Sponda Plc Financial Statements Bulletin 9 February 2006, 9.00

Transcription

1 Sponda Plc Financial Statements Bulletin 9 February 2006, 9.00 Sponda Plc s 2005 Financial Statements Bulletin Sponda s result for 2005 distinctly better than in the previous year Sponda s result in 2005 was a clear improvement on the previous year in terms of both leasing operations and the value of its property portfolio. The year was again a challenging one for office premises, where the economic occupancy rate remained at the same level in Highlights (comparison year January-December 2004): Sponda s total revenue increased to EUR (99.2) million. Cash flow per share from operations EUR 0.57 (0.53). Operating profit rose to EUR 65.5 (17.0) million due to the result of leasing operations and an increase in the value of the property portfolio. Net profit for the year improved to EUR 29.6 (3.2) million. Earnings per share were EUR 0.37 (0.04). The market value of Sponda s properties was EUR 1,259.7 (1,221.5) million; net assets per share were EUR 7.25 (7.44). Sponda adopted the IFRS reporting standards on 1 January This financial statements bulletin has been prepared in accordance with IFRS recognition and measurement principles. All the figures presented in the report have been calculated according to IFRS. 1-3/05 4-6/05 7-9/ / Total revenue, Net operating income, Operating profit, Earnings per share, e Cash flow from operations/share, e Equity per share, e Net assets per share, e Equity ratio, % Gearing, % Economic occupancy rate, % Prospects In 2006 the result of leasing operations and cash flow from operating activities are expected to remain at last year s level. Investments in property development will increase Sponda s property portfolio. The economic occupancy rate of the company s investment properties will decrease slightly in the first half of 2006 due to the expiry of several large leasing agreements. However, the economic occupancy rate is forecast to improve towards the end of the year compared to the situation at the end of President and CEO Kari Inkinen Competition in Sponda s core property investment market, the Helsinki tropolitan Area, has intensified in recent years and for this reason the company reviewed its strategy in Sponda s new strategy is to seek growth and profitability in the years ahead mainly through property development coupled with expansion into Russia and the Baltic countries.

2 In property development Sponda will exploit the potential offered by the land and building rights it already owns. The company has set a property investment target of roughly EUR 50 million for 2006, and EUR 190 million over the next three years. The largest development project is the City-Center complex in the heart of Helsinki. The company is studying the property investment opportunities presented by Russia and the Baltic countries. The emphasis will be on the retail and logistics property markets in and around Moscow and St. Petersburg. The plan is to start investments during The total volume of investments committed to projects in Russia and the Baltics may not exceed % of the total value of the company s property portfolio. In Finland, Sponda will also expand outside the Helsinki tropolitan Area as a partner in real estate investment funds, where the company will take responsibility for managing the properties acquired by these funds. In January 2006 Sponda established a real estate fund with JER Europe Fund II Holdings S.Á.R.L.. Sponda s holding in the fund is 20 %. Business conditions Internationalization of the Finnish real estate market is continuing. Foreign investors are seeking investment prospects in other parts of Finland in addition to the Helsinki tropolitan Area, especially in growth centres. Modern logistics properties in central locations are also attracting investors. Property yield requirements declined last year by between 0.2 % and 0.75 % due to low interest rates, the varying willingness of different players to take risks, and the fact that investment demand exceeds supply. The office vacancy rate no longer increased in the Helsinki tropolitan Area. Rent levels in modern office premises rose slightly but the differences in rent levels grew because demand for old office premises was still low. The vacancy rate of office premises is expected to decline in 2006, with demand focusing above all on modern premises. The vacancy rate of retail premises continued to be low. However, the completion of new shopping malls such as Jumbo in Vantaa and Sello in Espoo will increase the vacancy rate of older premises, at least temporarily. Rent levels for retail premises in the centre of Helsinki rose slightly, and this trend is forecast to continue. Similarly, the vacancy rate of logistics premises was low as well. Demand was lively for premises in this category, particularly for larger, modern facilities. Rent levels increase somewhat in the case of new premises and especially in the area around the Helsinki-Vantaa airport. A total of roughly 120,000 m 2 of new logistics facilities have been, or are being, completed, which is increasing the vacancy rate in this segment. Sponda s leasing operations in 2005 The net rental income from Sponda s investment properties totalled EUR 77.5 million in 2005 (31 December 2004: EUR 74.4 million). Offices and retail premises accounted for 70 % and logistics properties for 30 % of this total. Net rental income was distributed by geographical area as follows: Helsinki Business District 50 %, Helsinki tropolitan Area 19 %, logistics properties in the Helsinki tropolitan Area 22 % and the Rest of Finland 9 %. The quarterly economic occupancy rates were as follows: Economic occupancy rate by type of property, % Type of property 31 Mar Jun Sep Dec Dec Offices and retail Logistics Total property portfolio Economic occupancy rate by geographical area, % 31 Mar. 30 Jun. 30 Sep. 31 Dec Dec Helsinki Business District Helsinki tropolitan Area HMA, logistics

