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

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 Strelnieku 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 Strelnieku 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: henri@hepsor.ee
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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.