AS Pro Kapital Grupp
CONSOLIDATED ANNUAL REPORT 2021
AS Pro Kapital Grupp consolidated annual report 2021 1
Beginning of the financial year 1 January 2021
End of the financial year 31 December 2021
Company name AS Pro Kapital Grupp
Registration number 10278802
Form of Entity Joint-Stock Company
Address Sõjakooli 11
Phone +372 614 4920
E-mail prokapital@prokapital.ee
Website www.prokapital.com
Fields of business activity Activities of holding companies
Auditor Ernst & Young Baltic AS
AS Pro Kapital Grupp consolidated annual report 2021 2
Table of contents
About AS Pro Kapital Grupp..................................................................................................................... 4
Our vision and mission ........................................................................................................... 6
Our values .............................................................................................................................. 6
Results for 2021 ...................................................................................................................................... 7
Key financials ......................................................................................................................... 7
Main events in 2021 ............................................................................................................ 10
Chairman’s summary ............................................................................................................................. 11
Management report .............................................................................................................................. 13
Management ........................................................................................................................ 13
Our impact and responsibility in society .............................................................................. 14
Responsible real estate development .................................................................................. 16
Team .................................................................................................................................... 20
Customer experience ........................................................................................................... 22
Contribution to society ........................................................................................................ 24
Risk management................................................................................................................. 25
Strategy and objectives for 2022 ......................................................................................... 27
Development projects.......................................................................................................... 28
Segments ............................................................................................................................. 32
Financing sources and policies ............................................................................................. 37
Shares and shareholders ...................................................................................................... 38
Group structure ................................................................................................................... 42
Corporate governance report ............................................................................................................... 43
Management remuneration report ....................................................................................................... 71
Management declaration ...................................................................................................................... 74
Consolidated financial statements ........................................................................................................ 75
Consolidated statement of financial position ...................................................................... 75
Consolidated statement of profit and loss and other comprehensive income .................... 76
Consolidated statement of cash flows ................................................................................. 77
Consolidated statement of changes in equity ...................................................................... 78
Notes to the consolidated financial statements .................................................................. 79
Note 1. Corporate information ............................................................................................ 79
Note 2. Application of new and revised International Financial Reporting Standards......... 80
Note 3. Significant accounting policies ................................................................................ 84
Note 4. Significant accounting judgements, estimates and assumptions .......................... 104
Note 5. Entities belonging to the Group ............................................................................ 107
AS Pro Kapital Grupp consolidated annual report 2021 3
Note 6. Segment reporting ................................................................................................ 108
Note 7. Changes in ownership in subsidiaries .................................................................... 109
Note 8. Cash and cash equivalents .................................................................................... 110
Note 9. Current receivables ............................................................................................... 110
Note 10. Inventories .......................................................................................................... 110
Note 11. Non-Current receivables ..................................................................................... 111
Note 12. Property, plant and equipment ........................................................................... 111
Note 13. Investment property ........................................................................................... 114
Note 14. Current debt ........................................................................................................ 118
Note 15. Current payables ................................................................................................. 119
Note 16. Short-term provisions ......................................................................................... 119
Note 17. Non-current debt ................................................................................................ 119
Note 18. Customer advances ............................................................................................. 120
Note 19. Loans and overdrafts ........................................................................................... 121
Note 20. Convertible and non-convertible bonds .............................................................. 121
Note 21. Collaterals and pledged assets ............................................................................ 125
Note 22. Other non-current payables ................................................................................ 125
Note 23. Share capital and reserves .................................................................................. 126
Note 24. Non-controlling interest ...................................................................................... 126
Note 25. Revenue .............................................................................................................. 127
Note 26. Cost of sales ........................................................................................................ 128
Note 27. Marketing and administration expenses ............................................................. 129
Note 28. Other operating income and expenses ............................................................... 129
Note 29. Finance income and cost ..................................................................................... 130
Note 30. Income tax ........................................................................................................... 131
Note 31. Earnings per share ............................................................................................... 133
Note 32. Transactions and balances with related parties .................................................. 133
Note 33. Risk management ................................................................................................ 135
Note 34. Lawsuits ............................................................................................................... 139
Note 35. Going concern ..................................................................................................... 140
Note 36. Supplementary disclosures on the parent .......................................................... 141
Note 37. Discontinued operations ..................................................................................... 145
Note 38. Subsequent events .............................................................................................. 149
Signatures of the Management Board and Supervisory Council ......................................................... 151
Independent certified auditor’s report ............................................................................................... 153
Profit allocation proposal .................................................................................................................... 154
AS Pro Kapital Grupp consolidated annual report 2021 4
About AS Pro Kapital Grupp
AS Pro Kapital Grupp (hereafter also as
the Group) is one of the oldest real
estate development companies in the
Baltic States. As we develop large
residential and commercial districts,
we have a significant impact on the
formation of the image of a city,
development and welfare of local
communities and surrounding
environment. Strategically sustainable
and forward-looking style of
management puts quality and
responsibility into the focus of our
business activities. That is the reason
why we are closely related to all the
developments from start to finish –
this is the only way how we can create
extraordinary living environments
where people feel comfortable.
We are a real estate development company in the Baltic States which has simultaneously under
development or projecting 6 long-term and large-scale projects in the best locations in Tallinn,
Riga and Vilnius.
AS Pro Kapital Grupp consolidated annual report 2021 5
In Tallinn:
- Kristiine City residential area is being developed in stages and will considerably increase
the value of the entire region.
- Development of Kalaranna residential and commercial premises, which is located at the
border of the sea and the old town, is turning this district into a unique and exclusive
environment by opening the seaside area both for the urban population as well as for
the visitors of the city.
In Riga:
- Kliversala Quarter in the heart of Riga is situated directly on the shores of the Daugava
River, in the immediate vicinity of the Old Town. The first already completed luxury
dwelling house in the River Breeze Residence has gained wide recognition both for its
distinctive architecture as well as its first-class construction quality. Project is
developed in phases and we are preparing to start with the next phase called Blue
Marine.
- The new developments are in the planning phase including the business district on
Brivibas Street (Brivibas Business Quarter) and the residential area on Tallinas Street
(City Oasis) which will give a distinctive look and atmosphere to the historic districts by
creating a totally new user culture and value for the surrounding areas.
In Vilnius, a unique and distinctive residential area development is bordering the historic Old
Town. The historic area which has been known to people as a factory area has been turned
into an exclusive residential area. First phase of Šaltinių Namai and the second phase Šaltinių
Namai | Attico have been completed. The final stage includes town villas and a business area.
This is one of the most valued living environments in Vilnius.
In addition to the development activities in the Baltic States, we own and operate a hotel in a
small German resort town Bad Kreuznach, close to Frankfurt.
On 23 November 2012 AS Pro Kapital Grupp shares started trading on the secondary list of
Tallinn’s stock exchange and on 13 March 2014 on the Frankfurt’s stock exchange
(Frankfurter Wertpapierbörse) trading platform Quotation Board. Since 19 November 2018
the shares of the Company are traded in the main list of Nasdaq Tallinn.
AS Pro Kapital Grupp consolidated annual report 2021 6
Our vision and mission
Our values
AS Pro Kapital Grupp consolidated annual report 2021 7
Results for 2021
Key financials
Consolidated Statement of profit and loss and other comprehensive income
(continuing operations)
in thousands of euros
2021
2020
Revenue
43 095
13 637
Gross profit
10 576
4 213
EBITDA
39 804
2 449
Operating result
39 820
2 491
EBT
33 862
-2 925
Profit/ loss after tax
33 872
-3 279
Net result for shareholders
29 757
-55 678
Gross profit margin
24.5%
30.9%
EBITDA margin
92.4%
18.0%
Operating margin
92.4%
18.3%
EBT margin
78.6%
-21.4%
Net margin
78.6%
-24%
Net margin to shareholders
69%
-408.3%
Earnings per share (EPS)
0.52
-0.06
Share closing price (Nasdaq Tallinn)
1.44
0.7
P/E ratio
2.74
-12.1
The total revenue of the Group for 2021 was 43.1 million euros, which is an increase by 29.5
million euros (216%) in 2021 comparing to previous period (2020: 13.6 million euros). 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. In 2021 the real estate revenue increased due to sales of completed Ratsuri
Houses development and first houses of Kalaranna District in Tallinn. Gross Profit of the Group
increased by 6.4 million euros.
The operating result of the Group reached 39.8 million euros, showing high improvement from
last year’s results which were significantly influenced by change in fair value of T1 Mall of
Tallinn in 2020. In 2021 net gain from change in fair value was 5.5 million euros. Due to loss of
control over the subsidiary AS Tallinna Moekombinaat on 2 June 2021 the Group
deconsolidated the subsidiary from its consolidated financial statements which resulted in
additional positive effect for the Group’s profit.
AS Pro Kapital Grupp consolidated annual report 2021 8
Consolidated Statement of Financial Position
in thousands of euros
31.12.2021
31.12.2020
Total Assets
116 026
179 048
Current Assets
67 961
69 542
Non-Current Assets
48 065
109 506
Total Liabilities
73 183
169 477
Current Liabilities
25 527
138 575
Non-Current Liabilities
47 656
30 902
Equity
42 843
9 571
Current assets are influenced by ongoing construction works of Kristiine City and Kalaranna
District in Tallinn. Non-current assets, liabilities and equity are mostly affected by the
derecognition of the subsidiary operating T1 Mall of Tallinn shopping centre in Estonia . Total
liabilities have decreased also due to finalized development stages at the end of 2021 in
Kalaranna District.
Consolidated Statement of cash flows
in thousands of euros
2021
2020
Cash flows from operating activities
13 290
-7 656
Cash flows from investing activities
1 165
- 980
Cash flows from financing activities
-14 222
7 413
Net change in cash and cash equivalents
233
-1 223
In 2021, the Group generated net cash in amount of 233 thousand euros (2020: cash outflow
1.2 million euros). Cash flow generated by operating activities was 13.3 million euros
(2020: used in operations 7.7 million euros). Cash flow generated by investing activities was
1.2 million euros (2020: used for investing 1 million euros). Financing activities used cash in the
amount of 14.2 million euros (2020: generated 7.4 million euros). Loans were raised in amount
of 22.3 million euros, repaid in amount of 33.6 million euros and 5.4 million euros interest
payments were made during the period.
Financial Ratios
31.12.2021
31.12.2020
Equity ratio
36.9%
5.3%
Debt to equity ratio
52.8%
1 271.2%
Net debt to capital
23.3%
92.1%
Debt to EBITDA ratio
1.9
49.7
Current Ratio
2.7
0.5
Return on assets
23.0%
-1.7%
Return on equity
113.5%
-150.8%
AS Pro Kapital Grupp consolidated annual report 2021 9
Alternative Perormance Measures
Indicator
Formula
Definition
EBITDA
Operating profit + Depreciation
and amortization
Earnings Before Interest, Tax,
Depreciation and Amortization
EBT
Operating profit+financial
income - financial expenses
Earnings Before Tax
Gross profit margin
Gross profit/revenue *100
Profitability ratio presenting Gross
Profit as a percentage of revenue
EBITDA margin
EBITDA/revenue*100
Profitability ratio presenting
EBITDA as a percentage of
revenue.
Operating margin
Operating profit/revenue*100
Indicator for Efficiency to
generate profit through its core
operations
EBT margin
EBT/revenue*100
Ratio of Earnings Before Tax to
sales revenue.
Net margin
Net profit/revenue*100
Indicator measures how much net
profit is generated as a
percentage of revenue.
Net margin to shareholders
Net profit attributable to the
owners /revenue*100
Net profit that is generated for
shareholders (excludes minority
interest).
Earnings per share (EPS)
Net profit/average number of
shares
Figure describing net profit per
outstanding share.
P/E ratio
Share Closing Price/EPS
Indicator for valuing a company.
Equity ratio
Equity/total assets*100
Leverage ratio, which shows the
proportion of the total assets
financed by equity.
Debt to equity ratio
Interest bearing
liabilities/Equity*100
Indicator to compare companys
liabilities to equity.
Net debt to capital
(Interest bearing liabilities-cash
and cash equivalents)/(interest
bearing liabilities-cash and cash
equivalents +equity)*100
Measurement of financial
leverage.
Debt to EBITDA ratio
Interest bearing
liabilities/EBITDA
Ratio measuring the income
generated and available to pay
down debt before interest and
taxes.
Current Ratio
Current assets/Current liabilities
Liquidity ratio measuring ability to
cover current financial obligations.
Return on assets (ROA)
Net profit/average total
assets*100
Indicates how profitable the
company is to its total assets.
Return on equity (ROE)
Net profit attributable to the
owners/average equity*100
Indicates how profitable the
company is to its total equity.
AS Pro Kapital Grupp consolidated annual report 2021 10
Main events in 2021
In 2021 we continued with construction of first phase of Kalaranna District which is a unique
sea-side residential quarter right at the heart of Tallinn. This area will be completed in 2
construction phases with the total of 12 houses, a city square, Kalaranna park, underground
parking and renewed beach area. The construction of the first phase comprising of 8 buildings
started in January 2020 and will be completed in 2022. On 20 April 2022 almost all of the
apartments of the first construction phase have been sold or presold and more than 50% of
the second phase with 4 buildings is prebooked.
Ratsuri Houses development, which is one-of-a-kind combination of historical character and
modern architecture was completed in spring 2021. During the construction, the stable
building from the beginning of 20
th
century, which is under heritage protection was
reconstructed and a New-Dutch style building was built to accompany it. Ratsuri Houses has a
total of 39 diverse homes – 17 in the former stable building and 22 in the new building. The
stable house welcomes with its thick stone walls, historical limestone and red brick. Ratsuri
Houses is a unique project in the Group’s history as it was sold out before the end of
construction.
Next development project in Kristiine City - Kindrali Houses, was initiated in 2021 and is
currently in construction phase. First two buildings are expected to be handed over to
customers in summer 2022. Due to high demand for the residential premises in Kristiine City,
the Group decided to speed up development process and started the second phase of the
project with initially estimated completion in February 2023. In total three buildings with 195
apartments will be built within this development project.
We are also developing a residential quarter with a historical and unique location in Riga –
Kliversala Quarter. The first building, River Breeze Residence is known for its unique
appearance and impeccable quality and has received numerous architecture and construction
awards. The sales of River Breeze Residence were ongoing in 2021. The next phase of the
project - Blue Marine - received a building permit with the technical requirements and we will
start construction as soon as possible. The new houses will be built as an integral area that
binds together the feeling of a metropolitan, modern architecture and well considered living
environment.
T1 Mall of Tallinn, a shopping and entertainment centre with a forward-looking concept started
operations in November 2018. T1’s new concept offering a more dynamic way of spending
time with a number of top-class leisure opportunities was well-received within customers.
However, the first full year of operations fell short of initial expectations. Due to the challenges
of a changing retail market, the start of the operations in full capacity was slower than
anticipated. In spring 2020 the operator of the T1 Mall of Tallinn filed for the reorganisation.
However, proceedings were ended in April 2021. On 2 June 2021 Harju County Court declared
bankruptcy of operator of the T1 Mall of Tallinn, AS Tallinna Moekombinaat. As a result, the
Company lost control over this subsidiary and deconsolidated it from its consolidated financial
statements (Note 37).
AS Pro Kapital Grupp consolidated annual report 2021 11
Chairman’s summary
2021 was a great year in terms of sales and development of our construction sites. After a
challenging 2020, the Company showed great resilience with the help of overall favourable
market conditions.
As per the Company’s history, the main areas of activity are real estate developments in the
three Baltics capitals (Tallinn, Riga and Vilnius) and the hotel operations in Bad Kreuznach,
Germany.
Real Estate Development
In Tallinn, we have made great progress in our on-going developments. In Kalaranna project,
where completion of eight buildings with the total of 240 apartments will be achieved step by
step in four phases, we nearly completed the second stage of construction, comprising four
separate residential buildings. As at 20 April 2022 we have reservations or presales concluded
for 99% of premises. We predict handing over the stage 2 buildings within summer 2022.
In Kindrali houses in Kristiine City we are building 3 residential buildings for a total of
195 apartments. The project is entirely sold out (meaning reservations or pre-sales have been
achieved for all the units), and we predict handing over the first two buildings by mid-summer
2022 and the third building by mid-autumn 2022.
Tallinn has been by far the biggest generator of revenues for the group in 2021. This was due
to favourable market conditions alongside our pipeline of projects which is currently centred
in this region.
In Riga we are selling our luxury product River Breeze Residence and preparing the tendering
package for the further development of Kliversala Residential Quarter- Blue Marine. We
predict to have some offers in hand from the construction companies by spring 2022. As at
20 April 2022 33% of units have been reserved. The Blue Marine project will consist of 101
units once it will be completed.
We hold a building permit for City Oasis residential quarter, a project consisting of 326
apartments located in Tallinas iela– a tranquil and green living environment in the city centre.
We will be ready to proceed with construction activities as soon as the market situation
becomes more favourable.
Out of the three capitals (Tallinn, Riga, Vilnius), Riga seems to have the most challenges in
terms of overall market conditions. However, our long-term outlook for the Latvian real estate
sector remains bullish.
In 2019 we completed five buildings in Šaltinių Namai Attico project in Vilnius with 115
apartments. Today we have only 2 apartments unsold, out of which one is a model unit. We
are preparing for the following phase with city villas (41 units) and a commercial building and
plan to start the construction this year.
Vilnius market is extremely active, and we look forward to the next stage of our high-end
development.
AS Pro Kapital Grupp consolidated annual report 2021 12
Hotel operations
Last year had a significant impact on PK Parkhotel Kurhaus in Bad Kreuznach, Germany. Due to
COVID-19 restrictions the hotel was closed almost half of the year in 2020 and from January
till mid-June in 2021. However, the total revenues were higher by 0.3 million euros in 2021
comparing to the last year. Although occupancy has increased this year, the average room rate
has influenced revenues negatively. However, due to governmental support, the net result of
twelve months was better comparing to 2020.
A few years ago, we renovated half of the rooms and part of the common areas. The
renovations of the remaining rooms will be completed by the end of 2022. Due to the limited
occupancy of the hotel, which is still under-performing due to the restrictions related to the
pandemic, we decided to accelerate this process, to have the possibility of conducting the
renovation works while the hotel is not fully occupied. This way, we will have a fully renovated
hotel once the limitations to travel will be lifted by the government, and we will be able to
generate higher revenues coming from higher daily rates of our newly renovated facilities.
Conclusion
The Baltic real estate sector showed great resilience throughout this pandemic period, and we
are confident that we will manage to develop our pipeline of projects in line with the market’s
expectations, thus continuing to provide a stream of high-quality properties to the local
population. We are aware of the challenging historical times we live in; we will need to be fast
to adapt to an ever-changing and fast paced world (especially in regards of the construction
works and the related challenges to the supply chain and cost of materials), but we still have a
very positive outlook on the Baltic region and thus far the market has been supporting our
sentiment.
Edoardo Preatoni
CEO
AS Pro Kapital Grupp
20 May 2022
AS Pro Kapital Grupp consolidated annual report 2021 13
Management report
Management
AS Pro Kapital Grupp is one of the leading real estate development companies in the Baltic
States, being the only one of its kind – a development company of over 25 years of experience
in the Baltic States. Our shares are listed in the main list of the Nasdaq Tallinn Stock Exchange
and we are offering an opportunity to trade with our shares on the Frankfurt Stock Exchange.
Our operations are characterised by a long-term view and therefore we want to ensure that
we have an impeccable reputation as a responsibly managed company. As a large developer,
we feel our responsibility to various stakeholders, thus we want to ensure the credibility of
both the Group as well as the entire sector, regardless of any changes in the economic
environment. We manage our sizeable developments portfolio in a strategically sustainable
and forward-looking manner which helped us to successfully overcome various crisis and
enables us to overcome any turbulence also in the future.
Our management principles are based on three pillars:
- We bear long-term responsibility to both our customers as well as to entire
communities, therefore we do more than is required and expected of us by ensuring
quality and timelessly unique design over the years.
- As a publicly traded company, we strive to ensure relevant and timely sharing of
information to all our stakeholders in an honest and transparent manner.
- We are a real estate company that is simultaneously running almost ten major projects.
Therefore we understand that by developing entire residential areas we shape the
future-oriented environment, behavioural patterns and we have a direct impact on the
well-being of the people.
We believe that credibility is achieved in particular by means of our transparent manner of
management which in turn is based on long-term values and our ability to understand and
manage, in a structured way, the impact of our activities in the various aspects thereof. Honest,
ethical and transparent management also means that we follow all the laws and regulations in
force on all our domestic markets, and as a publicly traded company even the requirements of
Nasdaq Tallinn Stock Exchange and the Corporate Governance Recommendations (CGR). We
do not tolerate corrupt behaviour, bribes or unfair competition. We take possible unethical
situations very seriously.
In 2021, the Group was not levied any fines or non-pecuniary punishments for essential
violations of laws or regulations.
Our principle is to disclose in the consolidated financial statements any pending litigations
which may have a significant economic impact on the Company and its share price. According
to this principle, all litigations which economic impact (either one-off or during the period of
one financial year) is at least 100 000 euros are disclosed in the reporting.
Our management and operations are independent. The companies and the key personnel of
the Group did not support the activities of any political organizations in 2021.
AS Pro Kapital Grupp consolidated annual report 2021 14
The governance of the Group is based on trust and reliability in all its operations. We
encourage, support and trust our employees to act independently and be guided in their
decisions by the values of the Group. Most of the key personnel of the Group has worked for
the Group for over 10 years and we highly appreciate their contribution. Our team is small
therefore our operations are highly visible, both internally and externally. That is why we also
emphasize the responsibility involved in the governance and we do not tolerate any abuse
thereof. We work with several developments at a time in all the capital cities of the Baltic
States, and a number of people from different departments are involved in each project. The
choice of constructors, suppliers and subcontractors is made in cooperation within the team
and taking into account the best long-term practices, long-term experience, whereas the ability
of any third parties to ensure a quality service, the reputation and practices thereof is given
equal attention. In our opinion, such organisation of work excludes any conflicts of interest in
practice. The Management Board is the connecting link between the offices in different states,
various entities and the Supervisory Board. Any financial, strategic and other substantial issues
are discussed with the Management Board and the Executive Manager, the most important
decisions are made with involvement of the Supervisory Board. We are also working more and
more in the direction which allows us to ensure comprehensive internal communications
across the entire Group.
In 2021, we continued developing the management principles of the Group. In addition to the
communication with the investor community, we are consciously and systematically
implementing Group communication and marketing which would ensure visibility and
involvement of different stakeholders, channels and topics. Our goal is to improve the visibility
of the Group and be transparent and open in our operations in a manner which would support
both our own reliability as well as that of the entire sector. The most important for us is the
two-way communication with both the employees as well as any external stakeholders, be it
our customers, subcontractors or partners. We believe that a continuous dialogue allows us to
do our work in the best way and shape the living environments which would exceed the
people's expectations as to their quality, timeless design and well-considered solutions.
One of the most important aims of open and transparent management and active
communication is to increase the investors’ interest and thereby the Group share transactions
activity at the stock exchange. This in turn will support our long-term development and growth.
Our impact and responsibility in society
Our business is not just about the development – we create new living environments and
thereby have a significant impact on the life quality of people, the social development and the
economic environment. This impact is not only versatile but also long-term, therefore we
recognise this responsibility and are extremely serious about it. Therefore, we take different
aspects of the impact into consideration in our operations and we do more than is expected of
us or required by regulations. We have to ensure high quality and safety in our operations but
at the same time we have to take into consideration the impact of the development activities
on the environment and find reasonable and sustainable solutions.