3 Rest of Finland Total property portfolio Total cash flow derived from leasing agreements amounted to EUR 461 (474) million on 31 December 2005 and the average length of the agreements was 4.3 (4.6) years. Sponda signed 181 agreements during the year, 47 of which were renewals (41,000 m²) and 134 (41,000 m²) new agreements, making a total of approximately 82,000 m². Sponda s largest customer sectors are retail (26 % of total rental income), banking and investment (18 %), and telecommunications and media (11 %). The average length of the new agreements is 4 years. Sponda s leasing contracts expire as follows: Year of expiry % of rental income Open-ended 15.0 Property portfolio Sponda Group has 87 investment properties. The aggregate leasable area of these properties is approximately 840,000 m², roughly half of which covers office and retail properties and half logistics properties. On 31 May 2005 Sponda sold the Kiinteistö Oy Karjalan Kauppakeskus shopping mall in Lappeenranta for EUR 7.2 million. This deal had no impact on Sponda's result. Sponda also sold retail premises in Tampere totalling EUR 0.8 million during the first six months of 2005, recording an overall profit of EUR 0.1 million on these transactions. Sponda purchased a logistics and office property at Ruosilantie 16 in the Konala district of Helsinki for EUR 28.4 million. This property has a leasable area of 32,800 m 2. 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 Standard (IVS). At the end of the financial year the comparable market value of Sponda's property portfolio had grown by EUR 15.6 million (31 December 2004: -24.1), i.e. by 1.3 (-1.9) % to EUR 1,259.7 million (31 December 2004: 1,221.5). Capital expenditure during the period allocated to property maintenance and improvements in quality levels amounted to EUR 20.7 (26.7) million. The result of measurement at fair value, less maintenance investments, was EUR -5.1 (-50.8) million. The market value of Sponda s property portfolio was positively affected by its new leasing contracts, improved cost-efficiency in property maintenance, and a reduction in yield requirements. On the other hand, the decrease in rent levels in Espoo and the outskirts of Helsinki had a negative impact on the values.

4 Sponda s investment properties, market value 1 Jan. 31 Dec. 2005, M Property Developmen t New Business Areas Total Office & retail Logistics Market value at 1 Jan , Purchases in Investments, property development Other investments and intersegment transfers Sales Change in market value Market value at 31 Dec , Change in market value, % Annual net rental income / market value at 31 Dec % 5.6 % 9.1 % 0.0 % 0.0 % Office & Retail Properties The economic occupancy rate in office and retail premises and logistics facilities stayed at the previous year s level, standing at 86.2 % (31 Dec. 2004: 86.1 %). Several important new contracts were signed during the year including Miestentie in Espoo; and in Helsinki, Lönnrotinkatu 13 and Korkeavuorenkatu 35 and 37. The economic occupancy rate increased in the Havis Business Center and the Upseerin Avec office complex. The quarterly economic occupancy rates for office and retail premises in 2005 were as follows: Economic occupancy rate, % 31 Mar Jun Sep Dec Dec.2004 Offices and retail premises The market value of Sponda s offices and retail premises was EUR million at the end of the year. The Kiinteistö Oy Karjala Kauppakeskus in the town of Lappeenranta was sold for EUR 7.2 million during the year. No new properties were purchased. The comparable change in the market value of the property portfolio was EUR 4.6 million or 0.5 %. The increase in market value was due to new leasing contracts and, in the case of certain properties, a decrease in yield requirements. Rental levels for office properties remained stable especially in Helsinki city centre but declined slightly in Espoo and the outskirts of Helsinki. Certain leasing contracts in Helsinki city centre are due to expire during the first six months of 2006 and consequently the economic occupancy rate will decrease. However, the economic occupancy rate is expected to take a positive direction again by the end of the year. Logistics Properties The economic occupancy rate of Sponda s logistics properties remained at the same level as at the end of 2004, 91.9 % (31 Dec. 2004: 92.0 %). Most vacant premises are offices located adjacent to warehouse or production premises. Important leasing contracts signed by Sponda in 2005 included Ruosilantie 14, Vantaan Köysikuja and Olarinluoma 14. The quarterly economic occupancy rate of Sponda s logistics premises in 2005 developed as followed:

