Market announcement

Title

Hepsor AS consolidated unaudited interim report for Q3 2024 and nine months

Message

Despite the global, geopolitical, and economic headwinds that have battered the Group’s home markets for several years, we have been able to expand our reach this year in Canada and have started the construction and sales of several new projects in the Baltics. We look to the future with a cautious and conservative eye, but the declining interest environment still allows for a moderate amount of optimism.

The third quarter of 2024 was successful for Hepsor. The consolidated sales revenue of the Group amounted to 20.4 million euros in the third quarter of 2024 (Q3 2023: 15.5 million euros) and the consolidated sales revenue for the nine months of 2024 was a total of 27.9 million euros (9 months 2023: 36.0 million euros).

The revenue from the sale of apartments in the nine months was 26.8 million euros, which was 96% of the Group’s total revenue (9 months of 2023:  34.8 million euros and 97%). The revenue from the sale of apartments in the Q3 of the financial year amounted to 20.1 million euros, i.e., 98% of the Group’s total revenue (Q3 of 2023: 15.1 million euros and 98%). In addition to selling apartments, the Group also performs management services for real estate development projects and earns rental income.

The Group’s revenues and profitability are directly dependent on the development cycle of projects, which is approximately 24 to 36 months. Sales revenue is generated only at the end of the cycle. Calendar quarters vary in terms of the number of projects ending during the quarter, which is why both profits and sales revenue can differ significantly across quarters. Therefore, performance can be considerably weaker or stronger in some years and quarters than in others.

The Group's net profit for the third quarter was 2.7 million euros (III quarter 2023: 1.2 million euros), incl. the net profit attributable to the owners of the parent company was 1.4 million euros (III quarter 2023: 0.5 million euros) and the Group's nine-month net profit was 1.2 million euros (9 months 2023: 4.8 million euros). The net loss attributable to the owners of the parent company in the nine months of the financial year was 0.2 million euros (9 months of 2023: net profit 2.3 million euros).

Development projects for sale

In the first nine months of 2024, we have handed over 142 homes to clients, of which 96 in Q3. In Tallinn, we handed over 79 apartments, of which 72 are located at Manufaktuuri 7, four in Lilleküla Kodud, and three in Ojakalda Kodud. During the same period, more than 17 apartments were handed over in Riga, of which 16 were in the Nameja Rezidence project and one apartment at Strēlnieku 4B.

As of 30 September 2024, the Group has completed and is selling five residential development projects, three of which in Tallinn (Manufaktuuri 7, Ojakalda Kodud, and Lilleküla Kodud) and two in Riga (Nameja Rezidence and Strēlnieku 4B development projects).

Development projects under construction and available for sale

In 2024, we launched the construction of the StokOfiss U34 commercial building in Riga. StokOfiss U34 is a multifunctional commercial building with a leasable area of 8,740 m², where it is possible to rent storage, retail, and office space.

In Tallinn, we started the construction and sale of Hepsor’s largest development project to date, the construction and sale of the former main building of the Baltic Cotton Spinning and Weaving Factory located at Manufaktuuri 5. The project is being developed in two phases. In the first phase, it is planned to establish 149 new apartments and 1,515 m² of commercial space.

In Riga, construction continued in the Annenhof House development project with 40 apartments, the completion of which is planned for the beginning of 2025.

Completed development projects

In the commercial building Office 113, owned by Hepsor P113 OÜ, which was recognised as an associate, the conclusion of new lease agreements continued, and at the end of Q3, as much as 52% of the leasable area of the building was covered by agreements. By the end of the year, we forecast that at least 75% of the leasable area will be covered by lease agreements in the Office 113 building.

Hepsor in Canada

The Group’s activities in Canada are related to increasing the construction volume of properties. Plans are underway for approximately 3,000 new rental apartments.

In 2024, Hepsor in cooperation with partner Elysium Investments Inc., has made three investments in Canada:

 - in June, 7 properties were acquired on Glenavy Avenue in the Leaside area of ​​downtown Toronto;

-   in September, a development project  of 11 properties was acquired in High Park in downtown Toronto and

- a 17-property development project on Brownville Avenue in Toronto.

Change in forecasts

Due to the continuing low level of the real estate market in both Estonia and Latvia, the Group’s management is adjusting the financial forecast for 2024. In the forecast published in 2023, we assumed that we would be able to maintain a similar sales rate to 2023 in development projects for sale during 2024. We also assumed that the profitability of the projects would not change significantly. We expected to sell 225 apartments in 2024, which would have resulted in revenue of 43.1 million euros in 2024. Currently, we forecast that in 2024, the Group’s revenue will be realised from the sale of 189 apartments with a turnover volume of approximately 37.3 million euros.

The Group’s net profit for 2024 is estimated at 2.2 million euros (forecast for 2023 was 4.5 million euros), of which the net profit of the owners of the parent company is 0.2 million euros (forecast for 2023 was 2.5 million euros). The net profit is primarily affected by the smaller than forecast number of apartments sold and the reduced profitability of development projects for sale. Profitability has declined due to extended periods of sale as well as write-downs made.

We assume that volatile and hard-to-predict times in the real estate markets will continue in 2025. Therefore, we have decided that starting from the beginning of 2025, the Group will not regularly publish financial performance forecasts. The decision may be subject to review after the market has stabilised and reliable forecasting is possible again.

