Pro Kapital Council approved Consolidated Interim Report for III Quarter and 9 Months of 2019 (Unaudited)

Pro KapitalMANAGEMENT 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 9M 2018 9M 2019 Q3 2018 Q3 2018 12M
Revenue, th EUR 37 283 21 043 14 771 5 978 27 991
Gross profit, th EUR 11 740 6 892 3 561 1 859 9 576
Gross profit, % 31% 33% 24% 31% 34%
Operating result, th EUR 6 885 4 779 1 764 350 21 483
Operating result, % 18% 23% 12% 6% 77%
Net result, th EUR -3 075 2 279 -2 799 -543 18 056
Net result, % -8% 11% -19% -9% 65%
Earnings per share, EUR -0.05 0.04 -0.05 -0.01 0.30
  30.09.2019 30.09.2018 31.12.2018
Total Assets, th EUR 243 213 208 798 245 112
Total Liabilities, th EUR 145 549 123 837 144 374
Total Equity, th EUR 97 664 84 961 100 738
Debt / Equity * 1.49 1.46 1.43
Return on Assets, % ** -1.4% 1.2% 8.6%
Return on Equity, % *** -3.4% 2.7% 19.7%
Net asset value per share, EUR **** 1.72 1.50 1.78

*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 euros 30.09.2019 30.09.2018 31.12.2018
ASSETS
Current assets
Cash and cash equivalents 5 270 7 079 7 040
Current receivables 1 219 4 055 2 928
Inventories 51 717 56 661 59 331
Total current assets 58 206 67 795 69 299
Non-current assets
Non-current receivables 3 708 35 216
Property, plant and equipment 7 723 7 127 7 128
Investment property 173 219 133 530 168 145
Intangible assets 357 311 324
Total non-current assets 185 007 141 003 175 813
TOTAL ASSETS 243 213 208 798 245 112
LIABILITIES AND EQUITY
Current liabilities
Current debt 43 621 8 184 10 328
Customer advances 2 059 5 171 5 707
Current payables 8 418 11 662 11 939
Tax liabilities 218 181 357
Short-term provisions 1 300 642 852
Total current liabilities 55 616 25 840 29 183
Non-current liabilities
Long-term debt 87 359 91 177 112 009
Other non-current payables 1 043 4 688 1 039
Deferred income tax liabilities 1 414 2 003 2 004
Long-term provisions 117 129 139
Total non-current liabilities 89 933 97 997 115 191
TOTAL LIABILITIES 145 549 123 837 144 374
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 1 082
Revaluation reserve 3 262 3 262 3 262
Retained earnings 76 725 59 944 59 944
Profit/ Loss for the period -2 734 2 320 16 827
Total equity attributable to owners of the Company 95 386 83 607 98 114
Non-controlling interest 2 278 1 354 2 624
TOTAL EQUITY 97 664 84 961 100 738
TOTAL LIABILITIES AND EQUITY 243 213 208 798 245 112

Consolidated interim statements of comprehensive income

in thousands of euros 2019
9M
  2018
9M
2019
Q3
2018
Q3
2018
12M
CONTINUING OPERATIONS
Operating income
Revenue 37 283 21 043 14 771 5 978 27 991
Cost of goods sold -25 543 -14 151 -11 210 -4 119 -18 415
Gross profit 11 740 6 892 3 561 1 859 9 576
Marketing expenses -487 -706 -193 -247 -1 336
Administrative expenses -4 338 -4 037 -1 563 -1 714 -5 427
Other income 56 2 679 6 470 18 839
Other expenses -86 -49 -47 -17 -169
Operating profit 6 885 4 779 1 764 351 21 483
Financial income 3 3 1 1 4
Financial expense -10 074 -2 548 -4 502 -887 -3 473
Profit/ loss before income tax -3 186 2 234 -2 737 -535 18 014
Income tax 111 45 -62 -8 42
Profit/ loss for the period -3 075 2 279 -2 799 -543 18 056
Attributable to:
Equity holders of the parent -2 735 2 320 -2 605 -550 16 827
Non-controlling interest -340 -41 -194 7 1 229
Total comprehensive income/ loss for the year -3 075 2 279 -2 799 -543 18 056
Attributable to:
Equity holders of the parent -2 735 2 320 -2 605 -550 16 827
Non-controlling interest -340 -41 -194 7 1 229
Earnings per share for the period (EUR) -0.05 0.04 -0.05 -0.01 0.30

 Consolidated interim statements of cash flows

in thousands of euros 2019 9M 2018 9M 2019 Q3 2018 Q3 2018 12M
Cash flows from operating activities
Profit/loss for the period -3 075 2 279 -2 799 -543 18 056
Adjustments for:
  Depreciation, amortisation of non-current assets 294 158 100 54 214
  Gain from disposal of property, plant, equipment 0 -4 0 0 -4
  Gain from disposal of investment property 0 -418 0 -418 -418
  Change in fair value of property, plant, equipment 0 0 0 0 -13
  Change in fair value of investment property 0 -1 910 0 0 -17 995
  Finance income and costs 10 071 2 545 4 501 885 3 469
  Changes in deferred tax assets and liabilities -590 -55 -413 0 -54
  Other non-monetary changes (net amounts) 2 446 16 827 2 396 2 790 15 458
Changes in working capital:
  Trade receivables and prepayments -1 785 842 -826 -894 1 781
  Inventories 7 591 -18 637 6 180 -2 001 -21 307
  Liabilities and prepayments -8 154 1 301 -2 786 -227 -128
  Provisions -15 502 -39 612 -107
Net cash used in/ generated in operating activities 6 783 3 430 6 314 258 -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, equipment 0 336 0 0 336
Payments for investment property -5 496 -31 084 -859 -8 898 -47 786
Proceeds from disposal of investment property 0 0 0 0 1 000
Interests received 3 3 1 1 4
Net cash used in investing activities -5 740 -30 918 -915 -8 980 -46 676
Cash flows from financing activities
Dividend payment 0 -850 0 0 -850
Redemption of convertible bonds 0 -3 0 -3 -9
Redemption of non-convertible bonds -600 -640 -300 -640 -640
Proceeds from borrowings 15 917 33 474 2 529 10 960 56 923
Repayment of borrowings -12 639 -5 509 -5 063 -754 -7 496
Repayment of lease liabilities -129 0 -44 0 0
Interests paid -3 362 -2 222 -1 354 -473 -3 481
Deposited amount related to loan obligations -2 000 0 0 0 0
Net cash used in/ generated by financing activities -2 813 24 250 -4 232 9 090 44 447
Net change in cash and cash equivalents -1 770 -3 238 1 168 368 -3 277
Cash and cash equivalents at the beginning 7 040 10 317 4 102 6 711 10 317
Cash and cash equivalents at the end of the period 5 270 7 079 5 270 7 079 7 040

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