Our most important impact and liability arise from our business strategy aimed at developing
large integrated districts. We design unique quarters and living environments together with
AS Pro Kapital Grupp consolidated annual report 2021 15
infrastructure and public spaces in the areas which were historically industrial areas or which
were unused. The environments created in premium locations in all the three capital cities of
the Baltic States are attractive both for our customers as well as the surrounding areas as we
increase the value of the entire area with our development activities. This allows us to stay
ahead of the market trends and shape them in a positive manner.
At the end of 2018 we analysed the expectations and vision of our stakeholders and experts as
regards our broader role and responsibilities in the society. We interviewed our customers,
subcontractors, partners, representatives of local communities and local governments,
financiers, regulators, construction and sustainability experts and discussed these issues with
them. We got the confirmation that we are expected to provide responsible real estate
development and customer communication, be honest and open in our daily work and ensure
a pleasant working environment. Substantial and diverse feedback is a very important input to
construe and constructively analyse our role in the society in order to plan and focus our
operations in more conscious manner. We spotlighted these topics for us inside the Group. We
would like to be more specific in the management of our social responsibility – to continue to
develop important aspects, set specific targets and performance indicators which would
demonstrate and confirm development besides describing the principles.
The following list gives a priority list of focus areas of interest groups and our own employees
showing highly prioritized matters first followed by others in a decreasing relevance.
1. Quality, safe and healthy buildings
2. Fair and ethical management
3. Fair marketing and communication
4. Healthy, safe and proper workplace
5. Customer relationship and experience
6. Resource efficiency and environmentally friendly choices
7. Motivating, developing, diverse and attractive workplace
8. Easy and environmentally friendly access to buildings
9. Open and engaging relations with stakeholders
10. Sustainable supply chain
11. Waste management
12. External impact of construction and operations
13. Contribution to the development of real estate sector
14. Environmental certificates
15. Sponsorship and volunteering
We bear significant responsibility for implementation of major projects both in construction
operation as well as the ideology from which we proceed. An integral part of this responsibility
involves courage to make forward-looking decisions based on global trends, ability to find a
AS Pro Kapital Grupp consolidated annual report 2021 16
balance between the high expectations and the opportunities, and ability to be involved in the
development in each aspect thereof, thereby ensuring first-class quality. We are aware of the
impact of our operation on these areas that we develop. We take the local customs,
architecture and aesthetics into consideration in each project. Designing of integral
infrastructure is equally important, taking into account the natural environment and even the
trend towards ever greener and healthier lifestyle.
We meet several of the above requirements already today but we see an opportunity to
achieve much more in environmental aspects, for example. Today we implement
environmentally friendly and resource-efficient solutions in a reasonable manner and in fair
proportions to the expectations and needs of the market. Undoubtedly, changes in the
consumer behaviour, the increasing energy efficiency expectations and the rapidly changing
environment create preconditions for arranging our future activities somewhat differently
than today.
We have not included our German hotel into the analysis described above, as hotel operations
is not our core business. In spite of that, the principles of social corporate responsibility are
implemented also in Germany.
Responsible real estate development
We develop integral living environments in areas with significant relevance to the urban city
development and on people’s quality of life. That is why the sense of responsibility is deeply
rooted in our mindset and we take pride in forward-looking way of thinking. Through years,
we’ve proven to remain ahead of the market trends and focus on long-term value we create
for wider communities. Responsible real estate development means that our work has an
impact on people's expectations of the environment in which they live, work and spend their
time. Our intention is that positive effect is provided and stays long-lasting.
Simultaneous development of several major projects is unique at this market. We believe that
our work creates long-time value and also demonstrates our strong position in the Baltic States.
We develop large integrated residential quarters, thereby increasing the value of entire areas
through well throughout infrastructure and landscape supporting the sense of community of
people and their expectations to the quality of life.
Kristiine City is much more than a collection of apartment buildings, it is somewhat expanding
the concept of downtown. Kristiine City is a distinctive and integrated living environment –
"a city in a city”, while being an organic part of urban space.
We believe that real property is much more than just a physical space. Being residential or
commercial real property, it should create emotions. Home is probably one of the most
important investments in one’s life. Home is the environment which creates a sense of warmth
and security.
River Breeze Residence, located right at the heart of Riga, is the first residential building of
Kliversala Quarter. River Breeze Residence is well-known and recognized for its outstanding
AS Pro Kapital Grupp consolidated annual report 2021 17
quality and unique architecture. In 2018, the building won “The most sustainable
development project of 2018” award. In 2019, this exclusive apartment building placed 3
rd
as
“The Best New residential building”, 2
nd
in the nomination for the “Best Newly Constructed
Residential Building in Latvia” and won the most prestigious award at the end of 2019 – “Riga
Architectural Award 2019”. Recently it was nominated for the 2022 EU Prize for
Contemporary Architecture - Mies van der Rohe Award, which is a significant recognition for
the contribution of quality architecture to sustainable development and citizens' well-being.
We are aware of the impact of our operations on the areas that we develop. We take the local
customs, architecture and aesthetics into consideration in each project.
It is clear that the construction activities have an impact on the daily lives of neighbourhood
residents. If possible, we plan the sequence of the development phases of residential real
estate in such a way that the construction activities would not disturb the residents of existing
buildings. We also expect our partners and subcontractors to comply with all the property
maintenance rules and practices in order to minimize the disturbing of the neighbours. We did
not receive any substantiated complaints about any disturbing factors from the neighbourhood
residents in 2021 in connection with the constructions works or operation of the buildings.
Kalaranna District is located right of the seaside of Tallinn central city. Thus, we are doing our
best to ensure the safety of the area during the construction. Currently, the access to the sea
is closed and surrounded with fences. The renewed beach and harbour area will be opened
along with the promenade and buildings of the first construction phase.
All commercial and residential real estate buildings completed in recent years or managed
by us have convenient access by public transport (at least a distance of 500m) and there are
parking spaces for bicycles near each building. All of the completed apartment buildings can
be accessed by people with disabilities.
Quality
Our vision is to develop timelessly unique buildings of impeccable construction quality which
antedate the expectations, needs and desires of people. This vision reflects our long-term
experience and proactive business strategy. We believe that quality is the core of creating long-
term values throughout our business. In particular quality is our responsibility to the clients for
whom a real estate investment is an important step and decision influencing them for years.
We want to be known and appreciated namely for the quality even in ten and twenty years.
This includes more than just the building materials and trendy design. Quality begins with
understanding the market needs and the ability to move ahead of the trends and anticipate
these needs. The quality is reflected in the details starting from the fact that we know our
customers and their actual user experience both in the living quarters as well as in the
neighbourhood. This means well-weighed space planning and services, intelligently solved
communication and ventilation systems, smart and practical landscape architecture and
infrastructure which in turn fits into the timeless and high-quality design and interior
decoration.
AS Pro Kapital Grupp consolidated annual report 2021 18
Our developments are born in collaboration with architects of repute in order to associate
unique exterior and interior of the buildings with practicality through their experience and
vision. We also appreciate the ability of experienced and reputable architectural firms to
manage the design work until the issue of the building permit within a reasonable time period.
We actively cooperate with architects during the design work stage and analyse in detail the
best alternative uses of each square metre.
We are very demanding in our selection of the builder in order to ensure high construction
quality. Also, in case of specific works, we cooperate with the best specialists in the field. We
only invite reliable and ethical companies to participate in tender and besides the price, the
final choice will be based on the prior experience and ability to flawlessly carry out technically
complex projects. The task of main contractors is to involve a suitable network of
subcontractors.
In addition to strong partners, we also ensure our high construction quality by use of carefully
selected building and interior decoration materials. The materials have to be durable, timeless
and aesthetic, both inside and outside the buildings.
We analyse and wisely prepare the plans for electricity, lighting, heating and ventilation
solutions and other automated technological systems which comply with actual utilisation
needs and ensure efficiency. By proper maintenance, we ensure a longer service life of the
buildings, which we manage ourselves.
Quality means to sense the needs of the market, intelligent design work, knowledgeable
construction work in compliance with requirements and even management of the buildings in
a manner which allows to offer comprehensive and positive customer experience. A well-
considered, wisely planned and carefully conducted development process ensures durability
of our buildings over time and reduces the need for repairs and necessity to spend additional
resources. Thus, the long-term service life and timeless appearance of the buildings is our
biggest contribution to environmental protection.
Preservation of environment
People are more and more aware of preservation of environment and their expectations on
sustainable solutions increase together with this. Both, private and business customers tend
to appreciate natural materials and energy efficiency more and more. People want their living
and operating environment to be green, intelligently planned allowing movement and active
lifestyle. Our operations upon meeting the environmental requirements comply with the
regulations but environmentally friendly solutions are not yet at the core of the activities.
There is a number of reasons for that and the most important one is there is a price and quality
ratio of home or commercial spaces to be met. Our operations are focused on customers and
their needs and expectations therefore we actively try to find the best and environmentally
friendly solutions in a balanced way. However, it is very important for us to know the
expectations of stakeholders with regard to environmentally conscious choices as the
capability to appropriately address the environmental issues may significantly contribute to
our competitiveness in the near future.
AS Pro Kapital Grupp consolidated annual report 2021 19
The principle on which our work is based is to avoid damage to the nature or excessive
burdening thereof. We comply with all statutory environmental requirements both during the
design and construction work as well as during subsequent operations. We refrain from
damaging the soil, wildlife and biodiversity and we avoid excessive air pollution. We avoid any
unjustified use of hazardous materials and we do not use any prohibited materials. We always
try to find reasonable opportunities for efficient use of energy, water and other resources
during the construction works and when operating completed buildings. This also means that
we consider and test renewable energy solutions. An important part of our activities also
includes waste treatment for which we always create proper facilities. We ensure that
completed buildings comply with the environmental standards and do not endanger the
surrounding environment.
In 2021, no environmental pollution or damage to protected nature occurred in connection
with the buildings constructed or commercial real estate operated by us.
Šaltinių Namai | Attico is one of the first developments in Lithuanian market, certified with
A++ energy class. Sustainable, long-term mindset in development is very much appreciated
by the market.
Safety and health
The charm of the property does not lie only in the property itself but in urban space that is
created for people. Thus, the core value of our operations is well-being of people. Just as we
want people to feel good in their homes and commercial premises built by us, we also want
that both, our customers as well as our employees, would get home healthy every night and
that our developments would be safe for them. For this purpose, we comply with the statutory
requirements and we believe that this is sufficient to ensure safety in our buildings. We do not
compromise over the construction quality. Thus, the durability and fire safety of the structures
is elementary for us. Similar to the previous years, there were no accidents in 2021 (due to our
fault), as far as we know, in the apartment buildings operated or completed by us.
Both residential as well as commercial buildings are properly equipped for emergencies. We
ensure timely maintenance of the technical systems in the buildings managed by us, repair of
alarm systems, and we do our utmost to hedge any other elementary risks (such as
slipperiness, darkness, icicles).
During the period of construction works, construction companies ensure safety at the site. We
cooperate with respectable main contractors and the general order at construction sites is
good. It is important for us that people visiting the site during the period of the construction
works are aware of the safety requirements and comply with these requirements. No accidents
have taken place at our construction sites in 2021.
In addition to safety, healthy environment is also very important. The factors which have an
impact on how people feel themselves in our buildings include the suitable temperature,
ventilated air, spaciousness, balanced lighting in combination of daylight and artificial light,
avoidance of hazardous materials and noise level in public areas. In apartment houses green
living environment, which gives an opportunity for movement and sports activities close to
home, is important for us.
AS Pro Kapital Grupp consolidated annual report 2021 20
There is a sports club and tennis centre right in the centre of the Kristiine City residential area.
A swimming pool and one of the biggest sports centres in the city with multiple sporting
possibilities and an equestrian centre are at the distance of a few minutes’ walk. There are
two different health tracks for skiing, walking or cycling within the radius of a few kilometres.
The period of restrictions certainly had an impact on people's expectations of the future living
environment, and Kristiine City's diverse opportunities for outdoor activities have become
even greater value than ever before.
Team
AS Pro Kapital Grupp is a company with more than 25 years of experience, thus we are one of
the oldest professional real estate development companies in the Baltic States. A big part of
our team has been with the Group for almost half of its lifetime or even more. We believe that
this demonstrates our ability to keep our team by offering them an environment which is in
constant development, encouraging and supportive. We believe that every company has the
face of its people and people shape it, therefore we highly appreciate our people.
At the end of 2021, the entire Group had 67 employees comparing to 84 at the end of 2020,
among them 32 employees were involved in hotel and maintenance business (31 in 2020). 37
employees worked in the Baltic States (20 in Estonia, 9 in Latvia and 8 in Lithuania). 27.03% of
people engaged in the principal activity of the Group i.e.in the real estate development, in the
offices of the Baltic States are male and 72.97% are female; 2 of the managers of the Group
and the Baltic companies are male and 4 are female. In Baltics our employee turnover was
14%, which is influenced by loss of control over the subsidiary AS Tallinna Moekombinaat, and
in 2021 we recruited 4 new employees.
Ten keywords characterize us as an employer:
Trust and independence. We believe that it is important that our employees have freedom to
decide. We have regulated our daily activities as little as possible and we do not over-
emphasize excessive hierarchy in management. We appreciate and value initiative, ability and
willingness to work without orders, commands and excessive bureaucracy.
Humane management. Every employee is valuable for the Group and their well-being is
important. Rested people who are enthusiastic and who have much more in their lives than
just their work and whose lives are balanced are the people who work well. Therefore, we try
to be flexible and fair in our work and we do not discriminate people. Flexible working hours
are allowed unless nature of work or specific tasks set limits on it.
Development opportunities. Our team is small but as our business is in constant change and
evolvement, which allows us to offer our employees learning and development opportunities.
We highly appreciate people who have worked for a long time in our team. We listen to them
and we fully support them. We always try to find people from inside our Group to fill any
vacancies to encourage constant development. We offer training and participation in seminars
and support employees based on the need and wishes.
Creative work. Our job is exciting and evolving. We work with projects which are all very special.
A number of them are unique in the whole Baltic region, thereby we are providing
development and self-fulfilment opportunities which is almost impossible to find in other
AS Pro Kapital Grupp consolidated annual report 2021 21
companies of this market. This brings challenges, change, excitement and ambition into our
work.
Devotion to goal. We have a common goal, common interests towards which we are moving
and working while supporting each other. Real results are created jointly and our people highly
appreciate the opportunity to contribute to the creation of the value through the development
and design of new environments.
Friendly colleagues. The team and especially people in it are important for us – we celebrate
important milestones together and organize joint events, both in summer and at Christmas
time. In search of a new employee, we look more for a person who fits into the team, not only
a professionally competent specialist. We find that the synergy between people adds value
both to employees’ well-being and their work results.
Equal opportunities. In recruitment process we do treat all candidates equally for all open
positions, our choices are based on considering candidate’s character, skills, experience and
recommendations, not their gender, nationality, race or religion. The same applies for
positions which we fill internally.
We value good health. We strictly follow any safety requirements and we believe it is very
important to preserve health of our people taking into consideration the specifics of office
work. In Estonia, when people fall ill, they can stay at home for up one week to get well without
losing their pay for this time. In Latvia, we have enabled voluntary health insurance for all our
employees. We consistently assess occupational safety risks and our employees undergo
regular health checks.
Modern working environment. We spend a major amount of our time at work, so we must feel
good in our work environment. Our modern and comfortable premises in Tallinn and Vilnius
are located close to our development projects and easily accessible by public transport or car.
Thus, we are almost in the midst of things and this allows us to constantly keep an eye on the
activities and communicate with our customers. In Riga, we moved in 2018 to a newly
renovated office in the centre of Riga.
Stable employer. We are an international publicly listed company which operates in several
markets – a capable, stable and open real estate developer with transparent management that
has survived several economic turbulences. 83% of our managers (the Management Board of
the parent company, our Chief Financial Officer and the Executive Managers in Latvia and
Lithuania) have been members of the Pro Kapital team for over 15 years, and half of them for
over 20 years.
In 2021:
- We had no work accidents with our employees (the same in 2020);
- Our employees were absent from work due to medical reasons only 2.6% of the
days with an average of less than two days per year (1.3% in 2020);
- Over 32% (54% in 2020) of our employees participated in professional training
courses or seminars with an average of 5 hours per employee (8 hours per
employee in 2020);
- We did not receive any official complaints about discimniation or unfair treatment
(the same in 2020).
AS Pro Kapital Grupp consolidated annual report 2021 22
Our team is relatively small and most of the employees have been in our team for a long time.
Therefore, human resources management forms an organic part of corporate governance. We
believe it is important to preserve our humane and direct organizational culture and avoid
unnecessary bureaucracy and formalism. However, we perceive that we are growing and
changing, therefore we see the need to introduce a common approach to certain issues at the
Group level. For instance, we should conduct employee satisfaction surveys to obtain regular
feedback and assess specific trends and needs, and keeping our future in mind, pay more
attention already today to the development of the employer’s brand and improvement of the
image of the Company at the Group level throughout our operational area.
Customer experience
Our customers include buyers of apartments and lessees of commercial premises. In this
report, we only describe the issues related to residential real estate.
The residential real estate customer profile is broad. Buyers of apartments include students
who are supported by their parents, young couples, families with small children, families
looking for new homes when their families grow bigger, middle-aged people who need a
more suitable home as their children have left home, elderly people who move closer to their
children. Depending on the development projects, our customers include besides local
residents also foreign people (for example in Kalaranna development) and besides private
individuals also companies that invest in rental property.
Buying a home is usually one of the most important and significant transactions for people.
Therefore, we bear even higher responsibility to all our customers. We are closely connected
to all our developments from beginning to end because this is the only way we can ensure the
quality. This gives us an opportunity to be in a constant dialogue with our customers,
understand their needs and expectations. High quality development activities are reflected not
only in the materials and interior decorations but in every detail, well-considered space
planning, landscape architecture and infrastructure. This does not mean only compliance with
the requirements but also long-lasting construction quality, timeless aesthetic and practical
use of materials, design and environment where it is good to live. We have proven ourselves
as a reliable long-term partner to our buyers. We do find that our customers must be confident
what they invest in.
Undoubtedly, buying a home is an emotional deed and the way how quality is brought to
people plays a major role here. Transparency and clarity must go hand in hand with a
convincing and aesthetically appealing visual language – people must be able to understand
what they invest in. Therefore, marketing communication has big and effective role to play in
our work, every detail and the overall picture of the product specifications and visual elements
must address a specific target group. Our promises correspond to reality, our plans and views
are true and we are open in our communication which allows people to get acquainted both
with the interior decoration materials as well as with the plans.
We believe that the quality label of our development activities is formed during the first
contact with the customer. Like any other relationship, it grows and develops over time and
that is why we do not use an aggressive style of selling or pressurize people to decide. We value
each individual and we comply with the privacy requirements by means of collecting and
AS Pro Kapital Grupp consolidated annual report 2021 23
retaining contact details in a proper manner. When we cooperate with real estate agents, we
require that they also adhere to the same principles. In 2021, we did not violate any
requirements or principles relating to marketing ethics, consumer protection, customer
privacy or data leakage.
A strong customer relationship is an integral part of our business. Each customer contact,
regardless of the project, shapes our reputation and credibility and will also accompany us in
the future. Customer experience and assessments of the quality of our work and service turn
them into our main and maybe even the most important marketers. Pro Kapital has grown into
a strong and valued brand, which is confirmed by the fact that in general we sell a significant
number of apartments in a variety of projects already before the beginning of the construction
works or even before the beginning of the marketing activities. A number of people who have
earlier bought their homes from us purchase apartments even in our subsequent development
projects.
River Breeze Residence has been the market leader in the exclusive segment in Riga from
2018 to date. Our customers truly value the combination of quality, elegance and overall
value of Kliversala Quarter. Our developments are highly valued also in Tallinn – many of the
customers of our previous projects return to buy apartments in new development projects. In
Ratsuri Houses project, completed in 2021, we sold all apartments before the end of
construction works. In Kindrali Houses we presold or had reservations for more than 50%
before start of construction, which is a trust we greatly value.
A binding principle for us is to be there for our customers even after the sales transaction. Our
goal is to be in a constant dialogue with our customers which on one hand helps us to shape
the living environment where people feel good, but to also solve any potential problems
quickly and constructively. Therefore, we manage most of our apartment houses ourselves
after they are completed. When finding maintenance partners for a house, we defend the
interests of owners and help the apartment associations to make the choice. We believe that
this way we help them to settle down in a smoother and more pleasant manner. Being close
to users, we can identify any issues which need adjustments or changing in our future projects.
Thereby we constantly improve our development sites and we ourselves grow together with
them.
Our uniqueness also includes the real estate agents involved in our team. We believe that this
allows us to offer better quality customer service as namely the administrative departments
are the connection link in the customer relations between the builder and our development
team, both upon transfer of the apartments as well as during the warranty period of two years,
until the builder solves any warranty issues.
We deem it very important to be a reliable partner for our customers. We believe that this way
we have a coherent community and our satisfied customers remain loyal to our developments
even in the future and give recommendations in their social environment. This is well
illustrated by the fact that the same customers buy apartments in different stages of several
development projects, or a great number of new customer relationships are created on the
basis of their recommendations.
AS Pro Kapital Grupp consolidated annual report 2021 24
We believe that people do not buy just an apartment but make an investment in the living
environment. That is why we are committed to our work as if we did it for ourselves and for
our families. We analyse and consider carefully even the smallest details, we take into
consideration different needs, habits and expectations in a manner which allows us to create
a smart, well-considered, homely and considerate living environment. It is really important for
us that people are happy in their new homes. This distinguishes us clearly and supports our
growth and movement as a creator of trends towards high-quality and responsible real estate
development.
We find that every relationship, including the relationship with customers are in constant
evolution in time. An integral part thereof is the fact that we are open to feedback.
Cooperation with commercial real estate customers has been at the background compared
to our residential real estate customers, that is why we see space for development here today.
Our commercial real estate customers have expressed their expectation that we would pay
more attention to improving customer experience. We want customer communication to
sustain our values, that is why we direct more conscious attention than hitherto to the
development of our customer communication, measurement of customer satisfaction, and
more systematic collection of feedback from commercial real estate customers.
Contribution to society
The biggest and the most positive contribution of AS Pro Kapital Grupp to society is the
development of living environments and commercial districts based on an integrated and long-
term strategy. Therefore, our business does not consist only of development – we create new
districts and have a positive impact on the living environment of people. We are aware of the
impact of our operation on these districts that we develop. This is why we support and
participate in activities and projects which involve local community, promote youth education,
improve awareness and support culture. We are pleased to share our experience and
knowledge with different stakeholders, be it professional events, investment communities or
the public. Although 2020 and 2021 were more challenging than the previous years and having
more focus on main business rather than on community activities due to restrictions, we did
our best to ensure the well-being of the people in this situation. Regardless, we aim to establish
specific principles in the near future and dedicate ourselves to those activities that carry our
values the most. We believe that introduction of support principles gives us an opportunity to
contribute to joint work in a more systematic and substantive manner by creating thereby a
long-term value both for the development of the entire Group as well as for the subjects we
decide to address.
Support and cooperation projects in 2021
We mostly address three main subjects in case we find that it is important to keep and improve
them – improvement of living environment, supporting art, working with the youth.
A living environment is much more than just physical space. This is an environment, together
with its people, their expectations, joys and sorrows. We are responsible to people, we shape
AS Pro Kapital Grupp consolidated annual report 2021 25
their living space in various aspects thereof, we consider it important to direct and shape it in
the manner which would be equally good. Our contribution:
- In 2021 River Breeze residence was awarded with Baltic Prestige Award 2020/2021.
The Corporate Livewire Baltics Prestige Awards 2021/22 recognise small and medium-
sized businesses that have proven to be the best in their market over the past 12
months.
- For several years we have given out an annual living room prize together with one of
Estonia’s best-known home journals “Kodukiri” which has a long and distinguished
history in Estonia. We consider it important to design and have a say but to also support
creation of homely homes and recognition thereof. Our value world is focused on
home, community and people who shape them.