The full consolidated unaudited interim report for the third quarter and nine months of 2024 can be found on the Hepsor website:

https://hepsor.ee/en/for-investors/stock/reports-2/

Consolidated statement of financial position

in thousands of euros	      30 September 2024	      31 December 2023	    30 September 2023
 	 	 	 
Assets	 	 	 
Current assets	 	 	 
Cash and cash equivalents	    6,830	          7,604	                 7,083
Trade and other receivables	    2,054	          1,544	                 5,578
Current loan receivables	      511	            311	                   311
Inventories	                   77,000	         77,439	                68,807
Total current assets	           86,395	         86,898	                81,779
Non-current assets	 	 	 
Property, plant and equipment	      138	            162	                   193
Intangible assets	                3	              4 	             5
Financial investments	            4,293	          2,005              	 1,504
Investments in associates	        0	              0	                   384
Non-current loan receivables	    2,302	          1,729	                 1,766
Other non-current receivables	      311	            203	                   166
Total non-current assets	    7,047	          4,103	                 4,018
Total assets	                   93,442	         91,001	                85,797
Liabilities and equity	 	 	 
Current liabilities	 	 	 
Loans and borrowings	           24,726	         40,600	                 2,270
Current lease liabilities	       35	             40	                    26
Prepayments from customers	      940	          2,620	                 2,227
Trade and other payables	    8,715	          7,188  	         8,683
Total current liabilities	   34,416	         50,448	                13,206
Non-current liabilities	 	 	 
Loans and borrowings	           32,571	         16,305	                46,696
Non-current lease liabilities	       29	             29	                    68
Other non-current liabilities	    4,340	          2,058	                 2,633
Total non-current liabilities	   36,940	         18,392	                49,397
Total liabilities	           71,356	         68,840           	62,603
Equity	 	 	 
Share capital	                    3,855	          3,855	                 3,855
Share premium	                    8,917	          8,917                  8,917
Reserves	                      385	            385	                   385
Retained earnings	            8,929	          9,004	                10,037
Total equity	                   22,086	         22,161	                23,194
incl. total equity attributable 
to owners of the parent	           20,664	         20,993	                22,150
incl. non-controlling interest	    1,422	          1,168	                 1,044
Total liabilities and equity	   93,442	         91,001	                85,797
 

Consolidated statement of profit and loss and other comprehensive income

in thousands of euros	        9M 2024	        9M 2023	      Q3 2024	     Q3 2023  
 	 	 	 	 
Revenue	                         27,855	         36,048	       20,433	      15,458
Cost of sales (-)	        -23,624 	-29,224	      -16,579	     -13,425
Gross profit	                  4,231	          6,824	        3,854	       2,033
Marketing expenses (-)	           -603	           -399	         -213	        -131
Administrative expenses (-)	 -1,342	         -1,110	         -453	        -323
Other operating income 	             84	            112  	   14	          30
Other operating expenses (-)	    -36	           -116	          -12	         -24
Operating profit (-loss) 
of the year	                  2,334	          5,311	        3,190	       1,585
Financial income	            262	          1,129	           61	          83
Financial expenses (-)	         -1,419	         -1,662    	 -548	        -478
Profit before tax	          1,177	          4,778	        2,703	       1,190
Net profit (-loss) for the year	  1,177	          4,778	        2,703	       1,190
    Attributable to owners of 
the parent	                   -155	          2,272	        1,371	         469
    Non-controlling interest	  1,332	          2,506	        1,332	         721
 	 	 	 	 
 Other comprehensive income (-loss)	 	 	 	 
 	 	 	 	 
Changes related to change 
of ownership	                     76	            250	            0 	         182
Change in value of embedded derivatives
with minority shareholders	 -1,203	         -2,157	       -1,203	        -370
Currency translation differences 
of foreign entities	           -130	              0	         -130              0
Other comprehensive income (-loss) 
for the period	                 -1,257	         -1,907        -1,333	        -188
    Attributable to owners of 
the parent	                   -174	             12	        -130	         -28
    Non-controlling interest	 -1,083	         -1,919	      -1,203 	        -160
 	 	 	 	 
Comprehensive income (-loss) 
for the period	                    -80	          2,871	       1,370	       1,002
    Attributable to owners
of the parent                      -329	          2,284	       1,241	         441
    Non-controlling interest	    249	            587	         129 	         561
 	 	 	 	 
Earnings per share	 	 	 	 
   Basic (euros per share)	  -0.04	           0.59	        0.36	        0.12
   Diluted (euros per share)	  -0.04	           0.59	        0.36	        0.12
 

Henri Laks
Member of the Management Board
Phone: +372 5693 9114
e-mail: [email protected]
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Hepsor AS (www.hepsor.ee) is one of the fastest growing residential and commercial real estate developers in Estonia and Latvia, operating also in the Canadian real estate market since 2023. Over the last thirteen years Hepsor has developed more than 2,076 homes and 36,500m2 of commercial space. Hepsor was the first real estate developer in the Baltic States to implement several innovative engineering solutions that make the buildings we construct more energy-efficient and thus more environmentally friendly. The company's portfolio is comprised of 25 development projects with a total sellable space of 175,000 m2.