MANAGEMENT REPORT

CEO summary

2021 has been a dynamic working period. We have continued with our ongoing developments, where we see remarkable results, but also had to face a setback as the decision of the Supreme Court terminated reorganisation proceedings of our subsidiary AS Tallinna Moekombinaat which led to the permanent insolvency and loss of control of the subsidiary.

Real estate development

We have continued construction of Kindrali Houses and Kalaranna projects and preparing project documentation for the following development phases in Tallinn. In March we completed Ratsuri Houses in Kristiine City where we had booked or presold all 39 apartments already prior to the completion. All apartments were sold and handed over within March and April. Soon we start handing over apartments in two first buildings of Kalaranna project, where completion of eight buildings with the total of 240 apartments will be achieved step by step in four phases. Today we have reservations or presales concluded for 88% of premises. This spring we concluded an agreement for sales of all business premises of Kalaranna project for 16.16 million euros (with VAT) including the option to sell also premises of the last phase, which we are preparing to launch in the near future. This year we started with construction of the new project Kindrali Houses in Kristiine City, where two building complexes with 129 apartments will be raised by next summer. In this project we had booked or presold more than half of the apartments before signing the construction agreement. Based on strong demand of our product we initiated also construction of the third building in this project with additional 66 apartments, which will be completed in the first quarter of 2023. Today over 82% of the apartments have been booked or presold in Kindrali.


In Riga we are selling our luxury product River Breeze Residence and prepare for the further development of Kliversala Residential Quarter. We have received a building permit for City Oasis residential quarter with 326 apartments – a tranquil and green living environment in the city centre. We are ready to proceed with construction activities as soon as the market situation becomes more favourable. Unfortunately, the Latvian real-estate market has not been as active as its neighbouring countries Estonia and Lithuania. However, we are observing some changes and recovery of the market.

In 2019 we completed five buildings in Šaltinių Namai Attico project in Vilnius with 115 apartments. Today we have only 5 apartments unsold. We are preparing for the following phase with city villas and commercial building and plan to start the construction this year.

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. In 2021 we have already completed Ratsuri Houses project with 39 apartments and now we start handing over exclusive homes in prime location of Kalaranna project.

T1 Mall of Tallinn

On 3 April 2020 Harju County Court initiated reorganization proceedings of the operator of T1 Mall of Tallinn - AS Tallinna Moekombinaat (TMK). Reorganization proceedings were terminated a year later by the decision of 26 April 2021 of the Supreme Court not to take TMK’s appeal into proceedings. Without the reorganisation proceedings AS Tallinna Moekombinaat is not capable to fulfil its obligations and has become permanently insolvent. On 2 June 2021 Harju County Court declared bankruptcy of AS Tallinna Moekombinaat and the Company lost control over subsidiary. AS Pro Kapital Eesti had written off an investment into subsidiary in amount of 13.4 million euros due to negative equity of TMK and as a result of adjusting event also receivables in the total amount of 26 million euros as at 31 December 2020 in its standalone reports. When bankruptcy was declared and the Company lost control over subsidiary, the subsidiary was derecognised in consolidated financial statements and write-off took effect in the second quarter. Although write-off influenced consolidated results negatively, discontinuing consolidation had positive effect to the Group financial results due to derecognition of negative equity of the subsidiary (Note 15).

Hotel operations

Last year had a significant impact on PK Parkhotel Kurhaus in Bad Kreuznach, Germany. Due to the COVID-19 restrictions, the hotel was closed from March until the end of June and due to new restrictions hotel is not operating since November 2020. The impact of COVID-19 has been 0.6 million euros in less hotel revenues in the first six months of 2021 comparing to last year. However, due to governmental support, the net result was better by 208 thousand euros. We reopened the hotel in the middle of June.

In the following months we continue construction works of ongoing development projects and plan to start with the following phases. In spite of losing T1 Mall of Tallinn, our real estate development is doing well, the Company is a going concern and we have an optimistic view for the future.

Paolo Michelozzi
CEO

Key financials

The total revenue of the Company in the first six month of 2021 was 9 million euros, which is a slight decrease of 11 thousand euros compared to the reference period (2021 6M: 9.1 million euros). The total revenue of the second quarter was 2.5 million euros, a decrease of 22% compared to 3.2 million euros during the same period in 2020. 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 have been influenced by completion of Ratsuri Houses project, where all apartments were sold and handed over to new owners. In 2021, the Company has continued with sales of completed developments - River Breeze Residence in Riga and Šaltinių Namai Attico development in Vilnius and presales of ongoing development projects: first phases of Kalaranna District and Kindrali Houses in Tallinn.

