Profit estimate for the 2011/12 financial year adjusted downwards to about DKK
25 million after tax. The Group will adapt its business model to market
conditions and reduce its cost level by about 20 %. Positive results after tax
are expected for 2012/13. 

Aalborg, Denmark, 2012-01-24 09:23 CET (GLOBE NEWSWIRE) -- 

Summary:

  -- The profit estimate for the 2011/12 financial year has been adjusted
     downwards to about DKK 25 million after tax.
  -- The Group will adapt its business model to current and expected market
     conditions.
  -- Management will reduce the Group’s cost level by about 20 %.
  -- Positive results after tax are expected for 2012/13.

Downward adjustment of profit estimate for 2011/12

The previously announced profit estimate for the 2011/12 financial year was
contingent on the sale of one or more major projects. Due to the time lag in
selling these projects, the sales proceeds will not be realized in the current
financial year, resulting in a lower profit for 2011/12. Moreover,
non-recurring expenses of about DKK 5 million will be recognized, related to a
reduction of the Group’s future capacity costs to be initiated this month. The
decision to trim costs means fewer resources for the Group’s development
projects, and it has therefore been resolved not to launch several project
opportunities and instead sell them. Accordingly, projects will be written down
for impairment by about DKK 20 million before tax. Overall, this means that
Management’s profit estimate for the 2011/12 financial year has been adjusted
downwards from about DKK 100 million after tax to about DKK 25 million after
tax. 

Adaptation of the Group’s business model

The market conditions in TK Development’s markets and the impact of the
financial crisis on major project elements, in the form of land prices,
construction costs, rental levels, prices for completed properties and access
to financing, have not changed significantly during the past months. Management
does not anticipate any short-term improvements in market conditions. The
above-mentioned variables have stabilized at a new price level, and new
projects are expected to yield profits at the level realized before the crisis,
thus generating a gross margin of 15-20 % measured on the basis of project
cost. However, a lower profit is expected to be realized on projects already
completed. 

Changed investor behaviour, with a requirement for lower project risk, has
resulted in a sluggish decision-making process and thus a lower rate of project
turnover. This weakened project flow – combined with current and expected
market conditions – has caused Management to reassess the Group’s business
model. Group Management has resolved to adapt the business model as follows: 



  1. The Group’s primary focus will continue to be real property development.
     -- The Group can develop projects for its own account, with or without
        advance project sales, and can either finance the projects on its own
        books or procure staged financing from the buyer in step with project
        completion, also termed forward funding.
     -- Projects can also be developed together with business partners during
        the construction period.
  2. The Group can choose to initiate projects with a view to construction and
     subsequent startup and maturing over a short span of years, such projects
     typically being classified as investment properties.

  -- This added element to the business model is a natural consequence of the
     changed risk picture, including in particular the change in investor
     behaviour, which means that the development process for some projects is
     not optimally finalized until they have been matured and run in. The
     portfolio of investment properties generated by this new element will
     ensure both a positive operating margin and a positive cash flow, viewed in
     isolation. After the maturing process, the project returns can be even
     better documented and higher prices obtained.
  -- Investment properties can be developed either for the Group’s own account
     or in project development joint ventures with co-investors that wish to
     participate in both the construction and maturing phases. By entering into
     joint ventures, the Group will achieve more effective placement of its
     equity financing of projects under development, better risk spread, and
     more efficient use of the Group’s staff resources and competencies.
  --  A project will typically be classified as an investment property prior to
     construction startup and this classification will be announced to the
     market. This means that the value of the properties will reflect a market
     value calculated by using a market-based return requirement in a discounted
     cashflow model.

In future, the Group will utilize its knowhow to encompass both property
development and asset management. Development competencies continue to be fully
in place in the Group's four main markets, Denmark, Sweden, Poland, and the
Czech Republic/Slovakia. The Group has mainly outsourced the property
management of completed properties, but handles asset management internally. 

The business model adaptation described above is a natural consequence of
current and expected market conditions. As compared to a business model based
on non-diversified development activity, the Group’s adapted model will have
the benefit that results and cash flows will be less sensitive to fluctuations
in the market. 

Management reduces the Group’s cost level

As a consequence of the weaker project flow, Management has decided to reduce
cash capacity costs by about 20 %, which will have an annual impact of about
DKK 25 million. This cost reduction will consist mainly of payroll cuts of
about 20 %, to be based on staff dismissals, other retirement agreements and
salary cuts for individual employees. The Group will reduce its standard
staffing level from 135 to 112 employees, and the affected employees will
receive their notice of termination this month. The individual salary cuts will
affect the Group’s Executive Board and a number of the Group’s executive staff
members, who have voluntarily agreed to a 20 % salary reduction for the next 24
months. At the same time, the Group’s Supervisory Board will accept a 20 % fee
reduction and recommend to the Annual General Meeting to be held in May 2012
that this reduction shall apply for the 2012/13 financial year. Moreover, the
Supervisory Board intends to make the same recommendation for the 2013/14
financial year. The cuts in Management’s remuneration should be viewed as part
of the overall goal to obtain significant savings and at the same time retain
the competencies necessary for the future generation of results. The financial
one-time impact of staff dismissals, etc. will be recognized in the financial
statements for 2011/12 and amounts to about DKK 5 million before tax. The cost
reduction will have effect from February 2012 and is expected to take full
impact as from August 2012. 

Management believes that following the adaptation of the business model,
including the reduction of the cost level, the Group has created a more viable
business platform for its future development. 

Profit forecast for 2012/13

Management anticipates selling one or more completed, major projects in the
2012/13 financial year. Management attaches great importance to effecting such
project sales in the next financial year. Selling the Group’s completed, major
projects will generate substantial free cash resources that will help secure
the project flow and thus long-term earnings. In light of the uncertainty
prevailing on financial markets, the volume and timing of major project sales,
and the proceeds of such sales, are subject to uncertainty. Despite this
uncertainty, the Group anticipates positive results for the 2012/13 financial
year. 

The expectations mentioned in this announcement, including earnings
expectations, are naturally subject to risks and uncertainties, which may
result in deviations from the expected results. Expectations may be affected by
various factors, as mentioned in the section "Risk issues" in the Group's
Annual Report for 2010/11, to which reference is made, which applies in
particular to the valuation of the Group’s deferred tax asset. 




         TK Development A/S, Frede Clausen, President and CEO, tel. +45 8896
1010