5 Economic occupancy rate, % 31 Mar Jun Sep Dec Dec Logistics The market value of Sponda s logistics proeprties at the close of the year amounted to EUR (209.5) million. The real estate company Kiinteistö Oy Ruosilantie 16 was purchased for EUR 28.4 million. No properties were sold. The comparable change in the market value compared to the same figure in 2004 was EUR 11.0 million, or 5.3 %. The increase was principally attributable to a decrease in property yield requirements. The valuation of Ruosilantie 16 based on market yield requirements raised the value of this property by EUR 9 million. Rent levels in the logistics properties were stable during The economic occupancy rate of the logistics properties is expected to remain at the 2005 level. Property Development and Other Business Areas Sponda established two new business units in 2005: Property Development and New Business Areas. The purpose of the first is to modernize Sponda s existing property portfolio and exploit the company s nondeveloped sites. Helsinki City Council has considered the City-Center rezoning plan and its endorsement is expected in spring Under this plan extension work on this office and retail complex in the heart of Helsinki will be started in summer Investments in 2006 are expected to amount to some EUR million of the EUR 110 million total for this project, which is scheduled for completion in Renovation of the City-Center s office premises were completed in 2005 and at the moment roughly 6,000 m 2 of the total 10,000 m 2 are leased. Sponda is planning to build a new logistics building at the Honkatalo property in Hakkila, Vantaa. This site has building rights of 47,000 m², and the first stage will cover 10,000 m² of this amount. The plan is to start construction work on this project during The other business unit set up during 2006, New Business Areas, concentrates on new geographical markets in Russia and the Baltic countries, and on managing the assets of new real estate investment funds. Sponda is currently assessing a number of investment opportunities in retail and logistics premises in the St. Petersburg and Moscow regions. The assets management business will start in 2006 when Sponda begins to manage a real estate fund set up jointly in Finland by Sponda and JER Europe Fund II. The target size of the fund is EUR million and Sponda s holding in the fund is 20 %. Financing Sponda s net cash flow from operations in the period totalled EUR 46.5 (31 Dec. 2004: 41.4) million. Net cash flow from investing activities was EUR (-20.2) million and after financing activities EUR -3.5 (-22.3) million. Financial income and expenses came to EUR (-26.6) million. Spondan equity ratio was 45 (47) % and gearing was 107 (99) %. Interest-bearing debt amounted to EUR (581.5) million, the average maturity of Sponda s loans was 3.2 (3.7) years and the average interest rate was 4.2 (4.3) %. Sponda hedges its floating rate exposure through interest rate swaps. Fixed-rate and secured loans accounted for 75.6 % of the total debt portfolio. The average interest-bearing period of the whole debt portfolio was 2.1 (2.6) years. Interest rate swaps are treated in the financial statements applying IFRS hedge accounting principles. The debt portfolio consists of three domestic bond programmes totalling EUR 300 million, as well as a syndicated credit facility of EUR 250 million, and commercial papers amounting to EUR 66.5 million. Liquidity is managed using flexible EUR 100 million credit limits and a EUR 150 million commercial paper programme. Sponda's loans are not mortgaged.

