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MANAGEMENT REPORT

Chairman’s summary (abbreviated)

Our key focus is set on large-scale development projects of residential and commercial quarters in all Baltic capitals – Tallinn, Riga and Vilnius. With 25 years of experience and large portfolio we have a strong understanding of the market we operate in. As equally we hold a great responsibility, developing the whole areas and having an impact on entire communities and natural environment.

The thoroughness and diversity of our business and portfolio is reflected by the stable improvement of our performance. The total revenue of nine months was 37.3 million euros, which is an increase of 77% year on year. The total revenue of the third quarter was 14.8 million euros, an increase of 147% compared to 6.0 million euros during the same period in 2018. This result was strongly influenced by the active sales of Šaltiniu Namai Attico five new houses in Vilnius, Kristina Houses development in Tallinn and River Breeze Residence in Riga. 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. As a result of the active sales, the operating result for the nine months of 2019 was 6.9 million euros profit compared to 4.8 million euros profit during the same period in 2018. During the third quarter of 2019 the operating profit was 1.8 million euros and 0.4 million euros in 2018. Otherwise positive results were influenced by 6.9 million euros interest expenses related to T1 project. The interests of T1 are recorded in finance cost instead of capitalisation into investment property, which has been done during active development until 31 December 2018. Consequently, the net result of the nine months of 2019 was 3.1 million euros loss compared to 2.3 million euros profit during the same period of 2018.

In early November 2019, the T1 Mall of Tallinn celebrates its first year of operation, which has been slower than we had anticipated in the initial prognosis. The results of T1 have had a negative impact on the Group’s financial results with lower operating profit and net result and have challenged the Group’s cash-flows. The management is continuously considering different options to reduce the financial cost of T1 Mall of Tallinn. However, I would like to stress, that the development of T1 Mall of Tallinn should not be seen as a short-term project. Instead, the lifetime of shopping and entertainment mall is a long and continuously evolving journey. We are currently focused on finding the best mix of tenants and increase the rental revenue, thereby increasing the T1’s long-term value. The number of visitors is significant and in incline. Our customers very much value the entertainment that can be found in T1. We foresee a continuous increase of revenues during subsequent periods.

Paolo Michelozzi
CEO

Key financials

The total revenue of the Company for the reporting period of nine months was
37.3 million euros, which is an increase of 77% compared to the reference period (2018 9M: 21.0 million euros). The total revenue of the third quarter was 14.8 million euros, an increase of 147% compared to 6.0 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. Therefor, the revenues from sales of real estate of the Company depend on the completion of the residential developments. The improvement of the results of the third quarter was influenced by continuous active sales of Kristina Houses development in Tallinn, River Breeze Residence in Riga and the completion of five new buildings in Šaltinių Namai Attico development in Vilnius, where majority of presales were realized in notarised sales transactions.
The gross profit for the reporting period of nine months increased by 70% to 11.7 million euros and by 92% to 3.6 million euros in the third quarter. In the comparable period the gross profit figures were 6.9 million euros and 1.9 million euros respectively. Gross profit margin decreased by 6%.  
The operating result for the reporting period of nine months was 6.9 million euros profit comparing to 4.8 million euros profit during the same period in 2018. The operating result of the third quarter was 1.8 million euros comparing to 0.4 million euros in 2018.
The net result for the reporting period of the nine months was 3.1 million euros loss and 2.8 million euros loss for the third quarter. In the comparable period the net results were 2.3 million euros profit and 0.5 million euros loss respectively. The net result of the period was influenced negatively by 6.9 million euros of interest expenses in AS Tallinna Moekombinaat (Note 15). The interests are recorded in finance cost instead of capitalization into investment property, which has been done during active development until 31 December 2018.
Cash generated in operating activities during the reporting period was 6.7 million euros comparing to 3.4 million euros of cash generated during same period in 2018. In the third quarter of 2019 cash generated in operating activities was 6.2 million euros and 0.3 million euros during the same period in 2018.
Net assets per share on 30 September 2019 totalled to 1.72 euros compared to 1.50 euros on 30 September 2018.


Key performance indicators

 2019 9M2018 9M2019 Q32018 Q32018 12M
Revenue, th EUR37 28321 04314 7715 97827 991
Gross profit, th EUR11 7406 8923 5611 8599 576
Gross profit, %31%33%24%31%34%
Operating result, th EUR 6 8854 7791 76435021 483
Operating result, %18%23%12%6%77%
Net result, th EUR-3 0752 279-2 799-54318 056
Net result, %-8%11%-19%-9%65%
      
Earnings per share, EUR-0.050.04-0.05-0.010.30


 30.09.201930.09.201831.12.2018
    
Total Assets, th EUR243 213208 798245 112
Total Liabilities, th EUR 145 549123 837144 374
Total Equity, th EUR97 66484 961100 738
Debt / Equity *1.491.461.43
    
Return on Assets, % **-1.4%1.2%8.6%
Return on Equity, % ***-3.4%2.7%19.7%
Net asset value per share, EUR ****1.721.501.78


*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 FINANCIAL STATEMENTS

Consolidated interim statement of financial position

in thousands of euros30.09.201930.09.201831.12.2018
ASSETS   
Current assets   
Cash and cash equivalents5 2707 0797 040
Current receivables1 2194 0552 928
Inventories51 71756 66159 331
Total current assets58 20667 79569 299
Non-current assets   
 Non-current receivables3 70835216
 Property, plant and equipment7 7237 1277 128
 Investment property  173 219133 530168 145
 Intangible assets357311324
Total non-current assets185 007141 003175 813
TOTAL ASSETS243 213208 798245 112
    
