MANAGEMENT REPORT
Chairman’s summary
The first quarter of 2020 has been a very busy period for us in spite of the slow-down of businesses in many sectors due to the influence of the worldwide spread of the SARS-CoV-2 virus and COVID-19.
During the reporting period have refinanced senior secured bonds 2015/2020 with the new bonds 2020/2024 – each denominated 100 000 euros, carrying a fixed rate coupon of 8.00 per cent and maturing in February 2024. Pro Kapital intends to apply for the listing of the new bonds within 12 months from the issue date.
Our real estate developments have been carried on as per our plans. In February we signed a renovation and construction contract for Ratsuri Houses project in Tallinn, Kristiine City. The former stable house will be renovated to accommodate unique apartments with high ceilings and a modern New Holland style residential house with semi-underground parking will be built next to the renovated house. The total of 39 apartments will be completed next spring. Construction of Kalaranna District in Tallinn is continuing and going well so that we are looking forward to completion of the buildings in 2021. We do not foresee any delays in the completion timing and external financing has been secured for both developments.
Currently, we have no ongoing constructions in Riga. We continue sales of luxury apartments in River Breeze Residence and prepare to proceed with the development of further phases of Kliversala Quarter. The technical projecting process for Tallinas residential quarter and Brivibas street business quarter are ongoing.
In Vilnius, more than 70% of the five houses of Šaltiniu Namai Attico project which were completed last year have been sold already and customers have remained active even in the current economic conditions.
Due to the restrictions in Germany, PK Parkhotel Kurhaus in Bad Kreuznach has been closed since the end of March and we estimate to reopen in the middle of June.
There has been a significant influence of the Emergency State (declared in all countries of our operations) on retail business and consequently on our T1 Mall of Tallinn shopping centre. The shopping centres in Estonia were closed since the end of March and reopened on 11 May. Meanwhile, only the food stores and pharmacies were allowed to remain open. AS Tallinna Moekombinaat, a subsidiary owning and operating T1 Mall of Tallinn, submitted an application to Harju County Court for commencement of reorganisation proceedings with the purpose to overcome temporary liquidity issues, reasonably reorganise liabilities and increase profitability. On 3 April 2020 Harju County Court initiated reorganisation proceedings and AS Tallinna Moekombinaat has to submit a reorganisation plan on implementation of reorganisation measures, including impact of reorganisation to the creditors, to the Court by 2 June 2020. The creditors need to vote to accept the plan and the final decision on approval of the plan will be taken by the Court. The initiation of reorganisation proceedings shall not influence the day-to-day economic activities of the T1 Mall of tallinn, its tenants and partners – it means that T1 Mall of Tallinn continues its operations. The purpose of reorganisation proceedings is to ensure continuation of normal daily business by safeguarding the rights and interests of investors, employees, creditors and all cooperation partners. The reorganisation process involves only AS Tallinna Moekombinaat and has no direct influence to any other group company of AS Pro Kapital Grupp.
We have started the year 2020 with expected results in revenues and gross profit. The sales revenues for the first quarter of 2020 were 5.9 million euros, which is a decrease of 43% compared to the 10.4 million euros during the same period last year. The result of 2019 was influenced by completion of a new building in Kristina Houses project. 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 notary deeds of sale are concluded. The operating profit for the first quarter of 2020 was 0.3 million euros comparing to 2.6 million euros during the same period in 2019. The net result was influenced by 2.6 million euros interest expenses related to T1 project. Consequently, the net result of the first quarter in 2020 was 3 966 thousand euros loss compared to 113 thousand euros loss during the same period in 2019.
In 2020 we do not foresee any completion of real estate projects and we concentrate on development of ongoing projects, make preparations to start new projects and contribute to re-establishing normal activities in rental and hotel operations.
Paolo Michelozzi
CEO
Key financials
The total revenue of the Company in the first quarter of 2020 was 5.9 million euros, which is a decrease of 43% compared to the reference period (2019 3M: 10.4 million euros). 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 real estate sales revenue was higher in the first quarter in 2019 due to completion of an apartment building in Kristina Houses. In 2020, the Company continues with sales of completed developments – River Breeze Residence in Riga and Šaltinių Namai Attico development in Vilnius.
The gross profit in the first quarter of 2020 decreased by 48% amounting to 2.1 million euros compared to 4.1 million euros during the same period in 2019.