6 On 8 April 2005 Sponda Plc issued EUR 100 million in notes for the purpose of financing future investments and developing the company s capital structure. The 1/2005 and 2/2005 notes were subscribed as follows: notes with fixed coupon (1/2005) EUR 20.0 million and notes with floating rate (2/2005) EUR 80.0 million. The bonds were targeted at domestic institutional investors. 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 the six-month Euribor rate plus 60 bps. The notes mature on 8 April Risk management Sponda owns properties in Finland. The company s activities do no involve exchange rate risks. Demand for business premises depends on the economic conditions in each market segment. Demand for offices grows if companies are increasing staff levels and new companies are established, whereas the success of Sponda s retail tenants depends on the purchasing power of residents in their respective areas. Sponda manages customer risk by spreading the customer base and varying the length of its leasing contracts. An important aspect of customer risk management is knowing each customer s business and monitoring information on customers. At the end of 2005 Sponda had 633 customers and 1,070 separate leasing contracts. Rents are increased twice a year either in relation to changes in the cost-of-living index or based on a percentage increase stipulated in the leasing contract. Leasing contracts include rent in advance in proportion to the risk in each case. Increases in maintenance and repair costs, and particularly building costs, affect Sponda s total costs and, in the case of large projects, also the return on investment. In 2005 the value of non-amortized tenant improvements in Sponda s balance sheet totalled EUR 16.3 million. The main environmental impacts caused by property investment activities relate to land use, the energy consumed by the properties, waste disposal for the properties and the quality of the built-up environment around them. Sponda s environmentally sound operations are steered by lifecycle analysis. The company includes its financial, social and environmental responsibilities in all its business operations and decision-making processes. Personnel Sponda Group had 54 (50) employees on average during the financial year which included 51 (45) in the parent company Sponda Plc. At the end of December Sponda had 54 (50) employees, 51 (45) of whom were employed in the parent company. Sponda has personnel only in Finland. All Sponda employees are included in the company s incentive bonus scheme, under which bonuses are indexed to the company s targets. The Board of Directors has decided to prepare the share-based incentive scheme for ensuring the long-term commitment of its top management. The incentive scheme will be effective from 1 January Group structure Sponda Group consists of the parent company and its wholly owned subsidiaries, all of which are mutually owned property companies. The Sponda share The average price of the Sponda share between January and December was EUR The highest quotation on the Helsinki Stock Exchange was EUR 9.34 and the lowest was EUR The closing price on 31 December 2005 was EUR 7.95 and the market capitalization was EUR 630 million. 376,000 new shares were subscribed during the period after C warrants under the 2000 convertible bond were exercised. A corresponding increase in the share capital, totalling EUR 376,000, was recorded in the Trade Register as follows: on 29 June 2005 (312,000 shares), on 19 August 2005 (3,000 shares) and on 27 September 2005 (61,000 shares). Following this increase Sponda's share capital amounts to EUR 79,204,275 divided between 79,204,275 shares. Altogether 103,000 share remain unconverted under the convertible bond loan.

7 The Annual General eting on 23 March 2005 authorized the Board of Directors to purchase the company's own shares. This authorization was not exercised during the reporting period. The ownership structure of Sponda s share capital on 31 December 2005 was as follows: No. of shares % of total % The Finnish State (Ministry of Finance) 27,189, Private persons 4,780, Private institutions (Finnish) 5,055, Foreign institutions 42,178, No. of shares, total 79,204, Board of Directors and President The members of the Board of Directors are Kaj-Gustaf Bergh, Tuula Entelä, Maija-Liisa Friman, Harri Pynnä, Anssi Soila and Jarmo Väisänen. The chairman of the Board is Anssi Soila and the deputy chairman is Jarmo Väisänen. Sponda's President and CEO between 1 January and 31 May 2005 was Kari Kolu, and since 1 June 2005 Kari Inkinen. The Board has no permanent committees. All the Board members are independent of the company and five of the six members are also independent of the company s principal shareholders. Nomination Committee of the shareholders The Nomination Committee of the shareholders prepared a proposal for candidate members of the Board of Directors and their compensation. The members represented the three principal shareholders, which on 1 December 2005 were: 1. The Finnish State/Ministry of Finance, 34.3 % of the shares and votes, represented by Jarmo Kilpelä 2. The Nordea Nordic Small Cap investment fund, 1.0% of the shares and votes, represented by Jari Sundström 3. The State Pension Fund, 0.8 % of the shares and votes, represented by Timo Löyttyniemi The Nomination Committee submitted its proposal to the Board of Directors. The Committee proposes that the number of members of the Board of Directors be confirmed as six and that of the existing members Tuula Entelä, Maija-Liisa Friman, Harri Pynnä, Anssi Soila and Jarmo Väisänen be re-elected and that Timo Korvenpää be elected as a new member. The Annual General eting confirms the fees paid to the Board members for one year at a time. The Nomination Committee proposes to the Board members that the following fees be paid in 2006 (figures in brackets are fees paid in 2005): - to the chairman, a monthly fee of EUR 3,520 (3,350) - to the deputy chairman a monthly fee of 2,100 (2,000) - to the other members a monthly fee of 1,840 (1,750) - a separate fee of EUR 500 (500) to each member for attendance at Board meetings. Auditors Sponda Plc's auditors are Sixten Nyman APA and the firm of authorized public accountants KPMG Oy Ab under the supervision of principal auditor Raija-Leena Hankonen APA.

