Copyright © 2019. Inderes Oy. All rights reserved.


Chairman’s summary 

2019 was as a year of challenges, opportunities and acknowledgment, which is characteristic to many companies with an eye on the future and ambition for growth. The key focus of our work is on large-scale development projects of residential and commercial quarters in all Baltic capitals – Tallinn, Riga and Vilnius. With more than 25 years of experience and extensive portfolio we have a strong understanding of the market we operate in. Equally, we hold a great responsibility, developing whole areas and impacting entire communities and natural environment.

The results of 2019 give a good indication of the volumes of the business. The growth of the total annual revenue was 97% compared to the comparable period of 2018, from 28 million euros to 55.3 million euros. The growth of total revenue by 159% during the 4th quarter of 2019, from 6.9 million euros during the 4th quarter of 2018 to 18 million euros in 2019. This growth was influenced by active sales in Tallinn and Vilnius increasing real estate revenue by 20 million euros and the T1 Mall of Tallinn (T1) rental related revenue by 8 million euros. Our revenues from the sales of the real estate depend on the completion of the residential developments, as the revenues are recorded at the moment final notary deeds of sale are concluded and properties handed over to the buyer. The gross profit of 2019 was 15.8 million euros compared to 9.6 million euros during the same period in 2018. This is a 65% increase y-o-y.

Our otherwise positive results were challenged by T1’s financial performance during its first year of operations, which has not met our initial prognosis. One of the reasons for underperformance was lower than expected demand for retail spaces, which resulted in higher vacancy in the centre than initially anticipated. With the aim of supporting T1 operations and reduce vacancies, T1 offered rebates and adjusted vacant areas to meet the needs of the tenants. This has had a short-term impact on operating profit and as a result, led to the non-monetary decrease of the property value in amount of 23 million euros (18 million euros increase in value of T1 was recorded in 2018). The revaluation of the investment property had a significant impact on the Group’s results. In addition, the results are influenced by the interest expenses related to T1 project, which at the end of the year were 9.5 million euros. The interests of T1 are recorded in finance cost in 2019 instead of capitalisation into investment property, which has been done during active development until 31 December 2018. Consequently, the net result for 2019 was 29.1 million euros loss compared to 18 million euros profit during the same period of 2018.

The lower operating profitability of AS Tallinna Moekombinaat triggered non-fulfilment of two financial maintenance covenants under the loan facility agreement with the subsidiary’s main creditor (DSCR or Debt Service Coverage Ratio and NLR or Net Leverage Ratio – which are ratios to assess the health of the investment in conformity with expected operating results). However, the operating result of AS Tallinna Moekombinaat in 2019 before non-monetary revaluation effect and the interest costs is positive. AS Tallinna Moekombinaat is in active discussions with the lender and negotiations are in progress. Pro Kapital will issue a separate notice about the outcome of the negotiations with the lender.

Pro Kapital has recently announced, that we have secured refinancing of the existing senior secured bonds 2015/2020 (the “Existing Bonds”) in full by issuing new senior secured bonds 2020/2024 (the “New Bonds”). Until redemption, the terms and conditions of the Existing Bonds still apply and we are required to report breaches of such terms and conditions. Therefore, we inform that in Q4’2019, due to the non-monetary revaluation loss of assets of one of Pro Kapital’s subsidiaries, AS Tallinna Moekombinaat, it failed the Maintenance test, which requires at least 40% equity to total assets ratio. We also inform that due to lower than expected operating results of AS Tallinna Moekombinaat, the subsidiary is in payment default under the above-mentioned loan facility agreement, which constitutes an event of default under the Existing Bond. While the first regular interest payment under the loan facility agreement was duly made in September 2019, during ongoing negotiations with the lender AS Tallinna Moekombinaat has made no further interest or default interest payments and has also suspended its payments to another main creditor under agreed payment schedule. Such non-payment and the above described non-fulfilment of financial covenants entitle the creditor to accelerate its claims under the facility agreement, but until now it has chosen not to do so. As mentioned above, negotiations are ongoing. The non-compliance under the terms of the Existing Bonds technically entitles the agent of the bonds to terminate the Existing Bonds and to declare them due for payment immediately (acceleration). As the Existing Bonds are being refinanced in their entirety with proceeds from the issue of the New Bonds and the Existing Bonds will be redeemed on 17 March 2020, then we do not foresee the risk of acceleration of the Existing Bonds. We would like to emphasise that Pro Kapital has fulfilled all monetary obligations arising from the Existing Bonds 2015/2020 in a timely manner. Going forward, under the terms and conditions of the New Bonds, AS Tallinna Moekombinaat is excluded from the ratio of equity to total assets calculation and from the event of default catalogue. Therefore, AS Tallinna Moekombinaat’s future performance and the outcome of the negotiations with its lender shall have no negative influence on the fulfilment of the terms and conditions of the New Bonds.

