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Pro Kapital Council approved Consolidated Interim Report for IV Quarter and 12 Months of 2020 (Unaudited)

Pro Kapital Grupp
·13-min read

MANAGEMENT REPORT

Chairman’s summary

2020 has been quite a turbulent year. It will be remembered for the start of the new virus SARS-CoV-2 and COVID-19 pandemic spread. Many economic sectors have suffered. Also, our group operations and results are affected. However, in spite of direct influence to the rental and hotel segment, we see an unusual increase of interest in residential real-estate sector and we are optimistic about the future.

The highlights of the year were:

- refinancing of secured bonds by issuing new bonds with the total value of 28.5 million euros bonds in February and listing of the bonds in July on Nasdaq Stockholm;

- refinancing of majority of PKG1-PKG7 convertible bonds in exchange for new non-convertible unsecured bonds with the total value of 8.7 million euros;

- start of construction of Ratsuri Houses in Tallinn.

Real estate development

We have been actively developing Ratsuri Houses and Kalaranna projects and preparing project documentation for the following development phases in Tallinn. We did not complete any new projects during the year and were selling only remaining inventories. However, we have seen a remarkable interest for our projects and presales have exceeded our expectations. For example, in Ratsuri Houses we have booked or presold all 39 apartments prior to the completion. In the new project, Kindrali Houses, we had booked and presold more than half of the apartments before signing the construction agreement. This spring we will complete Ratsuri Houses and close to summer start handing over apartments in Kalaranna project, where completion of eight buildings with the total of 240 apartments will be achieved in four phases. Today we have reservations or presales concluded for 70% of apartments. This year we have started with construction of Kindrali Houses project, where two building complexes with 129 apartments will be raised by next summer. Today over 76% of the apartments have been booked or presold.

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 will be 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. That situation has remained relatively similar within recent years and is heavily influenced by inflexible conditions of the banks towards their customers.

In 2019 we completed five buildings in Šaltiniu Namai Attico project in Vilnius with 115 apartments. Real estate sales of the Company in 2020 have been mostly driven by Lithuanian market. Today we have only 5 apartments unsold, of which 2 have been reserved. 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. We did not complete any buildings and were selling only remaining inventory, therefor we did not generate significant revenues in 2020.

T1 Mall of Tallinn

On 3 April 2020 Harju County Court initiated reorganization proceedings of its subsidiary AS Tallinna Moekombinaat (TMK). With its 14 August 2020 ruling the County Court terminated the reorganization proceedings because it has established that TMK is allegedly permanently insolvent. TMK contested the ruling and three creditors of the subsidiary also filed an appeal. Tallinn District Court decided on 29 January 2021 not to satisfy the appeals and TMK filed a new appeal to the Supreme Court of Estonia.

The reorganization proceedings are ongoing and the influence of initiating the reorganization proceedings continue to apply to TMK. T1 Mall of Tallinn is opened for customers and proceeds with its activities according to plans. 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 TMK and does not influence directly any other group company of AS Pro Kapital Grupp. No group company has secured nor guaranteed liabilities of TMK. If reorganization proceedings will fail and TMK goes bankrupt, AS Pro Kapital Eesti will have to record the maximum losses of 26 million euros including loan amount of 22.2, unpaid interest balance 3.3 million euros, unpaid invoices 0.5 million euros as at 31 December 2020. The total negative effect to the group would be 39 million euros (including initial investment into the share capital of the subsidiary). However, it would not affect liquidity of the group nor the short-term cash flows. The situation would influence the long-term cash flows to the extent of loan and interest payments.

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. The impact of COVID-19 has been 2.2 million euros in less hotel revenues and ca 0.6 million lower net result in 2020 comparing to last year. PK Parkhotel Kurhaus operating company received a long-term government support loan in amount of 500 000 euros on favourable conditions and non-refundable grants in total amount of 134 thousand euros. The funds received have helped to support the period of uncertainty. Hotel has not laid off any employees and hotel receives state support also for salary payments. We are adjusting plans according to the changes in the situation and restrictions imposed by the German Government.

2020 has presented unexpected challenges for everyone and will most likely continue to do so. We make our long-term decisions consciously and conservatively. Certainly, every negative thing is accompanied by new prospects and expectations. Consumption and behavioural habits are changing and this is rather an opportunity to adapt and offer something new and valuable. Our primary focus is currently set on ongoing and upcoming projects, sales of available inventory and contributing to re-establishing and maintaining normal activities in rental and hotel operations.