LIABILITIES AND EQUITY   
Current liabilities   
 Current debt  43 6218 18410 328
 Customer advances2 0595 1715 707
 Current payables8 41811 66211 939
 Tax liabilities218181357
 Short-term provisions1 300642852
Total current liabilities55 61625 84029 183
Non-current liabilities   
 Long-term debt  87 35991 177112 009
 Other non-current payables1 0434 6881 039
 Deferred income tax liabilities1 4142 0032 004
 Long-term provisions117129139
Total non-current liabilities89 93397 997115 191
TOTAL LIABILITIES145 549123 837144 374
    
Equity attributable to owners of the Company   
 Share capital in nominal value11 33811 33811 338
 Share premium5 6615 6615 661
 Statutory reserve1 1341 0821 082
 Revaluation reserve3 2623 2623 262
 Retained earnings76 72559 94459 944
 Profit/ Loss for the period-2 7342 32016 827
Total equity attributable to owners of the Company95 38683 60798 114
Non-controlling interest2 2781 3542 624
TOTAL EQUITY97 66484 961100 738
    
TOTAL LIABILITIES AND EQUITY243 213208 798245 112


 Consolidated interim statements of comprehensive income

in thousands of euros2019
9M
  2018
9M
2019
Q3
2018
Q3
2018
12M
CONTINUING OPERATIONS     
Operating income     
Revenue37 28321 04314 7715 97827 991
Cost of goods sold-25 543-14 151-11 210-4 119-18 415
Gross profit11 7406 8923 5611 8599 576
      
Marketing expenses-487-706-193-247-1 336
Administrative expenses-4 338-4 037-1 563-1 714-5 427
Other income562 679647018 839
Other expenses-86-49-47-17-169
Operating profit6 8854 7791 76435121 483
      
Financial income33114
Financial expense-10 074-2 548-4 502-887-3 473
Profit/ loss before income tax-3 1862 234-2 737-53518 014
Income tax11145-62-842
Profit/ loss for the period-3 0752 279-2 799-54318 056
      
Attributable to:     
Equity holders of the parent  -2 7352 320-2 605-55016 827
Non-controlling interest-340-41-19471 229
      
Total comprehensive income/ loss for the year-3 0752 279-2 799-54318 056
Attributable to:     
Equity holders of the parent-2 7352 320-2 605-55016 827
Non-controlling interest-340-41-19471 229
      
Earnings per share for the period (EUR)-0.050.04-0.05-0.010.30



 Consolidated interim statements of cash flows

in thousands of euros2019 9M2018 9M2019 Q32018 Q32018 12M
Cash flows from operating activities     
Profit/loss for the period-3 0752 279-2 799-54318 056
Adjustments for:     
  Depreciation, amortisation of non-current assets  29415810054214
  Gain from disposal of property, plant, equipment0-400-4
  Gain from disposal of investment property0-4180-418-418
  Change in fair value of property, plant, equipment0000-13
  Change in fair value of investment property  0-1 91000-17 995
  Finance income and costs10 0712 5454 5018853 469
  Changes in deferred tax assets and liabilities-590-55-4130-54
  Other non-monetary changes (net amounts)2 44616 8272 3962 79015 458
Changes in working capital:     
  Trade receivables and prepayments-1 785842-826-8941 781
  Inventories7 591-18 6376 180-2 001-21 307
  Liabilities and prepayments-8 1541 301-2 786-227-128
  Provisions -15502-39612-107
Net cash used in/ generated in operating activities6 7833 4306 314258-1 048
      
Cash flows from investing activities     
Payments for property, plant and equipment-201-166-35-76-206
Payments for intangible assets-46-7-21-7-24
Proceeds from disposal of property, plant, equipment033600336
Payments for investment property-5 496-31 084-859-8 898-47 786
Proceeds from disposal of investment property00001 000
Interests received33114
Net cash used in investing activities -5 740-30 918-915-8 980-46 676
      
Cash flows from financing activities     
Dividend payment0-85000-850
Redemption of convertible bonds0-30-3-9
Redemption of non-convertible bonds-600-640-300-640-640
Proceeds from borrowings15 91733 4742 52910 96056 923
Repayment of borrowings-12 639-5 509-5 063-754-7 496
Repayment of lease liabilities-1290-4400
Interests paid-3 362-2 222-1 354-473-3 481
Deposited amount related to loan obligations-2 0000000
Net cash used in/ generated by financing activities -2 81324 250-4 2329 09044 447
      
Net change in cash and cash equivalents-1 770-3 2381 168368-3 277
Cash and cash equivalents at the beginning 7 04010 3174 1026 71110 317
Cash and cash equivalents at the end of the period5 2707 0795 2707 0797 040


The full report can be found in the file attached.




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

Attachment

Pro Kapital Grupp is one of the leading Estonian real estate developer focussing on contemporary large-scale commercial and residential property developments in the capitals of Estonia, Latvia and Lithuania.

Since its establishment in 1994, Pro Kapital has completed about 20 projects with the total surface area for sale extending over 190,000 square meters. Pro Kapital projects have been among the most remarkable developments in the Baltic real estate sector.

Every day more than 50,000 people wake up, work, shop or dine in buildings constructed by Pro Kapital.