Pro Kapital Council approved Consolidated Interim Report for III Quarter and 9 Months of 2019 (Unaudited)

MANAGEMENT REPORT

Chairman’s summary (abbreviated)

Our key focus is set on large-scale development projects of residential and commercial quarters in all Baltic capitals – Tallinn, Riga and Vilnius. With 25 years of experience and large portfolio we have a strong understanding of the market we operate in. As equally we hold a great responsibility, developing the whole areas and having an impact on entire communities and natural environment.

The thoroughness and diversity of our business and portfolio is reflected by the stable improvement of our performance. The total revenue of nine months was 37.3 million euros, which is an increase of 77% year on year. The total revenue of the third quarter was 14.8 million euros, an increase of 147% compared to 6.0 million euros during the same period in 2018. This result was strongly influenced by the active sales of Šaltiniu Namai Attico five new houses in Vilnius, Kristina Houses development in Tallinn and River Breeze Residence in Riga. 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 final notary deeds of sale are concluded and properties handed over to the buyer. As a result of the active sales, the operating result for the nine months of 2019 was 6.9 million euros profit compared to 4.8 million euros profit during the same period in 2018. During the third quarter of 2019 the operating profit was 1.8 million euros and 0.4 million euros in 2018. Otherwise positive results were influenced by 6.9 million euros interest expenses related to T1 project. The interests of T1 are recorded in finance cost instead of capitalisation into investment property, which has been done during active development until 31 December 2018. Consequently, the net result of the nine months of 2019 was 3.1 million euros loss compared to 2.3 million euros profit during the same period of 2018.

In early November 2019, the T1 Mall of Tallinn celebrates its first year of operation, which has been slower than we had anticipated in the initial prognosis. The results of T1 have had a negative impact on the Group’s financial results with lower operating profit and net result and have challenged the Group’s cash-flows. The management is continuously considering different options to reduce the financial cost of T1 Mall of Tallinn. However, I would like to stress, that the development of T1 Mall of Tallinn should not be seen as a short-term project. Instead, the lifetime of shopping and entertainment mall is a long and continuously evolving journey. We are currently focused on finding the best mix of tenants and increase the rental revenue, thereby increasing the T1’s long-term value. The number of visitors is significant and in incline. Our customers very much value the entertainment that can be found in T1. We foresee a continuous increase of revenues during subsequent periods.

Paolo Michelozzi
CEO

Key financials

The total revenue of the Company for the reporting period of nine months was
37.3 million euros, which is an increase of 77% compared to the reference period (2018 9M: 21.0 million euros). The total revenue of the third quarter was 14.8 million euros, an increase of 147% compared to 6.0 million euros during the same period in 2018. The real estate sales revenues are recorded at the moment of handing over the premises to the buyer. Therefor, the revenues from sales of real estate of the Company depend on the completion of the residential developments. The improvement of the results of the third quarter was influenced by continuous active sales of Kristina Houses development in Tallinn, River Breeze Residence in Riga and the completion of five new buildings in Šaltiniu Namai Attico development in Vilnius, where majority of presales were realized in notarised sales transactions.
The gross profit for the reporting period of nine months increased by 70% to 11.7 million euros and by 92% to 3.6 million euros in the third quarter. In the comparable period the gross profit figures were 6.9 million euros and 1.9 million euros respectively. Gross profit margin decreased by 6%.  
The operating result for the reporting period of nine months was 6.9 million euros profit comparing to 4.8 million euros profit during the same period in 2018. The operating result of the third quarter was 1.8 million euros comparing to 0.4 million euros in 2018.
The net result for the reporting period of the nine months was 3.1 million euros loss and 2.8 million euros loss for the third quarter. In the comparable period the net results were 2.3 million euros profit and 0.5 million euros loss respectively. The net result of the period was influenced negatively by 6.9 million euros of interest expenses in AS Tallinna Moekombinaat (Note 15). The interests are recorded in finance cost instead of capitalization into investment property, which has been done during active development until 31 December 2018.
Cash generated in operating activities during the reporting period was 6.7 million euros comparing to 3.4 million euros of cash generated during same period in 2018. In the third quarter of 2019 cash generated in operating activities was 6.2 million euros and 0.3 million euros during the same period in 2018.
Net assets per share on 30 September 2019 totalled to 1.72 euros compared to 1.50 euros on 30 September 2018.

Key performance indicators

*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 can be found in the file attached.

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

Attachment

• PKG Q3 2019 ENG