communications and media (11 %) and building (10 %). Sponda's existing leasing contracts expire as follows:
 
 
 
The economic occupancy rate of Sponda's office properties is expected to remain unchanged or to improve during 2005. The economic occupancy rate of the logistics premises is expected to remain the same. Rent levels in 2005 are forecast to stay stable.
 
 
Property portfolio
 
Sponda Group has 88 investment properties, 45 of which are office properties, 10 are retail properties and 33 logistics properties. The aggregate leasable area of these properties is approximately 850,000 m², 47 % of which covers office properties, 3 % retail properties and 50 % logistics properties.
 
On 21 January 2005 Sponda purchased a logistics and office property at Ruosilantie 16 in the Konala district of Helsinki for EUR 28.4 million including capital transfer tax.
Sponda did not sell any properties during the period.
The market value of Sponda's investment properties is confirmed based on the company's own calculations in which Sponda applies the yield method based on cash flow analysis. This method is in compliance with the International Valuation Stardard (IVS). The market value of Sponda's property portfolio at the end of the first quarter stood at EUR 1.25 billion (31 Dec. 2004: EUR 1.22 billion). The increase in the comparable property portfolio was about EUR 1.7 million, or approx. 0.1 %, and attributable to the new contracts signed during the first quarter. The market value of office properties decreased slightly (0.8 %) but, at the same time, the market value of logistics properties increased (3.6 %). The same yield requirements were used in the calculation as at the end of 2004. Investments in property maintenance and quality improvements during the first quarter amounted to EUR 4.4 (7.7) million.

Market value by type of property 31 Mar. 2005, MEUR
 
 
Sponda owns building rights totalling 47,000 m² in the Hakkila district of Vantaa beside the Vanha Porvoontie road. A new logistics facility is planned for this site, the first stage of which will cover approximately 10,000 m². Building will start when half of the premises are leased.
 
The Helsinki city planning department has considered the change of zoning plan for the City-Center complex. The plan will be put before the city council in autumn 2005. The building plans and cost estimate will be finalized during the spring.
 
Financing
 
Sponda's net cash flow from operating activities in the period totalled EUR 14.4 million (31 Mar. 2004: 11.9). Net cash flow from investing activities amounted to EUR -33.2 (-4.8) million and from financing activities EUR  22.8 (-8.2) million.
 
Financing income and expenses came to EUR -6.2 (-6.9) million during the first quarter. Sponda's equity ratio was 43 (48) %. The reduction in equity ratio was due both to the payment of dividend and to the recognition of financial instruments required by IFRS. Interest-bearing debt amounted to EUR 605.1 (574.6) million. The average maturity of Sponda's loans was 3.1 (2.4) years and the average interest rate was 4.1 (4.5) %. The interest hedge level was 72 %. The average interest-bearing period was 2.5 (2.8) years.
Hedge instruments are valued at their fair values on 1 January 2005 and the change in fair value is entered at the transition date in the revaluation fund and in other non-interest-bearing debt. The change in value of the effective portion of the hedge instruments that meet the conditions for hedge accounting after the transition date is entered directly in the shareholders' equity revaluation fund. The impact of this application of IAS 39 on Sponda Group's shareholders' equity totalled EUR -6.2 million in the first quarter.
Taxation
Sponda's property companies will enter additional depreciation in the taxation for 2005. Sponda will also be able to use previously confirmed losses that will reduce the company's taxable income to zero. Taxes entered during the reporting period totalled EUR -2.4 million. Taxes are based on the change in deferred tax liabilities and assets.
Personnel
Sponda Group had 55 (51) employees on average during the first quarter, which included 49 (46) in the parent company. At the end of March Sponda had 55 (52) employees, 49 (47) of whom worked in the parent company. Sponda has personnel only in Finland.
All the employees are included in an incentive bonus scheme indexed to the result of leasing activities. The incentive bonus is reviewed every quarter.
Group structure
 
Sponds Group comprises the parent company and subsidiaries, all of which are wholly owned mutual property companies.
The Sponda share
 
The average price of the Sponda share between January and March was EUR 7.49. The lowest price was EUR 6.81 and the highest was EUR 8.05. The market capitalization of the company's share capital at the end of March was EUR 551 million.
 
The Board of Directors was authorized to purchase the company's own shares. This authorization was not exercised during the first quarter.