Risk management
As part of the business of a responsible company is to identify and minimise any related risks.
Market risk
Focusing on the long duration of our business model allows us to mitigate potential market
fluctuations. Based on our long-term strategy, we acquire a real property when the market is
in recession, and we develop and sell it at the height of the market. This gives us an opportunity
to take advantage of market opportunities and to hedge and manage the market risks.
Liquidity risk
We manage the liquidity risk on ongoing basis, taking into account the working capital
developments and the needs. We monitor cash balances on weekly basis, also model short-
term and long-term cash flows to spot any potential problems and to find timely solutions.
Careful cash planning, monitoring of cash flows of our development projects and flexibility in
everyday money matters effectively contribute to management of the liquidity risk.
Funding risk
The funding risk may extend the development process of the projects of the Group and slow
down the realization of the real estate portfolio. The risk is managed by flexible ensuring of
sustainable funding by means of overdrafts, loans, bonds and other debt instruments as well
as expansion of the investor base and raising of additional capital in case of need.
Property risks
Property risks are covered by insurance contracts.
Safety and security risks
As we develop buildings where people live, work and which they visit on a daily basis, we must
ensure their safety and security. This means strict control and compliance with these principles
throughout our activities. Both in our residential as well as commercial real estate projects we
comply with all the design, construction work and safety requirements, we cooperate with only
competent and reliable construction companies and their subcontractors, and we use high
quality building materials and construction techniques. We equip the buildings managed by us
with the required safety equipment and ensure adopting of security measures in case of any
AS Pro Kapital Grupp consolidated annual report 2021 26
emergencies, we carry our regular risk analyses and training exercises. As building managers,
we monitor that the risks arising from the general order of the real property and the
surroundings thereof would not endanger people.
Community risks
In general, construction works have a temporary disturbing impact on the people living and
working nearby. We will make every effort to minimize any inconveniences and we expect our
partners to do the same. In case of any problems, we are open to communication in order to
prevent aggravation of disagreements and we aim to promptly find solutions that are suitable
for all parties. We understand that involvement of the public and local community is becoming
an important part of any development activities. This is evidenced by the ever-growing social
interest in the suitability of major infrastructure and industrial investments in the communities
and the natural environment.
Environmental risks
Our activities do not involve any high-impact risks that could occur unexpectedly. We manage
the most important risks to wildlife, soil and the surrounding environment by the selection of
locations, proper design and construction work and by making previous analyses. A large
proportion or our real estate developments is located in areas which are not yet used, often in
industrial areas where the environmental damage arising from previous use of the area may
be a problem. In this case we eliminate the pollution or other environmental damage, if
necessary.
Our choice of partners is inter alia based on that the partner would be able to ensure proper
compliance with the requirements and aspects related to the environment. Our activities
involve significant energy consumption and waste generation, so we comply with all the energy
efficiency and waste management requirements related to the buildings as well as other
significant environmental impacts. In the light of increasingly stringent environmental
regulations and growing market expectations, we have to be able not only to respond to them
but also find ways to do more than is expected and required.
Employee-related risks
The jobs of our employees are not related to any important risk factors as most of the time is
spent in the offices. At the same time, it is extremely important that our subcontractors would
ensure the use of proper work techniques during the construction works of our developments
and safety of people in the construction area. Therefore, these expectations are taken into
consideration already in the selection of construction companies and in our mutual
agreements. We cooperate with competent and reliable building companies that properly
follow the safety rules. When our employees and representatives of other partners visit the
constructions sites, we ensure that they follow the safety rules.
We estimate that labour shortage is not a direct risk for the Group as we are a relatively small
team which stays relatively stable in time. Recruitment of new employees is based on the need.
However, we are very much aware of the significantly changed work habits and heightened
expectations of the working life. Employers of different areas of activity also contribute to the
well-being and satisfaction of their employees and this creates a growing need even for us to
AS Pro Kapital Grupp consolidated annual report 2021 27
keep pace with these changes. Therefore, we need to pay more attention in the future to the
overall strengthening of the reputation and image of AS Pro Kapital Grupp which would
contribute to a strong employer brand. A good employer brand allows to also attract the
attention of talented employees in the future. Like many other companies which have
operated for a long time and whose key personnel has been with the Group for more than 10
years, we need to see to that people feel good in our team. We must pay particular attention
to our long-term employees whose quitting of their jobs could have an unexpected impact on
the competence and continuity of the entire Group.
Strategy and objectives for 2022
Our most important goal is to focus on developing high-quality properties. We aim to continue
the long history of Pro Kapital in handing over great properties where people live, work, and
spend their free time.
We develop new residential and commercial areas in the best locations in Tallinn, Riga and
Vilnius. We take the long-term perspective into consideration and intentionally remain ahead
of the market trends. In this regard, we feel like the focus on sustainability that recently caught
the attention of the markets was long-due, and we intend to be frontrunners in the exciting
prospect of developing communities with a strong focus on the health and well-being of the
people who live in it, as well as the urban environment itself. In addition to the development
of our already existing sizeable real estate portfolio, we constantly also assess our
opportunities to extend and strengthen it.
Our long-term experience as one of the oldest professional real estate development
companies in the region supports our conservative borrowing principles and we are going to
continue this in the future, too. We ensure optimal financing solutions for the development of
our new projects, combining loans from financial institutions, extension of the investor base or
by attracting private capital.
In Kalaranna Kvartal we plan to complete last buildings in the beginning of summer as well as
the first buildings in Kindrali Houses project, we plan to start with new projects in the second
half of the year. Our new developments depend on changes in the construction market which
is facing lack of contruction materials, increase in prices, problems with the deliveries. In spite
of that we are positive in regards of continuous demand for residential premises and we plan
to go on with development activities as soon as possible.
The hotel segment is influenced by the ongoing pandemic, and it is too early to tell how will
the hotel market act in Bad Kreuznach after the restrictions have been lifted. However, we are
confident that we will get through this with the support that the German government is
showing to tourist and business destinations in the country.
Goal for 2022:
- To continue construction of our ongoing development projects and prepare to launch
new development projects. To monitor carefully the impact of the worldwide pandemic
and ongoing war in Ukraine and to adjust the strategy and plans of the Group
accordingly, also ensuring the health and safety of employees, clients and partners.
AS Pro Kapital Grupp consolidated annual report 2021 28
Development projects
Project name
Type
Location
Ownership
Classification
Ülemiste 5
Commercial
Tallinn
100%
Investment property
Kristiine City*
Residential
Tallinn
100%
Inventories, investment property
Kalaranna District
Residential
Tallinn
100%
Inventories
City Oasis Quarter
Residential
Riga
100%
Investment property
Kliversala District*
Residential
Riga
100%
Inventories, investment property
Brivibas Business Quarter
Commercial
Riga
100%
Investment property
Šaltinių Namai
Residential
Vilnius
100%
Inventories
*Due to large scale of the projects, part of the property is waiting for start of development and therefor is
classified as investment property (Notes 10 and 13).
Ülemiste 5, Tallinn
Ülemiste 5 will be developed for commercial premises with gross leasable area of ca 18.5
thousand square meters.
Kristiine City in Tallinn
Kristiine City is one of the largest residential areas in the Baltic countries, located in the Kristiine
borough, a residential area close to the City Centre of Tallinn. The unique project plans
exquisitely integrated historical red brick buildings with the modern architecture that will arise
over the hill, at the very heart of the new quarter. Kristiine City development will bring lively
and elegant atmosphere to the historical barrack area. The residential area is developed mainly
to offer green living environment to families and people who prefer living near the very centre
or the city.
Ratsuri Houses in Kristiine City
The project Ratsuri Houses has been named
after its history as a horse stable. Ratsuri
Houses was renovated and constructed by
OÜ Vanalinna Ehitus. The works included
reconstruction of a stables building
originated from 1916 and construction of an
extension in modern New Holland style with
a partially underground car park on Talli 5
property. The buildings were completed last
spring. Ratsuri Houses have a total of 39
apartments – 17 in the former stables and 22
in new building. All apartments were
reserved or presold already prior to the end of construction.
AS Pro Kapital Grupp consolidated annual report 2021 29
Kindrali Houses in Kristiine City
Located among the private
houses and apple orchards of
Kristiine district, the modern
Kindrali Houses project has a
warm and cosy heart. Kindrali
Houses form a part of the
Kristiine City district which is
undergoing rapid development
near the city centre and offering
versatile opportunities for
residents of all ages. The focus is
on comfort, safety and living in
harmony with environment.
Contemporary and Nordic appearance of the buildings is complemented by carefully selected
high-quality materials and details in interior design. There are both spacious five-room flats as
well as ground floor studio apartments with separate entrances Four-legged friends of the
residents can enjoy a special washing room in the houses. The two first buildings are scheduled
for completion in summer 2022. The third one will we hope to hand over also within this year.
All apartments are sold with an exception of the one kept as a show room for the next stage of
development.
Kalaranna in Tallinn
Kalaranna District is a unique sea-side
residential district on the boarder of
Tallinn’s central city and old town.
Kalaranna District, located at Kalaranna
8, will have twelve 4-5 storey buildings
on nearly six hectares. The area is being
developed in two stages. An integral
part of the residential quarter is well-
thought-out landscape architecture and
a beach promenade that largely
preserves the existing natural
environment. During the first phase of
construction, eight buildings will be
completed with 240 apartments,
commercial premises and an underground car park. The area will include the Kalaranna Park
with versatile leisure opportunities and a Square connecting the buildings. The first buildings
were completed in 2021, the rest will be handed over by the end of summer 2022. Almost all
apartments have been sold, only 2 remaining.
AS Pro Kapital Grupp consolidated annual report 2021 30
Kliversala in Riga
The district of Klīversala is located in the most picturesque and beautiful part of the centre of
Riga. A land plot of almost five hectares in total, is located on the peninsula on the Daugava
River and Agenskalna bay, facing the towers of Old Riga and the President Castle. The property
will be developed as an integral residential quarter.
The River Breeze Residence and the
neighbouring territory are a significant
part of the long-term development
strategy of the city of Riga, which will be
carried out through the period until 2030.
Mainly, because the River Breeze
Residence is located within the UNESCO
heritage protection area and is thereby
considered as a highly valuable territory.
Completion of River Breeze Residence
represents the start of Kliversala Quarter development. We are in the process of construction
tender for the following phase of the area - Blue Marine.
Brivibas Business Quarter in Riga
Commercial property development for
modern office complex will be built on
the site of a former factory. The area is
located at one of the main transport
arteries heading through the city – the
Brīvības street - making it an attractive
commercial area. The first phase of the
project foresees renovation of the
existing industrial building into an
office building. The construction of
new office and commercial buildings
will be carried out as a second phase of
the project. The site is ready for construction, existing building is conserved. The building
permit has been issued and we will start with construction when market conditions will be
favourable.
AS Pro Kapital Grupp consolidated annual report 2021 31
City Oasis Quarter in Riga
City Oasis Quarter lies in Tallinas
street 5/7 and is a unique
residential area in the central
city of Riga, where new
buildings, modern loft-style
apartment buildings and also
restored historical buildings can
be found to create an
extraordinary atmosphere in the
area. The development foresees
business premises on the first
floors of the buildings. The
building permit has been issued and the technical design is currently in progress.
Šaltinių Namai in Vilnius
Šaltinių Namai is a prestigious living area, surrounded by the nature in the most tranquil part
of the Old Town, located within the UNESCO protection area. Šaltinių Namai is inspired by the
baroque spirit of Vilnius Old Town and the tradition of Italian architecture in Lithuania.
Homebuyers can choose from thoroughly planned apartments with exceptional views to
spacious town houses.
As an integral part of the landscape, this unique area has the first Italian courtyard garden in
the city, designed by an Italian concept architect Gianmarco Cavagnino. In 2019 we completed
five houses of the Šaltinių Namai | Attico project and are currently planning the following
construction phase with city villas and commercial building.
AS Pro Kapital Grupp consolidated annual report 2021 32
Segments
The Group’s operations are spread across four geographical segments: Estonia, Latvia,
Lithuania and Germany.
Key financial data of the segments, in thousands of euros
Revenue
Gross profit
Profit/loss
before income tax
2021
2020
Change
2021
2020
Change
2021
2020
Change
Estonia
37 101
1 102
32 267%
9 193
144
6 284%
34 114*
-7 028
585%
Latvia
2 404
2 001
20%
773
730
6%
308
-627
149%
Lithuania
1 639
8 874
-82%
456
3 550
-87%
-60
2 896
102%
Germany
1 951
1 672
17%
154
-211
-173%
642
-342
286%
Total
43 095
13 649
216%
10 576
4 213
151%
35 004
-5 101
786%
Gross margin
Net margin
2021
2020
2021
2020
Estonia
24.8%
13.1%
91.9%*
-445.1%
Latvia
32.1%
36.5%
12.8%
-31.4%
Lithuania
27.8%
40.0%
-2.7%
28.7%
Germany
7.9%
-12.6%
32.6%
-20.7%
*Profit includes gain from recording loss of control of the subsidiary (Note 29)
Internal transactions are eliminated in key financial data provided above. Estonian segment
includes separate financial data of the Company.
2021 revenue by geographical segments, %
Estonia
86%
Latvia
6%
Lithuania
4%
Germany
4%
AS Pro Kapital Grupp consolidated annual report 2021 33
The general market situation in Baltic capitals had an upward trend in 2021 with real estate
prices growing, especially rapidly in Estonia. The booming prices in Estonia have now slowed
down, but we foresee there is still room for growth in prices due to lack of new projects
completion and supply on the market. The interest towards residential real estate remains high
inspite of the restless situation in the world. Lithuanian market is also welcoming new projects,
but in Latvia the prices are growing in a slower pace and the general environment is not
supporting higher end residential premises sales. From development side, after signs for
recovering from COVID-19 impact appeared, the war in Europe has influenced already and will
continue to influence construction market with the deficit for materials and also workforce.
Ukraine, Russia and Belorussia have been main providers for steel and other materials and it
will take time for the suppliers to rearrange their sources and of course it will influence the
price for construction. Today construction companies prefer to sign open end contracts or
minimise their risks with higher margins. If the construction prices for the new projects are not
in corelation with the sales prices, we will have to postpone start of the new projects until the
situation on market stabilises.
Estonia
The Group’s operations in Estonia mainly consist of the development and sales of apartments
in middle and premium residential real estate properties, development, and lease of retail and
office premises, management of real estate properties.
In Estonia real estate market held an upward trend in 2021, with increasing price levels,
average transaction amount and transaction volumes.
The construction of Ratsuri Houses that started in the beginning of 2020 – a development
project at Talli 5 in Kristiine City was completed in spring 2021. All apartments in the
development project were sold before the end of construction.
In October 2019, the Group signed the construction contract for building the first phase of two
in Kalaranna District. The construction works started in January 2020 and completion of eight
new buildings with 240 apartments, commercial premises and underground parking was
scheduled for 2021-2022. In 2021 the first four buildings were completed. Due to very strong
interest towards the project, 99% of the apartments are covered with reservation or
preliminary sales agreements.
The share of the Estonian segment as a percentage of total revenues of the Group during the
reporting period amounted to 86% compared to 35% of the comparable period last year.
Revenue from Estonia
in thousands of euros
2021
2020
Change
Real Estate
36 971
1 002
3 590%
Rent
3
3
0%
Other
127
85
49%
Total
37 101
1 090
3 304%
AS Pro Kapital Grupp consolidated annual report 2021 34
Revenues in real estate segment increased rapidly due to completion of Ratsuri Houses and
first buildings of Kalaranna District development projects. Sales revenues are recorded upon
signing final notarised sales agreement and handing over the premises to the buyers.
Therefore, the revenues from sales of real estate depend on the completion of the residential
developments. During 2021 the total of 164 apartments, 239 parking lots, 5 business premises
and 84 storage rooms (2020: 3 apartments, 4 parking lots and 8 storage rooms) were sold. At
the end of the reporting period the stock consisting of 34 apartments, 11 business premises,
51 storage rooms and 107 parking lots were available for sale in Tallinn.
Other revenues consist mainly of maintenance services provided. Other services revenue
increased by 49% mainly due to the increase in the clients’ base.
Latvia
The Group’s operations in Latvia mainly consist of the development and sales of apartments in
premium residential real estate properties, development of commercial properties.
The River Breeze Residence with 47 exclusive apartments was completed in Kliversala
development in Riga in 2018 and sales were ongoing in 2021. The projecting works of the rest
of Kliversala area as well as of the City Oasis Quarter and Brivibas Business Quarter continued.
The share of the Latvian segment as a percentage of total revenues of the Group during the
reporting period was 6% compared to 10% in the comparable period last year.
Revenue from Latvia
in thousands of euros
2021
2020
Change
Real Estate
2 314
1 903
22%
Rent
78
78
0%
Other
12
20
-40%
Total
2 404
2 001
20%
During 2021 the total of 6 apartments, 6 parking lots and 4 storage rooms (2020: 4 apartments,
8 parking lots and 4 storage rooms) were sold. At the end of the reporting period 24 luxury
apartments, several storage rooms and parking lots are available for sale in Latvia.
Other revenue makes a minor contribution to overall segment’s revenue. The Group provides
maintenance services mainly to its tenants and therefor maintenance revenue is correlated to
the rental area.
Lithuania
The Group’s operations in Lithuania mainly consist of the development and sales of apartments
in premium residential real estate properties.
In the middle of 2019, Šaltinių Namai | Attico with five new residential buildings were
completed.
AS Pro Kapital Grupp consolidated annual report 2021 35
The share of the Lithuanian segment as a percentage of total revenues of the Group during the
reporting period amounted to 4% compared to 46% last year.
Revenue from Lithuania
in thousands of euros
2021
2020
Change
Real Estate
1 331
8 574
-84%
Rent
18
23
-22%
Other
290
277
5%
Total
1 639
8 874
-82%
Real estate sales decreased by 84% in 2021 comparing to last year. During the reporting period
5 apartments, 9 storage rooms and 10 parking lots were sold in Lithuania (2020: 22
apartments, 2 cottages, 13 storage rooms and 23 parking lots). There were 5 apartments, 1
business premise, several storage rooms and parking lots in stock in Vilnius at the end of the
reporting period.
The Group temporarily rents out some of the premises available for sale. In 2021 rental
revenues decreased by 22%.
The Group provides maintenance and other services to its sold and rented out apartments. In
2021 the revenue from maintenance activities has increased by 5% as a result of sales of new
premises.
Germany
The Group’s operations in Germany consist of the development and management of PK
Parkhotel Kurhaus located in Bad Kreuznach.
The share of the German segment as a percentage of total revenues of the Group during the
reporting period amounted 4% compared to 9% of the comparable period last year.
Revenue from Germany
in thousands of euros
2021
2020
Change
Hotels
1 951
1 672
17%
The occupancy rate of PK Parkhotel Kurhaus hotel has increased by 8% constituting the average
of 56% for the year. Total annual revenues increased by 17%. Net result for 2021 was
637 thousand euros profit (2020: 535 thousand euros loss). Due to the Emergency State and
restrictions set by the German Government the hotel was closed since the beginning of the
year and reopened in the middle of June 2021. The positive result of the hotel is related to the
support provided to the hotel by the German government.
Occupancy rates, %
2021
2020
Change
PK Parkhotel Kurhaus, Bad Kreuznach
56.2
47.5%
8.7%
AS Pro Kapital Grupp consolidated annual report 2021 36
Business lines
In addition to geographical segments, the Group also monitors its operations by business lines.
Revenue by business lines, in thousands of euros
Revenue by business lines
in thousands of euros
2021
2020
Change
Real Estate
40 616
11 479
254%
Rent
99
104
-5%
Hotels
1 951
1 672
17%
Other
429
382
12%
Total
43 095
13 637
216%
Revenue in real estate business line has tripled due to new completed developments in
Kalaranna District and Kristiine City. Average price per m
2
sold in 2021 was 3 121 euros/m
2
(2020: 3 092 euros/m
2
), prices are given without VAT. The average price in our projects in
Estonia increased 61% and decreased in Lithuania and Latvia by 7%. The total of 11 087 m
2
of
residential premises were sold in 2021 (2020: 3 319 m
2
) altogether in all three countries.
The Group is focusing on development of existing land plots, which will expand its sellable asset
base. In 2022 the Group plans to complete Kalaranna current stage and most of the Kindrali
Houses and will actively continue with sales of current stock in Kliversala in Riga and Šaltinių
Namai Residential Complex in Vilnius. Simultaneously preparations to start the following
projects are ongoing.
In 2021 the Group operated PK Parkhotel Kurhaus in Bad Kreuznach, in Germany. Due to the
Emergency State and restrictions set by the German Government in relation to COVID-19 the
hotel was closed until 11 June 2021.
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
2021 2020
Real Estate Hotels Other
AS Pro Kapital Grupp consolidated annual report 2021 37
Maintenance business line is dependent on the rental spaces maintained by the Group. Space
under maintenance in 2021 has increased by 31% and was 68 836 m
2
as at 31 December 2021
(31 December 2020: 52 510 m
2
). Gross profit of the segment has increased by 22% and overall
profitability has decreased by 0.6% compared to the last year.
Financing sources and policies
Pro Kapital Grupp pursues conservative financing policy. The Group’s goal is to use external
financing in the way, which allows to avoid interest and loan covenant related risk during low
economic periods and to have sufficient additional external financing capacity in case attractive
business opportunities occur. In general, the Group seeks to maintain such long-term debt
levels that are in reasonable proportion to growth in operations and which preserve the
Group’s credit standing. The Group’s subsidiaries use local bank financing for specific
development projects. To manage possible risks, projects are kept in separate subsidiaries and
usually no guarantees are provided for liabilities of another group company. Loans for specific
projects are predominantly of middle-term duration, maturing within one to three years.
Loans’ repayment schedule is of mixed nature, consisting mainly of floating payments in
dependence on sales volumes and to some extent fixed payments.
During 2021 the Group has repaid 30.6 million euros of its loans and has raised 22.3 million
euros of loans. The Group has 3.6 million euros of loans to be repaid in 2022.
In 2021 the Group has refinanced the non-convertible bonds in the nominal value of 1 million
euros and repaid 337 thousand of non-convertible bonds. (Note 20).
As at 31 December 2021 the Group had issued convertible bonds in nominal value of 0.2 million
euros, 28.5 million euros of secured bonds with redemption date in February 2024 and 9.7
million euros of unsecured bonds with redemption date in October 2024. The convertible
bonds carry an effective annual interest rate of 7% and non-convertible bonds 8%.
AS Pro Kapital Grupp consolidated annual report 2021 38
Shares and shareholders
As at 31 December 2021 AS Pro Kapital Grupp had 56 687 954 shares with the nominal value
0.20 euros. The registered share capital of the Company is 11 337 590.80 euros.
Composition of share capital
31.12.2021
31.12.2020
Number of shares (pcs)
56 687 954
56 687 954
Nominal value (euros)
0.20
0.20
Share capital (euros)
11 337 590.80
11 337 590.80
On 23 November 2012 the Company’s shares started trading on the secondary list of Tallinn’s
stock exchange with an ISIN EE3100006040. On 19 November 2018 Company’s shares were
listed on the Main List of Tallinn’s stock exchange. During the period 1 January – 31 December
2021 the shares were trading at the price range 0.68 – 1.56 euros, with the closing price of
1.44 euros per share on 31 December 2021. During the period 1.9 million of the Company’s
shares were traded with their turnover amounting to 1.9 million euros.