The operating result in the first quarter of 2020 was 0.3 million euros profit comparing to 2.6 million euros profit during the same period in 2019. The decrease in operating result is influenced by the decrease in the total revenues and a slight increase in operating expenses.
The net result in the first quarter of 2020 was 4.0 million euros loss. In the comparable period the net result was 0.1 million euros loss. The net result of the reporting period was influenced by high interest expenses in AS Tallinna Moekombinaat.
Cash generated from operating activities during the reporting period was 2.0 million euros comparing to 0.4 million euros of cash used in operating activities in the first quarter of 2019.
Net assets per share on 31 March 2020 totalled to 1.19 euros compared to 1.78 euros on 31 March 2019.
Key performance indicators
| 2020 3M | 2019 3M | 2019 12M | |
| Revenue, th EUR | 5 873 | 10 372 | 55 276 |
| Gross profit, th EUR | 2 137 | 4 142 | 15 809 |
| Gross profit, % | 36% | 40% | 29% |
| Operating result, th EUR | 346 | 2 644 | -15 193 |
| Operating result, % | 6% | 25% | -27% |
| Net result, th EUR | -3 966 | -113 | -29 121 |
| Net result, % | -68% | -1% | -53% |
| Earnings per share, EUR | -0.07 | 0.00 | -0.48 |
| 31.03.2020 | 31.03.2019 | 31.12.2019 | |
| Total Assets, th EUR | 209 622 | 247 386 | 210 805 |
| Total Liabilities, th EUR | 142 022 | 146 761 | 139 187 |
| Total Equity, th EUR | 67 600 | 100 625 | 71 566 |
| Debt / Equity * | 2.10 | 1.46 | 1.94 |
| Return on Assets, % ** | -1.7% | -0.1% | -12.8% |
| Return on Equity, % *** | -4.7% | -0.1% | -34.4% |
| Net asset value per share, EUR **** | 1.19 | 1.78 | 1.26 |
*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 euros | 31.03.2020 | 31.03.2019 | 31.12.2019 | |
| ASSETS | ||||
| Current assets | ||||
| Cash and cash equivalents | 9 459 | 6 166 | 10 616 | |
| Current receivables | 1 281 | 845 | 1 475 | |
| Inventories | 40 329 | 59 962 | 41 031 | |
| Total current assets | 51 069 | 66 973 | 53 122 | |
| Non-current assets | ||||
| Non-current receivables | 2 942 | 677 | 2 297 | |
| Property, plant and equipment | 7 100 | 7 108 | 7 146 | |
| Right-of-use assets | 480 | 635 | 519 | |
| Investment property | 147 667 | 171 672 | 147 365 | |
| Intangible assets | 364 | 321 | 372 | |
| Total non-current assets | 158 553 | 180 413 | 157 699 | |
| TOTAL ASSETS | 209 622 | 247 386 | 210 821 | |
| LIABILITIES AND EQUITY | ||||
| Current liabilities | ||||
| Current debt | 83 153 | 14 540 | 111 759 | |
| Customer advances | 5 935 | 5 510 | 3 974 | |
| Current payables | 10 837 | 8 188 | 8 741 | |
| Tax liabilities | 849 | 395 | 1 155 | |
| Short-term provisions | 329 | 903 | 267 | |
| Total current liabilities | 101 103 | 29 536 | 125 896 | |
| Non-current liabilities | ||||
| Long-term debt | 38 398 | 113 937 | 10 871 | |
| Other non-current payables | 1 064 | 1 140 | 1 013 | |
| Deferred income tax liabilities | 1 320 | 2 004 | 1 348 | |
| Long-term provisions | 137 | 144 | 127 | |
| Total non-current liabilities | 40 919 | 117 225 | 13 359 | |
| TOTAL LIABILITIES | 142 022 | 146 761 | 139 255 | |
| Equity attributable to owners of the Company | ||||
| Share capital in nominal value | 11 338 | 11 338 | 11 338 | |
| Share premium | 5 661 | 5 661 | 5 661 | |
| Statutory reserve | 1 134 | 1 082 | 1 134 | |
| Revaluation reserve | 3 262 | 3 262 | 3 262 | |
| Retained earnings | 49 744 | 76 771 | 76 725 | |
| Profit/ Loss for the period | -3 788 | -43 | -26 981 | |
