Börsiteade

Pealkiri

Pro Kapital Council approved Consolidated Interim Report for III Quarter and 9 Months of 2020 (Unaudited)

Teade

MANAGEMENT REPORT

Chairman's summary

Nine  months of 2020 have demonstrated the economic volatility primarily related
to  the spread of  COVID-19. However, the spring  uncertainty and an expectation
for  the decrease in  the real estate  sector in autumn  has not materialized to
date.  I have previously emphasized that  real-estate development is a long-term
process, thus the changes in the economic environment do not manifest themselves
immediately.  Pro Kapital's sales have remained active through 2020 and we see a
growing  awareness of customers and their focus on entire living environment and
on  quality that would last.  I believe that Pro  Kapital's value proposition is
very  attractive on the market today and this is clearly reflected in pre-sales.
We have reported a 23.7 million euro decrease of total sales during the 9 months
of  2020, compared to the same period of 2019. However, as our revenues from the
sales   of  the  real  estate  depend  on  the  completion  of  the  residential
developments,  the revenues are recorded at the  moment notary deeds of sale are
concluded.   Currently   all   major   development  projects  are  either  under
construction  or prepared to be started. Despite very active presales across our
operating  areas, these numbers  will be recorded  upon completion of houses and
notarization of sales transactions.

In  the first quarter we refinanced  senior secured bonds 2015/2020 with the new
bonds  2020/2024 - each denominated 100 000 euros,  carrying a fixed rate coupon
of  8.00 per  cent  and  maturing  in  February  2024. As  a result of the first
tranche,  Pro Kapital refinanced part of  its non-secured convertible bonds with
new  non-convertible  bonds  -  2 925 641 bonds  with  the  total issue value of
8 191 794.80 euros  as of 3 August 2020. On  30 September, Pro Kapital announced
the  launch of the  second tranche of  subscriptions of non-convertible bonds by
private  placement.  The  subscription  period  of  the Bonds ends on 6 November
2020. In case of subscription of all of the Bonds the aggregate nominal value of
the  Bonds issued shall be 10 249 178.80 euros (3 660 421 Bonds, each having the
issue price and nominal value of 2.80 euro).

In  Tallinn, all  ongoing construction  activities are  carried out according to
plans  in  Kristiine  City  and  Kalaranna  District.  In  Kristiine  City,  the
construction  of  Ratsuri  Houses  continues,  and  this unique combination of a
renovated  historic stable house and the accompanying New Holland-style building
will  be completed in spring of 2021. To  date, we have presold 29 and booked 2
apartments  out of the  total 39 of Ratsuri  Houses and the  client interest has
remained very active. We have also started signing bookings for the next project
in Kristiine City residential area, called Kindrali Houses, for which we got the
building permit in September. Kindrali Houses development is a truly unique home
for  people who value urban  architecture and a green  living environment and by
its  level of quality is comparable with the real estate in the central city. We
have to date, reservations for 33 apartments out of 129 in total of the Kindrali
Houses development project.

Another  ongoing project in Tallinn is  the residential area Kalaranna District,
located  right by the sea and on the border of Old Town. Preserving the history,
location and value of the Kalaranna area is of great importance to us, with this
project  we open the sea to the city. Thus, the entire development including the
renewed bank and beach area, will add significant value for the city of Tallinn.
Kalaranna District is very much valued by our customers, not only because of the
location  but  for  the  complete  value  proposition. Eight buildings with 240
apartments  will be  completed with  the first,  ongoing construction  phase, of
which  144 have been presold and 2 booked  to date. With the second construction
phase 146 apartments shall be completed, of which 47 have been booked. Customers
continue  to show very high interest  in all our developments: Kalaranna Kvartal
and Kristiine City projects Ratsuri Houses and Kindrali Houses.

There  are no ongoing construction works in Riga and we are currently focused on
the  sales of River Breeze Residence, which continues to be the market leader in
the premium segment. Simultaneously we are preparing for the further development
of  Kliversala Residential Quarter. We have  to date, received a building permit
for  City Oasis Residential Quarter, which will shape the historical area on the
border  of Riga's city  centre into a  modern residential area.  City Oasis is a
truly unique home for people who value contemporary architecture and a tranquil,
green  living environment.  The development  project foresees 326 new functional
city  homes in  a safe,  green and  urban environment.  We plan  to proceed with
construction  activities as  soon as  we find  the market  situation 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.

