Consolidated Interim Report for I Quarter and 3 Months of 2019 (Unaudited)

MANAGEMENT REPORT

Chairman’s summary

Our key focus is set on the development of residential and commercial quarters in all Baltic states. We have either already started or are in the planning process for seven large-scale development projects in Tallinn, Riga and Vilnius. In addition to residential and commercial developments, we develop and operate shopping malls. In early November 2018 we opened T1 Mall of Tallinn shopping and entertainment centre right at the heart of the future transportation hub of the capital of Estonia. The concept of the new mall foresees the changes in the customer behaviour – people are looking for ways of spending quality time. In addition to shopping, T1 offers a diverse and large restaurant area, a cinema, family entertainment centre Super Sky Park and a newly opened Ferris Wheel on the rooftop - one of a kind in all Europe.

We have started the year 2019 with strong results in revenues and gross profit. The sales revenues for the first quarter of 2019 were 10.4 million euros, which is an increase of 53% compared to the 6.8 million euros during the same period last year. This result was strongly influenced by the active sales of Kristina Houses development in Tallinn and River Breeze Residence in Riga, but also rental revenues from T1. 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.  As a result of the active sales, the operating result for the first quarter of 2019 was 2.6 million euros comparing to 0.7 million euros profit during the same period in 2018. Gross profit margin has increased significant 51%. However, otherwise the positive results were influenced by 1.7 million euros interest expenses related to T1 project, which in previous periods have been capitalized into cost of investment property. Consequently, the net result of the first quarter in 2019 was 113 thousand euros loss compared to 118 thousand euros loss during the same period in 2018.

Pro Kapital is continuously focused on improving the efficiency. We are exploring opportunities to reduce financial costs by refinancing current debt instruments. We expect stable growth in revenues and operating results during the upcoming periods.

Building new communities

Our activities have significant impact on the wider communities they are built in. We are focused on large area developments and by doing so, we create completely new value to the neighbourhoods which have not been used historically or have been considered invaluable.

One of the most significant ongoing developments in Tallinn, Kristiine City, allows to expect increase in real-estate price in the entire surrounding area. We are currently developing the Kristiine City second development stage Kristiina Houses, consistent of ten apartment buildings and the surrounding infrastructure and greenery as an integral part of every one of our development projects. Kristina Houses has already proven to be highly valued amongst the customers, with more than 85% of the apartments find a new owner during the presales prior the completion of the construction. We finalized the construction of the seventh house during the first quarter of 2019 and realized therefore the pre-sales into notarized sales transactions. Development of the final three Kristina Houses, with 92 new homes is ongoing. Simultaneously to construction works we are actively proceeding with the presales.

Concurrently we are in progress with projecting works for a prestigious Kalaranna Residential and Commercial Quarter, right at the border of Tallinn’s old town. Kalaranna’s unique location just by the bay of Tallinn is making it as one of the most exclusive development projects in the city. Although we have not yet started with construction nor sales activities, we have started with initial reservations responding to the high interest towards the project. To date we have signed 78 reservation agreements for residential premises in Kalaranna.

In Riga we are building Kliversala residential area right at the heart of the city. A land plot of almost five hectares in total, will be developed as an integral area that binds together the feeling of a metropolitan, modern architecture and well considered living environment. First apartment house of the area, River Breeze Residence was completed last year. The sales of two luxury homes in the River Breeze Residence, totalling to net 2.4 million euros, had a strong impact on the 2019 first quarter revenues. Simultaneously to active sales and development in the Kliversala, we are also proceeding with other major development projects in Riga. The Brivibas Business Quarter, known before as Zvaigznes, will be built on the site of a former factory and its location at the artery of transportation is making it an attractive commercial area. This business quarter is also highly expected in the market, because there is an evident lack of large commercial premises. Another development project under technical design process is Tallinas Street 5/7 residential quarter, which is a modern combination of new and restored historical buildings.

In Vilnius, Pro Kapital is developing a Šaltiniu Namai area, bordering with and offering a stunning view from the top-hill to the historic old town. The construction works for the area’s second stage, Šaltiniu Namai Attico, are ongoing and we expect to complete the four houses mid-2019. Likely with our other regions, the sales are actively ongoing during the construction works. 79 preliminary agreements have been signed in Šaltiniu Namai Attico project.

Paolo Michelozzi
CEO

Key financials

The total revenue of the Company in the first quarter of 2019 was 10.4 million euros, which is an increase of 53% compared to 6.8 million during the same period in 2018. 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 of the Company depend on the completion of the residential developments. The improvement of the results in the first quarter of 2019 was influenced by active sales of Kristina Houses development in Tallinn and River Breeze Residence in Riga, also the completion of the 7^th apartment building in the Kristina Houses development, where presales were realized in notarised sales transactions.
The gross profit of the first quarter of 2019 was 4.1 million euros compared to 1.8 million euros during the same period in 2018. Gross profit margin has increased by 130%.
The operating result of the first quarter in 2019 was 2.6 million euros comparing to 0.7 million euros profit during the same period in 2018. The higher operating result was influenced by good real estate sales in Tallinn and Riga and higher gross margin.
The net result of the first quarter in 2019 was 0.1 million euros loss and remained to the same level as in the comparable period. The net result of the period was influenced negatively by 1.7 million euros of interest expenses in AS Tallinna Moekombinaat due to the change of recognition of interest expenses. They are recorded in finance cost instead of capitalizing them into investment property, which has been done until
31 December 2018 (Note 14).
Cash used in operating activities in the first quarter of 2019 was -0.4 million euros comparing to 2.0 million euros of cash generated during same period in 2018.
Net assets per share on 31 March 2019 totalled to 1.78 euros compared to 1.46 euros on 31 March 2018.

   *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

 Consolidated interim statements of comprehensive income

 Consolidated interim statements of cash flows

The full report is in the file attached.

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

Attachment

• PKG Q1 2019 ENG