| Total equity attributable to owners of the Company | 67 351 | 98 071 | 71 139 | |
| Non-controlling interest | 249 | 2 554 | 427 | |
| TOTAL EQUITY | 67 600 | 100 625 | 71 566 | |
| TOTAL LIABILITIES AND EQUITY | 209 622 | 247 386 | 210 821 | |
Consolidated interim statements of profit and loss and ohter comprehensive income
| in thousands of euros | 2020 3M | 2019 3M | 2019 12M |
| CONTINUING OPERATIONS | |||
| Operating income | |||
| Revenue | 5 873 | 10 372 | 55 276 |
| Cost of goods sold | -3 736 | -6 230 | -39 467 |
| Gross profit | 2 137 | 4 142 | 15 809 |
| Marketing expenses | -161 | -142 | -728 |
| Administrative expenses | -1 562 | -1 353 | -6 013 |
| Other income | 3 | 27 | 95 |
| Other expenses | -71 | -30 | -24 341 |
| Operating profit/ loss | 346 | 2 644 | -15 178 |
| Financial income | 1 | 1 | 4 |
| Financial expense | -4 244 | -2 757 | -14 019 |
| Loss before income tax | -3 897 | -112 | -29 193 |
| Income tax | -69 | -1 | 21 |
| Loss for the period | -3 966 | -113 | -29 172 |
| Attributable to: | |||
| Equity holders of the parent | -3 788 | -43 | -26 981 |
| Non-controlling interest | -178 | -70 | -2 191 |
| Total comprehensive loss for the year | -3 966 | -113 | -29 172 |
| Attributable to: | |||
| Equity holders of the parent | -3 788 | -43 | -26 981 |
| Non-controlling interest | -178 | -70 | -2 191 |
| Earnings per share for the period (EUR) | -0.07 | 0.00 | -0.48 |
Consolidated interim statements of cash flows
| in thousands of euros | 2020 3M | 2019 3M | 2019 12M |
| Cash flows from operating activities | |||
| Profit/loss for the period | -3 966 | -113 | -29 172 |
| Adjustments for: | |||
| Depreciation, amortisation of non-current assets | 105 | 94 | 399 |
| Gain from disposal of investment property | 0 | 0 | -3 |
| Loss from write-off of PPE and intangible assets | 0 | 0 | 6 |
| Change in fair value of property, plant, equipment | 0 | 0 | -15 |
| Change in fair value of investment property | 0 | 0 | 24 236 |
| Finance income and costs | 4 243 | 2 756 | 14 016 |
| Changes in deferred tax assets and liabilities | -27 | 0 | -656 |
| Other non-monetary changes (net amounts) | -1 | 31 | 419 |
| Changes in working capital: | |||
| Trade receivables and prepayments | -409 | 1 572 | -630 |
| Inventories | 703 | -582 | 18 276 |
| Liabilities and prepayments | 1 336 | -4 145 | -6 412 |
| Provisions | 10 | 10 | -51 |
| Net cash used/ generated in operating activities | 1 994 | -377 | 20 413 |
| Cash flows from investing activities | |||
| Payments for property, plant and equipment | -10 | -31 | -226 |
| Payments for intangible assets | -2 | -1 | -74 |
| Payments for investment property | -302 | -3 533 | -6 019 |
| Proceeds from disposal of investment property | 0 | 0 | 2 170 |
| Interests received | 1 | 1 | 4 |
| Net cash used in investing activities | -313 | -3 564 | -4 145 |
| Cash flows from financing activities | |||
| Proceeds from bonds | 28 500 | 0 | 0 |
| Redemption of non-convertible bonds | -28 000 | 0 | -500 |
| Proceeds from borrowings | 100 | 7 570 | 16 461 |
| Repayment of borrowings | -648 | -3 843 | -21 551 |
| Repayment of lease liabilities | -48 | -36 | -192 |
| Interests and finance costs paid | -2 742 | -624 | -6 910 |
| Net cash used/ generated by financing activities | -2 838 | 3 067 | -12 692 |
| Net change in cash and cash equivalents | -1 157 | -874 | 3 576 |
| Cash and cash equivalents at the beginning | 10 616 | 7 040 | 7 040 |
| Cash and cash equivalents at the end of the period | 9 459 | 6 166 | 10 616 |
The full report can be found in the file attached.
