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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.

Our current portfolio holds a number of prestigious residential and commercial development projects, either ongoing or upcoming. In addition, Pro Kapital has an extensive experience in developing and operating shopping malls. In November 2018, we opened a new generation shopping and entertainment centre - T1 Mall of Tallinn. T1 is located in one of the most fast-growing parts of Tallinn, which will be the future heart of Rail Baltica. The concept, but also architecture of T1 is unique across Baltics, with very wide selection of restaurants, cinema, entertainment centre amongst traditional shopping. As of April 2019, a Ferris Wheel on the rooftop of T1, a one of a kind across Europe, started welcoming guests. Following the opening, we have been in the progress of building a well-balanced mix of tenants which would complement the T1’s value proposition. 

The thoroughness and diversity of our business and portfolio is reflected by the stable improvement of our performance. The sales revenues during the first half-year have increased by 49% y-o-y, from 15.1 million euros in 2018 to 22.5 million euros during 2019. This result was strongly influenced by the active sales of Šaltiniu Namai Attico five new houses in Vilnius, Kristina Houses development in Tallinn, River Breeze Residence in Riga, but also rental revenues from T1, which we did not have in 2018. 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 first half-year of 2019 was 5.1 million euros profit compared to 4.4 million euros profit during the same period in 2018. During the Q2 the operating result was 2.5 million euros profit in 2019 and 3.7 million euros profit in 2018. The operating result of 2018 was influenced by extraordinary gain from increase of value of investment property in amount of 1.9 million euros. Gross profit margin has increased by 3% during the first half-year y-o-y. Otherwise positive results were influenced by 3.5 million euros interest expenses related to T1 project, which in previous periods have been capitalized into cost of investment property. Consequently, the net result of the first half-year of 2019 was 276 thousand euros loss compared to 2.8 million euros profit during the same period in 2018.

Paolo Michelozzi
CEO

Key financials

The total revenue of the Company for the reporting period of six months was
22.5 million euros, which is an increase of 49% compared to the reference period (2018 6M: 15.1 million euros). The total revenue of the second quarter was 12.1 million euros, an increase of 47% compared to 8.3 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 of the Company depend on the completion of the residential developments. The improvement of the results of the second 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 presales were partly realized in notarised sales transactions in June already and are continuing in the third quarter.
The gross profit for the reporting period of six months was 8.2 million euros and for the second quarter was 4.0 million euros. In the comparable period the gross profit figures were 5.0 million euros and 3.2 million euros respectively. Gross profit margin has increased by 3%.
The operating result for the reporting period of six months was 5.1 million euros profit comparing to 4.4 million euros profit during the same period in 2018. The operating result of the second quarter was 2.4 million euros comparing to 3.7 million euros in 2018. The operating result of 2018 was influenced by 1.9 million profit from increase of investment property value in the second quarter.
The net result for the reporting period of the six months was 0.3 million euros loss and 0.1 million euros loss for the second quarter. In the comparable period the net results were 2.8 million euros profit and 2.9 million euros profit respectively. The net result of the period was influenced negatively by 3.5 million euros of interest expenses in AS Tallinna Moekombinaat. 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 0.5 million euros comparing to 3.2 million euros of cash generated during same period in 2018. In the second quarter of 2019 cash generated in operating activities was 0.8 million euros and 0.3 million euros during the same period in 2018.
Net assets per share on 30 June 2019 totalled to 1.77 euros compared to 1.51 euros on 30 June 2018.

Key performance indicators

 2019 6M2018 6M2019 Q22018 Q22018 12M
Revenue, th EUR22 51215 06512 1408 26727 991
Gross profit, th EUR8 1795 0334 0373 2299 576
Gross profit, %36%33%33%39%34%
Operating result, th EUR 5 1214 4292 4773 74221 483
Operating result, %23%29%20%45%77%
Net result, th EUR-2762 822-1632 94018 056
Net result, %-1%19%-1%36%65%
      
Earnings per share, EUR0.000.050.000.050.30


 30.06.20930.06.201831.12.2018
    
Total Assets, th EUR248 972197 777245 112
Total Liabilities, th EUR 148 510112 273144 374
Total Equity, th EUR100 46285 504100 738
Debt / Equity *1.481.311.43
    
Return on Assets, % **-0.1%1.5%8.6%
Return on Equity, % ***-0.3%3.4%19.7%
Net asset value per share, EUR ****1.771.511.78

   *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 euros30.06.201930.06.201831.12.2018
ASSETS   
Current assets   
 Cash and cash equivalents4 1026 7117 040
 Current receivables2 8563 1532 928
 Inventories57 93557 07859 331
Total current assets64 89366 94269 299
Non-current assets   
 Non-current receivables 3 19935216
 Property, plant and equipment7 7837 1017 128
 Investment property  172 757123 390168 145
 Intangible assets340309324
Total non-current assets184 079130 835175 813
TOTAL ASSETS248 972197 777245 112
    
