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

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


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