Another  exceptional development project is Shaltiniu  Namai Attico in Vilnius, a
prestigious  living area, surrounded by the nature  in the most tranquil part of
the  Old Town. This project has proven to be extremely valued by our clients for
both  - people  who are  buying a  home and  who are  looking for  an investment
property.  Regardless  of  the  overall  uncertainty  this  year, the sales have
remained active and exceeded budget expectation. Moreover, Shaltiniu Namai Attico
has  reached the  top of  the Vilnius  real estate  market, being  one of market
leaders in the luxury segment. At the end of the 3rd quarter 86% of the Shaltiniu
Namai  Attico  apartments  have  been  sold.  We are currently preparing for the
following  phase with city villas and commercial  building and plan to start the
construction in 2021.

This  spring  has  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. Consequently, there were no revenues during second
quarter  and  the  costs  of  the  hotel  were reduced to the minimum during the
closure.  The  impact  of  COVID-19 has  been  1.5 million  euros  in less hotel
revenues  and ca 0.5 million  lower net result  during nine months. PK Parkhotel
Kurhaus operating company received a long-term government support loan in amount
of  500 000 euros on favourable conditions and a non-refundable grant of 83 581
euros.  The hotel's activity has been  recovering and funds received have helped
to  support the period of uncertainty. Understandably, we have not yet been able
to  reach last  year's levels.  The increasing  number of  COVID-19 cases brings
uncertainty  to  the  following  months,  and  as stated recently, all hotels in
Germany  are to be closed  at least until end  of November, starting from the 2
November.  We are adjusting plans according to  the changes in the situation and
restrictions imposed by the German Government.

The difficult period has also affected our subsidiary, AS Tallinna Moekombinaat.
On  3 April 2020 AS Pro Kapital Grupp announced the initiation of reorganization
proceedings  of  its  subsidiary  AS  Tallinna Moekombinaat. On 15 June 2020 Pro
Kapital announced that the court has appointed experts to evaluate the plan, who
had  to submit their opinion on the reorganization plan by 22 July 2020 and that
the  court  would  decide  on  the  approval  of the plan by 10 August 2020. The
appointed  experts filed  their opinions  within the  due date and their overall
position about the reorganisation plan was positive. On 30 July 2020 Pro Kapital
notified  that the Tallinn District  Court had annulled the  ruling of the Harju
County  Court in  connection with  the appointment  of experts  and referred the
matter  back to the  county court for  a new decision.  With its 14 August 2020
ruling the County Court terminated the reorganization proceedings because it has
established that AS Tallinna Moekombinaat is allegedly permanently insolvent. On
31 August 2020 AS Tallinna Moekombinaat contested the ruling of the County Court
with which the court decided to terminate the proceedings. Three creditors of AS
Tallinna  Moekombinaat also filed  an appeal. AS  Tallinna Moekombinaat has also
challenged  the ruling of the  District Court on which  the ruling of the County
Court was based. The reorganization proceedings are ongoing and the influence of
initiating  the  reorganization  proceedings  continue  to  apply to AS Tallinna
Moekombinaat.  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  AS  Tallinna  Moekombinaat and does not
influence  directly any other  group company of  AS Pro Kapital  Grupp. No group
company  has secured nor guaranteed liabilities  of AS Tallinna Moekombinaat. In
the worst-case scenario, if reorganization proceedings will fail and AS Tallinna
Moekombinaat 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  3.0 million euros, unpaid invoices 0.3 million euros and the portion of
equity  of TMK in the  amount of 0.2 million euros  as at 30 September 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.

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 I see this
as  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 nine months of 2020 was 13.6 million euros,
which  is a  decrease of  63% compared to  the reference  period (2019 9M: 37.3
million  euros). The total revenue of the third quarter was 4.6 million euros, a
decrease  of 69% compared to 14.8 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  the first  nine months  in 2019 due  to completion  of apartment
buildings  in Kristina Houses and Shaltini?  Namai projects. In 2020, the Company
continues  with sales of completed developments - River Breeze Residence in Riga
and Shaltini? Namai Attico development in Vilnius.

The  gross profit  for nine  months of  2020 decreased by  54% amounting to 5.4
million  euros compared to 11.7 million euros during the same period in 2019. In
the  third  quarter  the  gross  profit  figures were 1.9 million euros and 3.6
million euros respectively. Gross profit margin has increased by 25%.

The  operating  result  for  nine  months  of  2020 was 1.1 million euros profit
comparing  to  6.9 million  euros  profit  during  the  same period in 2019. The
operating  result of the  third quarter was  0.9 million euros comparing to 1.8
million  euros in 2019. The decrease in operating result is influenced mainly by
the lower total revenues.