The gross profit in the first six month of 2021 decreased by 24% amounting to 2.7 million euros compared to 3.5 million euros during the same period in 2020. In the second quarter the gross profit figures were 0.7 million euros and 1.4 million euros respectively.

The operating result in the first six month of 2021 was 0.9 million euros profit comparing to 0.3 million euros profit during the same period in 2020. The operating result of the second quarter was 1.0 million euros loss comparing to 94 thousand euros loss in 2020.

The net result in the first six month of 2021 was 21.3 million euros profit and in the second quarter 23.5 million euros profit. In the comparable period the net results were 7.9 million euros loss and 3.9 million euros loss respectively. The net result of the reporting period was influenced by loss of control and derecognition of the subsidiary AS Tallinna Moekombinaat.

Cash used in operating activities during the first six month was -3.9 million euros comparing to -2.6 million euros during the same period in 2020. In the second quarter of 2021 cash used in operating activities was -5.2 million euros and -4.6 million euros generated during the same period in 2020.

Net assets per share on 30 June 2021 totalled to 0.61 euros compared to 1.12 euros on 30 June 2020.

Key performance indicators (including discontinued operations)

  2021 6M 2020 6M 2021 Q2 2020 Q2 2020 12M
Revenue, th EUR 9 042 9 053 2 479 3 180 19 234
Gross profit, th EUR 2 661 3 491 687 1 354 6 775
Gross profit, % 29% 39% 28% 43% 35%
Operating result, th EUR 877 250 -1 020 -96 -43 108
Operating result, % 10% 3% -41% -3% -224%
Net result, th EUR 21 342 -7 903 23 454 -3 935 -59 456
Net result, % 236% -87% 946% -124% -309%
           
Earnings per share, EUR 0.38 -0.13 0.42 -0.07 -0.98


 30.06.202130.06.202031.12.2020
Total Assets, th EUR 125 105 210 575 179 048
Total Liabilities, th EUR 90 677 149 173 169 477
Total Equity, th EUR 34 428 61 402 9 571
Debt / Equity * 4.00 2.17 14.15
    
Return on Assets, % ** 14% -4% -30.7%
Return on Equity, % *** 97% -12% -141.2%
Net asset value per share, EUR **** 0.61 1.11 0.23

  
*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 30.06.202130.06.2020
Restated		31.12.2020
ASSETS     
Current assets      
Cash and cash equivalents 13 842 7 061 9 393
Current receivables 967 1 077 1 797
Inventories 67 967 45 381 58 352
Total current assets 82 776 53 519 69 542
Non-current assets      
Non-current receivables 23 3 716 3 517
Property, plant and equipment 6 648 7 047 6 745
Right-of-use assets 266 438 357
Investment property 35 038 145 501 98 512
Intangible assets 354 354 375
Total non-current assets 42 329 157 056 109 506
TOTAL ASSETS 125 105 210 575 179 048
LIABILITIES AND EQUITY     
Current liabilities      
Current debt 1 262 83 162 107 581
Customer advances 13 070 6 059 7 866
Current payables 4 882 15 430 22 211
Tax liabilities 111 167 458
Short-term provisions 475 325 459
Total current liabilities 19 800 105 143 138 575
Non-current liabilities      
Long-term debt 67 085 41 179 27 255
Other non-current payables 2 577 1 416 2 295
Deferred income tax liabilities 1 133 1 289 1 170
Long-term provisions 82 146 182
Total non-current liabilities 70 877 44 030 30 902
TOTAL LIABILITIES 90 677 149 173 169 477
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 1 216 1 134
Revaluation reserve 2 984 3 262 2 984
Retained earnings -8 031 47 564 47 647
Profit/ Loss for the period 21 342 -7 554 -55 678
Total equity attributable to owners of the Company 34 428 61 487 13 086
Non-controlling interest 0 -85 -3 515
TOTAL EQUITY 34 428 61 402 9 571
TOTAL LIABILITIES AND EQUITY 125 105 210 575 179 048

* See Note 2 for details regarding restatement.