Trading price range and trading amounts of Pro Kapital Grupp shares,
1 January 2018 - 31 December 2021, NASDAQ Baltic Main List*
*Source: www.nasdaqbaltic.com
AS Pro Kapital Grupp consolidated annual report 2021 39
Trade statistics in euros*
31.12.2021
31.12.2020
31.12.2019
High price
1.56
1.39
1.71
Low price
0.68
0.68
1.00
Last price
1.44
0.70
1.39
Average price
1.10
0.88
1.38
Traded volume (pcs)
1 883 042
832 989
1 038 459
Turnover (million)
1.85
0.77
1.4
Capitalisation (million)
81.63
39.68
78.8
*Source: www.nasdaqbaltic.com
Baltic market indexes 1 January 2018 - 31 December 2021*
*Source: www.nasdaqbaltic.com
Index/ Equity
31.12.2021
31.12.2020
Change
OMX Baltic Benchmark GI
1 568.82
1 104.74
42.01%
B35PI Real Estate / B8600PI Real Estate
419.63
260.46
61.11%
PKG1T (euros)
1.44
0.70
105,71%
*Source: www.nasdaqbaltic.com
On 13 March 2014 the Company’s shares started trading on Frankfurt’s stock exchange trading
platform Quotation Board. During the period of 1 January – 31 December 2021 the shares were
trading at the price range of 0.65 – 1.52 euros, with the closing price 1.41 euros per share on
31 December 2021. During the period 76 thousand of the Company’s shares were traded with
their turnover amounting to 53 thousand euros.
AS Pro Kapital Grupp consolidated annual report 2021 40
Shareholders
As at 31 December 2021 there were 801 shareholders registered in the shareholders register.
Many of the shareholders registered in the shareholders register are nominee companies,
which represent many bigger and smaller non-resident investors.
Shareholders holding over 5% of the shares:
31.12.2022
31.12.2020
Shareholders
Number of
shares
Participation
in %
Number of
shares
Participation
in %
Raiffeisen Bank International AG
29 150 898
51.42%
31 010 717
54.70%
Clearstream Banking AG
12 474 534
22.01%
11 372 980
20.06%
Svalbork Invest OÜ
5 590 639
9.86%
3 759 620
6.63%
Six Sis Ltd
4 920 031
8.68%
0
0.00%
Shareholders split by holders:
31.12.2021
31.12.2020
Shareholders
Number of
shares
Participation in
%
Number of
shares
Participation in
%
Financial institutions
50 399 093
88.91%
51 068 571
90.09%
Companies
5 877 489
10.37%
5 172 897
9.13%
Private persons
411 372
0.73%
446 486
0.79%
Shareholders geographical split by residence as at 31 December 2021:
Austria; 51,4%
Germany; 22,0%
Finland; 2,5%
Estonia; 10,5%
Switzerland; 8,7%
United Arab
Emirates; 1,8%
Others; 3,0%
AS Pro Kapital Grupp consolidated annual report 2021 41
Shareholders
Number of shares
Participation in %
Austria
29 150 898
51.4%
Germany
12 475 294
22.0%
Estonia
5 957 187
10.5%
Switzerland
4 924 991
8.7%
Finland
1 426 194
2.5%
United Arab Emirates
1 038 408
1.8%
Others
1 714 982
3.0%
The largest shareholders of AS Pro Kapital Grupp are Ernesto Preatoni and his affiliates. Based
on the information at the possession of AS Pro Kapital Grupp as of 31 December 2021 Ernesto
Preatoni and his affiliates control 49.59% (31 December 2020: 45.99%) of the shares of AS Pro
Kapital Grupp. The following shares are considered as being controlled by Ernesto Preatoni
because the Management Board believes that he is able to control the use of voting rights by
the following persons:
- OÜ Svalbork Invest, Estonian company controlled by Ernesto Preatoni which holds
5 590 639 shares representing 9.86% of the total shares of the Company.
- 18 803 439 shares representing 33.17% of the total shares of the Company held
through a nominee account opened by Raiffeisen Bank International AG.
- 221 478 shares representing 0.39% of the total shares of the Company held though a
nominee account by Clearstream Bank.
- 3 498 765 shares representing 6.17% of the total shares of the Company held through
a nominee account opened by Six Sis Ltd.
Participation the Management Board and the Supervisory Council as at 31 December 2021:
Name
Position
Number of shares
Participation in %
Paolo Michelozzi
CEO
281 647
0.50%
Edoardo Preatoni
Board member
0
0.00%
Angelika Annus
Board member
0
0.00%
Emanuele Bozzone
Chairman of the Council
0
0.00%
Petri Olkinuora
Council Member
30 000
0.05%
Oscar Crameri
Council Member
0
0.00%
As at 31 December 2021 Emanuele Bozzone, with his affiliates, is holding 357 000 unsecured,
fixed rate non-convertible bonds of the Company with the nominal value of 999 600 euros in
total.
Earnings per share (EPS), P/E ratio
Earnings per share (including discontinued operations) for year 2021 were 0.52 euro/share
(2020: -0.98 euro per share). P/E ratio for year 2020 was 2.74 (2020: -0.71).
AS Pro Kapital Grupp consolidated annual report 2021 42
Group structure
As at 31 December 2021
* On 2 June 2021 bankruptcy of AS Tallinna Moekombinaat, the subsidiary of Pro Kapital Eesti AS,
was declared and the group lost control over the subsidiary.
AS Pro Kapital Grupp consolidated annual report 2021 43
Corporate governance report
Overview
Corporate governance constitutes of a system of principles for the management of the
Company. Such principles are regulated by law, the Articles of Association, the internal rules of
the Company and since 1 January 2006, the companies listed on the NASDAQ OMX Tallinn
Stock Exchange are recommended to follow the "Corporate Governance Recommendations"
(CGR) issued by the Financial Supervision Authority.
The principles described in these CGR are recommended to be carried out by Issuers and each
Issuer should decide whether or not it will adopt these principles as a basis for organizing its
management. Issuers should describe, in accordance with the “Comply or Explain” principle,
their management practices in a CGR Report and confirm their compliance or non-compliance
with the CGR. If the Issuer does not comply with CGR, it should explain in the report the reasons
for its non-compliance.
The Management Board of the Company gives the following overview of the management
practices of the Company and confirms the compliance with the CGR except to the extent of
non-compliance as described and explained below.
In addition, and only where applicable, the Management Board of the Company has also
indicated where the Company is meeting even higher Corporate Governance standards
adopted by G20/OECD in 2015 (G20/OECD Principles of Corporate Governance).
The Group’s decision- making and governance structure as at 31 December 2021 was as
follows:
Holding company
AS Pro Kapital Grupp consolidated annual report 2021 44
Governance structure of the Estonian group
AS Pro Kapital Grupp consolidated annual report 2021 45
Governance structure of the Latvian group
Governance structure of the Lithuanian group
AS Pro Kapital Grupp consolidated annual report 2021 46
Governance structure of the German group
1. GENERAL MEETING OF SHAREHOLDERS
The Company is a public limited company and has regular General Meetings of
Shareholders, a Supervisory Council and a Management Board as the management
bodies. The General Meeting of Shareholders is the highest directing body.
1.1. Exercise of shareholders rights
Every shareholder has the right to participate in the general meeting, to speak in the
general meeting on topics presented in the agenda, and to present reasoned questions
and make proposals. Exercising of the shareholders’ rights is ensured in a way that use
of shareholders’ rights is not hindered by unreasonable formalities and the use of rights
is made convenient for shareholders. The General Meeting is conducted at the location
of the Company. Company enables shareholders to present questions on topics
mentioned in the agenda prior to the day of the General Meeting. The Company
includes in the notice of calling the General Meeting the e-mail address to which the
shareholders can send questions concerning the meeting. As per the corporate
governance recommendation the Company guarantees a response to reasoned
questions at the General Meeting during the discussion of a related subject or before
the holding of the General Meeting giving shareholders enough time for examining the
response. If possible, the Company gives its responses to questions presented before
holding the General Meeting and publishes the question and response on its website.
During 2021, only one annual general meeting of shareholders was held and no
questions as to the topics of the agenda of the meeting were presented to the Company
before the general meeting. Questions asked during the AGM are recorded in the
minutes. In the AGM notice it is clearly stated where the shareholders or their
AS Pro Kapital Grupp consolidated annual report 2021 47
representatives can direct their questions before the meeting (email and phone
number) and that should there be such questions, there will be answered and disclosed
on the Company website. At the start of the general meetings, the Chairman of the
meeting always makes it clear that questions can be asked throughout and before the
meeting is adjourned, once more participants are given the opportunity to voice their
questions.
1.1.1. Company’s Articles of Association do not allow granting different types of shares with
rights which would result in unequal treatment of shareholders in voting. Only one type
of shares has been issued, giving all shareholders exactly the same rights related to the
shares.
1.1.2. Company facilitates the personal participation of shareholders at the General Meeting.
When calling the shareholders’ meeting a notice period of at least 3 weeks is given for
both general and extraordinary shareholders’ meetings. In the notice the exact place,
date and time of the meeting are stated. Representatives of the Company always
participate at the General Meeting and are accessible to the shareholders during the
holding of the General Meeting.
1.2. Calling of a General Meeting and information to be published
1.2.1. As per the recommendation, the notice of calling the General Meeting should be sent
to shareholders and/or published in daily national newspaper concurrently with making
it available on the Issuer’s website. The Company is following the recommendation and
is publishing the notice of calling the shareholders’ meeting in daily national newspaper
and making it available on the Company’s website and the notice is also published via
the NASDAQ OMX Tallinn Stock Exchange system. Shareholders of the Company are
notified of calling both an extraordinary shareholders’ meeting and general
shareholders’ meeting immediately after the decision is made to call such a meeting.
As per the recommendation, the notice should indicate the reason for calling the
meeting and who made the proposal to call it (e.g. Management Board, Supervisory
Council, shareholders or auditor). Information concerning the meeting should be
immediately published on Issuer’s website. The Company is following this
recommendation and summarises in the notices a reason for calling the shareholders’
meeting and states the body who is calling the meeting. Information about the meeting
is published on the website of the Company.
1.2.2. The Management Board and Supervisory Council shall deliver all information available
to them or essential information provided to them necessary for passing a resolution at
the General Meeting to shareholders concurrently with the notice of calling the General
Meeting.
As per the recommendation, Issuers should provide the reasons for calling the General
Meeting and explanations for items included on the agenda, determining changes
essential to shareholder (for instance changing the articles of association, issuance of
additional shares or other securities associated with shares or extraordinary
transactions the content of which is the sale of all or a majority of the assets or the
Company or which are concluded with a person related to the Issuer).
The Company is following the recommendation and summarises in the notice the
reason for calling the shareholders’ meeting. Materials related to the agenda are made
available via the webpage of the Company concurrently with the notice of calling the
General Meeting. In addition to publishing the notice of calling the general meeting via
AS Pro Kapital Grupp consolidated annual report 2021 48
the Stock Exchange on its website, the Company provides separate links to the Council’s
and Board’s proposals regarding the agenda and regarding the audited annual report.
There were no cases of non-compliance with requirements relating to related party
transactions (RPTs) in 2021.
Any and all RPTs with Supervisory Council members are decided at general meeting
level. Otherwise, within the group, all RPTs of any value are required to be explained
and explanations documented in the minutes – if with Management Board members,
then at the Supervisory Council levels and if with Supervisory Council members, then
at shareholder level.
If the General Meeting is called by shareholders, the Supervisory Council or auditor or
if an item has been entered on the agenda at the request of the Management Board or
a shareholder, the bodies or persons requesting the calling of General Meeting or
entering an item on the agenda should provide their reasons and explanations.
The shareholders should be permitted to examine information regarding questions
shareholders have presented to the Issuer in connection with the holding of the
General Meeting if this information is connected with an agenda item of the General
Meeting. The Management Board or Supervisory Council has the right to withhold this
information, if this is in contravention of the Issuer’s interests. In such case, the
Management Board and Supervisory Council should justify the withholding of the
information.
The Company has indicated in each notice of calling the shareholders’ meeting an email
for the shareholders to contact in case they have any questions related to the meeting.
As no questions connected to the agenda topics were asked before the AGM, the
Company has not published any questions of the shareholders or replies to the
shareholders on the website regarding the 2021 AGM. If and when such questions will
be asked in the future, the Company shall outline these questions and answers under
a separate accessible link. (The link is currently absent so as not to confuse shareholders
that there might have been questions and there is no point in keeping an empty page
behind a link.)
Information to shareholders is provided in Estonian and in English.
1.2.3. The Management Board should publish on the Issuer’s website the essential
information connected with the agenda provided to it or otherwise available
concurrently with compliance with the General Meeting calling requirements provided
by law.
Company is following the recommendation and is publishing materials related to the
general meetings on the website of the Company under section Company-Investors-
Shareholders (data available from 2013). In addition, legal documentation like the
Company’s Articles of Association in English and in Estonian as well as the (2017) public
offering prospectus, the (2020) Listing prospectus for NASDAQ Stockholm for
2020/2024 bonds and the (2021) listing prospectus for NASDAQ OMX Tallinn 20-2024
non-convertible bonds are also up on the Company’s website. Investor presentations
are also up on the Company’s website (sub-page Investors-Presentation).
1.2.4. Within a reasonable period of time prior to holding a General Meeting the Supervisory
Council should publish its proposed agenda items on the Issuer’s website. If
shareholders make substantive proposals to items on the agenda or proposals diverging
from those of the Supervisory Council prior to the General Meeting the Issuer should
publish the proposals on its website.
AS Pro Kapital Grupp consolidated annual report 2021 49
The Company is following the recommendation. In 2021, no proposals regarding
additional agenda items or amendment of existing agenda items or draft resolutions
were made. If and when such proposals are made, the Company outlines them under a
separate accessible link, e.g. as for the 2017 EGM. (Otherwise, the link is absent so as
not to confuse shareholders that there might have been modifying proposals.)
1.3. Procedure of the General Meeting
1.3.1. The Chair of the General Meeting should ensure that the General Meeting is conducted
in a smooth manner, i.e. swift while considering the interests of all interested parties.
The General Meeting should be conducted in the Estonian language.
During 2021 the Company held 1 (one) shareholders’ meeting. The Annual General
Meeting of the shareholders took place on 7 July 2021.
The Company is following the recommendation and ensures that the General Meeting
is conducted in a smooth manner while considering the interests of all interested parties
therefore with the approval of all shareholders present at the meeting the Annual
General Meeting of the shareholders was held in parallel in Estonian and English.
As per the recommendation the Chairman of the Supervisory Council and members of
the Management Board cannot be elected as Chair of the General Meeting.
Company is following the recommendation. At the 2021 Annual General Meeting of the
shareholders partner and attorney at law at Sorainen law firm, Karin Madisson, was
elected as the Chair of the Meeting.
1.3.2. Members of the Management Board, the Chairman of the Supervisory Council and if
possible, the members of the Supervisory Council and at least one of the auditors should
participate in the General Meeting.
Company held 1 (one) shareholders’ meeting in 2021.
The Annual General Meeting of the shareholders took place on 07 July, 2021. Present
were Chairman of the Supervisory Council Emanuele Bozzone and member of the
Supervisory Council Oscar Crameri, Supervisory Council member Petri Olkinuora was
unable to participate. Other participants were: the CEO and Chairman of the
Management Board Paolo Vittorio Michelozzi, Member of the Management Board Allan
Remmelkoor, the CFO of the Company Angelika Annus.
1.3.3. Issuers should make participation in the General Meeting possible by means of
communication equipment (Internet), if the technical equipment is available and doing
so is not too cost prohibitive for the Issuer.
Company has not followed this recommendation and does not plan to follow the
recommendation and making participation in the General Meeting possible by means
of communication equipment (Internet). The reason for not following the
recommendation is that there is no good and cost-efficient technical solution to verify
the identities of foreign shareholders, who form the majority of the Company’s
shareholders. Therefore, allowing the participation of the shareholders by means of
communication equipment poses legal risks to the Company, in verifying the list of
participants of the shareholders’ meeting. In the notice of calling the general meeting,
the Company clearly indicates that shareholder or their representatives are expected
to participate in person. Thus, while proxy voting or voting in absentia is not prohibited,
it is not enabled. Since international shareholders can and do engage local
representation, which is the common practice in Estonia, the Company has not made it
AS Pro Kapital Grupp consolidated annual report 2021 50
unduly difficult or expensive to cast votes at general meetings and, thus, has followed
the OECD 2015 CGR.
1.3.4. As per the recommendation the profit distribution (or covering the loss) has been
considered in General Meeting as a separate agenda topic and a separate resolution
has been passed regarding it.
At the 07 July, 2021 Annual General Meeting the shareholders decided to cover the loss
for the financial year of 2020 in the amount of 55 677 271 euros with the retained
earnings of previous periods, revaluation reserve, statutory reserve and partially with
share premium (agenda item no 3), and payment of dividends was not discussed.
2. MANAGEMENT BOARD
2.1. Duties
2.1.1. The Management Board is making independent day-to-day decisions without favouring
personal and/or controlling shareholders’ interests. The Management Board is making
the decisions based on the best interests of the Company and all of its shareholders and
ensures the reasonable development of the Company according to goals and strategy
set. The Management Board is using its best efforts to ensure that the Company and all
companies belonging to the group comply in their activities with current legislation in
force. The Management Board ensures that it undertakes proper risk management and
internal audit controls in the activities of the Company and those proceeding from its
activities. To guarantee proper risk management and internal audit the Management
Board: analyses on reoccurring basis the risks connected with the activities and financial
objectives of the Company, has prepared adequate internal control provisions and
elaborated forms for drawing up financial reports and instructions for drawing up these
reports, has organized the system of control and reporting.
2.2. Composition and charge
2.2.1. As at 31 December 2021, the Management Board of the Company had three
Management Board members: Paolo Vittorio Michelozzi, Angelika Annus and Edoardo
Axel Preatoni. Paolo Michelozzi had been elected as the Chairman of the Management
Board. Allan Remmelkoor’s authorities as member of the Management Board ended on
31 August 2021. Angelika Annus, the Chief Financial Officer of the Company, was
elected as a new member of the Management Board. The term of office of Paolo
Michelozzi and Edoardo Preatoni, Members of the Management Board, expired on 31
December 2021. Edoardo Preatoni’s authorisation was extended and starting 2022 the
Management Board of the Company consist of two members. Management Board
Members are selected by the Supervisory Council of the Company based on their
expertise in the sector the Company is operating in, in addition candidates’ leadership
and management experience is taken into account as well as their integrity and their
commitment to the Company.
AS Pro Kapital Grupp consolidated annual report 2021 51
Name
Citizen-
ship
Year of
birth
Member
since
Position
Current
term
expires/
expired
Number
of shares
of the
Company
Paolo Vittorio Michelozzi
Italian
1961
22.11.2001
Chairman
31.12.2021
281 647
Allan Remmelkoor
Estonian
1971
30.05.2008
Member
31.08.2021
0
Angelika Annus
Estonian
1971
01.09.2021
Member
31.08.2024
0
Edoardo Axel Preatoni
Italian
1987
01.03.2016
Member
31.12.2024
0
Mr. Paolo Vittorio Michelozzi holds a General Certificate of Education (building surveyor)
from Collegio Arcivescovile, Saronno, Italy. Mr.
Michelozzi has been employed in the Company since
1994. Mr. Michelozzi has an extensive experience of
more than 30 years in different real estate development
projects in Italy as well as other European countries. As
the CEO of the Management Board of AS Pro Kapital
Grupp he has been responsible for managing and
organising the daily business of the Company (including
budgeting) and representing the Company internationally, also effecting the instructions
and resolutions given by the Supervisory Council and the general meetings of shareholders,
as well as promoting the Company with international investors. He was also a member of
the management board of AS Domina Vacanze Holding, a company that was established in
the course of the Division of the Company (2011-2012), CEO (2005-2008) and Chairman of
the Board of Directors (2008-2012) of Domina Vacanze SpA, a company that was separated
from the group in the course of the Division. Mr. Michelozzi has also been the Chairman of
the Board of Domina Hotel Group SpA (2008-2010), member of the supervisory council of
Hypermarket AS (1997-2008) and the member of management board of SIA PK
Investments (2003-2011). Since 2006 Mr. Michelozzi is the member of the management
board of SIA PB11 (Latvia), a company owned by him. Owning 281 647 shares, Mr
Michelozzi is also a shareholder in the Company. The term of office of Mr. Michelozzi as a
member of the Management Board of the Company expired on 31 December 2021.
Mr. Allan Remmelkoor holds a bachelor’s degree in small business administration from
Tallinn University of Technology. Mr. Remmelkoor
held executive positions in the Group since 1997. In
addition to being a member of the management
board of the Company, Mr Remmelkoor was also a
member of the Management Board of other group
companies (AS Pro Kapital Eesti, AS Tallinna
Moekombinaat and OÜ Ilmarise Kvartal) and the
Chairman of the Supervisory Council of AS Tondi
Kvartal. As a member of the Management Board of AS Pro Kapital Grupp he has been
responsible for representing the Company mostly in Estonia and managing and
organising the daily business of AS Tallinna Moekombinaat as the managing director of
the group’s largest real estate project - T1 Mall of Tallinn. Mr. Remmelkoor is a member
of the management board of Hypermarket SIA and was a member of the management
board of AS Domina Vacanze Holding, a company that was established in the course of
AS Pro Kapital Grupp consolidated annual report 2021 52
the Division of the Company (until May 2012). He has also been a member of supervisory
council of AS BALTIKA (2006-2012), a company listed in Tallinn Stock Exchange, the
managing director and a member of the management board of SIA PK Investments
(2003-2011). Mr Remmelkoor does not own any Company shares or bonds. The term of
office of Mr. Remmelkoor as a member of the Management Board of the Company
ended on 31 August 2021.
Mr. Edoardo Axel Preatoni holds a diploma in classical studies from Instituto De Amicis,
Milano Italy. Mr. Preatoni has experience in hotel and
real estate development business and he is the
founder & CEO of Preatoni Real Estate Development
LLC in Dubai, UAE. As a member of the Management
Board of AS Pro Kapital Grupp he has been
responsible for divesting the one remaining hotel of
the Company, which is non-core business and from
the end of 2019 he was also the Head of
Development of the group. Since 2022 Mr. Preatoni is the CEO of AS Pro Kapital Grupp.
Mr. Preatoni does not own any Company shares or bonds.
Mrs. Angelika Annus holds a degree in Business Administration from Estonian Business
School. Mrs. Annus has been employed in the
Company since 1998, as a CFO since 2014 and is also
a member of the Management Board of other group
companies (AS Pro Kapital Eesti, AS Tondi Kvartal, OÜ
Marsi Elu, OÜ Kalaranna Kvartal, OÜ Dunte Arendus
ja OÜ Pro Kapital Germany Holdings) since 1
September 2021. As a member of the Management
Board and CFO of AS Pro Kapital Grupp she is responsible for managing and organising
the daily business of the Company. Mrs Angelika Annus does not own any Company
shares or bonds.
The Supervisory Council has established an area of responsibility for each member of
the Management Board, defining their duties and powers. The principles for co-
operation between members of the Management Board and between the Management
and Council have also been established.
As per the recommendation the Chairman of the Supervisory Council should conclude
a contract of service with each member of the Management Board for discharge of their
functions. The Company is following the recommendation partially. The CEO, Paolo
Michelozzi, had concluded a Management Board service contract with the Company.
Members of the Management Board Allan Remmelkoor and Edoardo Preatoni did not
have a service contract with the Company. Because of his area of responsibility as a
Management Board member of Estonian and Latvian sub-group holding companies and
due to the principle of payment for services rendered at the level they are rendered,
Allan Remmelkoor had concluded service contracts with the subsidiary holding
companies in Latvia, with AS Tallinna Moekombinaat (since he is the general manager
of the T1 Mall of Tallinn shopping centre) and with AS Pro Kapital Eesti (since that it T1
Mall of Tallinn project’s mother company). As Head of Development, Member of the
AS Pro Kapital Grupp consolidated annual report 2021 53
Management Board Edoardo Preatoni had a service contract with AS Pro Kapital Eesti
(a holding company for Estonian development project companies) until end of 2021.