Aside from the challenges with T1, the Group’s residential developments are progressing as planned and we feel confident that our residential project pipeline and inventory is able to generate positive cash flows over the coming years.

Residential real-estate development with long-term mindset

In early November 2019, Pro Kapital was recognised as the winner of the real-estate developer's TOP of Äripäev (Estonian leading business media provider), which I am very proud and humbled by. I believe this recognition to reflect the long-term commitment of our team and the desire to create something truly great. At the same time, I am pleased that the 2019 real estate developers TOP was led by companies who understand that their work has much broader impact on shaping the cities than merely building physical spaces. The ability to understand but even more importantly to be ahead of the changes in consumer behaviours and to create something valuable for years to come, is a challenge for any real-estate developer.

By developing entire areas, we always acknowledge that our work has a long-term impact on communities. We need to be able to offer people something meaningful in a wide range of aspects. I’m glad to emphasise several residential quarters in our portfolio, which already have increased or will increase the value of entire areas and which are ahead of the market trends. In 2019, we reached several milestones in our residential portfolio development across the Baltics.

In late October, we completed the construction of three last apartment buildings of the Kristina Houses project. Kristina Houses is one of the major developments within a new residential area in Tallinn, named Kristiine City - an integral and unique residential district close to a downtown Tallinn - as if it were a "city within a city". A safe, green and functional living environment where along with the new houses, we bring new life into the much-valued historic buildings from the early 20th century. We have already completed and sold the historic Tondi 51 Barracks and Marsi 6 lofts. With the completion of the Kristina Houses, designed by Alliance Architects, we welcomed nearly 310 new families to Kristiine City. We are now about to begin the construction of the Ratsuri Houses development project. This is a unique development in the heart of Kristiine City, combining reconstruction of a historic stable building with a contemporary New Dutch style building in a balanced whole. The building is scheduled for completion in spring 2021. Ratsuri Houses will have a total of 39 apartments – 17 in the former stables and 22 in the modern New Holland style building. To date, 77% of apartments have already been booked. The particularly high volume of pre bookings has been characteristic to all our projects in Kristiine City as this living quarter has significantly benefited the value of an entire area. 

Just before the end of the year, we announced that we are starting the construction of the much awaited Kalaranna District - a unique sea-side residential quarter bordering Tallinn's central city and the Old town. Kalaranna District will have twelve 4-5 storey buildings on nearly six hectares. The area will be developed in two stages, the first of which we have now started. An integral part of the residential quarter is well-thought-out landscape architecture and a beach promenade that largely preserves the existing natural environment. During the first phase of construction, eight buildings will be completed with 240 apartments, commercial premises and an underground car park. The area will include the Kalaranna Park with versatile leisure opportunities and a Square connecting the buildings. The first buildings will be completed by September 2021 at the latest. To date we have already booked 51.2% and sold 47.5% of the apartments to be completed in the first phase. The four buildings of the second phase are already in pre-sale, with 26.6% booked to date.  

