Hepsor AS: 2022 II quarter and six months consolidated unaudited interim report

HepsorThe consolidated revenues of Hepsor for the first six months of 2022 amounted to 4.0 million euros (including 2.7 million euros in Q2 2022) and a net loss of 0.3 million euros (including 0.3 million euros in Q2 2022).

The sales of development projects still under construction will mostly take place in the second half of the year, and therefore the revenue and profit from these projects will also be reflected in the results of the 3rd and 4th quarters of the year. The Group’s revenues and profitability are directly dependent on the development cycle of the projects, which lasts about 24 to 36 months. Sales revenue is only generated at the end of this cycle. The number of projects as well as the revenues and profitability may significantly vary from quarter to quarter depending on the length and timing of the development cycle. Therefore, some financial years or quarters may be weaker or stronger in terms of financial results. In evaluating the sustainability and the financial results of the real estate developer, the portfolio of the development projects and the three-year average financial results are the best criteria for evaluating the Group’s financial results.

The Group has generated revenues mainly from the sale of residential development projects. As of 25 July 2022, we have sold 32 apartments in completed projects in Latvia (27 apartments as of the end of Q2 2022), including 13 apartments in the 4b Strēlnieku development project, 18 apartments in the 9 BaloĆŸu development project, and 1 apartment in the 24 Āgenskalna development project.

As of date of the current report, the Priisle Kodu development project, a project developed by the Group’s affiliate company Hepsor N170 OÜ in Estonia, has reached the stage of signing the real right contracts. The Group’s profit share will be reflected in the financial results of the third and fourth quarters of 2022. While contract under the law of obligations were signed at the end of the quarter for all 76 apartments and the commercial space in the development project, by 25 July, or after the end of the quarter, real right contracts were already signed for 32 apartments.

Hepsor currently has three residential development projects under construction in Estonia and Latvia, with a total of 304 new apartments. To date, contracts under the law of obligation and booking agreements have been signed for 48 apartments (52%) in the Mārupes Dārzs (92 apartments) development project near Riga. The sale and construction of Hepsor’s second largest residential development project, KuldÄ«gas Parks (116 apartments) in Riga, is also proceeding according to the plan, and 64 apartments (55%) have been sold. Both projects will be completed in 2023. In Estonia, we continue with the construction of the PaevĂ€lja Hoovimajad development project of two apartment buildings in two stages with a total of 96 apartments. To date, contracts under the law of obligation have been concluded for 76 apartments (79%). The first phase of the project with 48 apartments will be completed by the end of the year, the second phase in the first quarter of next year.

In July, we signed a 14-million-euro loan agreement with LHV Pank AS, the purpose of which is to finance the construction of the Ojakalda Kodud development project. There are 101 spacious family apartments in the three-tower residential building on the border of Tallinn and Harku. Our green way of thinking is central to the development of the Ojakalda residential buildings: we create an environmentally conscious and sustainable living environment. The pre-sale of the Ojakalda development project has started and the construction will begin in September 2022.

In addition to the residential development projects already under construction and available for sale, Hepsor also plans to start the construction of the next phase of the Manufaktuuri Kvartal with 160 new apartments in the second half of 2022. In Riga, we plan to start the RaƆķa Dambis development project with 36 new apartments. In 2022, a total of 383 apartments are planned to be built in Tallinn and Riga, including 128 in Riga. In addition, in May 2022, Hepsor signed a preliminary agreement for the purchase of real estate in the Imanta area of Riga. About 40 apartments can be built on the property.

Three commercial real estate development projects have been completed or are about to be completed in Tallinn this year. Selver supermarket already operates the commercial space (leasable space approx. 1,500 m2) on the first floor of the 11-storey commercial and residential property at 1 Priisle. GrĂŒne Maja, the office building following the green thinking concept, has 80% of its leasable space covered by lease agreements, and the building itself is already in active use. We are actively continuing negotiations to lease the remaining 20%. At the end of the year, we will hand over the BĂŒroo113 commercial building, which is 100% covered by lease agreements. The anchor tenant in this building is a clinic with a modern and innovative concept. In the case of BĂŒro113, green solutions (earth-heats-earth-cools, energy-efficient architecture, very good interior, solar energy, etc.) have been used for the first time in a city centre downtown high-rise. In 2022, a stock-office commercial development project will be completed at 30 Ulbrokas, Riga, which has also reached 100% occupancy.

In June, we completed the acquisition of the property at 17A Ganību Dambis in Riga. The property has 13 buildings of different commercial functionality (leasable area 8,200 m2) with occupancy of about 81%. As a result, we expect the share of rental income to increase in the third quarter of the year. In this development project the demolished depreciated buildings will be replaced by new commercial premises including offices and stock-offices. In total, the property will accommodate approximately 20,000 m2 of leasable space.