Since 1 January 2022 Edoardo Preatoni has a Management Board contract with AS Pro
Kapital Grupp. Angelika Annus has concluded a management board member
authorisation agreement with AS Pro Kapital Grupp since 1 September 2021.
2.2.2. As per the recommendation the member of the Management Board should not be at
the same time a member of more than two Management Boards of an Issuer and should
not be the Chairman of the Supervisory Council of another Issuer. A member of the
Management Board can be the Chairman of the Supervisory Council in a Company
belonging to same group as the Issuer. The Company follows this recommendation.
Company Management Board members do not belong to Management Boards of any
other Issuers.
2.2.3. As per the recommendation the bases for Management Board remuneration should be
clear and transparent. The Supervisory Council should discuss and review regularly the
bases for Management Board remuneration. Upon determination of the Management
Board remuneration, the Supervisory Council is guided by evaluation of the work of the
Management Board members. Upon evaluation of the work of the Management Board
members, the Supervisory Council is taking into consideration the duties of each
member of the Management Board, their activities, the activities of the entire
Management Board, the economic condition of the Issuer, the actual state and future
prediction and direction of the business in comparison with the same indicators of
companies in the same economic sector. Remuneration of members of the
Management Board, including bonus schemes, should be such that they motivate the
member to act in the best interest of the Issuer and refrain from acting in their own or
another person’s interest.
Monthly remuneration of Chairman of the Management Board Paolo Michelozzi was
agreed in the service contract concluded for three years. Additional remuneration of
the CEO was determined by the Supervisory Council of the Company based on the
evaluation of the Remuneration Committee regarding the achievement of annual
targets by CEO set by the Supervisory Council. Monthly remuneration of the
Management Board Member Allan Remmelkoor was agreed in the service contracts
concluded with AS Pro Kapital Eesti and AS Tallinna Moekombinaat. Additional
remuneration of Allan Remmelkoor was determined by the Chairman of the
Management Board of the Company acting in the capacity of the Chairman of AS Pro
Kapital Eesti as per the assessment of achieving annual targets, which was approved by
the Supervisory Councils of the group’s relevant subsidiary with whom Mr Remmelkoor
had service contracts. Monthly remuneration and quarterly bonuses of the
Management Board Member Edoardo Preatoni were agreed in the service contract
concluded with AS Pro Kapital Eesti and any additional remuneration was determined
by the Supervisory Council of AS Pro Kapital Eesti as per the assessment of Edoardo Axel
Preatoni having achieved set annual targets. Monthly remuneration and semi-annual
bonuses of the Management Board Member Angelika Annus are agreed in the
agreement concluded with AS Pro Kapital Grupp and any additional remuneration is
determined by the Supervisory Council of AS Pro Kapital Grupp as per the assessment
of Angelika Annus having achieved set annual targets.
2.2.4. As per the recommendation, the use of long-term bonus systems (for example options,
pension programs) should be connected with the activities of the Management Board
AS Pro Kapital Grupp consolidated annual report 2021 54
member and should be based on explicit and comparable pre-determined factors. The
factors, which are the basis for determining the bonus scheme, should not be changed
retroactively.
Bonus systems with all Management Board Members have been agreed in their service
contracts, they are performance-related and based on explicit and pre-determined
targets being achieved.
2.2.5. As per the recommendation, the bonus scheme of a Management Board member that
is connected with the securities of the Issuer, as well as changes in such bonus schemes
should be approved at the General Meeting of the Issuer. The exercise date for share
option should be determined at the General Meeting of the Issuer. When granting share
options, the Issuer should comply with the rules and regulations of the Tallinn Stock
Exchange.
2.2.6. As per the recommendation severance packages of a Management Board member are
connected with their prior work performance and should not be payable if doing so
would harm the interests of the Issuer.
All Members of the Management Board have severance packages agreed in their service
contracts. Severance compensation is not payable in case the Management Board
member is recalled due to the breach of his obligations.
2.2.7. As per the recommendation basic wages, performance pay, severance packages, other
payable benefits and bonus schemes of a Management Board member as well as their
essential features (incl. features based on comparison, incentives and risk) should be
published in clear and unambiguous form on website of the Issuer and in the Corporate
Governance Recommendations Report. Information published should be deemed clear
and unambiguous if it directly expresses the amount of expense to the Issuer or the
amount of foreseeable expense as of the day of disclosure. The Chairman of the
Supervisory Council should present the essential aspects of the Management Board
remuneration and changes in it to the General Meeting. If the remuneration of some of
the Management Board members has occurred on a different base, then the General
Meeting should be presented the differences together with the reasons therefore.
The Company is following this recommendation starting with the current annual report
of 2021.
2.3. Conflict of interests
2.3.1. Members of the Management Board avoid conflicts of interests in their activity. Member
of the Management Board do not make decisions on the basis of their own interests or
use business offers addressed to the Company in their own interests.
As per the recommendation, the members of the Management Board are aware that
they should inform the Supervisory Council and other members of the Management
Board regarding the existence of a conflict of interests before the conclusion of a
contract of service or immediately upon arising of a conflict of interest. Members of the
Management Board are aware that they are required to promptly inform other
Management Board members and the Chairman of the Supervisory Council of any
business offer related to business activity of the Company made to them, a person close
to them or a person connected with them. Persons close to members of the
Management Board include spouses, children who are minors and persons having shared
a household with them for at least one year. Persons connected with members of the
AS Pro Kapital Grupp consolidated annual report 2021 55
Management Board include civil law partnerships or legal persons managed or controlled
by them or persons close to them as well as the civil law partnerships or legal persons
whose management is significantly influenced by them or persons close to them or which
is made for the benefit of them or persons close to them and which economic interests
are to a significant extent similar with their economic interests or economic interests of
persons close to them. The Company, its members of the Management Board follow this
recommendation whenever applicable.
As per the OECD 2015 Corporate Governance recommendations, the Supervisory Council
assigns an independent member capable of exercising independent judgment to tasks
where there is a potential for conflict of interest. For example, when discussing and
approving the CEO’s achievement of targets and respective remuneration, the
Remuneration Committee of the Supervisory Council holds a meeting without the
participation of the CEO. Also, when discussing transactions with a Management Board
member or parties related to them, the person is question is excluded from the
discussion and needs to exit the room after a round of questions before the voting.
Discussions of transactions with a Supervisory Council member or parties related to them
are undertaken at the level of general meetings and relevant Council members if they
are also shareholders abstain from voting.
2.3.2. As per the Commercial Code the Supervisory Council has to approve the transactions
between the Company and a member of its Management Board.
The Company is following this recommendation.
As per the OECD 2015 Corporate Governance recommendations, the Supervisory Council
of the Company as well as Supervisory Councils of subsidiaries approve and conduct
related-party transactions in a manner that ensures proper management of conflict of
interest and protects the interests of the Company.
During 2021 there were no new transactions with member of the Management Board
Allan Remmelkoor.
During 2021 there were two transactions with the CEO and the member of the
Management Board Paolo Michelozzi.
During 2021 there were no new transactions with member of the Management Board
Edoardo Axel Preatoni.
During 2021 there were no new transactions with member of the Management Board
Angelika Annus.
2.3.3. A member of the Management Board shall strictly adhere to the prohibitions of
competition prescribed by the Commercial Code (Commercial Code § 312) and shall
promptly inform the Supervisory Council of their intention to engage directly or indirectly
in an enterprise in the same field of activity as the Issuer. Members of the Management
Board may engage in other duties alongside their duties as members of the Management
Board only on approval of the Supervisory Board.
Member of the Management Board of the Company Allan Remmelkoor does not engage
in other active duties alongside his duties as a member of the Management Board. In his
service contract with AS Pro Kapital Eesti, Management Board Member of the Company
Edoardo Preatoni has notified the Supervisory Council of AS Pro Kapital Eesti that the
companies he owns make investments into real estate in Dubai, UAE, however they are
not in competition with the Company and the Supervisory Council has confirmed that it
does not deem such business activities as unfair competition. In his service agreement,
the Chairman of the Management Board of the Company Paolo Michelozzi has been
AS Pro Kapital Grupp consolidated annual report 2021 56
authorised by the Supervisory Council to act as a director of SIA PB11 (Latvian company),
his personal real-estate holding company with its principal business being not in direct
competition with the Company. The Member of the Management Board of the
Company Angelika Annus has notified the Company that Ramaris OÜ owned by her
performs financial advisory services, but these are not in competition with the Company.
The Company does not deem business activities of this company as unfair competition.
2.3.4. As per the recommendation a member of the Management Board or employee of the
Issuer should not demand or take money or other benefits from third parties in
connection with their work and should not provide unlawful or ungrounded advantages
to third parties in name of the Issuer.
According to the knowledge of members of the Management Board, which is based on
the internal control procedures of the Company, the Company is following this
recommendation.
2.3.5. Interest of members of the Management Board in other companies who are Company’s
business partners, suppliers, clients and other related companies:
Mr. Paolo Vittorio Michelozzi is the sole owner of Latvian company PB11 SIA, which is
renting an apartment located in Riga to the Company. In addition to his remuneration,
Mr. Paolo Vittorio Michelozzi as the Chairman of the Management Board was
compensated for the accommodation costs of living in Riga. As of 31 December 2021,
Mr. Michelozzi holds 281 647 shares of the Company as a beneficiary holder through
Swedbank AS Clients.
Mr. Allan Remmelkoor did not have any interests in companies who are Company’s
business partners, suppliers, clients and other related companies.
Mr. Edoardo Axel Preatoni does not have any interests in companies who are Company’s
business partners, suppliers, clients and other related companies.
Mrs. Angelika Annus does not have any interests in companies who are Company’s
business partners, suppliers, clients and other related companies.
3. SUPERVISORY COUNCIL
3.1. Duties
3.1.1 The duty of the Supervisory Council is to manage internal control of the Management
Board activities. The Supervisory Council participates in making important decisions
relating to the activities of the Company. The Supervisory Council acts independently and
in the best interests of the Company and all shareholders. The Supervisory Council
determines and regularly reviews the Company’s strategy, general plan of action,
principles of risk management and annual budget. The Supervisory Council together with
the Management Board ensures the long-term planning of the Company’s activity.
The Supervisory Council has approved on 16 May 2012 the risk management policy of
the Company, which is implemented in the Company and all of its subsidiaries. On
19 December 2018, the Supervisory Council reviewed a detailed assessment of all the
Company’s risks regarding likelihood and severity resulting in a risk rating, with top risks
highlighted for regular monitoring at Council level. On 19 March 2019, the Supervisory
Council approved an updated Risk Management Policy document where all previously
denoted risks were grouped under logical general headings of: (i) business and economic
AS Pro Kapital Grupp consolidated annual report 2021 57
risks related to Company’s business, industry and market conditions; (ii) environmental
risks; (iii) human resources and health and safety risks; and (iv) legal and political risks.
On 29 April 2021, the Supervisory Council approved updated risk management policy.
The Supervisory Council also approves the annual budget of the Company. The
Supervisory Council has actively discussed the progress of the development projects of
the Company and the necessary financing to start with the development projects.
The Chairman of the Supervisory Council is in regular contact with the Chairman of
Management Board and discusses the issues related to the Company’s strategy, business
activity and risk management, as per the recommendation.
The Chairman of the Management Board has the obligation to inform the Chairman of
the Supervisory Council of any significant events, which may affect the Company’s
development and management. The Chairman of the Supervisory Council has to inform
the Supervisory Council of it and call an extraordinary meeting of the Supervisory Council
if necessary. The Company is following this recommendation.
3.1.2. The Supervisory Council regularly assesses the activities of the Management Board and
its implementation of the Company’s strategy, financial condition, risk management
system, the lawfulness of the Management Board activities and whether essential
information concerning the Company has been communicated to the Supervisory
Council and the public as required.
The Company’s Supervisory Council meets at least once per quarter, before publication
of the Company’s quarterly reports and reviews the quarterly report and the
Management Board’s report of its activities performed during the quarter.
The Company publishes important information, including publications of quarterly
interim reports and annual reports, to the public and its shareholders via the Tallinn Stock
Exchange system. The Company made 33 announcements in 2021, all available on the
website: https://www.prokapital.com/info-from-nasdaq/.
The Supervisory Council has established an Audit committee comprising from
29 July 2019 onwards of Emanuele Bozzone and Petri Olkinuora, all Council members of
the Company. The Company has published on its website the existence, duties,
membership and position in the organisation of the audit committee members. The
Audit committee is an advisory body of the Supervisory Council in matters involving
accounting, auditing, risk management, internal control and audit, exercising of oversight
and budget preparation and legality of the activities of the Company.
The function of an audit committee is to monitor and analyse:
1) processing of financial information;
2) efficiency of risk management and internal control;
3) the process of auditing of annual accounts and consolidated accounts;
4) independence of an audit firm and a sworn auditor representing an audit firm on the
basis of law and compliance of the activities thereof with other requirements of Auditors
Activities Act.
An audit committee is required to make recommendations or proposals to the
Supervisory Council regarding the following issues:
1) appointment or removal of an audit firm;
2) appointment or removal of an internal auditor;
3) prevention or elimination of problems and inefficiencies in an organization;
4) compliance with legislation and the good practice of professional activities.
AS Pro Kapital Grupp consolidated annual report 2021 58
In 2021, the Audit Committee met one time (since there were no auditor’s findings to
follow up:
- to discuss the auditor’s report and main findings and the approve the audited 2020
annual report of the Company.
The Company does not have an internal auditor as the Financial Controller performs this
function as well. The Company would like to assure that its external auditors have never
performed internal audit duties for the Company.
The Supervisory Council has established a Remuneration Committee from 8 July 2020
onwards comprising of Emanuele Bozzone and Oscar Crameri, both Supervisory Council
Members. The Remuneration Committee is an advisory body of the Supervisory Council
in matters involving remuneration of the Management Board of the Company. The
committee has been established to safeguard that the Management Board’s
remuneration and company performance are linked when they annually assess the
results of management of the Company.
In 2021, the Remuneration Committee met one time to extend authorisation of the
Member of the Board, elect the new CEO and to approve conditions of the agreement
of CEO with the company.
The decision regarding the amount and procedure of remuneration of the members of
the Supervisory Council is decided at the level of general meetings of the shareholders,
the last such shareholders’ resolution dating back to 20 June 2016. There is no separate
committee to oversee matters of remuneration and election of Supervisory Council
members and it is the Management Board that makes the relevant proposals to the
general meeting of shareholders based on equivalent market remuneration of Board
members adjusted for the Baltics. As for proposing new members of the Council, it is the
Chairman of the Council who speaks to the larger shareholders to gauge their views as
to the requirements of competence of the potential candidates and composition of the
Council and either approaches the potential candidates himself or tasks the CEO to
approach potential candidates in line with the Company’s strategic objectives and
suggestions from the largest shareholders, bearing in mind that 1/3 of the Council
members should always be independent, before any new candidates are proposed to
the general meeting.
3.1.3. The Chairman of the Supervisory Council manages the work of the Supervisory Council.
The Chairman of the Supervisory Council determines the agenda of the Supervisory
Council meeting, chairs the meetings, monitors the efficiency of the Supervisory
Council’s work, organizes the transmission of information to the members of the
Supervisory Council, ensures that the Supervisory Council has enough time to prepare
for decisions and examine information and represents the Supervisory Council in
communications with the Management Board. The Company is following this
recommendation.
3.2. Composition and charge
3.2.1. The members of the Supervisory Council are elected from persons having sufficient
knowledge and experience for participation in the work of the Supervisory Council. Upon
the election of a member of the Supervisory Board, the nature of the Supervisory Board’s
and the Issuer’s activities, the risks of conflict of interests and, if necessary, the age of
the potential member shall be taken into account. The membership of the Supervisory
AS Pro Kapital Grupp consolidated annual report 2021 59
Board shall be sufficiently small to ensure efficient management and sufficiently large to
involve necessary know-how.
The Company considers that its Supervisory Council is well-balanced and composed of
individuals who have a broad experience in key business sector –construction and
development of international real-estate. Pursuant to articles of association of AS Pro
Kapital Grupp the Supervisory Council consists of at least 3 (three) to maximum 7 (seven)
members. There are three Supervisory Council members. Mr. Emanuele Bozzone is the
Chairman of the Supervisory Council of the Company.
Information about the members of the Supervisory Council:
Name
Citizen-
ship
Year
of
birth
Member
since
Position
Current term
expires
Number of
shares of the
Company
Emanuele Bozzone
Swiss
1964
05.07.2010
Chairman
05.07.2023
0
Petri Olkinuora
Finnish
1957
13.04.2012
Member
05.07.2023
30 000
Oscar Crameri
Swiss
1961
27.05.2020
Member
05.07.2023
0
Mr. Emanuele Bozzone holds a degree in economics and trade. Mr. Bozzone has a vast
experience in finance. He has been a manager and independent consultant in the finance
field since 1999. Mr. Bozzone is a Swiss licensed fiduciary. From 2010 Mr. Bozzone is a
director, wealth manager and partner in Regis Invest SA in Lugano, Switzerland.
Additionally, he is a sole director, founder and partner in EBCO Fiduciaria SA in Chiasso,
Switzerland. Mr. Bozzone is also holding a senior managing position in EBCO Trustee
Services Ltd Liab Co in Chiasso, Switzerland and Archer Consulting SA. Mr Bozzone with
his affiliates holds 357 000 unsecured, fixed rate nonconvertible bonds of the Company
with the nominal value of 2.80 euros each, i.e. 999 600 euros in total.
Mr. Petri Olkinuora holds M.Sc. (construction engineering) and MBA degrees. Former
CEO of listed shopping centre company Citycon Oyj (2002-2011), he is a senior advisor
and professional board member of several companies. His current positions of trust are
as follows: Chairman of the board: Forbia Oy (private investment company, since 2011),
Salo IoT Park Oy (office campus, since 2018), Tampereen Tilapalvelut Oy (municipal
property service provider, since 2018), Tampereen Infra Oy (municipal infra company,
since 2019). Board member: 7Bros Oy (angel investor, since 2018), Evli-Rahastoyhtiö Oy
(bank´s asset manager, since 2018), Hartela-Yhtiöt Oy (Finnish construction company
and developer, since 2013), Koja Oy, Koja-Yhtiöt Oy (industrial company making
ventilation machines for marine and buildings, since 2004), NoHo Partners Oyj (listed
restaurant company, since 2012), Rapal Oy (software company, until June 2021), Rentto
Oy (real estate developer and owner, since 2019), TPI-Control Oy (service provider for
heating and cooling systems, since 2018), Royal Areena Oy (real estate developer, since
2019), Li-Plast Kiinteistöt Oy (real estate rental, since 2021) . Mr. Olkinuora has also,
inter alia, served as the Deputy Chairman (2002-2003) and a Board Member (2007-2009)
of the Board of Finnish Association for Building Owners RAKLI ry, member of the Board
of European Public Real Estate Association EPRA (2006-2009) and a founding member of
the Board of Finnish Green Building Association ry (2010-2012). Mr. Olkinuora indirectly
owns 30,000 shares of the Company.
AS Pro Kapital Grupp consolidated annual report 2021 60
Mr. Oscar Crameri has law and banking background, specialising in compliance,
corporate and tax law. In the last 10 years he has worked as an executive for a tax and
legal consulting firms. Previously he has worked as an executive member and Head of
Legal and Compliance for an investment bank (for 4 years); before he held a position as
Head of Tax and Legal departments for major audit firms (for 6 years first in Arthur
Andersen and then in Deloitte). Mr. Crameri has also been a Board member of the
Federation of the Ticino Raiffeisen Banks and a Chairman of a local Raiffeisen Bank as
well as a member and Chairman of the Board of the notary Public Association of Canton
Ticino. He is also an attorney-at-law in the Canton of Ticino (Switzerland). Mr. Crameri
holds the position of director (board member) in the following small Swiss real estate
companies: TATA Real Estate SA; RACSO Real Estate SA; OVVI Real Estate SA; Nausica SA
(as liquidator); Wamasch Trade SA; Wamasch AG; Elettro G. SA; ELC Consulting SA;
Gewiss Swiss SA; Eliticino-Tarmac SA; European Helicopter Holding SA; Bearea SA (fully
liquidated 2021); Axel P’Real Estate SA; Studio Tdesign SA (dormant) and in Olympian
Sicav (since 2021).
The nature of the Supervisory Council’s and the Company’s activities, the risks of conflict
of interests and the age of Supervisory Council members have been taken into account
when proposing to elect them to the Supervisory Council.
3.2.2. At least half of the members of the Supervisory Council of the Issuer should be
independent. If the Supervisory Council has an odd number of members, then there may
be one independent member less than the number of dependent members. An
independent member is a person, who has no such business, family or other ties with
the Issuer, a company controlled by the Issuer, a controlling shareholder of the Issuer, a
company belonging to the Issuer’s group or a member of a directing body of these
companies, that can affect their decisions by the existence of conflict of interests. The
independence requirements are presented in the annex of the Corporate Governance
Recommendations. No more than two previous members of the Management Board
having been members of the Management Board of the Issuer or a company controlled
by the Issuer within the past three (3) years shall be members of the Supervisory Board
at the same time.
According to the belief of the Management Board this recommendation is followed as at
31 December 2021.
Mr. Emanuele Bozzone – the Chairman of the Supervisory Council is not considered an
independent member of the Council due to the formality of him being also the Chairman
of the Supervisory Council of Pro Kapital Latvia JSC and the Member of the Council of the
following group companies: AS Tondi Kvartal and AS Pro Kapital Eesti.
Mr. Oscar Crameri is not considered an independent member of the Council due to him
serving on the boards of the following group subsidiaries: AS Pro Kapital Eesti and AS
Tondi Kvartal.
Mr Petri Olkinuora is considered an independent Council member, having been elected
on
13 April 2012 and the Annex of the NASDAQ OMX Corporate Governance
recommendations allowing 10 years of tenure until 12 April 2022. While minority
shareholders are not given a seat on the Supervisory Council with the Articles of
Association of the Company, the function of independent Supervisory Council members
is to safeguard the rights of minority shareholders and minority shareholders always have
AS Pro Kapital Grupp consolidated annual report 2021 61
the right to propose new Supervisory Council members to be elected at a general
meeting.
3.2.3. As per the recommendation a member of the Supervisory Council and the Chairman of
the Supervisory Council in particular should ensure that they have enough time to
perform the duties of a Supervisory Council member.
According to the belief of the Management Board of the Company this recommendation
is followed. The Chairman of the Supervisory Council, Mr. Emanuele Bozzone, holds a
senior management position in 4 other companies, none of them listed companies. In
addition to serving on the Company’s Supervisory Council and on the Councils of 2 group
subsidiaries,
Mr. Oscar Crameri holds 14 appointments in managing bodies (out of which in 2
companies he is the liquidator). In addition to serving on the Company’s Supervisory
Council, Mr. Olkinuora holds 15 Supervisory Council appointments, 5 as Chairman of the
Council.
3.2.4. As per the recommendation upon determination of the remuneration of members of
the Supervisory Council, the General Meeting should take into consideration the duties
of the Supervisory Council and their scope and the economic situation of the Company.
Based on the nature of the Chairman of the Supervisory Council’s work, the related
requirements of that work may be taken into consideration upon determination of
remuneration amount.
According to the belief of the Management Board of the Company this recommendation
is followed.
3.2.5. The amount of remuneration of a member of the Supervisory Council should be
published in the CGR Report, indicating separately basic and additional payment (incl.
compensation for termination of contract and other payable benefits).
The amount and procedure of payment of remuneration of a member of the Supervisory
Council was decided by the Annual General Meeting of the shareholders which took
place on 17 June 2016.