It is very positive to recognise the growing customer awareness and growing rationality in the purchase decision-making process. In all markets, the client is willing to invest in quality real estate that is reflected in a number of interrelated aspects like functionality, the choice of materials that would equally be pleasing to the eye, would last in time and are easy to maintain, but also the interior and exterior architecture and thought-out landscaping. The central idea is a safe, functional and modern environment that lasts long and enriches the urban space, preserving and enhancing its value. Each development is special - it has its own story, the environment in which it is located and the people this area is for.

In Vilnius, an area just like this is being developed - an area called Šaltiniu Namai Attico, which is a second phase of the Šaltiniu Namai prestigious residential area located within the UNESCO heritage area, surrounded by the nature in the most peaceful part of the Old Town of Vilnius. The “Attico” reflects the unique location slightly higher than the Old City, allowing breath-taking views to the city panorama. Here, people can choose homes with simply breath-taking view to the historic cityscape or spacious homes with terraces and green areas. Like with all our residential developments, we have created a peaceful, safe and green living area for the residents. Šaltiniu Namai Attico is inspired by the baroque spirit of Vilnius Old Town and the tradition of Italian architecture in Lithuania, also as an integral part of the landscape, has the first Italian courtyard garden in the city designed by an Italian concept architect Gianmarco Cavagnino. To date we have sold over 70% of 115 apartments. We are currently in the planning stage of the next phases of Šaltiniu Namai Attico, city villas and a commercial building.

I have discussed the Baltics real-estate markets in my 2019 interim reports, mainly because the real-estate market in the Baltic counties in a good indicator of the wider socio-political situation. Undoubtably, Latvian market has been showing slower pace compared to Lithuania and Estonia, especially in the so-called premium segment, which sets a standard of quality for the rest of the segments. While the Lithuanian real-estate market showed a remarkable, 32% market growth last year, the Latvian real-estate market is mainly dominated by the growth of the economic segment. When the market is driven by the price only for a long time, this will have a considerable footprint on the quality. Therefore, it is very positive that our outstanding development project in Riga, with a worthy name – River Breeze Residence has held its position as the market leader in the premium segment for a second consecutive year.

At the end of October 2019, River Breeze Residence received the 2019 Architecture Award, which is one of the most prestigious awards in Latvia, recognising the balance between private and public outdoor space in an exclusive and innovative housing project. In 2019, River Breeze Residence was also recognised by its impeccable construction quality and as the most sustainable building earlier in 2018. By being one of the most outstanding buildings in Riga in terms of architecture, location and quality, River Breeze sets the new positive example for the whole market. River Breeze Residence is the first building in the Kliversala Quarter, which will become an integral residential area that binds together the feeling of a metropolitan, modern architecture and well considered living environment. This area is unique and outstanding across Europe - it is located right in the heart of the city, just a walking distance from the Old town, with spectacular views and at the same time as green and quiet as if you were in a garden city. At the end of September 2019, the local planning for Kliversala area came into force. This means that we can proceed developing the Kliversala Quarter as an integral residential area. The next phases will foresee bringing functional, modern apartment buildings with commercial premises to life, allowing Kliversala Quarter to become a new centre of the urban city life, creating fine balance between the private and the public areas.

As a conclusion, I would say, 2019 was well-balanced by positive developments, humbling recognition and confronting challenges. I believe it to be an integral part of the business, allowing us to grow and improve our operations. It takes courage to face new challenges and make decisions to do things that no one else has done. Above all, I am proud of the people who work in the Group - our team is highly professional, competent and dedicated and that is the most important value of any business with such passion towards the long-term value-growth and positive impact. Thank you!