LIABILITIES AND EQUITY   
Current liabilities   
 Current debt  39 7889 31910 328
 Customer advances4 9325 0705 707
 Current payables6 97512 59711 939
 Tax liabilities298116357
 Short-term provisions1 1017852
Total current liabilities53 09427 10929 183
Non-current liabilities   
 Long-term debt  92 36079 273112 009
 Other non-current payables1 1183 7381 039
 Deferred income tax liabilities1 8272 0032 004
 Long-term provisions111150139
Total non-current liabilities95 41685 164115 191
TOTAL LIABILITIES148 510112 273144 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 66359 94459 944
 Profit/ Loss for the period-1292 87016 827
Total equity attributable to owners of the Company97 92984 15798 114
Non-controlling interest2 5331 3472 624
TOTAL EQUITY100 46285 504100 738
    
TOTAL LIABILITIES AND EQUITY248 972197 777245 112


 Consolidated interim statements of comprehensive income

in thousands of euros2019 6M2018 6M2019 Q22018 Q22018 12M
CONTINUING OPERATIONS     
Operating income     
Revenue22 51215 06512 1408 26727 991
Cost of goods sold-14 333-10 032-8 103-5 038-18 415
Gross profit8 1795 0334 0373 2299 576
      
Marketing expenses-294-459-152-280-1 336
Administrative expenses-2 775-2 323-1 422-1 238-5 427
Other income502 210232 03418 839
Other expenses-39-32-9-3-169
Operating profit5 1214 4292 4773 74221 483
      
Financial income22114
Financial expense-5 572-1 661-2 815-802-3 473
Profit/ loss before income tax-4492 770-3372 94118 014
Income tax17352174-142
Profit/ loss for the period-2762 822-1632 94018 056
      
Attributable to:     
Equity holders of the parent  -1292 870-862 96616 827
Non-controlling interest-147-48-77-261 229
      
Total comprehensive income/ loss for the year-2762822-163294018 056
Attributable to:     
Equity holders of the parent-1292 870-862 96616 827
Non-controlling interest-147-48-77-261 229
      
Earnings per share for the period (EUR)0.000.050.000.050.30


 Consolidated interim statements of cash flows

in thousands of euros2019 6M2018 6M2019 Q22018 Q22018 12M
Cash flows from operating activities     
Profit/loss for the period-2762 822-1632 94018 056
Adjustments for:     
  Depreciation, amortisation of non-current assets  19410410052214
  Gain from disposal of property, plant, equipment0-4014-4
  Gain from disposal of investment property0000-418
  Change in fair value of property, plant, equipment0000-13
  Change in fair value of investment property  0-1 9100-1 910-17 995
  Finance income and costs5 5701 6592 8148013 469
  Changes in deferred tax assets and liabilities-177-55-177-2-54
  Other non-monetary changes (net amounts)5016 4562016 10915 458
Changes in working capital:     
  Trade receivables and prepayments-9591 736-2 5311 3061781
  Inventories1 411-19 0541 993-17 590-21 307
  Liabilities and prepayments-5 3681 528-1 223-1 322-128
  Provisions 24-11014-129-107
Net cash used/ generated in operating activities4693 172847269-1 048
      
Cash flows from investing activities     
Payments for property, plant and equipment-166-90-135-33-206
Payments for intangible assets-250-240-24
Proceeds from disposal of property, plant, equipment033600336
Payments for investment property-4 637-22 186-1 104-12 896-47 786
Proceeds from disposal of investment property00001 000
Interests received22114
Net cash used in investing activities -4 826-21 938-1 262-12 928-46 676
      
Cash flows from financing activities     
Dividend payment0-85000-850
Redemption of convertible bonds0000-9
Redemption of non-convertible bonds-3000-3000-640
Proceeds from borrowings13 38822 5145 81815 07156 923
Repayment of borrowings-7 576-4 755-3 733-2 704-7 496
Repayment of lease liabilities-850-4900
Interests paid-2 008-1 749-1 384-1 222-3 481
Deposited amount related to loan obligations-2 0000-2 00000
Net cash generated by financing activities 1 41915 160-1 64811 14544 447
      
Net change in cash and cash equivalents-2 938-3 606-2 063-1 514-3 277
Cash and cash equivalents at the beginning 7 04010 3176 1658 22510 317
Cash and cash equivalents at the end of the period4 1026 7114 1026 7117 040

The full report is in the file attached.


ELECTION OF COMMITTEE MEMBERS

Due to the changes in the Council of AS Pro Kapital Grupp (announced on 23 May 2019), the Council Members have decided to elect the members for the Committees as follows:

- Emanuele Bozzone and Ernesto Preatoni were appointed as members of the Remuneration Committee;

- Emanuele Bozzone and Petri Olkinuora were appointed as members of the Audit Committee. 



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.