Council members are paid 25 000 euros per year (gross). Chairman of the Council is paid
27 500 euros per year (gross). In addition, a fee of 600 euros (gross) is paid to the Council
member for each attended meeting. Council members are reimbursed their travel,
accommodation and postal expenses relating to participation in the Council meetings
and in the meetings of the committees. Supervisory Council members are not entitled
to any compensation for termination.
No other remuneration or bonuses are paid to members of the Supervisory Council.
3.2.6. As per the recommendation, if a member of the Supervisory Council has attended less
than half of the meetings of the Supervisory Council, this should be indicated separately
in the Corporate Governance Recommendations Report.
During 2021, in total 15 meetings of the Supervisory Council were held out of which 6
were minuted as resolutions made in writing without convening a meeting (foregoing
the 7-day prior notice) due to COVID-19-related travelling restrictions. All Supervisory
Council Members attended all 15 meetings of the Supervisory Council.
As per the OECD 2015 Corporate Governance recommendations regarding the
accountability of the Supervisory Council, the Company would like to point out that it has
a clear risk management system and policy and that the Council regularly reviews
Company risks (financial and economic, legal and political, environmental and human
resources and health and safety risks).
AS Pro Kapital Grupp consolidated annual report 2021 62
3.3. Conflict of interests
3.3.1. Members of the Supervisory Council should prevent conflict of interests from arising
through their activities. Members of the Supervisory Council should give preference to
interests of the Company over their own or those of a third party upon his word as a
member of the Supervisory Council. Members of the Supervisory Council should not use
business offers addressed to the Issuer for their personal interests. The Supervisory
Council should operate in the best interests of the Issuer and all shareholders.
According to the belief of the Management Board of the Company this recommendation
is followed.
3.3.2. A Supervisory Council member candidate should inform other members of the
Supervisory Council about the existence of conflict of interests before their election and
immediately upon arising of it later. Members of the Supervisory Council should
promptly inform the Chairman of the Supervisory Council and Management Board
regarding any business offer related to the business activity of the Issuer made to him, a
person close to him or a person connected with him. All conflicts of interests that have
arisen in preceding year should be indicated in the CGR Report along with their
resolutions. The persons close to a member of the Supervisory Council are spouses, a
minor child and a person having shared a household with them for at least one year.
Persons connected with a member of the Supervisory Council are civil law partnerships
or legal persons managed or controlled by them or persons close to them as well as the
civil law partnerships or legal persons whose management is significantly influenced by
them or person close to them or which is made for their benefit or the benefit of a person
close to them and which economic interests are to a significant extent similar with their
economic interests or the economic interests of a person close to them.
According to the belief of the Management Board of the Company this recommendation
is followed. No conflict of interest had occurred during the financial year of 2021.
3.3.3. A member of the Supervisory Council should resign or be removed if their conflict of
interests is of material and permanent nature.
No conflict of interest occurred in the financial year 2021 and no Supervisory Council
Member resigned in relation to that.
3.3.4. A member of the Supervisory Council should strictly adhere to the prohibition of
competition prescribed by the Commercial Code (Commercial Code § 324) and should
promptly inform other members of Supervisory Council of their intention to engage in
an enterprise in the same field of activity as the Company.
According to the belief of the Management Board of the Company this recommendation
is followed.
3.3.5. Interest of members of the Supervisory Council in other companies which are Company’s
business partners, suppliers, clients and other related companies.
Save for owning 357 000 unsecured, fixed rate nonconvertible bonds of the Company
(total nominal value of 999 600 euros as at 31 December 2021), Mr. Emanuele Bozzone
does not have any interests in companies which are Company’s business partners,
suppliers, clients and other related companies.
Mr. Oscar Crameri does not have any interests in companies which are Company’s
business partners, suppliers, clients and other related companies.
AS Pro Kapital Grupp consolidated annual report 2021 63
Mr. Petri Olkinuora is a sole owner of company Forbia OY, which as of
31 December 2021 holds 30 000 shares (0.05%) of the Company as a beneficiary holder
through SEB Bank.
4. CO-OPERATION OF MANAGEMENT BOARD AND SUPERVISORY COUNCIL
4.1. Management Board and Supervisory Council co-operate closely for the purpose of better
protection of Company’s interests. The basis of this co-operation is first of all the open
exchange of ideas between and within the Management Board and Supervisory Board.
The Management Board and Supervisory Council jointly develop plans and principles of
activities and strategy of the Company. The Management Board operates under
strategic guidelines provided by the Supervisory Council and discusses its strategic
management questions with the Supervisory Council regularly. The Company follows this
recommendation.
The Supervisory Council considers the co-operation between the Management Board
and the Supervisory Council to be adequate and well-functioning, with both bodies
pertaining to their designated roles of implementing and strategic guidance. The
Management Board and Supervisory Council division of tasks are regulated in the Articles
of Association of the Company. The Supervisory Council is a directing body of the
Company which plans the activities of the Company, organizes the management of the
Company and supervises the activities of the Management Board. The Supervisory
Council should notify the general meeting of shareholders of the results of supervision.
The Supervisory Council should approve the budget of the Company. The Company
follows this recommendation.
The Management Board needs the consent of the Supervisory Council for concluding
transactions which are beyond the scope of everyday economic activities of the Company
and, above all, for concluding transactions which bring about:
- the acquisition or termination of holdings in other companies; or
- the acquisition, transfer or dissolution of a business; or
- the transfer of immovables or registered movables the value whereof exceeds
300 000 euros, and encumbrance of immovables or registered immovable’s (of any
value); or
- the foundation or closure of foreign branches; or
- the making of investments exceeding a prescribed sum of expenditure for the current
financial year; or
- the assumption of loans or debt obligations exceeding a prescribed sum for the
current financial year (except intra-group loans); or
- the granting of loans or the guarantee of debt obligations (except intra-group loans) if
this is beyond the scope of everyday economic activities.
The general meeting of shareholders may grant the Supervisory Council the right to
increase share capital to the extent and pursuant to the procedure provided by the
Commercial Code.
Such right was granted by the shareholders meeting held on 17 June 2016, according to
which the Supervisory Board may, within three years as of the approval of the wording
of the Articles of Association (which was approved by the shareholders meeting held on
17 June 2016, i.e. until 16 June 2019), increase the share capital of the company by
1 200 000 euros. This right to increase share capital to the same extent of 1 200 000
AS Pro Kapital Grupp consolidated annual report 2021 64
euros for another three years, i.e. until 22 May 2022 was granted by the shareholders
meeting held on 23 May 2019. Payment for the shares issued by the Supervisory Board
may be made by monetary or non-monetary contributions pursuant to the resolution of
the Supervisory Board. Valuation of the non-monetary contributions shall be performed
pursuant to law and the Articles of Association.
In a related resolution at the 23 May 2019 AGM, shareholders voted to preclude their
pre-emptive purchase right of new shares - if issued by the Supervisory Council of the
Company. This was done with the primary intent of allowing the Company to pay the
Management’s bonuses in shares rather than in cash (that they can later buy shares for).
For this reason, it was also decided that claims for the bonuses of the Management shall
be set off against the payment they would otherwise need to make when subscribing for
the new shares. The Supervisory Council explained at the 23 May 2019 shareholders’
meeting that such a pre-emption and set off does not damage the interests of the
company or its creditors, provided the issue price (nominal value + premium) is at least
the average share price of the Company for the 3 months preceding such decision. The
terms and conditions of pre-emption and set-off were recorded in the minutes and
constitute the rules according to which such transactions can be done.
The Management Board is a directing body of the Company which represents and directs
the Company. The Management Board should, in directing the Company, act in
compliance with the articles of association and lawful orders of the Supervisory Council.
Each member of the Management Board may represent the Company alone in all legal
acts. The Management Board should appoint and dismiss the Company’s directors and
person responsible for accounting (the executive management). The Management Board
should approve the scope of authority of such persons. The Company follows this
recommendation.
4.2. The Management Board and the Supervisory Council ensure that the mutual exchange
of data should be adequate and efficient. The Management Board informs the
Supervisory Council regularly of all material circumstances, which pertain to planning of
the Company’s activities, business activities, risks connected with its activities and
management of those risks. The Management Board should separately call attention to
such changes in the business activities of the Company deviating from plans and
purposes set formerly and indicate the reasons of such changes. The information should
be delivered promptly and should cover all material circumstances. The Supervisory
Council has specified the conditions for the delivery of information by the Management
Board and its content. The Management Board sends data necessary for the Supervisory
Council decision making, including the annual accounts, the annual accounts of the
consolidation group and the auditor’s report to the Supervisory Council in sufficient time
before the Supervisory Council meeting. The Company follows this recommendation.
4.3. The Members of the Management Board and Supervisory Council observe the rules of
confidentiality upon organization of the mutual exchange of data ensuring above all the
control over the transfer of price sensitive information. The Company follows this
recommendation. The Management Board has ensured the observance of the rules of
confidentiality by employees of the Company, who access such information.
Management Board has established rules on handling insider information, established
the circle of permanent insiders as well as temporary insiders and persons discharging
managerial responsibilities along with persons closely associated with them and rules for
submitting insider declarations to the Company and appointed a responsible person to
AS Pro Kapital Grupp consolidated annual report 2021 65
handle the insiders register on an ongoing basis. As of the end of 2018 the company also
notifies its persons discharging managerial responsibilities after the 30-day prohibition
(to trade in Company shares and other securities) period ends and before another
prohibition period begins to make sure the prohibition to trade is observed and
exceptions to trade are acknowledged.
5. PUBLICATION OF INFORMATION
5.1. The Company treats all shareholders equally and notifies all shareholders equally of
material circumstances. Upon notification of shareholders and investors the Issuer shall
use proper information channels, including its own web site. The equal treatment of
shareholders principle shall not affect the Issuer’s right to delay publication of inside
information and to deliver the unpublished inside information to persons entitled to
receive it.
As of listing of the Company’s shares on the NASDAQ OMX Tallinn Stock Exchange the
Company uses NASDAQ OMX Tallinn Stock Exchange to communicate with the
shareholders in Estonian and English and uploads the information to the Company’s
website upon notification of shareholders and investors through the stock exchange.
On its website (About the Company, Contacts) the Company has clearly stated that the
CFO, Angelika Annus, is the Investor Relations contact and indicated her contact
information (phone number and email) so that investors would be able to directly
communicate with a relevant responsible Company representative.
As per the OECD 2015 CGR, the Company’s process to ensure ad hoc disclosure of
important matters is as follows: (i) the concept of ‘material information’ and ‘insider
information’ is understood by managers and Management Board as well as Supervisory
Council members; (ii) whenever there is a resolution of governing bodies or business
decisions that fulfil the material information criteria, the persons responsible for Investor
Relations and Insider information are consulted as to whether and if, then when a
disclosure to the public needs to be made; (iii) if a disclosure needs to be made, it is made
immediately, but not later than 3 business days from the time the need for disclosure
became known.
Also, as per the OECD 2015 CGR, the Company encourages direct contact and dialogue
with its Management Board and the Managing Directors of its key subsidiaries and has
stated the relevant contacts (phone numbers and emails) under the subheading
‘Management’ in the section ‘About the Company’.
5.2. The web site of the Issuer shall be clear in structure and published information shall be
easy to find. Published information shall also be available in English. The Issuer shall
publish the disclosure dates of information subject to disclosure throughout a year
(including the annual report, interim reports and notice calling a general meeting) at the
beginning of the fiscal year in a separate notice, called financial calendar. The Issuer shall
also publish this notice on its web site.
The web-site of the Company has an ‘About the Company’ section with an overview of
its management, Supervisory Council and its committees and news. In addition, the
Company has a separate Investors’ section with subheadings of ‘Shareholders’, ‘Info
from Nasdaq’, ‘Structure’ (added in 2018, outlining Company’s organisational chart,
displaying all group companies), ‘Financial reports’ and ‘Presentation’.
AS Pro Kapital Grupp consolidated annual report 2021 66
Information on the website is published in Estonian, English, Latvian, Lithuanian and
Russian, with important documents being in Estonian and English only. The Company is
following the recommendation and is publishing the investor’s calendar through the
stock exchange and on its website usually already at the end of the previous financial
year.
5.3. As per the recommendation on the Issuers web-site the following should be accessible
to the shareholders:
-report on Corporate Governance Recommendations;
-date, place, and agenda of the General Meeting and other information related to the
General Meeting;
-articles of association;
-general strategy directions of the Issuer as approved by Supervisory Council;
-membership of the Management Board and Supervisory Council;
-information regarding the auditor;
-annual report;
-interim reports;
-agreements between shareholders concerning concerted exercise of shareholders
rights (if those are concluded and known to the Issuer);
-other information, published on the basis of these Corporate Governance
Recommendations.
The Company is following the recommendation. The Corporate Governance report is
part of the Company’s annual report and can be found under ‘Investors’, subheading
‘Financials’ in the consolidated 2017, 2018, 2019, 2020 as well as 2021 annual reports of
the Company. Financials section houses all annual and interim (quarterly) reports as well.
Information about shareholder meetings (date, place, agenda), relevant resolutions and
proposals (including archived ones) is under ‘Investors’ subheading ‘Shareholders’ (for
data older than the previous year click the ‘Archive’ link) and there, in a separate sub-
section you can also find the Company’s legal documentation, including articles of
association in Estonian and English, annual reports before the Company was listed and
listing prospectuses. Information regarding membership of the Management and
Supervisory Council is under the section ‘About the Company’. Information about the
auditor is under the respective sub-heading ‘Auditor’ under the section ‘About the
Company’. Information regarding membership of the Supervisory Council committees is
under its own sub-section ‘Audit and Remuneration Committees’ under the section
‘About the Company’.
According to the knowledge of the Company there are no agreements between
shareholders concerning concerted voting or otherwise concerted exercise of
shareholders rights, which is why no such documents are displayed on the Company
website under the ‘Shareholders’ section.
The Company is considering creating a separate Corporate Governance section on its
website.
5.4. As per the recommendation, the Management Board and the Supervisory Council should
describe the management practices of the Issuer including their compliance with these
CGR in the annual report presented to the General Meeting. If the management of the
Issuer deviates from the management structure described in these CGR the
Management Board and Supervisory Council should justify the deviation. The
Management Board and the Supervisory Council should also describe in the report
AS Pro Kapital Grupp consolidated annual report 2021 67
presented at the General Meeting any circumstances required under these CGR. CGR
shall be presented as separate chapter of management report.
The Company is following this recommendation and is including in the annual report the
overview of compliance with the CGR as a separate chapter.
5.5. As per the recommendation, if the Issuer notifies financial analysts or other persons of
facts or estimates related to the Issuer, it should also publish this information to
shareholders on the Issuer’s web-site. Inside information disclosed at the General
Meeting in response to questions presented by shareholders or other means and which
has not been formerly disclosed should be published by the Issuer immediately after
holding of the General Meeting.
The Company has not notified financial analysts of any estimates which have not been
made public during the listing of the Company’s shares or thereafter. The Company also
publishes a respective Stock Exchange notice as well as the detailed minutes of its
General Meetings either on the day of the date when the meeting was held or on the
following day, thus disclosing any information discussed at such General Meetings.
From time to time the Company discloses sensitive information to persons with whom
the Company is holding business negotiations. As per the Requirements for Issuers of
NASDAQ OMX Tallinn Stock Exchange an Issuer does not need to disclose information
about the progress of business negotiations. An Issuer may give undisclosed information
confidentially to persons with whom it is holding or intends to hold business
negotiations. In such cases the Company always signs a non-disclosure confidentiality
agreement and notifies the party to the negotiations of the fact that any inside
information can’t be used for insider trading. The Company registers such persons as
temporary insiders in the insiders’ register.
5.6. As per the recommendation the Issuer should organize the exchange of information with
journalists and analyst after a careful consideration. The Issuer should refrain from
compromising the independence of the analyst or the Issuer’s independence from
analyst when communicating with analysts. The Issuer should disclose the dates and
places of meetings with analysts and presentations and press conferences organized for
analysts, investors or institutional investors on its website. The Issuer should not arrange
meetings with analysts and presentations organized for investors directly before dates
of publishing a financial report (interim reports, annual report).
According to the belief of the Management Board of the Company this recommendation
is followed. In 2021, when organising investor conference webinars, the Company has
always timed them after publishing the interim and annual reports.
As per the OECD 2015 Corporate Governance recommendations regarding transparency
and timely and accurate disclosure of information on all material matters regarding the
Company, the Company would like to additionally point out that it is also quarterly
(within a week following quarter end) disclosing its main shareholders and true
beneficiaries on its website under sub-section ‘Shareholders’ under ‘Investors’.
As per the OECD 2015 Corporate Governance recommendations regarding transparency
and disclosure of information, the Company would also like to point out that the
Company’s shares are, in fact, broadly held and that it was transferred to the main list of
NASDAQ OMX Tallinn on 19 November 2018. The prerequisites for the main listing, which
the Company fulfilled were: (i) at least 25% free float; (ii) 4 million euros market
capitalisation (the Company’s market capitalisation was 92.97 million euros as at 31
December 2018) and (iii) using international reporting standard (the Company uses IFRS)
AS Pro Kapital Grupp consolidated annual report 2021 68
and (iv) being in operation for 3 years (the Company has operated for over 20 years). The
Company’s official free float at the time of transfer was c.a. 15.51%. However, as a result
of the EU 5
th
Money-Laundering directive, which requires transparency regarding the
ultimate beneficiaries behind holding accounts and which Estonia stringently
implemented from 30 October 2018, the Company queried its main shareholders as to
the true beneficiaries and received replies that very few individuals or companies who
are the ultimate beneficiaries behind the holding accounts of the main shareholders
actually hold more than 5% of the Company’s shares. As a consequence, the Company
was able to prove to the NASDAQ Tallinn OMX that the real free float of the Company as
at 30 September 2018 (as well as at 31 December 2018) was actually c.a. 51%.
6. FINANCIAL REPORTING AND AUDIT
6.1. Reporting
6.1.1. As per the recommendation, Issuers should publish annually its annual report and within
a fiscal year its interim reports. The Management Board should draw up annual accounts,
which should be audited by the auditor and the Supervisory Council. On meeting of the
Supervisory Council, where the annual account is reviewed, the auditor of the Issuer
should participate upon invitation of the Supervisory Council. Members of the
Management Board of the Issuer and other persons belonging to management should
leave the meeting during the auditor reports the most material conclusions of audit. The
shareholders should be presented with the annual report signed by members of the
Management Board and the Supervisory Council for examination. Together with annual
report, the Supervisory Council should make available to shareholders the written report
concerning the annual report specified in § 333 subsection 1 of Commercial Code.
The Company is following this recommendation. Previously, the Company has published
its interim reports within two months after period end and the annual report within the
legal allotted 4 months from fiscal year-end with an exeption of the annual financial
report for 2020, which was published in June 2021.
6.1.2. As per the recommendation, the Issuer should publish an annex of the annual accounts
including a list of companies not belonging to the Issuer’s group, in which the holding of
Issuer has significant importance to the Issuer. The Issuer should disclose the business
name, location, and size of the holding, area of activity, amount of share capital, and net
profit or loss during the previous financial year of this Company.
There are no companies in which the Company has participation, which do not belong to
the group.
6.1.3. As per the recommendation, the annexes to the annual accounts should contain
information regarding the connections of the Issuer with shareholders which are deemed
to be connected persons pursuant to standards of international financial reporting
provided for in sub section 17 (2) of the Accounting Act.
The Company is following this recommendation.
6.2. Election of the Auditor and Auditing of the Annual Accounts.
6.2.1. Together with notice of calling the General Meeting the Supervisory Council should
make available to shareholders the information on a candidate for auditor, including
AS Pro Kapital Grupp consolidated annual report 2021 69
information on their business connections specified below. If there is a desire to appoint
an auditor who has audited Issuers reports on previous financial year the Supervisory
Council should pass judgment on their work. Before the Supervisory Council presents a
candidate of auditor for election in a General meeting, the Supervisory Council should
require from a candidate for auditor an overview of what kind of connection pertaining
to work, economic connection or other connection possibly affecting the independence
of the auditor exists between the auditor, its management body and the auditors in
charge on one side and the Issuer and its management body on other side. The
Supervisory Council should describe in its evaluation report to judgment of the auditors
work inter alia the services (including advisory services) that the auditor has provided to
the Issuer during the preceding year or should provide during the next year. Also, the
remuneration the Issuer has paid or shall pay to the auditor should be published. If the
Supervisory Council makes a proposal to elect a new auditor it should justify to the
General Meeting its reasons for terminating the contract with previous auditor.
The Company is following this recommendation.
The auditor for the financial year 2020 was AS Deloitte Audit Eesti, which has been
providing the service for the Company for 20 years. In 2021, the Management Board of
the Company organized a tender to find a new auditor.
Upon the recommendation of the Audit Committee and the Supervisory Council, due to
the best proportion of the price offer and their quality of work Ernst&Young Baltic AS
was elected as the auditor of the Company for the financial years of 2021, which for 2021
was confirmed at the Company’s AGM of 7 July 2021. The fee payable to the auditor for
the audit of the Company and its subsidiaries for the financial year of 2021 in the offer
was 62 900 euros (net of VAT). In 2021, besides provision of audit services Ernst &
Young Baltic AS has not rendered any advisory or other services to the Company. As per
the OECD 2015 Corporate Governance recommendations regarding avoidance of using
external auditors for performance of non-audit services, the Company is certain that
rendering tax advisory and translation services will not impair the auditor’s
independence as to auditing nor will it result in auditing their own work.
6.2.2. As per the recommendation, before entering a contract for auditing services with an
auditor, the Management Board should present the Supervisory Council with the draft
contract for approval. In a contract to be concluded with an auditor, above all the
auditor’s functions, timetable and remuneration should be agreed upon. The Issuer
should not conclude a contract, where it is indicated that disclosure of remuneration
payable for auditing is breach of contract. Pursuant to the contract the auditor obliges
to promptly inform the Chairman of the Supervisory Council of any danger to the
independence or professionalism of their work that becomes evident during the course
of their work, unless the danger is promptly eliminated. Pursuant to the contract, the
auditor should oblige to promptly inform the Supervisory Council of any material
circumstances that become known to them that may affect the work of the Supervisory
Council and management of the Issuer. The contract to be concluded with an auditor
should not in any manner hinder the auditor’s evaluation of the Issuer’s activities.
The Company is following this recommendation.
6.2.3. Upon organizing the rotation of auditors, the Issuer should comply with guidelines of
the Financial Supervision Authority from 24 September 2003, “Rotation of auditors of
certain entities under state supervision.”
AS Pro Kapital Grupp consolidated annual report 2021 70
As of listing of the Company shares on NASDAQ OMX Tallinn Stock Exchange, the
Company has followed this recommendation.
6.2.4. Pursuant to the contract the auditor obliges to disclose to the Supervisory Council and
at the General Meeting the facts, which become evident to them during the course of
exercising of a regular audit, indicating non-compliance with the Corporate Governance
Recommendations by the Management Board or the Supervisory Council. The Auditor
should prepare a memorandum to the Issuer regarding these facts along with the
auditor’s report. The auditor should not reflect in the memorandum the facts that the
Management Board has explained in the Corporate Governance Recommendations
Report.
The Company is following this recommendation.
6.2.5. The General Meeting, Supervisory Council and Management Board should enable
auditor to carry out the auditing according to international auditing standards.
The Company’s annual accounts are audited in accordance with international auditing
standards.
6.2.6. Upon introducing the findings of the audit to the Supervisory Council, the Auditor
should present inter alia:
- an overview of the progress of the audit, co-operation with employees, subject to the
internal audit and the Management Board as well as important issues discussed with the
Management Board and proposals which were not accepted by the Management Board
on drawing up the annual report;
- an overview of the independence of the auditor and the absence of conflict of interests
during the audit;
- an analysis of changes in shareholders' equity and circumstances not entered in the
report subject to disclosure, yet having significant importance upon the understanding
of the financial condition and performance of the Issuer;
- their own opinion regarding one-off items, accounting policy used in book-keeping
concerning them and the effect of it;
- his or her opinion regarding financial forecasts made and the quality of the budget.