8 Sampo Bank claim Sampo Bank is suing Sponda Plc in the Helsinki District Court for payment of additional interest totalling EUR 5.3 million for the period 17 December June 2004 based on a credit agreement. Sponda disputes the claim as groundless. Subsequent events Sponda Plc and JER Europe Fund II Holdings S.Á.R.L. signed an agreement for the establishment of a real estate fund. The fund will invest principally in office and retail properties in Finland s mid-sized towns and cities. Sponda holds a 20 % stake in the fund, which has a target size of EUR million. Sponda will be responsible for providing management services both to the fund and the properties it acquires. On 13 January 2005 Sponda purchased an office building at Kalkkipellontie 6 for EUR 11.2 million. The building has a total leasable area of 8,800 m 2 and the site has unused building rights totalling 3,450 m 2. Sari Aitokallio was Sponda s Chief Financial Officer until 31 January 2006 and Lea Jokinen was Senior Vice President, Logistics Properties until 26 January Robert Öhman joins Sponda as its new Chief Financial Officer from Vattenfall Oy on 20 March Pasi Viitaniemi became Senior Vice President, Logistics Properties on 26 January Prospects in 2006 In 2006 the result of leasing operations and cash flow from operating activities are expected to remain at last year s level. Investments in property development will increase Sponda s property portfolio. The economic occupancy rate of the company s investment properties will decrease slightly in the first half of 2006 due to the expiry of several large leasing agreements. However, the economic occupancy rate is forecast to improve towards the end of the year compared to the situation at the end of Annual General eting and dividend Sponda Plc s Board of Directors has decided to convene the Annual General eting on Wednesday, 29 March 2006, starting at 2.00 pm and proposes a dividend of EUR 0.50 per share. The Board further proposes 10 April 2006 as the dividend payment date. 9 February 2006 Sponda Plc Board of Directors Further information: Kari Inkinen, President and CEO, +358 (0)

9 Key figures / / Total revenue, Net operating income, Operating profit, Earnings per share, e Cash flow from operating activities per share, e Shareholders equity per share, e Net assets per share, e Equity ratio, % Gearing, % Economic occupancy rate, % Consolidated income statement (IFRS) 10-12/ / / /2004 Total revenue Maintenance expenses Net operating income Profits from disposal of investment properties Losses from disposal of investment properties Fair value adjustment Sales and marketing expenses Administrative expenses Other operating income Other operating expenses Operating profit/loss Financial income Financial expenses Financial income and expenses, net Profit/loss before taxes Income tax Profit for the period Distribution: To the parent company owners EPS calculated on net profit to the parent company owners: Earnings per share, basic (EUR) Earnings per share, diluted (EUR) No. of shares on average, million Basic Diluted

10 Consolidated balance sheet (IFRS) ASSETS Non-current assets Investment properties 1, ,221.5 Property, plant and equipment Intangible assets Investments Long-term receivables Deferred tax assets Total non-current assets 1, ,235.6 Current assets Trade and other receivables Cash and cash equivalents Total current assets Total assets 1, ,245.8 SHAREHOLDERS EQUITY AND LIABILITIES Equity owned to parent company owners Share capital Share premium fund Revaluation fund ) - Retained earnings Total shareholders equity Liabilities Non-current liabilities Interest-bearing debt Pension obligations Provisions Other liabilities 5.8 1) - Deferred tax liabilities Total non-current liabilities Current liabilities Current interest-bearing liabilities Trade and other payables Total current liabilities Total liabilities Total shareholders equity and liabilities 1, ,245.8