Paolo Michelozzi
CEO

Key financials

The total revenue of the Company for 2020 was 19.2 million euros, which is a decrease of 65% compared to the reference period (2019 12M: 55.3 million euros). The total revenue of the fourth quarter was 5.6 million euros, a decrease of 69% compared to 18.0 million euros during the same period in 2019. 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 2019 due to completion of apartment buildings in Kristina Houses and Šaltinių Namai projects. In 2020, the Company concentrated on sales of completed developments - River Breeze Residence in Riga and Šaltinių Namai Attico development in Vilnius.

The gross profit for 2020 decreased by 57% amounting to 6.8 million euros compared to 15.8 million euros during the same period in 2019. In the fourth quarter the gross profit figures were 1.4 million euros and 4.1 million euros respectively. Gross profit margin has increased by 23%.

The operating result for 2020 was -40.9 million euros comparing to -15.2 million euros during the same period in 2019. The operating result of the fourth quarter was -42.1 million euros comparing to -22.1 million euros in 2019. The decrease in operating result is mainly influenced by the non-monetary loss from revaluation of investment properties. The total impact from revaluation is -41.9 million euros (Note 8), mostly related to devaluation of T1 Mall of Tallinn property due to decreased ability to generate cash flow.

The net result for 2020 was -57.3 million euros and in the fourth quarter -46.2 million euros. In the comparable periods the net result was respectively -29.2 million euros and -26.1 million euros. Additionally to loss from revaluation, the net result of the reporting period was influenced by high interest expenses in AS Tallinna Moekombinaat.

Cash used in operating activities during twelve months was 7.7 million euros comparing to 20.4 million euros cash generated during the same period in 2019. In the fourth quarter of 2020 cash used in operating activities was 3.1 million euros while 13.7 million euros cash was generated during the same period in 2019.

Net assets per share on 31 December 2020 totalled to 0.25 euros compared to 1.26 euros on 31 December 2019.

Key performance indicators

2020
12M

2019
12M

2020
Q4

2019 Q4
(adjusted)

2019
Q4

Revenue, th EUR

19 234

55 276

5 619

17 993

17 993

Gross profit, th EUR

6 775

15 809

1 404

4 069

4 069

Gross profit, %

35%

29%

25%

23%

23%

Operating result, th EUR

-40 933

-15 178

-42 069

-22 065

-22 063

Operating result, %

-213%

-27%

-749%

-123%

-123%

Net result, th EUR

-57 281

-29 172

-46 196

-26 099

-26 031

Net result, %

-298%

-53%

-822%

-145%

-145%

Earnings per share, EUR

-0.95

-0.48

-0.76

-0.43

-0.43


31.12.2020

31.12.2019

Total Assets, th EUR

183 380

210 821

Total Liabilities, th EUR

169 095

139 255

Total Equity, th EUR

14 285

71 566

Debt / Equity *

15.26

1.94

Return on Assets, % **

-29.1%

-12.8%

Return on Equity, % ***

-133.4%

-34.4%

Net asset value per share, EUR ****

0.25

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

31.12.2020

31.12.2019

ASSETS

Current assets

Cash and cash equivalents

9 393

10 616

Current receivables

1 797

1 475

Inventories

58 352

41 031

Total current assets

69 542

53 122

Non-current assets

Non-current receivables

4 085

2 297

Property, plant and equipment

7 023

7 146

Right-of-use assets

357

519

Investment property

101 998

147 365

Intangible assets

375

372

Total non-current assets

113 838

157 699

TOTAL ASSETS

183 380

210 821

LIABILITIES AND EQUITY

Current liabilities

Current debt

79 939

111 759

Customer advances

7 866

3 974

Current payables

21 829

8 741

Tax liabilities

458

1 155

Short-term provisions

459

267

Total current liabilities

110 551

125 896

Non-current liabilities

Long-term debt

54 897

10 871

Other non-current payables

2 295

1 013

Deferred income tax liabilities

1 170

1 348

Long-term provisions

182

127

Total non-current liabilities

58 544

13 359

TOTAL LIABILITIES

169 095

139 255

Equity attributable to owners of the Company

Share capital in nominal value

11 338

11 338

Share premium

5 661

5 661

Statutory reserve

1 134

1 134

Revaluation reserve

3 262

3 262

Retained earnings

49 744

76 725

Profit/ Loss for the period

-53 648

-26 981

Total equity attributable to owners of the Company

17 491

71 139

Non-controlling interest

-3 206

427

TOTAL EQUITY

14 285

71 566

TOTAL LIABILITIES AND EQUITY

183 380

210 821

Consolidated interim statements of profit and loss and other comprehensive income