The Auditor should present an overview, analysis and opinion described above in
writing to the Supervisory Council.
The Company is following this recommendation.
7. HUMAN RESOURCE POLICY
7.1. The aim of the Company’s human resource policy is to ensure the implementation of the
strategic goals of the Company by all employees and ensuring the reputation of valued
employer. Company uses both internal and external hiring processes, and persons
already working for the Company are preferred for filling the vacant positions. Human
resource policy regulates the management techniques and practices, group
communication and fundamental work principles. Training and remuneration policy
support the learning organization with the aim to remain competitive as an employer.
The Company has a well-established induction policy, including regarding health and
safety matters, for all new employees, new appointments to the Supervisory Council and
the Management Board. Company’s human resource policy is constantly evolving.
AS Pro Kapital Grupp consolidated annual report 2021 71
8. DIVIDEND POLICY
8.1. The Company has historically been financing its operations mainly from retained
earnings. Hence there have been limited dividend payments in the past. For the year
1998 dividends in the amount of 345 123 euros were paid, for 2004 dividends in the
amount of 2 039 501 euros were paid and for 2017 dividends in the amount of
850 319.31 euros were paid. The declaration and payment by the Company of dividends
and their amount depend on the Company’s results of operations, financial condition,
cash requirements, future prospects, profits available for distribution and other factors
deemed by the Management to be relevant at the time of making a dividend payment
proposal. The Supervisory Board has the right to amend such proposal by the
Management Board and the proposal is ultimately to be approved by the General
Meeting of Shareholders.
In 2021, the Company did not distribute any dividends as profit to the shareholders, but
had to cover the loss of 55 677 271 euros.
Management remuneration report
According to Estonian Securities Market Act the Company has to publish remuneration paid to
the management. The remuneration principles of the Company will be presented to the
shareholders on the next General meeting and after approval will be published and available
on Company’s website.
In the context of the Estonian Securities Market Act the management of the Company during
the reporting year included Management Board Members: Paolo Vittorio Michelozzi, Allan
Remmelkoor, Edoardo Axel Preatoni and Angelika Annus.
Management Board Members are selected by the Supervisory Council of the Company based
on their expertise in the sector the Company is operating, in addition to candidate’s leadership
and management experience is taken into account as well as their integrity and their
commitment to the Company.
Management Board members are paid monthly remuneration set in their contracts, which are
approved by Supervisory Council. Performance fees if applicable are related to achieving
targets and strategic objectives set by Supervisory Council and paid annually according to
approval of the Supervisory Council. No share options are offered to the management.
Management Board members can use general benefits available for all employees of the
Company (free parking, coffee/tea in the office etc).
Remuneration information in tables below is stated in thousands of euros. All variances have
been calculated as follows: (reporting year’s records – previous year’s records)/previous year’s
records.
AS Pro Kapital Grupp consolidated annual report 2021 72
Mr. Paolo Vittorio Michelozzi has been employed in the Company for more than 20 years and
held a position of CEO from 22 November 2001 until 31 December 2021. Mr. Michelozzi has
been paid monthly remuneration based on his agreements with group companies.
Performance fees have been related to targets set by the Supervisory Board of the Company
and have been paid annually if achieved. In relation to the end of the term of office a severance
payment for over twenty years of service that was assigned by Supervisory Board of the
Company has been included in 2021 gross annual remuneration.
Paolo Vittorio Michelozzi
2017
2018
2019
2020
2021
Annual remuneration*
477.22
462.68
427.67
609.53
1 397.15
Basic annual remuneration to additional allowances
86%
90%
100%
71%
38%
Annual remuneration variance
-21%
-3%
-8%
43%
129%
Average employee salary variance
45%
16%
4%
1%
-1%
Gross profit margin variance
0%
-4%
-6%
2%
-6%
Mr. Allan Remmelkoor was employed in the Company on executive position from 1997 and as
a Member of the Management Board from 30 May 2008 until 31 August 2021. Mr.
Remmelkoor has been paid monthly remuneration based on his agreements with group
companies. Performance fees have been related to targets and objectives set by Supervisory
Board of the Company and paid annually (if achieved).
Allan Remmelkoor
2017
2018
2019
2020
2021
Annual remuneration*
89.66
81.92
77.70
77.70
32.11
Basic annual remuneration to additional allowances
86%
95%
100%
100%
100%
Annual remuneration variance
3%
-9%
-5%
0%
-59%
Average employee salary variance
45%
16%
4%
1%
-1%
Gross profit margin variance
0%
-4%
-6%
2%
-6%
Mr. Edoardo Axel Preatoni has been the Member of the Management Board of the Company
since 01 March 2016 and from the end of 2019 he was holding a position of Head of
Development. From 1 January 2022 the Supervisory Board appointed Mr. Preatoni as CEO of
the Company. Mr. Preatoni has been paid monthly remuneration based on his agreements
with group companies. Performance fees have been related to turnover of Estonian group real
estate sales and have been paid on quarterly basis.
Edoardo Axel Preatoni
2017
2018
2019
2020
2021
Annual remuneration*
N/A
N/A
34.75
95.49
154.13
Basic annual remuneration to additional allowances
N/A
N/A
90%
98%
72%
Annual remuneration variance
N/A
N/A
100%
175%
61%
Average employee salary variance
45%
16%
4%
1%
-1%
Gross profit margin variance
0%
-4%
-6%
2%
-6%
Mrs. Angelika Annus has been employed by the Company from 1998-2007 and again since
2008. She holds the position of CFO since 2014. Mrs. Annus was nominated by the Supervisory
Council as a Member of the Management Board from September 2021. She has been paid
monthly remuneration based on her agreement with the Company. Performance fees are set
within the agreement and are related to turnover of Estonian group real estate sales, payable
semi-annually starting from 2022.
AS Pro Kapital Grupp consolidated annual report 2021 73
Angelika Annus
2017
2018
2019
2020
2021
Annual remuneration*
N/A
N/A
N/A
N/A
35.49
Basic annual remuneration to additional allowances
N/A
N/A
N/A
N/A
64%
Annual remuneration variance
N/A
N/A
N/A
N/A
100%
Average employee salary variance
45%
16%
4%
1%
-1%
Gross profit margin variance
0%
-4%
-6%
2%
-6%
*Annual remuneration includes gross total Member of the Board remuneration from all group companies.
AS Pro Kapital Grupp consolidated annual report 2021 74
Management declaration
The Management Board declares and confirms that according to their best knowledge, the
year 2021 consolidated financial statements, prepared in accordance with International
Financial Reporting Standards as adopted by European Union, present a true and fair view of
consolidated assets, liabilities, financial situation and loss or profit of AS Pro Kapital Grupp and
the undertakings involved in the consolidation as a whole, and the management report gives
a true and fair view of the development and results of the business activities and financial
status of AS Pro Kapital Grupp and the undertakings involved in the consolidation as a whole
and contains a description of the main risks and estimates.
Edoardo Preatoni /digitally signed/
Chief Operating Officer
Member of the Management Board
Angelika Annus /digitally signed/
Member of the Management Board
AS Pro Kapital Grupp consolidated annual report 2021 75
Consolidated financial statements
Consolidated statement of financial position
in thousands of euros
Notes
31.12.2021
31.12.2020
ASSETS
Current assets
Cash and cash equivalents
8
Current receivables
9
Prepaid expenses
Inventories
10
Total current assets
Non-current assets
Non-current receivables
11
Property, plant and equipment
12
Right-of-use assets
12
Investment property
13
Goodwill
Intangible assets
Total non-current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current liabilities
Current debt
14
Customer advances
18
Current payables
15
Tax liabilities
Short-term provisions
16
Total current liabilities
Non-current liabilities
Non-current debt
17
Other non-current payables
22
Deferred income tax liabilities
30
Long-term provisions
Total non-current liabilities
TOTAL LIABILITIES
Equity attributable to owners of the Company
Share capital in nominal value
23
Share premium
23
Statutory reserve
23
Revaluation surplus
23
Retained earnings
-8 031
Total equity attributable to owners of the Company
Non-controlling interests
7,24
-3 515
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
The accompanying Notes are an integral part of these consolidated financial statements.
AS Pro Kapital Grupp consolidated annual report 2021 76
Consolidated statement of profit and loss and other
comprehensive income
in thousands of euros
Notes
2021
2020
CONTINUING OPERATIONS
Operating income
Revenue
25
Cost of sales
26
-32 519
-9 424
Gross profit
Marketing expenses
27
-502
-610
Administration expenses
27
-5 592
-4 372
Other operating income
28
Other operating expenses
28
-277
-605
Operating profit
Finance income
29
Finance cost
29
-5 964
-5 420
Profit/ loss before income tax
-2 925
Income tax
30
-354
Profit/ loss from continuing operations
-3 279
Loss from discontinued operations
37
-4 115
-56 177
Net profit/ loss for the period
-59 456
Attributable to:
Equity holders of the Company
-55 678
Non-controlling interests
24
-3 778
Other comprehensive income, net of income tax
Items that will not be reclassified subsequently to profit or loss
Net change in asset revaluation reserve
-278
Total comprehensive profit/ loss for the year
-59 734
Attributable to:
Equity holders of the Company
-55 956
Non-controlling interests
-3 778
Earnings per share
From continuing operations
Basic (euros per share)
31
-0.06
Diluted (euros per share)
31
-0.06
From discontinued operations
Basic (euros per share)
31
-0.07
-0.99
Diluted (euros per share)
31
-0.07
-0.99
The accompanying Notes are an integral part of these consolidated financial statements.
AS Pro Kapital Grupp consolidated annual report 2021 77
Consolidated statement of cash flows
in thousands of euros
Note
2021
2020
Cash flows from operating activities
Profit/ loss from continuing operations
-3 279
Profit/loss from discontinued operations
37
-4 115
-56 177
Profit/loss for the year
-59 456
Adjustments for:
Depreciation and amortisation of
PPE, ROU and intangible assets
Gain from disposal of investment property
28
-1 092
Loss from write-off of PPE and intangible assets
Change in fair value of property, plant and equipment
-56
-16
Change in fair value of investment property
13
-5 484
Gain from loss of control of subsidiary
29
-27 748
Finance income and costs
29
Change in deferred tax assets and liabilities
30
-37
-178
Other non-monetary changes (net amounts)
29
-3 111
Movements in working capital:
Change in receivables and prepayments
-1 514
Change in inventories
10
-13 011
Change in liabilities and prepayments
Change in provisions
-127
Net cash flows generated by/used in operating activities
-7 656
Cash flows from investing activities
Payments for property, plant and equipment
-178
-94
Payments for intangible assets
-20
-43
Payments for investment property
13
-459
-844
Proceeds from disposal of investment property
13
Less cash balances of disposed subsidiaries
-182
Interests received
Net cash flows fenerated by/used in investing activities
-980
Cash flows from financing activities
Net proceeds from secured bonds
20
Redemption of convertible bonds
20
-337
-33
Redemption of non-convertible bonds
20
-28 000
Proceeds from borrowings
17
Repayment of borrowings
17
-30 581
-1 376
Repayment of lease liabilities
-163
-135
Interests paid
-5 481
-5 953
Net cash flows used in/ (generated by financing activities
-14 222
Net change in cash and cash equivalents
-1 223
Cash and cash equivalents at the beginning of the period
8
Cash and cash equivalents at the end of the period
8
The accompanying Notes are an integral part of these consolidated financial statements.
AS Pro Kapital Grupp consolidated annual report 2021 78
Consolidated statement of changes in equity
in thousands of
euros
Share
capital
Share
premium
Statutory
reserve
Properties
revaluation
reserve
Retained
earnings
Attributable
to equity
owners of
the parent
Non-
controlling
interests
Total
equity
01.01.2020
Net loss
for the period
-55 678
-55 678
-3 778
-59 456
Other
comprehensive loss
-278
-278
-278
Total
comprehensive loss
for the period
-278
-55 678
-55 956
-3778
-59 734
31.12.2020
-8 031
-3 515
Net profit
for the period
Other
comprehensive
income
0
0
0
0
0
0
0
0
Total
comprehensive
income for the
period
Allocation of
previous periods
loss
-3 913
-1 134
Changes in non-
controlling interest
due to loss of
control of subsidiary
(Note 24)
31.12.2021
Changes in non-controlling interests are described in Note 7 and Note 23. Changes in
revaluation reserve are described in Note 23.
The accompanying Notes are an integral part of these consolidated financial statements.
AS Pro Kapital Grupp consolidated annual report 2021 79
Notes to the consolidated financial statements
Note 1. Corporate information
The consolidated financial statements of AS Pro Kapital Grupp (hereinafter the Company) and
its subsidiaries (hereinafter the Group) for the financial year ended 31 December 2021 were
signed by the Management Board at 20 May 2022.
Pursuant to the Commercial Code of the Republic of Estonia, the annual report prepared by
the Management Board and approved by the Supervisory Board and which also includes the
consolidated financial statements shall be approved at the General Meeting of Shareholders.
Shareholders have the right not to approve the annual report prepared and presented by the
Management Board and require preparation of a new annual report.
AS Pro Kapital Grupp is a corporation incorporated in the Republic of Estonia and it operates
in Estonia, Latvia, Lithuania and Germany.
Since 23 November 2012, the shares of AS Pro Kapital Grupp have been listed on NASDAQ OMX
Tallinn (Nasdaq Baltic) Stock Exchange secondary list, since 19 November 2018 in the main list.
Starting from 13 March 2014, the shares of AS Pro Kapital Grupp have been traded on the
Quotation Board of Frankfurt Stock Exchange, part of the Open Market segment at Frankfurt
Stock Exchange (Frankfurter Wertpapierbörse). On 9 July 2020 the secured non-convertible
bonds were listed on Nasdaq Stockholm Stock Exchange.
At the end of reporting period the main shareholders of the Company are the following:
Shareholder
Country of incorporation
Ownership
31.12.2021
Ownership
31.12.2020
Austria
51.42%
54.70%
Clearstream Banking AG
Germany
22.01%
20.06%
Nordea Bank ABP/Non-treaty Clients
Finland
2.45%
8.45%
OÜ Svalbork Invest
Estonia
9.86%
6.63%
Six Sis Ltd
Switzerland
8.68%
N/A
The principal place of business of the Company is at its registered address Sõjakooli 11, Tallinn,
11316 Estonia. The principal activities and the structure of the Group are described in Note 5.
AS Pro Kapital Grupp consolidated annual report 2021 80
Note 2. Application of new and revised International
Financial Reporting Standards
2.1 Amendments to IFRSs affecting amounts reported in the financial statements
Accounting policies applied in the year 2021 are consistent with those followed in the
preparation of the Group`s annual financial statements for the year ended 31 December 2020,
except for the changes outlined below.
Amendments to the existing standards and new standards and interpretation effective for
current financial period
The following amendments to the existing standards and new interpretation issued by the
International Accounting Standards Board (IASB) and adopted in EU are effective for the
current reporting period:
Amendments to IFRS 16 “Leases” - COVID-19-Related Rent Concessions
(Amendment)-
The amendment applies, retrospectively, to annual reporting periods beginning on or
after 1 June 2020. Earlier application is permitted, including in financial statements
not yet authorized for issue at 28 May 2020. IASB amended the standard to provide
relief to lessees from applying IFRS 16 guidance on lease modification accounting for
rent concessions arising as a direct consequence of the covid-19 pandemic. The
amendment provides a practical expedient for the lessee to account for any change in
lease payments resulting from the covid-19 related rent concession the same way it
would account for the change under IFRS 16, if the change was not a lease
modification, only if all of the following conditions are met:
- The change in lease payments results in revised consideration for the lease that is
substantially the same as, or less than, the consideration for the lease immediately
preceding the change.
- Any reduction in lease payments affects only payments originally due on or before
30 June 2021.
- There is no substantive change to other terms and conditions of the lease.
The Group has used the IFRS 16 “Leases” exemption and recognised the temporary rental
discounts in the amount of 10 thousand euros related to the COVID-19 pandemic, in the
statement of profit and loss in 2020 financial statements. No impact was recognised in 2021
financial statements.
- “Interest Rate Benchmark Reform – Phase 2 – IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS
16 (Amendments)
In August 2020, the IASB published Interest Rate Benchmark Reform – Phase 2,
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, completing its work in
response to IBOR reform. The amendments provide temporary reliefs which address
the financial reporting effects when an interbank offered rate (IBOR) is replaced with
an alternative nearly risk-free interest rate (RFR). In particular, the amendments
provide for a practical expedient when accounting for changes in the basis for
AS Pro Kapital Grupp consolidated annual report 2021 81
determining the contractual cash flows of financial assets and liabilities, to require the
effective interest rate to be adjusted, equivalent to a movement in a market rate of
interest. Also, the amendments introduce reliefs from discontinuing hedge
relationships including a temporary relief from having to meet the separately
identifiable requirement when an RFR instrument is designated as a hedge of a risk
component. There are also amendments to IFRS 7 Financial Instruments: Disclosures
to enable users of financial statements to understand the effect of interest rate
benchmark reform on an entity’s financial instruments and risk management strategy.
While application is retrospective, an entity is not required to restate prior periods.
The amendments had no impact on the financial statements of the Group/Company.
New standards and amendments to the existing standards issued by IASB but not yet effective
and not early adopted
- IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or
Non-current (Amendments)
The amendments were initially effective for annual reporting periods beginning on or
after January 1, 2022 with earlier application permitted. However, in response to the
covid-19 pandemic, the Board has deferred the effective date by one year, i.e.
1 January 2023, to provide companies with more time to implement any classification
changes resulting from the amendments. The amendments aim to promote
consistency in applying the requirements by helping companies determine whether,
in the statement of financial position, debt and other liabilities with an uncertain
settlement date should be classified as current or non-current. The amendments
affect the presentation of liabilities in the statement of financial position and do not
change existing requirements around measurement or timing of recognition of any
asset, liability, income or expenses, nor the information that entities disclose about
those items. Also, the amendments clarify the classification requirements for debt
which may be settled by the company issuing own equity instruments.
In November 2021, the Board issued an exposure draft (ED), which clarifies how to
treat liabilities that are subject to covenants to be complied with, at a date subsequent
to the reporting period. In particular, the Board proposes narrow scope amendments
to IAS 1 which effectively reverse the 2020 amendments requiring entities to classify
as current, liabilities subject to covenants that must only be complied with within the
next twelve months after the reporting period, if those covenants are not met at the
end of the reporting period. Instead, the proposals would require entities to present
separately all non-current liabilities subject to covenants to be complied with only
within twelve months after the reporting period. Furthermore, if entities do not
comply with such future covenants at the end of the reporting period, additional
disclosures will be required. The proposals will become effective for annual reporting
periods beginning on or after 1 January 2024 and will need be applied retrospectively
in accordance with IAS 8, while early adoption is permitted. The Board has also
proposed to delay the effective date of the 2020 amendments accordingly, such that
entities will not be required to change current practice before the proposed
AS Pro Kapital Grupp consolidated annual report 2021 82
amendments come into effect. These Amendments, including ED proposals, have not
yet been endorsed by the EU.
- IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37
Provisions, Contingent Liabilities and Contingent Assets as well as Annual
Improvements 2018-2020 (Amendments)
The amendments are effective for annual periods beginning on or after 1 January 2022
with earlier application permitted. The IASB has issued narrow-scope amendments to
the IFRS Standards as follows:
- IFRS 3 Business Combinations (Amendments) update a reference in IFRS 3 to the
Conceptual Framework for Financial Reporting without changing the accounting
requirements for business combinations.
- IAS 16 Property, Plant and Equipment (Amendments) prohibit a company from
deducting from the cost of property, plant and equipment amounts received from
selling items produced while the company is preparing the asset for its intended use.
Instead, a company will recognise such sales proceeds and related cost in profit or loss.
- IAS 37 Provisions, Contingent Liabilities and Contingent Assets (Amendments) specify
which costs a company includes in determining the cost of fulfilling a contract for the
purpose of assessing whether a contract is onerous.
- Annual Improvements 2018-2020 make minor amendments to IFRS 1 First-time
Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments,
IAS 41 Agriculture and the Illustrative Examples accompanying IFRS 16 Leases.
- IFRS 16 Leases -Cοvid 19 Related Rent Concessions beyond 30 June 2021
(Amendment)
The Amendment applies to annual reporting periods beginning on or after 1 April
2021, with earlier application permitted, including in financial statements not yet
authorized for issue at the date the amendment is issued. In March 2021, the Board
amended the conditions of the practical expedient in IFRS 16 that provides relief to
lessees from applying the IFRS 16 guidance on lease modifications to rent concessions
arising as a direct consequence of the covid-19 pandemic. Following the amendment,
the practical expedient now applies to rent concessions for which any reduction in
lease payments affects only payments originally due on or before 30 June 2022,
provided the other conditions for applying the practical expedient are met.
- IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure
of Accounting policies (Amendments)
The Amendments are effective for annual periods beginning on or after January 1,
2023 with earlier application permitted. The amendments provide guidance on the
application of materiality judgements to accounting policy disclosures. In particular,
the amendments to IAS 1 replace the requirement to disclose ‘significant’ accounting
policies with a requirement to disclose ‘material’ accounting policies. Also, guidance
and illustrative examples are added in the Practice Statement to assist in the
application of the materiality concept when making judgements about accounting
policy disclosures.
AS Pro Kapital Grupp consolidated annual report 2021 83
- IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of
Accounting Estimates (Amendments)
The amendments become effective for annual reporting periods beginning on or after
January 1, 2023 with earlier application permitted and apply to changes in accounting
policies and changes in accounting estimates that occur on or after the start of that
period. The amendments introduce a new definition of accounting estimates, defined
as monetary amounts in financial statements that are subject to measurement
uncertainty. Also, the amendments clarify what changes in accounting estimates are
and how these differ from changes in accounting policies and corrections of errors.
- IAS 12 Income taxes: Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments)
The amendments are effective for annual periods beginning on or after January 1,
2023 with earlier application permitted. In May 2021, the Board issued amendments
to IAS 12, which narrow the scope of the initial recognition exception under IAS 12 and
specify how companies should account for deferred tax on transactions such as leases
and decommissioning obligations. Under the amendments, the initial recognition
exception does not apply to transactions that, on initial recognition, give rise to equal
taxable and deductible temporary differences. It only applies if the recognition of a
lease asset and lease liability (or decommissioning liability and decommissioning asset
component) give rise to taxable and deductible temporary differences that are not
equal. The Amendments have not yet been endorsed by the EU.
The Group anticipates that the adoption of these new standards, amendments to the existing
standards and new interpretations will have no material impact on the financial statements of
the Group in the period of initial application.
AS Pro Kapital Grupp consolidated annual report 2021 84
Note 3. Significant accounting policies
3.1. Basis of preparation
The consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted in European Union.
The consolidated financial statements have been prepared on the historical cost basis except
for property, plant and equipment, investment properties, as explained in the accounting
policies below.
The consolidated financial statements are presented in euros and all values are rounded to the
nearest thousand, except where otherwise indicated.
The significant accounting policies are set out below.
3.2. Going concern
The Management Board has, at the time of approving the financial statements, a reasonable
expectation that the Group has adequate resources to continue in operational existence for
the 12 months from issuance date. Thus, we continue to adopt the going concern basis of
accounting in preparing the financial statements.
3.3. Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company
and entities controlled by the Company (its subsidiaries). Control is achieved where the parent:
- has power over the investee;
- is exposed or has rights to variable returns from its involvement with the investee;
- has the ability to use its power to affect its return.