 Consolidated interim statements of profit and loss and other comprehensive income

in thousands of euros 2021 6M 2020 6M 2021 Q2 2020 Q2 2020 12M
CONTINUING OPERATIONS     
Operating income     
Revenue 7 307 5 597 1 727 1 727 13 637
Cost of goods sold -5 494 -4 060 -1 505 -1 294 -9 424
Gross profit 1 813 1 537 222 433 4 213
      
Marketing expenses -239 -277 -114 -126 -611
Administrative expenses -2 463 -2 118 -1 470 -1 024 -4 372
Other income 1 508 4 176 3 384
Other expenses -49 -12 -28 -2 2 876
Operating profit/ loss 570 -866 -1 214 -716 2 490
      
Financial income 53 810 2 53 809 1 4
Financial expense -27 753 -2 817 -26 362 -1 203 -5 419
Profit / loss before income tax 26 627 -3 681 26 234 -1 918 -2 925
Income tax -28 -79 -11 -10 -354
Net profit / loss from continuing operations 26 599 -3 760 26 223 -1 928 -3 279
      
Profit from discontinued operations -5 257 -4 143 -2 768 -2 011 -56 177
Net profit / loss for the period 21 342 -7 903 23 455 -3 939 -59 456
           
Attributable to:      
            Equity holders of the parent                                                21 627 -7 554 23 577 -3 769 -55 678
            Non-controlling interest -285 -349 -123 -170 -3 778
      
Other comprehensive income, net of income tax          
Items that will not be reclassified subsequently to profit or loss            
Net change in properties revaluation reserve 0 0 0 0 -278
           
Total comprehensive income / loss for the year 21 342 -7 903 23 455 -3 937 -59 734
Attributable to:      
            Equity holders of the parent 21 627 -7 554 23 577 -3 769 -55 956
            Non-controlling interest -285 -349 -123 -170 -3 778
      
Earnings per share (continuing operations) € 0.47 -0.07 0.46 -0.03 -0.06
Earnings per share for the period € 0.38 -0.13 0.41 -0.07 -0.99

Consolidated interim statements of cash flows

in thousands of euros 2021 6M 2020 6M 2021 Q2 2020 Q2 2020 12M
Cash flows from operating activities     
Profit/loss for the period 21 342 -7 903 23 454 -3 937 -59 456
Adjustments for:      
     Depreciation, amortisation of non-current assets            194 208 94 104 416
     Gain from disposal of investment property -1 092 0 0 0 0
     Loss from write-off of plant, property, equipment 0 0 0 0 8
     Change in fair value of property, plant, equipment 0 0 0 0 -16
     Change in fair value of investment property         0 0 0 0 43 127
     Gain from derecognition of subsidiary -53 808 0 -53 808 0 0
     Finance income and costs 33 314 8 074 29 321 3 831 15 994
     Changes in deferred tax assets and liabilities -37 -59 -19 -32 -178
     Other non-monetary changes (net amounts) 1 545 1 1 544 1 -3 110
Changes in working capital:      
     Trade receivables and prepayments 4 319 -980 4 266 -570 -1 514
     Inventories -9 616 -4 350 -6 487 -5 053 -13 011
     Liabilities and prepayments 64 2 348 -3 442 1 012 10 025
     Provisions -100 19 -113 10 59
Net cash used in operating activities -3 875 -2 642 -5 190 -4 634 -7 656
      
Cash flows from investing activities     
Payments for property, plant and equipment -34 -12 -6 -3 -94
Payments for intangible assets -5 -2 -3 0 -43
Payments for investment property -246 -397 -36 -95 -844
Proceeds from disposal of investment property 2 000 0 0 0 0
Change in cash from derecognition of subsidiary -183 0 -183 0 0
Interests received 1 2 0 0 1
Net cash used in investing activities 1 533 -409 -228 -98 -980
      
Cash flows from financing activities     
Net proceeds from secured bonds 0 28 500 0 0 28 500
Redemption of convertible bonds -84 0 -15 0 -33
Repurchase of non-convertible bonds 0 -28 000 0 0 -28 000
Proceeds from borrowings 12 411 2 857 6 573 2 757 14 410
Repayment of borrowings -2 865 -656 -8 -8 -1 376
Repayment of lease liabilities -87 -84 -41 -36 -135
Interests paid -2 584 -3 121 -580 -379 -5 953
Net cash used/ generated by financing activities 6 791 -504 5 929 2 334 7 413
           
Net change in cash and cash equivalents 4 449 -3 555 511 -2 398 -1 223
Cash and cash equivalents at the beginning 9 393 10 616 13 331 9 459 10 616
Cash and cash equivalents at the end of the period 13 842 7 061 13 842 7 061 9 393

The full report can be found in the file attached.

Allan Remmelkoor
Member of the Board
+372 614 4920
prokapital@prokapital.ee

Attachment

  • PKG 2021 Q2 ENG

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