in thousands of euros

2020
12M

2019
12M

2020
Q4

2019 Q4
(adjusted)

2019
Q4

CONTINUING OPERATIONS

Operating income

Revenue

19 234

55 276

5 619

17 993

17 993

Cost of goods sold

-12 459

-39 467

-4 215

-13 924

-13 924

Gross profit

6 775

15 809

1 404

4 069

4 069

Marketing expenses

-621

-728

-193

-241

-240

Administrative expenses

-5 587

-6 013

-1 748

-1 675

-1 674

Other income

478

95

368

39

39

Other expenses

-41 978

-24 341

-41 900

-24 257

-24 257

Operating profit

-40 933

-15 178

-42 069

-22 065

-22 063

Financial income

4

4

1

1

1

Financial expense

-15 998

-14 019

-3 985

-3 945

-3 879

Profit / loss before income tax

-56 927

-29 193

-46 053

-26 009

-25 941

Income tax

-354

21

-143

-90

-90

Profit / loss for the period

-57 281

-29 172

-46 196

-26 099

-26 031

Attributable to:

Equity holders of the parent

-53 648

-26 981

-42 975

-24 249

-24 181

Non-controlling interest

-3 633

-2 191

-3 221

-1 850

-1 850

Total comprehensive income / loss for the year

-57 281

-29 172

-46 196

-26 099

-26 031

Attributable to:

Equity holders of the parent

-53 648

-26 981

-42 975

-24 249

-24 181

Non-controlling interest

-3 633

-2 191

-3 221

-1 850

-1 850

Earnings per share for the period (EUR)

-0.95

-0.48

-0.76

-0.43

-0.43

Consolidated interim statements of cash flows

in thousands of euros

2020
12M

2019
12M

2020
Q4

2019 Q4
(adjusted)

2019
Q4

Cash flows from operating activities

Profit/loss for the period

-57 281

-29 172

-46 196

-26 098

-26 031

Adjustments for:

Depreciation, amortisation of non-current assets

416

399

105

105

105

Gain from disposal of investment property

0

-3

0

-3

-3

Loss from write-off PPE and intangible assets

8

6

8

6

6

Change in fair value of property, plant, equipment

-16

-15

-16

-15

-15

Change in fair value of investment property

41 902

24 236

41 902

24 236

24 236

Finance income and costs

15 994

14 016

3 984

3 945

3 878

Changes in deferred tax assets and liabilities

-178

-656

-60

-66

-66

Other non-monetary changes (net amounts)

-3 111

419

9

-2 026

-2 026

Changes in working capital:

Trade receivables and prepayments

-2 081

-630

-32

1 155

1 155

Inventories

-13 011

18 276

-638

10 685

10 685

Liabilities and prepayments

9 643

-6 412

-2 227

1 842

1 842

Provisions

59

-51

31

-36

-36

Net cash used/ generated in operating activities

-7 656

20 413

-3 130

13 730

13 730

Cash flows from investing activities

Payments for property, plant and equipment

-94

-226

-68

-24

-24

Payments for intangible assets

-43

-74

-43

-28

-28

Payments for investment property

-844

-6 019

-188

-523

-523

Proceeds from disposal of investment property

0

2 170

0

2 170

2 170

Interests received

1

4

0

0

0

Net cash used in investing activities

-980

-4 145

-299

1 595

1 595

Cash flows from financing activities

Net proceeds from secured bonds

28 500

0

0

0

0

Redemption of convertible bonds

-33

0

-33

0

0

Redemption of non-convertible bonds

-28 000

-500

3

0

0

Proceeds from borrowings

14 410

16 461

6 721

544

544

Repayment of borrowings

-1 376

-21 551

-692

-8 912

-8 912

Repayment of lease liabilities

-135

-192

-5

-63

-63

Interests paid

-5 953

-6 910

-488

-3 548

-3 548

Deposited amount related to loan obligations

0

0

0

2 000

2 000

Net cash used/ generated by financing activities

7 413

-12 692

5 506

-9 979

-9 979

Net change in cash and cash equivalents

-1 223

3 576

2 077

5 346

5 346

Cash and cash equivalents at the beginning

10 616

7 040

7 316

5 270

5 270

Cash and cash equivalents at the end of the period

9 393

10 616

9 393

10 616

10 616

The full report can be found in the file attached.

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

Attachment