The  net result for nine  months of 2020 was 11.1 million  euros loss and in the
third  quarter 3.2 million euros loss. In  the comparable periods the net result
was  respectively  3.1 million  euros  loss  and 2.8 million euros loss. The net
result  of the reporting period was influenced  by the high interest expenses in
AS Tallinna Moekombinaat.

Cash  used  in  operating  activities  during  nine months was 4.5 million euros
comparing to 6.8 million euros cash generated during the same period in 2019. In
the  third quarter  of 2020 cash  used in  operating activities  was 1.9 million
euros while 6.3 million euros cash was generated during the same period in 2019.

Net  assets per  share on  30 September 2020 totalled  to 1.07 euros compared to
1.72 euros on 30 September 2019.

Key performance indicators

                             2020 9M   2019 9M   2020 Q3   2019 Q3   2019 12M
------------------------------------------------------------------------------
  Revenue, th EUR             13 615    37 283     4 562    14 771     55 276

  Gross profit, th EUR         5 371    11 740     1 880     3 561     15 809

  Gross profit, %                39%       31%       41%       24%        29%

  Operating result, th EUR     1 136     6 885       885     1 764    -15 178

  Operating result, %             8%       18%       19%       12%       -27%

  Net result, th EUR         -11 085    -3 075    -3 183    -2 799    -29 172

  Net result, %                 -81%       -8%      -70%      -19%       -53%



  Earnings per share, EUR      -0.19     -0.05     -0.06     -0.05      -0.48


                                        30.09.2020   30.09.2019   31.12.2019
-----------------------------------------------------------------------------
  Total Assets, th EUR                     218 026      243 213      210 821

  Total Liabilities, th EUR                157 545      145 549      139 255

  Total Equity, th EUR                      60 481       97 664       71 566

  Debt / Equity *                             2.60         1.49         1.94



  Return on Assets, % **                     -5.2%        -1.4%       -12.8%

  Return on Equity, % ***                   -17.3%        -3.4%       -34.4%

  Net asset value per share, EUR ****         1.07         1.72         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                         30.09.2020 30.09.2019 31.12.2019
-------------------------------------------------------------------------------
 ASSETS

 Current assets

   Cash and cash equivalents                        7 316      5 270     10 616

   Current receivables                              1 422      1 219      1 475

   Inventories                                     53 405     51 717     41 031
                                              ---------------------------------
 Total current assets                              62 143     58 206     53 122

 Non-current assets

   Non-current receivables                          4 417      3 708      2 297

   Property, plant and equipment                    7 011      7 165      7 146

   Right-of-use assets                                400        558        519

   Investment property                            143 713    173 219    147 365

   Intangible assets                                  342        357        372
                                              ---------------------------------
 Total non-current assets                         155 883    185 007    157 699

 TOTAL ASSETS                                     218 026    243 213    210 821



 LIABILITIES AND EQUITY

 Current liabilities

   Current debt
                                                   78 032     43 621    111 759

   Customer advances                                7 124      2 059      3 974

   Current payables                                17 844      8 418      8 741

   Tax liabilities                                    225        218      1 155

   Short-term provisions                              358      1 300        267
                                              ---------------------------------
 Total current liabilities                        103 583     55 616    125 896

 Non-current liabilities

   Long-term debt                                  50 793     87 359     10 871

   Other non-current payables                       1 783      1 043      1 013

   Deferred income tax liabilities                  1 230      1 414      1 348

   Long-term provisions                               156        117        127
                                              ---------------------------------
 Total non-current liabilities                     53 962     89 933     13 359

 TOTAL LIABILITIES                                157 545    145 549    139 255



 Equity attributable to owners of the Company

   Share capital in nominal value                  11 338     11 338     11 338

   Share premium                                    5 661      5 661      5 661

   Statutory reserve                                1 134      1 134      1 134

   Revaluation reserve                              3 262      3 262      3 262

   Retained earnings                               49 743     76 725     76 725

   Profit/ Loss for the period                    -10 672     -2 734    -26 981
                                              ---------------------------------
 Total equity attributable to owners of the
 Company                                           60 466     95 386     71 139

 Non-controlling interest                              15      2 278        427

 TOTAL EQUITY                                      60 481     97 664     71 566



 TOTAL LIABILITIES AND EQUITY                     218 026    243 213    210 821

 Consolidated interim statements of profit and loss and other comprehensive
income

                                                          2020   2019
 in thousands of euros                   2020 9M 2019 9M     Q3     Q3 2019 12M
-------------------------------------------------------------------------------
 CONTINUING OPERATIONS