Paolo Michelozzi

Key financials

The total revenue of the Company in 2019 was 55.3 million euros, which is an increase of 97% compared to the reference period (2018 12M: 28 million euros). The total revenue of the fourth quarter was 18 million euros, an increase of 159% compared to 6.9 million euros during the same period in 2018. The real estate sales revenues are recorded at the moment of handing over the premises to the buyer. Therefore, the revenues from sales of real estate depend on the completion of the residential developments. The improvement of the results in the fourth quarter was influenced by the completion of three new buildings in Kristina Houses development in October, where all apartments have been sold as at today. In addition, the sales results of the year improved due to continuous sales of River Breeze Residence in Riga and Šaltinių Namai Attico development in Vilnius.
The gross profit in 2019 increased by 65% amounting to 15.8 million euros and by 52% amounting to 4.1 million euros in the fourth quarter. In the comparable period the gross profit figures were 9.6 million euros and 2.7 million euros respectively.
The operating result of 2019 was 15.2 million euros loss comparing to 21.5 million euros profit in 2018. The operating result of the fourth quarter was 22.1 million euros loss comparing to 16.7 million euros profit in 2018. Although the main operations of the Company have generated extraordinary results, the operating result includes non-monetary loss from revaluation of investment properties. The total impact from revaluation is 24.2 million euros (Note 8), mostly related to devaluation of T1 Mall of Tallinn property due to lower results comparing to initial expectations.
The net result for the year of 2019 was 29.1 million euros loss and 26.0 million euros loss for the fourth quarter. In the comparable period the net results were 18.1 million euros profit and 15.8 million euros profit respectively. The net result of the period was influenced negatively by 9.5 million euros of interest expenses in AS Tallinna Moekombinaat (Note 15). The interests are recorded in finance cost in 2019 instead of capitalization into investment property, which was done during active development until 31 December 2018.
Cash generated from operating activities during the reporting period was 20.4 million euros comparing to 1.0 million euros of cash used in operating activities in 2018. In the fourth quarter of 2019 cash generated from operating activities was 13.7 million euros and 4.5 million euros of cash used in operating activities during the same period in 2018.
Net assets per share on 31 December 2019 totalled to 1.26 euros compared to 1.80 euros on 31 December 2018.

Key performance indicators

 2019 12M2018 12M2019 Q42018 Q4
Revenue, th EUR55 27627 99117 9936 948
Gross profit, th EUR15 8099 5764 0692 684
Gross profit, %29%34%23%39%
Operating result, th EUR -15 17821 483-22 06316 688
Operating result, %-27%77%-123%240%
Net result, th EUR-29 10618 056-26 03115 761
Net result, %-53%65%-145%227%
Earnings per share, EUR-0.470.30-0.430.26

Total Assets, th EUR210 821246 405
Total Liabilities, th EUR 139 189144 383
Total Equity, th EUR71 632102 022
Debt / Equity *1.941.42
Return on Assets, % **-12.8%8.6%
Return on Equity, % ***-33.8%18.3%
Net asset value per share, EUR ****1.261.80

*debt / equity = total debt / total equity

**return on assets = net profit/loss / total average assets
***return on equity = net profit/loss / total average equity
****net asset value per share = net equity / number of shares


Consolidated interim statement of financial position

in thousands of euros31.12.201931.12.2018
Current assets  
Cash and cash equivalents10 6167 040
Current receivables1 4752 928
Inventories41 03159 331
Total current assets53 12269 299
Non-current assets  
 Non-current receivables2 297216
 Property, plant and equipment7 6657 128
 Investment property  147 365168 145
 Intangible assets372324
Total non-current assets157 699175 813
TOTAL ASSETS210 821245 112
Current liabilities  
 Current debt  36 40310 328
 Customer advances3 9745 707
 Current payables8 67511 939
 Tax liabilities1 155357
 Short-term provisions267852
Total current liabilities50 47429 183
Non-current liabilities  
 Long-term debt  86 227112 009
 Other non-current payables1 0131 039
 Deferred income tax liabilities1 3482 004
 Long-term provisions127139
Total non-current liabilities88 715115 191
Equity attributable to owners of the Company  
 Share capital in nominal value11 33811 338
 Share premium5 6615 661
 Statutory reserve1 1341 082
 Revaluation reserve3 2623 262
 Retained earnings76 72559 944
 Profit/ Loss for the period-26 91516 827
Total equity attributable to owners of the Company71 20598 114
Non-controlling interest4272 624
TOTAL EQUITY71 632100 738