11 Interest-bearing debt ) 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 debt. The change in value of the effective portion of the hedge instruments that meet the conditions for hedge accounting (IAS 39) after the transition date is entered directly in the revaluation fund under shareholders equity. Income statement and balance sheet by segments Business areas Income statement information, Property Developm ent New Business Areas 1-12/2005 Office & Retail Logistics Other Group, total Total revenue Maintenance costs Net operating income Profits from disposal of investment properties Losses from disposal of investment properties Fair value adjustment Administration and marketing Other income and expenses Operating profit Financial income and expenses Profit before taxes Income tax Profit for the period Balance sheet information at 31 Dec Capital expenditure Depreciation Assets, total ,278.7 Liabilities, total Income statement information, 1-12/2004 Office & Retail Logistics Property Developm ent New Business Areas Other Group. total Total revenue Maintenance costs Net operating income

12 Profits from disposal of investment properties Losses from disposal of investment properties Fair value adjustment Administration and marketing Other income and expenses Operating profit Financial income and expenses Profit/loss before taxes Income tax Profit for the period Balance sheet information at 31 Dec Capital expenditure Depreciation Total assets ,245.8 Total liabilities Geographical areas Total revenue Helsinki tropolitan Area Rest of Finland Other - - Group, total Capital expenditure Helsinki tropolitan Area Rest of Finland Other Group, total Assets Helsinki tropolitan Area 1, ,152.8 Rest of Finland Other Group, total 1, ,245.8

13 Consolidated cash flow statement (IFRS) 1-12/ /2004 Cash flow from operating activities Net profit for the period Adjustments Change in net working capital Interest received Interest paid Other financial items Dividends received Taxes received/paid Net cash from operating activities Cash flow from investing activities Investments in investment properties Investments in tangible and intangible assets Proceeds from disposal of investment properties Proceeds from disposal of tangible and intangible assets Net cash from investing activities Cash flow from financing activities Increase in share capital related to use of convertible bonds Long-term loans, raised Long-term loans, repayments Short-term loans, raised / repayments Dividends paid Net cash from financing activities Change in cash and cash equivalents Cash and cash equivalents, start of period Cash and cash equivalents, end of period Fair value of investment properties (IFRS) Fair value of investment properties , ,251.5 Investments in investment properties Investment properties purchased Investment properties sold Fair value adjustment Fair value of investment properties , ,221.5

14 Changes in Group s shareholders equity Share capital Share premium fund Revaluation fund Retained earnings Total Shareholders equity Net profit for the year Total income and expenses entered in the year Dividends Increase in share capital Shareholders equity Shareholders equity Impact of IAS Adjusted shareholders equity Cash flow hedging: Amounted recognized in equity Amounted moved to income statement Taxes included in amounts recognized in equity or moved from equity Total income and expenses entered in equity Net profit in the period Total income and expenses for the period Dividend distribution Increase in share capital Shareholders equity Contingent liabilities Collateral and commitments given by the Group Group Group Loans from financial institutions, covered by collateral Mortgages Book value of pledged shares Lease liability Mortgages Interest derivatives Swap contracts, notional value Swap contracts, fair value

15 Reconciliation of consolidated income statements Sponda adopted the International Financial Reporting Standards (IFRS) on 1 January The purpose of this comparison is to present the financial information on Sponda for 2004 in compliance with IFRS. The transition date is 1 January The differences arising from the adoption of IFRS are shown in the statements of reconciliation below. The reconciliation statements show the IFRS income statement for 2004, The IFRS balance sheet at 31 December 2004 and the opening IFRS balance sheet at 1 January The IFRS comparison figures describe the principal effects of IFRS on the Group's income statement and balance sheet. These relate mainly to the measurement of Sponda's investment properties, to deferred taxes and employee benefits and, from 2005, to the measurement of the financial instruments used by the Group. The opening IFRS balance sheet and the comparison figures for 2004 have been compiled applying the latest IFR standards. However, the adoption date for IAS 39 (Financial Instruments: Recognition and asurement) and IAS 32 (Financial Instruments: Disclosure and Presentation) is 1 January The impact of the financial instruments standards on the opening balance sheet arises from the treatment of the hedge derivative instruments. Adjustments to these instruments are shown in the reconciliation of shareholders equity. Before 2005 Sponda Group's financial statements were based on Finnish Accounting Standards (FAS). The accounting principles under FAS are included in Sponda Group's annual report for Reconciliation of profit Note FAS IFRS IFRS 1-12/2004 changes 1-12/2004 Total revenue Maintenance costs Net operating income Profits on disposal of investment properties Losses on disposal of investment properties Depreciation on investment properties Fair value adjustment Sales and marketing expenses Administrative expenses Other operating income Other operating expenses Operating profit (loss) Financial income Financial expenses Financial income and expenses, total

