Pro Kapital: Pro Kapital Council approved Consolidated Interim Report for II Quarter and 6 Months of 2022 (Unaudited)

Pro KapitalMANAGEMENT REPORT

CEO summary

The second quarter of 2022 continued the trend we have seen in Q1, with a strong demand for real estate assets in the Baltic countries (particularly Estonia and Lithuania).

Our available inventory is mainly sold, but we can say (based on the expression of interest of our potential buyers for upcoming projects and on the activity of our competitors) that the volume of transactions and the prices have not been overly impacted by the geopolitical situation.

However, there has been a change in sentiment in the market, with analysts taking a more bearish approach due to the inflation which is happening in Europe and the consequent increase of interest rates from the banks.

The local real estate sector is coming from two years of great increase in prices, and we are aware that this market cycle will not last forever, however the most important indicators (interest in our upcoming developments and sale price in the secondary market for our already built properties) still show a healthy market.

The construction market still poses some challenging issues, due to the increase in cost of materials caused by the complications related to Covid-19 and relative problems in the supply chain and the impossibility of obtaining materials from the regions affected by the war. For certain materials, the market seems to have found a new equilibrium and we are hopeful that as more time goes by, the more the construction market will find stability.

Real estate development

In Tallinn, we have continued construction of Kindrali Houses and Kalaranna projects.

In Q2 of 2022 we continued handing over apartments in Kalaranna project, where completion of eight buildings with the total of 240 apartments will be achieved. We have reservations or presales concluded for all business premises and for 99% of apartments in this phase of the project, and we have currently 4 units left to be notarized.

The municipality issued the permit of use for the promenade (as well as took over the maintenance of the same as per the agreement signed between us) (https://news.err.ee/1608664387/gallery-tallinn-s-kalaranna-promenade-finally-officially-opened-to-public), and we are proud to see this community finally come to life. The promenade not only benefits the residents in our developments, but is also very much appreciated by the people who simply want to enjoy a nice walk with a sea view, surrounded by the beautiful architecture we have built.

In Kindrali Houses, we have started the process of notarising deals in the first two buildings (black and white building), which are expected to be completed by the fall of 2022. The third building (red building) is expected to be completed by the end of 2022. All in all, these three buildings comprise 195 residential and 1 commercial units, all of which are sold.

In Riga we are selling our ready luxury product River Breeze Residence and started the tendering process for the further development of Kliversala Residential Quarter – Blue Marine. We have received several offers from construction companies and are in the process of identifying the best option.

In Vilnius, we only have 4 unsold apartments in our Šaltiniu Namai Attico project (including one which serves as a showroom). The real estate market has had a great run in 2021 and we saw a great deal of interest for our luxury properties, achieving some of the highest prices per square meter in all the local market. We received some offers from the construction companies for the following phase of city villas and a commercial building and we aim to start the construction works during the fall of 2022.

Hotel operations

We are in the process of renovation of the second half of the rooms (first half has been renovated 5 years ago), which will be completed by October. The works will also have the added benefit of converting an unused area into 7 standard rooms and creation of a luxurious suite with private sauna and terrace, which will greatly improve the overall prestige of the hotel.

In May, we have hired a new General Manager, Mr. Klaus Brandstetter, who was a 20+ years experience in Starwood Hotels. We wish him the best of luck and we are confident we have picked the right person for the job.

Since the ongoing works, the hotel’s available inventory is only at 50%. Despite this, in the first 6 months it has reached a substantial operative break-even, thanks to a) the MICE (Meetings, Incentives, Conferences and Exhibitions) coming back after a long pause due to the pandemic, and b) an increase in the Average Daily Rate (ADR) which is currently at 99.83 euro (June data), a substantial increase when compared to the 81.68 euro rate of June 2021.

In conclusion, we are confident in our abilities to navigate these turbulent times, thanks to our experience and to the resilience of the Baltic markets. Our aim is to expand our current inventory, by making intelligent bets on what we feel like the market may absorb, thus creating long-term value for our shareholders and for the communities that we aim to develop in a sustainable, comfortable and aesthetically pleasing way.

Edoardo Preatoni
CEO

Key financials

The total revenue of the Company in the first six months of 2022 was 31.2 million euros, having increased more than four times compared to the reference period (2021 6M: 7.3 million euros). The total revenue of the second quarter was 23.3 million euros compared to 1.7 million euros in 2021.

The gross profit for six months of 2022 has increased five times amounting to 9.3 million euros compared to 1.8 million euros in 2021. The gross profit in the second quarter reached 6.8 million euros (2021: 222 thousand euros).

The operating result in the first halfyear of 2022 has decreased to 6.4 million euros profit comparing to 28.3 million euros profit during the same period in 2021.The operating result of the second quarter was 5.4 million euros comparing to 26.5 million euros in 2021. Higher profit in 2021 was affected by one-time sales of investment property and related revenue and the results of derecognition of AS Tallinna Moekombinaat after loss of control over the subsidiary on 2 June 2021.