 Operating income

 Revenue                                  13 615  37 283  4 562 14 771   55 276

 Cost of goods sold                                                -11
                                          -8 244 -25 543 -2 682    210  -39 467
                                        ---------------------------------------
 Gross profit                              5 371  11 740  1 880  3 561   15 809

 Marketing expenses                         -428    -487   -141   -193     -728

 Administrative expenses                  -3 839  -4 338   -889 -1 563   -6 013

 Other income                                110      56     39      6       95

 Other expenses                              -78     -86     -4    -47  -24 341
                                        ---------------------------------------
 Operating profit                          1 136   6 885    885  1 764  -15 178

 Financial income                              3       3      1      1        4

 Financial expense                       -12 013 -10 074 -3 937 -4 502  -14 019
                                        ---------------------------------------
 Profit/ loss before income tax          -10 874  -3 186 -3 051 -2 737  -29 193

 Income tax                                 -211     111   -132    -62       21
                                        ---------------------------------------
 Profit/ loss for the period             -11 085  -3 075 -3 183 -2 799  -29 172

 Attributable to:

 Equity holders of the parent
                                         -10 672  -2 734 -3 119 -2 605  -26 981

 Non-controlling interest                   -413    -341    -64   -194   -2 191

 Total comprehensive income/ loss for
 the year                                -11 085  -3 075 -3 183 -2 799  -29 172

 Attributable to:

 Equity holders of the parent            -10 672  -2 734 -3 119 -2 605  -26 981

 Non-controlling interest                   -413    -341    -64   -194   -2 191

 Earnings per share for the period (EUR)   -0.19   -0.05  -0.06  -0.05    -0.48

Consolidated interim statements of cash flows

 in thousands of euros                 2020 9M 2019 9M 2020 Q3 2019 Q3 2019 12M
-------------------------------------------------------------------------------
 Cash flows from operating activities

 Profit/loss for the period            -11 085  -3 075  -3 183  -2 799  -29 172

 Adjustments for:

      Depreciation, amortisation of
 non-current assets                        311     294     102     100      399

      Gain from disposal of property,
 plant, equipment                            0       0       0       0       -3

      Gain from disposal of investment
 property                                    0       0       0       0        6

      Change in fair value of
 property, plant, equipment                  0       0       0       0      -15

      Change in fair value of
 investment property                         0       0       0       0   24 236

      Finance income and costs          12 010  10 071   3 936   4 501   14 016

      Changes in deferred tax assets
 and liabilities                          -118    -590     -59    -413     -656

      Other non-monetary changes (net
 amounts)                               -3 118   2 446  -3 114   2 396      419

 Changes in working capital:

      Trade receivables and
 prepayments                            -2 049  -1 785  -1 069    -826     -630

      Inventories                      -12 373   7 591  -8 023   6 180   18 276

      Liabilities and prepayments       11 870  -8 154   9 522  -2 786   -6 412

      Provisions                            29     -15      10     -39      -51
                                      -----------------------------------------
 Net cash used/ generated in operating
 activities                             -4 523   6 783  -1 878   6 314   20 413

 Cash flows from investing activities

 Payments for property, plant and
 equipment                                 -29    -201     -18     -35     -226

 Payments for intangible assets              0     -46       0     -21      -74

 Payments for investment property         -657  -5 496    -260    -859   -6 019

 Proceeds from disposal of investment
 property                                    0       0       0       0    2 170

 Interests received                          2       3       0       1        4
                                      -----------------------------------------
 Net cash used in investing activities    -684  -5 740    -278    -914   -4 145

 Cash flows from financing activities

 Net proceeds from secured bonds        28 500       0       0       0        0

 Redemption of non-convertible bonds   -28 003    -600      -3    -300     -500

 Proceeds from borrowings                7 689  15 917   4 832   2 529   16 461

 Repayment of borrowings                  -684 -12 639     -28  -5 063  -21 551

 Repayment of lease liabilities           -130    -129     -46     -44     -192

 Interests paid                         -5 465  -3 362  -2 344  -1 354   -6 910

 Deposited amount related to loan
 obligations                                 0  -2 000       0       0        0
                                      -----------------------------------------
 Net cash used/ generated by financing
 activities                              1 907  -2 813   2 411  -4 232  -12 692

 Net change in cash and cash
 equivalents                            -3 300  -1 770     255   1 168    3 576

 Cash and cash equivalents at the
 beginning                              10 616   7 040   7 061   4 102    7 040

 Cash and cash equivalents at the end
 of the period                           7 316   5 270   7 316   5 270   10 616

The full report can be found in the file attached.

Allan Remmelkoor
Member of the Board
+372 614 4920
[email protected]