16 Profit (loss) before taxes Income tax Net profit for the financial year Reconciliation of consolidated balance sheets ASSETS Note FAS IFRS IFRS changes Non-current assets Investment properties 1-1, ,251.5 Plant, property and equipment 2 1, , Intangible assets Investments Non-current receivables Deferred tax assets Total non-current assets 1, ,265.9 Current assets Trade and other receivables 4, Cash and cash equivalents Total current assets Total assets 1, ,273.7 EQUITY AND LIABILITIES Equity attributable to the equity holders of the parent company Share capital Share premium fund Retained earnings Total equity Liabilities Non-current liabilities Interest-bearing liabilities Pension obligations Deferred tax liabilities Total non-current liabilities Current liabilities Interest-bearing current liabilities Trade and other payables 4,

17 Total current liabilities Total liabilities Total equity and liabilities 1, ,273.7 Reconciliation of consolidated balance sheets Note FAS IFRS IFRS changes ASSETS Non-current assets Investment properties 1-1, ,221.5 Plant, property and equipment 2 1, , Intangible assets Investments Non-current receivables Deferred tax assets Total non-current assets 1, ,235.6 Current assets Trade and other receivables 4, Cash and cash equivalents Total current assets Total assets 1, ,245.8 EQUITY AND LIABILITIES Equity attributable to the equity holders of the parent company Share capital Share premium fund Retained earnings Total equity Liabilities Non-current liabilities Interest-bearing liabilities Pension obligations Provisions Deferred tax liabilities Total non-current liabilities Current liabilities Interest-bearing current liabilities

18 Trade and other payables 4,6, Total current liabilities Total liabilities Total equity and liabilities 1, ,245.8 Reconciliation of consolidated balance sheets Further information Note 1 Investment properties are measured at their fair value and the change in fair value is entered in the income statement and under shareholders' equity in the opening balance sheet. Note 2 Items related to investment properties have been removed from planned depreciation and non-current assets. Note 3 Deferred taxes are entered as required by IAS 12: Income Tax Note 4 Note 5 Note 6 Note 7 Note 8 Periodized interest income from interest rate derivatives entered net under accrued expenses and prepaid income in the FAS financial statements has been moved from liabilities to receivables as required by IAS 1: Presentation of Financial Statements. The defined benefit pension obligation is entered as required by IAS 19: Employee Benefits. Adjustments to profits and losses on sales under FAS. Rent commitments are entered as required by IAS 37: Provisions, Contingent Liabilities and Contingent Assets. Interest-bearing liabilities are measured at amortized cost using the effective interest rate method. In the FAS statements, income and expenses related to the issue of loans and entered under prepaid expenses and accrued income are calculated as part of the amortized acquisition cost. Reconciliation of shareholders equity Shareholders equity under FAS Impacts of IFRS asurement of investment properties at their fair value ,9 Reversal of revaluation fund ,4 Deferred taxes ,7 Lease liabilities Pension obligations ,1 IFRS adjustments, total Shareholders equity under IFRS

19 Reconciliation of net profit 10-12/2004 Net profit under FAS 4.7 Impacts of IFRS Reversal of depreciation on investment properties 3,9 Fair value adjustment -30,1 Adjustments to profits/losses on disposals -0,4 Change in deferred taxes 6,8 Change in pension obligation 0,1 Change in provisions 0,4 IFRS adjustments, total Net profit under IFRS -14.6