Hepsor AS consolidated unaudited interim report for Q2 2023 and 6 months

Hepsor’s consolidated sales revenue for the second quarter of 2023 amounted to 14.6 million euros and net profit was 3.5 million euros (incl. the share owned by the parent company was 1.6 million euros). The consolidated sales revenue for the first half of 2023 totaled 20.6 million euros and net profit 3.6 million euros (incl. the share owned by the parent company was 1.8 million euros).

In Q2 2023, the Group sold a total of 90 apartments of which 8 apartments in PaevÀlja Hoovimajad development project, PaevÀlja 11, Tallinn and 82 apartments in Latvia, in Riga in Kuldigas Parks development project, Gregora iela 2a 53 apartments were handed over to customers, in Mārupes Dārzs development project in Liela 45, 28 apartments were handed over to the customers and in Strelnieku 4b delevopment project 1 apartment. In the second quarter, land plots at Tooma st 2, Tooma st 4 and Tooma st 6 were sold in Tallinn.

In the first half of 2023, a total of 195 real rights contracts were signed, based on which a total of 124 new homes were handed over to home buyers. The completion of the Mārupes Dārzs and Kuldigas Parks projects was only at the end of the second quarter  and even though the real right contracts for 71 homes had been concluded, the homes had not yet been handed over to buyers at the end of the period and are therefore not reflected in the sales revenue for the period. The signing of real rights contracts for the Kuldigas Parks and Mārupes Dārzs projects and the handover of homes will continue in the third quarter of 2023.

The Group’s revenues and profitability are directly dependent on the development cycle of projects, which is approximately 24 to 36 months. Sales revenue is generated only at the end of the cycle. Calendar quarters vary in terms of the number of projects ending during the quarter, which is why both profits and sales revenue can differ significantly across quarters. Therefore, performance can be considerably weaker or stronger in some years and quarters than in others.

The portfolio of the company’s development projects and three-year average financial results are a better criteria for assessing the group’s performance in order to assess the overall sustainability and economic results of a real estate development company.

Hepsor has four residential development projects under construction in Estonia and Latvia, with a total of 319 new apartments and 453 m2 of commercial premises. After the completion of two projects in the first half-year, Nameja Rezidence development project remains under construction and for sale in Riga, in which a total of 38 homes will be completed, of which 10 apartments have been pre-sold under the law of obligations and reservation agreements (26%). In Tallinn, three development projects are under construction and for sale with a total of 281 new apartments and 453 m2 of commercial premises- Ojakalda kodud, LillekĂŒla kodud ja Manufaktuuri 7. As of June 30, 2023, law of obligations and reservation agreements have been concluded for 77 of these apartments (27%).

According to Henri Laks, Member of the Management Board of Hepsor, the second quarter of 2023 went mostly as expected in the real estate sector. „Positive developments include the stabilization of energy prices and inflation, which create the prerequisites for a recovery in demand in the real estate market. At the same time, the Euribor continued to rise, which has a direct impact on the monthly housing costs of households and home buyers and forces real estate purchasing decisions to take a conservative approach. The transaction activity of the Tallinn new development market increased slightly in the second quarter but remains below the previous long-term average. In Riga, transaction activity remains at the normal level,” said Laks.

In the commercial real estate market, transaction activity in the Baltics is also rather low. However, from Hepsor’s perspective we can highlight a landmark transaction with which we sold a stock-office type commercial building with 3,642 m2 of rental space called StokOfiss U30 to an experienced asset management company through the sale of parts of Hepsor U30 SIA in Riga, Latvia in the second quarter of 2023.

Work to enter the Canadian market culminated in the first investment in Toronto in the second quarter of 2023, where, together with Canadian partners, a property suitable for residential development was purchased at 3406-3434 Weston road. To develop the property, Weston Limited Partnership was founded, in which, in addition to Hepsor and its Canadian partners, various Canadian and European investors also participate. The goal of the first phase of the acquired development project is to increase the construction volumes of the property from 27,000 m2 to ca 53,000 m2 and to obtain construction rights for the creation of two apartment buildings. The land valuation phase is expected to take 2-2.5 years, after which Weston Limited Partnership will be able to decide whether the additional value created by that point will be realized through the resale of the property or whether the project will move on to the construction phase.