Sponda's 10 principal shareholders and their holdings on 31 March 2005 were:


Corporate governance

In its administration Sponda applies the Finnish Companies Act and other legal provisions governing public limited companies, and the company's articles of association. Sponda also complies with the Insider Guidelines of the OMX Helsinki Stock Exchange and the Corporate Governance recommendation issued by the Helsinki Stock Exchange, the Central Chamber of Commerce and the Confederation of Finnish Industries EK. This recommendation came into force on 1 July 2004.
 
Sponda Plc's annual general meeting, held on 23 March 2005, adopted the parent company's and consolidated income statements and balance sheets for the financial year ending 31 December 2004 and discharged the Board of Directors and the President and CEO from liability for the year. The AGM approved the Board's proposal to pay a dividend of 0.50 euros per share on the financial year 2004. The dividend was paid on 6 April 2005.
 
The AGM approved the Ministry of Finance's proposal to appoint a Nomination Committee. The Nomination Committee prepares proposals on the composition of the Board of Directors and their remuneration for consideration by the following Annual General Meeting. The Nomination Committee consists of the representatives of the three (3) largest shareholders as well as the Chairman of the Board of Directors as an expert member. The right to appoint the Committee members representing the shareholders belongs to those shareholders whose holding of the voting rights carried by all the Company's shares is largest on 1 December preceding the Annual General Meeting.
 
The AGM authorized the Board of Directors for one year from the AGM to purchase at most 3,900,000 of the Company's own shares using distributable funds provided that after the purchase the aggregate nominal value of the shares owned by the company and its subsidiary companies, or the voting rights carried by these shares, may not exceed five (5) percent of the company's total share capital or the voting rights carried by all the shares.
 
The AGM authorized the Board of Directors to surrender the company's shares purchased by the company. The Board may surrender at most 5 % of the total number of shares and voting rights. The Board was authorized to decide to whom and in what order the company's own shares will be surrendered.
 
Board of Directors and auditors
 
The number of members on the Board of Directors was confirmed as six. Kaj-Gustaf Bergh, Maija-Liisa Friman, Harri Pynnä, Anssi Soila and Jarmo Väisänen were re-elected to the Board of Directors and Tuula Entelä was elected to the Board as a new member. All had given their consent to election. At its constitutive meeting after the AGM, the Board of Directors elected Anssi Soila as its chairman and Jarmo Väisänen as its deputy chairman.
 
The fees paid to the members of the Board of Directors were confirmed as follows: to the chairman of the Board 3,350 euros per month, to the deputy chairman of the Board 2,000 euros per month, and to the other members of the Board 1,750 euros per month. An additional 500 euros will be paid to each member for attendance at the Board's meetings.
 
The Board has not established any permanent committees.
 
The firm of authorized public accountants KPMG Oy Ab and Sixten Nyman APA were appointed as the company's auditors and Fredrik Westerholm APA was appointed the deputy auditor until the close of the next annual general meeting.
 
Management
 
Sponda's President and CEO Kari Kolu will be the President and CEO of Renor Ltd as of 1 June 2005. Kari Inkinen, MSc (Eng.), has been appointed President and CEO of Sponda Plc with effect from 1 June 2005.
Sampo Bank demand for payment
 
Sponda Plc has become aware that Sampo Plc could possibly require Sponda to pay additional interest in arrears totalling approximately EUR 5 million for the period 17 December 2001 - 16 June 2004. Should the demand be presented, Sponda will dispute it as unfounded. The dispute concerns a loan contract between the two companies.

Events after the close of the period

On 8 April 2005 Sponda floated two series of notes, 1/2005 and 2/2005, for investment purposes and to develop the company's financial structure. Domestic institutional investors subscribed for notes totalling EUR 100 million comprising EUR 20 million in fixed coupon notes (1/2005) and and EUR 80 million in floating rate notes (2/2005). The annual coupon of notes 1/2005 was confirmed at 3.75 %, and the coupon of the floating rate notes 2/2005 was confirmed to be six months Euribor rate plus 60 bps. The notes mature on 8 April 2010.

Prospects for 2005

Sponda's economic occupancy rate is expected to remain unchanged and rent levels to stay stable. The cash flow from operating activities are forecast to stay at the corresponding levels in 2004.
 

Anhänge

Interim Report Q1