The net result for the first six months of 2022 was 4.1 million euros profit, comparing to 25.5 million euros profit (continuing operations) in the reference period. The net profit of the second quarter was 4.3 million euros comparing to 25.1 million euros generated in 2021.

Cash generated in operating activities during first six months of 2022 was 11.2 million euros comparing to 3.38 million euros used during the same period in 2021. In the second quarter cash generated in operating activities was 14.4 million euros and 5.2 million euros used respectively in 2021.

Net assets per share on 30 June 2022 totalled to 0.83 euros compared to 0.61 euros on 30 June 2021.

Key performance indicators

2022 6M 2021 6M 2022 Q2 2021 Q2 2021 12M
Revenue, th EUR 31 194 7 307 23 278 1 727 43 095
Gross profit, th EUR 9 362 1 813 6 804 222 10 576
Gross profit, % 30% 25% 30% 25% 25%
Operating result, th EUR 6 413 28 318 5 424 26 532 39 820
Operating result, % 21% 388% 23% 1 536% 92%
Net result, th EUR 4 106 21 342 4 346 23 454 29 757
Net result, % 13% 292% 19% 1 452% 69%
Earnings per share, EUR 0.07 0.38 0.08 0.44 0.52
  30.06.2022 30.06.2021 31.12.2021
Total Assets, th EUR 116 701 125 105 116 026
Total Liabilities, th EUR 69 752 90 677 73 183
Total Equity, th EUR 46 949 34 428 42 843
Debt / Equity * 1.49 2.63 1.71
Return on Assets, % ** 2.8% 12.8% 23.7%
Return on Equity, % *** 14.5% 41.1% 113.5%
Net asset value per share, EUR **** 0.83 0.61 0.76

*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 30.06.2022 30.06.2021 31.12.2021
ASSETS
Current assets
Cash and cash equivalents 15 208 13 842 9 626
Current receivables 1 099 967 802
Inventories 49 621 67 967 57 533
Total current assets 65 928 82 776 67 961
Non-current assets
Non-current receivables 1 519 23 21
Property, plant and equipment 7 491 6 648 6 754
Right-of-use assets 198 266 202
Investment property 41 214 35 038 40 734
Intangible assets 351 354 354
Total non-current assets 50 773 42 329 48 065
TOTAL ASSETS 116 701 125 105 116 026
LIABILITIES AND EQUITY
Current liabilities
Current debt 10 596 1 262 3 955
Customer advances 11 330 13 070 12 419
Current payables 7 924 4 882 7 297
Tax liabilities 110 111 1 143
Short-term provisions 585 475 713
Total current liabilities 30 545 19 800 25 527
Non-current liabilities
Long-term debt 38 028 67 085 46 455
Other non-current payables 9 2 577 20
Deferred income tax liabilities 1 136 1 133 1 133
Long-term provisions 34 82 48
Total non-current liabilities 39 207 70 877 47 656
TOTAL LIABILITIES 69 752 90 677 73 183
Equity attributable to owners of the Company
Share capital in nominal value 11 338 11 338 11 338
Share premium 5 661 5 661 1 748
Statutory reserve 1 134 1 134 0
Revaluation reserve 2 984 2 984 2 984
Retained earnings 21 726 -8 031 0
Profit/ Loss for the period 4 106 21 342 26 773
Total equity attributable
to owners of the Company
46 949 34 428 42 843
TOTAL EQUITY 46 949 34 428 42 843
TOTAL LIABILITIES AND EQUITY 116 701 125 105 116 026

Consolidated interim statements of comprehensive income

in thousands of euros 2022 6M 2021 6M 2022 Q2 2021 Q2 2021 12M
CONTINUING OPERATIONS
Operating income
Revenue 31 194 7 307 23 278 1 727 43 095
Cost of goods sold -21 832 -5 494 -16 474 -1 505 -32 519
Gross profit 9 362 1 813 6 804 222 10 576
Marketing expenses -237 -239 -123 -114 -502
Administrative expenses -2 658 -2 463 -1 209 -1 471 -5 592
Other income 8 29 255 8 27 923 35 616
Other expenses -62 -48 -56 -28 -278
Operating profit/ loss 6 413 28 318 5 424 26 532 39 820
Financial income 2 3 0 1 6
Financial expense -2 304 -2 835 -1 078 -1 442 -5 964
Profit / loss before income tax 4 111 25 486 4 346 25 092 33 862
Income tax -5 -29 11 -12 10
Net profit / loss from continuing operations 4 106 25 457 4 357 25 080 33 872
Profit from discontinued operations 0 -4 115 0 -1 626 -4 115
Net profit / loss for the period 4 106 21 342 4 357 23 454 29 757
Attributable to:
        Equity holders of the parent 4 106 21 342 4 357 23 454 29 757
Total comprehensive income / loss for the year 4 106 21 342 4 357 23 454 29 757
Attributable to:
        Equity holders of the parent 4 106 21 342 4 357 23 454 29 757
Earnings per share (continuing operations) € 0.07 0.45 0.08 0.44 0.60
Earnings per share for the period € 0.07 0.38 0.08 0.41 0.52

The full report can be found in the file attached.

PKG_Q2_2022_ENG_final

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