 Consolidated interim statements of comprehensive income

in thousands of euros2019 12M2018 12M2019 Q42018 Q4
Operating income    
Revenue55 27627 99117 9936 948
Cost of goods sold-39 467-18 415-13 924-4 264
Gross profit15 8099 5764 0692 684
Marketing expenses-728-1 336-240-630
Administrative expenses-6 013-5 427-1 674-1 390
Other income9518 8393916 144
Other expenses-24 341-169-24 257-120
Operating profit-15 17821 483-22 06316 688
Financial income4411
Financial expense-13 953-3 473-3 879-925
Profit/ loss before income tax-29 12718 014-25 94115 764
Income tax2142-90-3
Profit/ loss for the period-29 10618 056-26 03115 761
Attributable to:    
Equity holders of the parent  -26 91516 827-24 18114 491
Non-controlling interest-2 1911 229-1 8501 270
Total comprehensive income/ loss for the year-29 10618 056-26 03115 761
Attributable to:    
Equity holders of the parent-26 91516 827-24 18114 491
Non-controlling interest-2 1911 229-1 8501 270
Earnings per share for the period (EUR)-0.470.30-0.430.26


Consolidated interim statements of cash flows

in thousands of euros2019 12M2018 12M2019 Q42018 Q4
Cash flows from operating activities    
Profit/loss for the period-29 10618 056-26 03115 762
Adjustments for:    
  Depreciation, amortisation of non-current assets  39921410556
  Gain from disposal of property, plant, equipment0-400
  Gain from disposal of investment property-3-418-30
  Loss from write-off of PPE and intangible assets6060
  Change in fair value of property, plant, equipment-15-13-15-13
  Change in fair value of investment property  24 236-17 99524 236-16 069
  Finance income and costs13 9493 4693 878923
  Changes in deferred tax assets and liabilities-656-54-660
  Other non-monetary changes (net amounts)42015 458-2 026-1 428
Changes in working capital:    
  Trade receivables and prepayments-6301 7811 155931
  Inventories18 276-21 30710 685-2 611
  Liabilities and prepayments-6 412-1281 842-1 420
  Provisions -51-107-36-609
Net cash used in/ generated in operating activities20 413-1 04813 730-4 478
Cash flows from investing activities    
Payments for property, plant and equipment-226-206-24-40
Payments for intangible assets-74-24-28-17
Proceeds from disposal of property, plant, equipment033600
Payments for investment property-6 019-47 786-523-16 702
Proceeds from disposal of investment property2 1701 0002 1701 000
Interests received4401
Net cash used in investing activities -4 145-46 6761 595-15 758
Cash flows from financing activities    
Dividend payment0-85000
Redemption of convertible bonds0-900
Redemption of non-convertible bonds-500-6400-6
Proceeds from borrowings16 46156 92354423 449
Repayment of borrowings-21 551-7 496-8 912-1 987
Repayment of lease liabilities-1920-630
Interests paid-6 910-3 481-3 548-1 259
Deposited amount related to loan obligations002 0000
Net cash used in/ generated by financing activities -12 69244 447-9 97920 197
Net change in cash and cash equivalents3 576-3 2775 346-39
Cash and cash equivalents at the beginning 7 04010 3175 2707 079
Cash and cash equivalents at the end of the period10 6167 04010 6167 040

The full report can be found in the file attached.

Allan Remmelkoor
Member of the Board
+372 614 4920
[email protected]