As of the date of this report, the Group has a total of 25 development projects. During the reporting year, the Āgenskalna and BaloĆŸu projects in Latvia were completed and a development project in the Imanta area of Riga was acquired.

The management of Hepsor still forecasts a turnover of 28 million euros in 2022 and profit of 3.3 million euros (including 3.1 million euros attributable to the owners of the parent company).

As of this report, we can say that despite of the difficult global situation, customers are not backing out of contracts, and contracts under the law of obligations for new homes continue to be signed on the agreed terms. The sale of new apartments in Riga projects has exceeded our expectations, and there are only 20 unsold apartments in projects currently under construction in Estonia. Russia’s military invasion and attack on Ukraine’s independence, which began on 24 February 2022, affects businesses and individuals around the world. Although the length, impact and outcome of the ongoing military conflict are still unclear, the high inflation rate, increased energy prices, increase in the Euribor based on the European Central Bank’s monetary policy, and the increase in commodity and thus also construction prices are clearly felt. In view of the next two or three quarters, the mentioned factors will have an impact on the confidence of buyers of new homes.

Due to global uncertainty, the Group’s management is paying more attention to the risks associated with taking new projects to the sales and construction phase. Despite the above, the management of the Group has not halted any of the current development projects, and according to current information, the sale and construction of new projects mentioned above will start already in autumn 2022.

in thousands of euros 30 June 2022 31 Dec 2021 30 June 2021
Assets
Current assets
Cash and cash equivalents 4,361 10,889 1,277
Trade and other receivables 576 652 636
Current loan receivables 279 2,388 256
Inventories 56,128 37,237 33,084
Total current assets 61,344 51,166 35,253
Non-current assets
Property, plant and equipment 260 229 410
Intangible assets 3 0 0
Financial investments 2 402 2
Non-current loan receivables 2,308 3,408 1,97
Other non-current receivables 380 140 99
Total non-current assets 2,953 4,179 2,481
Total assets 64,297 55,345 37,734
Liabilities and equity
Current liabilities
Loans and borrowings 2,472 5,501 4,393
Current lease liabilities 64 123 72
Prepayments from customers 2,453 1,164 1,238
Trade and other payables 3,959 5,539 1,967
Deferred income tax liability 8 0 0
Total current liabilities 8,956 12,327 7,67
Non-current liabilities
Loans and borrowings 34,641 22,862 19,169
Non-current lease liabilities 66 66 284
Other non-current liabilities 1,762 1,053 1,08
Deferred income tax liability 0 0 73
Total non-current liabilities 36,469 23,981 20,606
Total liabilities 45,425 36,308 28,276
Equity
Share capital 3,855 3,855 6
Share premium 8,917 8,917 3,211
Retained earnings 6,1 6,265 6,241
Total equity 18,872 19,037 9,458
incl. total equity attributable to owners of the parent 18,345 18,904 9,37
incl. non-controlling interest 527 133 88
Total liabilities and equity 64,297 55,345 37,734

 

in thousands of euros 6M 2022 Adjusted  Q2 2022 Q2 2021    
6M 2021
Revenue 3,954 3,874 2,682 985
Cost of sales (-) -3,752 -3,29 -2,586 -826
Gross profit 202 584 96 159
Marketing expenses (-) -173 -100 -78 -52
Administrative expenses (-) -537 -298 -209 -173
Other operating income 47 43 37 23
Other operating expenses (-) -39 -51 -32 -38
Operating profit (-loss) of the year -500 178 -186 -81
Financial income 567 76 58 43
Financial expenses (-) -312 -191 -144 -83
Profit before tax -245 63 -272 -121
Current income tax -5 -16 0 -16
Deferred income tax -8 -13 -8 -2
Net profit for the year -258 34 -280 -139
    Attributable to owners of the parent -273 -84 -278 -134
    Non-controlling interest 15 118 -2 -5
 Other comprehensive income (-loss)
Changes related to change of ownership 135 0 0 0
Change in value of embedded derivatives with minority shareholders -13 -31 -31 59
Other comprehensive income (-loss) for the period 122 -31 -31 59
    Attributable to owners of the parent -286 0 -200 0
    Non-controlling interest 408 -31 169 59
 
Comprehensive income (-loss) for the period -136 3 -311 -80
    Attributable to owners of the parent -559 -84 -478 -134
    Non-controlling interest 423 87 167 54
 
Earnings per share
   Basic (euros per share) -0.07 -0.02 -0.07 -0.03
   Diluted (euros per share) -0.07 -0.02 -0.07 -0.03

Hepsor 2Q_2022 interim report

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