The Group forecasts a revenue of 41.3 million euros, net profit of 3.3 million euros and net profit attributable to the owners of the parent of 1.1 million euros for 2023. The Group’s sales results for the first half of 2023 show that the Group is on track to meet the forecasts for 2023.

Consolidated statement of financial position

in thousands of euros 30 June 2023 31 December 2022 30 June 2022
Current assets
Cash and cash equivalents 8,304 3,754 4,361
Trade and other receivables 1,372 1,731 576
Current loan receivables 311 0 279
Inventories 68,776 69,760 56,128
Total current assets 78,763 75,245 61,344
Non-current assets
Property, plant and equipment 233 232 260
Intangible assets 5 7 3
Financial investments 2 2 2
Investments in associates 912 1,086 0
Non-current loan receivables 3,233 1,766 2,308
Other non-current receivables 136 30 380
Total non-current assets 4,521 3,123 2,953
Total assets 83,284 78,368 64,297
Liabilities and equity
Current liabilities
Loans and borrowings 11,056 22,565 2,472
Current lease liabilities 64 46 64
Prepayments from customers 3,748 3,054 2,453
Trade and other payables 8,570 4,007 3,959
Deferred income tax liability 0 0 8
Total current liabilities 23,438 29,672 8,956
Non-current liabilities
Loans and borrowings 35,144 26,015 34,641
Non-current lease liabilities 68 68 66
Other non-current liabilities 2,442 2,290 1,762
Total non-current liabilities 37,654 28,373 36,469
Total liabilities 61,092 58,045 45,425
Share capital 3,855 3,855 3,855
Share premium 8,917 8,917 8,917
Reserve capital 385
Retained earnings 9,035 7,551 6,100
Total equity 22,192 20,323 18,872
incl. total equity attributable to owners of the parent 21,709 19,866 18,345
incl. non-controlling interest 483 457 527
Total liabilities and equity 83,284 78,368 64,297

Consolidated statement of profit and loss and other comprehensive income

in thousands of euros 6M 2023 6M 2022 Q2 2023 Q2 2022  
Revenue 20,590 3,954 14,615 2,682
Cost of sales (-) -15,799 -3,752 -10,759 -2,586
Gross profit 4,791 202 3,856 96
Marketing expenses (-) -268 -173 -197 -78
Administrative expenses (-) -787 -537 -440 -209
Other operating income 82 47 62 37
Other operating expenses (-) -92 -39 -69 -32
Operating profit (-loss) of the year 3,726 -500 3,212 -186
Financial income 1,046 567 996 58
Financial expenses (-) -1,184 -312 -759 -144
Profit before tax 3,588 -245 3,449 -272
Current income tax(-) 0 -5 0 0
Deferred income tax 0 -8 0 -8
Net profit for the year 3,588 -258 3,449 -280
    Attributable to owners of the parent 1,803 -273 1,563 -278
    Non-controlling interest 1,785 15 1,886 -2
 Other comprehensive income (-loss)
Changes related to change of ownership 68 135 68 0
Change in value of embedded derivatives with minority shareholders -1,787 -13 -1,795 -31
Other comprehensive income (-loss) for the period -1,719 122 -1,727 -31
    Attributable to owners of the parent 40 -286 54 -200
    Non-controlling interest -1,759 408 -1,781 169
Comprehensive income (-loss) for the period 1,869 -136 1,722 -311
    Attributable to owners of the parent 1,843 -559 1,617 -478
    Non-controlling interest 26 423 105 167
Earnings per share
   Basic (euros per share) 0.47 -0.07 0.41 -0.07
   Diluted (euros per share) 0.47 -0.07 0.41 -0.07


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