The parent re-assesses whether or not it controls an investee if facts and circumstances
indicate that there are changes to one or more of the three elements of control listed above.
Consolidation of subsidiary begins when the parent obtains control over the subsidiary and
ceases when the parent loses control of the subsidiary. The financial statements of the parent
and its subsidiaries are consolidated line-by-line basis and all transactions, balances and
unrealized profits/losses which have arisen as a result of transactions between the parent and
its subsidiaries are eliminated. Specifically, income and expenses of subsidiaries acquired or
disposed during the year are included in the consolidated statement of profit or loss and other
comprehensive income from the effective date of acquisition and up to the effective date of
disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the
owners of the parent and to the non-controlling interests even if this results in the non-
controlling interests having a deficit balance.
AS Pro Kapital Grupp consolidated annual report 2021 85
When necessary, adjustments are made to the financial statements of subsidiaries to bring
their accounting policies into line with those used by other members of the Group.
When the Group loses control of a subsidiary, the gain or loss on disposal recognised in profit
or loss is calculated as the difference between (i) the aggregate of the fair value of the
consideration received and the fair value of any retained interest and (ii) the previous carrying
amount of the assets (including goodwill), less liabilities of the subsidiary and any non-
controlling interests and other components of equity. All amounts previously recognised in
other comprehensive income in relation to that subsidiary are accounted for as if the Group
had directly disposed of the related assets or liabilities of the subsidiary (ie reclassified to profit
or loss or transferred to another category of equity as required/permitted by applicable IFRS
Standards).
3.4. Held for sale classification
The Group classifies non-current assets and disposal groups as held for sale if their carrying
amounts will be recovered principally through a sale transaction rather than through
continuing use. Non-current assets and disposal groups classified as held for sale are measured
at the lower of their carrying amount (except for investment properties, which are measured
at fair value) and fair value less costs to sell. Costs to sell are the incremental costs directly
attributable to the disposal of an asset (disposal group), excluding finance costs and income
tax expense.
The criteria for held for sale classification is regarded as met only when the sale is highly
probable, and the asset or disposal group is available for immediate sale in its present
condition. Actions required to complete the sale should indicate that it is unlikely that
significant changes to the sale will be made or that the decision to sell will be withdrawn.
Management must be committed to the plan to sell the asset and the sale expected to be
completed within one year from the date of the classification.
Property, plant and equipment and intangible assets are not depreciated or amortised once
classified as held for sale.
Assets and liabilities classified as held for sale are presented separately as current items in the
statement of financial position.
Discontinued operations are excluded from the results of continuing operations and are
presented as a single amount as profit or loss after tax from discontinued operations in the
statement of profit or loss.
Investments into subsidiaries are recorded at cost in unconsolidated financial statements of
the parent and are tested for impairment.
3.5. Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration
transferred in a business combination is measured at fair value, which is calculated as the sum
AS Pro Kapital Grupp consolidated annual report 2021 86
of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by
the Group to the former owners of the acquiree and the equity interests issued by the Group
in exchange for control of the acquiree. Acquisition-related costs are generally recognised in
profit or loss as incurred.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount
recognized for any non-controlling interests in the acquiree, and the fair value of the acquirer’s
previously held equity interest in the acquiree (if any) over the net of the acquisition-date
amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment,
the net of the acquisition-date amounts of the identifiable assets acquired and liabilities
assumed exceeds the sum of the consideration transferred, the amount of any non-controlling
interests in the acquiree and the fair value of the acquirer’s previously held interest in the
acquiree (if any), the excess is recognised immediately in profit or loss.
Non-controlling interests that are present ownership interests and entitle their holders to a
proportionate share of the entity's net assets in the event of liquidation may be initially
measured either at fair value or at the non-controlling interests' proportionate share of the
recognised amounts of the acquiree's identifiable net assets. The choice of measurement basis
is made on a transaction-by-transaction basis. Other types of non-controlling interests are
measured at fair value or, when applicable, on the basis specified in another IFRS.
When the consideration transferred by the Group in a business combination includes assets or
liabilities resulting from a contingent consideration arrangement, the contingent consideration
is measured at its acquisition-date fair value and included as part of the consideration
transferred in a business combination.
3.6. Goodwill
Goodwill arising on an acquisition of a business is carried at cost as established at the date of
acquisition of the business (see Note 3.5 above) less accumulated impairment losses, if any.
Goodwill is not amortised but a cash-generating unit to which goodwill has been allocated is
tested for impairment. For the purpose of impairment testing, goodwill is allocated to each of
the Group’s cash-generating units (or groups of cash-generating units) that is expected to
benefit from the synergy of the combination.
If the recoverable amount of the cash-generating unit is less than its carrying amount, the
impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to
the unit and then to the other assets of the unit pro rata based on the carrying amount of each
asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An
impairment loss recognised for goodwill is not reversed in subsequent periods.
On disposal of the relevant cash-generating unit, the attributable amount of goodwill is
included in the determination of the profit of loss on disposal.
AS Pro Kapital Grupp consolidated annual report 2021 87
3.7. Foreign currencies
The functional currency of the Company and its subsidiaries is EUR. In preparing the financial
statements of each individual group entity, transactions in currencies other than the entity’s
functional currency (foreign currencies) are recognised at the rates of exchange prevailing at
the dates of the transactions, quoted by European Central Bank. At the end of each reporting
period, monetary items denominated in foreign currencies are retranslated at the rates
prevailing at that date, quoted by European Central Banks.
Exchange differences on monetary items are recognized in profit or loss in the period in which
they arise.
3.8. Current versus non-current classsification
The Group presents assets and liabilities in the statement of financial position based on
current/non-current classification. An asset is current when it is:
• Expected to be realised or intended to be sold or consumed in the normal operating cycle;
• Held primarily for the purpose of trading;
• Expected to be realised within twelve months after the reporting period;
Or
• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability
for at least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is current when:
• It is expected to be settled in the normal operating cycle;
• It is held primarily for the purpose of trading;
• It is due to be settled within twelve months after the reporting period;
Or
• There is no unconditional right to defer the settlement of the liability for at least twelve
months after the reporting period. The terms of the liability that could, at the option of the
counterparty, result in its settlement by the issue of equity instruments do not affect its
classification. The Group classifies all other liabilities as non-current.
3.9. Fair Value measurement
The Group measures non-financial assets such as investment properties, at fair value at each
balance sheet date. Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement
date. The fair value measurement is based on the presumption that the transaction to sell the
asset or transfer the liability takes place either:
• In the principal market for the asset or liability;
Or
• In the absence of a principal market, in the most advantageous market for the asset or
liability.
AS Pro Kapital Grupp consolidated annual report 2021 88
The fair value of an asset or a liability is measured using the assumptions that market
participants would use when pricing the asset or liability, assuming that market participants
act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's
ability to generate economic benefits by using the asset in its highest and best use or by selling
it to another market participant that would use the asset in its highest and best use.
External valuers are involved for valuation of real estate properties. Selection criteria include
market knowledge, reputation, independence and whether professional standards are
maintained.
3.10. Cash and cash equivalents
Cash on the statement of financial position and statement of cash flows comprises cash on
hand, bank accounts, and short-term bank deposits (with time term less than three months).
.
3.11. Inventories
In Group’s financial statements the projects that are under development are recognised as
inventories.
Inventories are initially recognised at cost which includes direct purchase costs and other costs
directly attributable to the acquisition of the inventories incurred in bringing the inventories
to their present location and condition. The principles of recognition of borrowing cost are
described in 3.19 “Financial liabilities and equity instruments“.
Inventories are subsequently measured at the lower of cost and net realisable value. For
Inventory items that are individually distinguishable an individual measurement of cost value
and cost of sales is applied. For inventory items that are not individually distinguishable, the
weighted average cost method is used. Net realisable value represents the estimated selling
price in the ordinary course of business based on market prices at the reporting period for
inventories less all estimated costs of completion and costs necessary to make the sale.
Inventories regarding real estate developments are recognised in two categories: completed
property ready to be sold and works in progress.
Transfers to inventory from investment property is made when there is evidence of a change
in use.
3.12. Property, plant and equipment
An item of property, plant and equipment is an asset for production, provision of services or
administrative with useful life of over one year and it is probable that future economic benefits
attributable to them will flow to the Group.
Land and buildings held for supply of services, or for administrative purposes, are stated in the
consolidated statement of financial position at their revalued amounts, being the fair value at
AS Pro Kapital Grupp consolidated annual report 2021 89
the date of revaluation, less any subsequent accumulated depreciation and subsequent
accumulated impairment losses. Revaluations are performed after every five years or more
often when there are significant indications on possible change in value.
Any revaluation increase arising on the revaluation of such land and buildings is recognized in
other comprehensive income and accumulated in equity under revaluation reserve, except to
the extent that it reverses a revaluation decrease for the same asset previously recognized in
profit or loss, in which case the increase is credited to profit or loss to the extent of the
decrease previously expensed. A decrease in the carrying amount arising on the revaluation of
such land and buildings is recognized in profit or loss to the extent that it exceeds the balance,
if any, held in the properties’ revaluation reserve relating to a previous revaluation of that
asset.
Depreciation on revalued buildings is recognised in profit or loss. On the subsequent sale or
retirement of a revalued property, the attributable revaluation surplus remaining in the
properties’ revaluation reserve is transferred directly to retained earnings.
Freehold land is not depreciated.
Fixtures and equipment are stated at cost less accumulated depreciation and accumulated
impairment losses.
Right of use assets are stated at cost less accumulated depreciation and accumulated
impairment losses. Right of use assets are depreciated on a straight-line basis over the shorter
of lease term and estimated useful life of the assets.
The annual depreciation rates for groups of property, plant and equipment are as follows:
- Buildings in use 2 to 5% per annum;
- Machinery and equipment 8 to 20% per annum;
- Other fixtures 20 to 50% per annum.
Depreciation is recognised so as to write off the cost or valuation of assets (other than freehold
land) less their residual values over their useful lives, using the straight-line method. The
estimated useful lives, residual values and depreciation method are reviewed at the end of
each reporting period, with the effect of any changes in estimate accounted for on a
prospective basis.
Subsequent expenditure incurred for items of property, plant and equipment are added to the
carrying value if it is probable that future economic benefits associated with the asset will flow
to the Group and the cost of the asset can be measured reliably. Replaced parts are
derecognised. Other repair and maintenance costs are recognised as expenses at the time they
are incurred.
An item of property, plant and equipment is derecognised upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. Any gain or loss
arising on the disposal or retirement of an item of property, plant and equipment is determined
AS Pro Kapital Grupp consolidated annual report 2021 90
as the difference between the sales proceeds and the carrying amount of the asset and is
recognised in profit or loss.
3.13. Investment property
Investment properties are properties held to earn rentals and/or for capital appreciation
(including land plots and properties for future developments). Land and buildings, which are
planned to be held for a longer period of time and which have different possibilities to be used
are reported also as investment property.
In case of change in the usage purpose of the investment property, the asset is reclassified and
since the reclassification date the accounting principles of the new class of asset are applied.
When development of a part or entire investment property starts with the aim to sell
developed product, this part or entire investment property is reclassified as inventory when
the developed product enters active development phase. The Group considers the start of
active development phase when one or several of the following events occur:
- signing reservation agreements with customers;
- applying for construction permit from local municipality;
- signing of development loan agreement;
- signing construction agreement.
Investment properties are initially recognised at cost, including transaction costs. Subsequent
to initial recognition, investment properties are measured at fair value, based on the market
price determined annually by independent appraisers, based on the prices of recent
transactions involving similar items (adjusting the estimate for the differences) or using the
discounted cash flow method. Changes in fair value are recorded under the income statement
items “Other operating income/other operating expenses”. No depreciation is calculated on
investment property recognised at fair value.
An investment property is derecognised upon disposal or when the investment property is
permanently withdrawn from use and no future economic benefits are expected from the
disposal. Any gain or loss arising on de-recognition of the property (calculated as the difference
between the net disposal proceeds and the carrying amount of the asset) is included in profit
or loss in the period in which the property is derecognised.
3.14. Intangible assets (excluding goodwill)
Intangible assets include purchased franchises, patents, licenses, trademarks, usage rights and
websites.
Intangible assets with finite useful lives that are acquired separately are carried at cost less
accumulated amortisation and impairment losses. Amortisation is recognised on a straight-line
basis over their estimated useful lives. Intangible assets with indefinite useful lives that are
acquired separately are carried at costs less accumulated impairment losses.
AS Pro Kapital Grupp consolidated annual report 2021 91
The estimated useful life and amortisation method are reviewed at the end of each reporting
period, with the effect of any changes in estimate being accounted for on a prospective basis.
The straight- line method is used for amortisation. The amortisation rate for intangible assets
is generally 20% per annum, excluded the usage rights, websites and intangible assets with
indefinite useful lives. Usage rights and websites are amortised on a straight-line basis and the
length of the amortisation period is its useful economic lifetime.
An intangible asset is derecognised on disposal, or when no future economic benefits are
expected from use or disposal. Gains and losses arising from de-recognition of an intangible
asset, measured as the difference between the net disposal proceeds and the carrying amount
of the asset, and are recognised in profit or loss when the asset is derecognised.
3.15. Impairment of non-current assets other than goodwill
At the end of each reporting period, the Group reviews the carrying amounts of its tangible
and intangible assets to determine whether there are any indications that those assets have
suffered an impairment loss. If any such indication exists, the recoverable amount of the asset
is estimated in order to determine the extent of the impairment loss (if any). When it is not
possible to estimate the recoverable amount of an individual asset, the Group estimates the
recoverable amount of the cash-generating unit to which the asset belongs. When a
reasonable and consistent basis of allocation can be identified, corporate assets are also
allocated to individual cash-generating units, or otherwise they are allocated to the smallest
group of cash-generating units for which a reasonable and consistent allocation basis can be
identified.
Intangible assets with indefinite useful lives are tested for impairment at least annually, and
whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-
tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its
carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the
relevant asset is carried at a revalued amount, in which case the impairment loss is treated as
a revaluation decrease (see Note 3.9 above).
When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-
generating unit) is increased to the revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognized for the asset (or cash-generating unit) in
prior years. A reversal of an impairment loss is recognised immediately in profit or loss.
AS Pro Kapital Grupp consolidated annual report 2021 92
3.16. Investments in subsidiaries (in parent company´s unconsolidated financial statements)
Investments in subsidiaries that are not held for sale are recognised in the unconsolidated
financial statements of the parent company at cost.
3.17. Financial instruments and their initial measurement
Financial assets and financial liabilities are recognised when a group entity becomes a party to
the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs
that are directly attributable to the acquisition or issue of financial assets and financial liabilities
(other than financial assets and financial liabilities at fair value through profit or loss) are added
to or deducted from the fair value of the financial assets of financial liabilities, as appropriate,
on initial recognition. Transaction costs directly attributable to the acquisition of financial
assets or financial liabilities at fair value through profit or loss are recognised immediately in
profit or loss. Trade receivables are measured at transaction price.
3.18. Financial assets
All recognised financial assets for the purposes of subsequent measurement, are classified as
either amortised cost or fair value.
Debt instruments that meet the following conditions are measured subsequently at amortised
cost:
- the financial asset is held within a business model whose objective is to hold financial
assets in order to collect contractual cash flows; and
- the contractual terms of the financial asset give rise on specified dates to cash flows
that are solely payments of principal and interest on the principal amount outstanding.
Debt instruments that meet the following conditions are measured subsequently at fair value
through other comprehensive income (FVTOCI):
- the financial asset is held within a business model whose objective is achieved by both
collecting contractual cash flows and selling the financial assets; and
- the contractual terms of the financial asset give rise on specified dates to cash flows
that are solely payments of principal and interest on the principal amount outstanding.
By default, all other financial assets are measured subsequently at fair value through profit or
loss (FVTPL).
Measurement of financial assets at amortized cost
Financial assets that are measured at amortized cost: cash and cash equivalents, trade
receivables, loans granted and other financial assets.
The method of amortized cost is applied to financial assets which are held for collection of
contractual cash flows where those cash flows represent solely payments of principal and
interest on the unpaid principal, using the effective interest rate method. Financial asset is
AS Pro Kapital Grupp consolidated annual report 2021 93
initially recognised at its fair value plus transaction costs that are directly attributable to the
acquisition of the financial assets except trade receivables (not including financing component)
that are initially recognised at their transaction price.
The effective interest method is a method of calculating the amortised cost of a debt
instrument and of allocating interest income over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash payments or receipts through the
expected life of the financial asset to the gross carrying amount of a financial asset.
Income is recognised on an effective interest basis for debt instruments other than those
financial assets classified as fair value through profit or loss.
Measurement of financial assets at fair value through other comprehensive income
Gains and losses on a financial asset constituting an equity instrument for which was applied
the option of fair value through other comprehensive income is recognized in other
comprehensive income, except for revenues from received dividends.
The Group doesn’t have financial assets measured at fair value through other comprehensive
income.
Measurement of financial assets at fair value through profit or loss
Gains or losses on the measurement of a financial asset that is classified as measured at fair
value through profit or loss are recognized in profit or loss during the period in which they were
recognized. Gains or losses from the valuation of items measured at fair value through profit
or loss also include interest and dividend income.
The Group doesn’t have financial assets measured at fair value through profit or loss.
Impairment of financial assets
The Group uses the following models for determining impairment allowances:
- general model (basic);
- simplified model.
The Group recognises a loss allowance for expected credit losses on investments in debt
instruments that are measured at amortised cost or at FVTOCI, lease receivables, trade
receivables and contract assets, as well as on financial guarantee contracts. The amount of
expected credit losses is updated at each reporting date to reflect changes in credit risk since
initial recognition of the respective financial instrument.
The Group always recognises lifetime expected credit losses (ECL) for trade receivables,
contract assets and lease receivables. The expected credit losses on these financial assets are
estimated using a provision matrix based on the Group’s historical credit loss experience,
adjusted for forward-looking factors specific to the debtors and economic environment,
general economic conditions and an assessment of both the current as well as the forecast
direction of conditions at the reporting date, including time value of money where appropriate.
AS Pro Kapital Grupp consolidated annual report 2021 94
For all other financial instruments, the Group recognises lifetime ECL when there has been a
significant increase in credit risk since initial recognition. However, if the credit risk on the
financial instrument has not increased significantly since initial recognition, the Group
measures the loss allowance for that financial instrument at an amount equal to 12-month
ECL.
Lifetime ECL represents the expected credit losses that will result from all possible default
events over the expected life of a financial instrument. In contrast, 12-month ECL represents
the portion of lifetime ECL that is expected to result from default events on a financial
instrument that are possible within 12 months after the reporting date.
(i) Definition of default
The Group considers the following as constituting an event of default for internal credit risk
management purposes as historical experience indicates that financial assets that meet either
of the following criteria are generally not recoverable:
- when there is a breach of financial covenants by the debtor; or
- information developed internally or obtained from external sources indicates that the
debtor is unlikely to pay its creditors, including the Group, in full (without taking into
account any collateral held by the Group).
Irrespective of the above analysis, the Group considers that default has occurred when a
financial asset is more than 90 days past due unless the Group has reasonable and supportable
information to demonstrate that a more lagging default criterion is more appropriate.
(ii) Write-off policy
The Group writes off a financial asset when there is information indicating that the debtor is in
severe financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor
has been placed under liquidation or has entered into bankruptcy proceedings, or in the case
of trade receivables, when the amounts are over two years past due, whichever occurs sooner.
Financial assets written off may still be subject to enforcement activities under the Group’s
recovery procedures, taking into account legal advice where appropriate. Any recoveries made
are recognised in profit or loss.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows
from the asset expire, or when it transfers the financial asset and substantially all the risks and
rewards of ownership of the asset to another party.
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying
amount and the sum of the consideration received and receivable is recognised in profit or
loss.
AS Pro Kapital Grupp consolidated annual report 2021 95
3.19. Financial liabilities and equity instruments
Classification as debt or equity
Debt and equity instruments issued by a group entity are classified as either financial liabilities
or as equity in accordance with substance of the contractual arrangements and the definitions
of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity
after deducting all of its liabilities. Equity instruments issued by a group entity are recognised
at the proceeds received, net of direct issue costs.
Repurchase of the Group’s own equity instruments is recognised and deducted directly in
equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation
of the Group’s own equity instruments.
Financial liabilities
Financial liabilities (including borrowings and trade and other current and non-current
payables) are subsequently measured at amortised cost using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial
liability and of allocating interest expense over the relevant period. The effective interest rate
is the rate that exactly discounts estimated future cash payments (including all fees and points
paid or received that form an integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the financial liability, or (where
appropriate) a shorter period, to the amortised cost of a financial liability.
Financial liabilities are classified as current when they are due to be settled no more than
twelve months after the reporting period; or the Group does not have an unconditional right
to defer settlement of the liability for at least twelve months after the reporting period. Also,
borrowings are classified as current if the lender had a contractual right at the reporting period
to demand immediate repayment of the borrowing due to the breach of conditions set forth
in the agreement.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are
discharged, cancelled or have expired. The difference between the carrying amount of the
financial liability derecognised and the consideration paid and payable is recognised in profit
or loss.
When the Group exchanges with the existing lender one debt instrument into another one
with the substantially different terms, such exchange is accounted for as an extinguishment of
the original financial liability and the recognition of a new financial liability. Similarly, the Group
accounts for substantial modification of terms of an existing liability or part of it as an
AS Pro Kapital Grupp consolidated annual report 2021 96
extinguishment of the original financial liability and the recognition of a new liability. It is
assumed that the terms are substantially different if the discounted present value of the cash
flows under the new terms, including any fees paid net of any fees received and discounted
using the original effective rate is at least 10 per cent different from the discounted present
value of the remaining cash flows of the original financial liability. If the modification is not
substantial, the difference between: (1) the carrying amount of the liability before the
modification; and (2) the present value of the cash flows after modification is recognised in
profit or loss as the modification gain or loss within other gains and losses.
3.20. Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a
result of a past event, it is probable that the Group will be required to settle the obligation and
a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to
settle the present obligation at the end of reporting period, taking into account the risks and
uncertainties surrounding the obligation. Provision is discounted to its present value when the
effect of the time value of money is material.
3.21. Contingent liabilities
Pledges and other commitments, which at certain conditions may turn into liabilities in the
future, are disclosed in the Notes of the consolidated financial statements as contingent
liabilities.
3.22. Statutory reserve
Statutory legal reserve is recorded based on the requirements of the Estonian Commercial
Code and is comprised of the provisions made from the net profit. The annual provision must
be at least 1/20 of the approved net profit of the financial year until the statutory legal reserve
equals at least 1/10 of share capital amount.
3.23. Revenue recognition
The Group recognises revenue to depict the transfer of promised goods or services to the
customer in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services, excluding amounts collected on behalf of third
parties. The Group recognises revenue when it transfers control of a product or service to a
customer.
Revenue from contracts with customers other than rental income
Revenues from the sale of real estate
The Group develops and sells residential and commercial properties. The Group enters into
preliminary contracts with customers to sell property that are either completed or under
AS Pro Kapital Grupp consolidated annual report 2021 97
development. Property is sold when the final agreement is confirmed by the notary and the
control over the property has been transferred to the customer. The revenue is measured at
the transaction price under the contract and the consideration is due when legal title has been
transferred. The properties have generally no alternative use for the Group due to contractual
restrictions. However, an enforceable right to payment does not arise until legal title has
passed to the customer. Therefore, revenue is recognised at a point in time when the legal title
has passed to the customer and the premises have been handed over.
(i) Completed inventory property
The sale of completed property constitutes a single performance obligation and the Group has
determined that this is satisfied at the point in time when control transfers. For unconditional
exchange of contracts, this generally occurs when legal title transfers to the customer. For
conditional exchanges, this generally occurs when all significant conditions are satisfied.
Payments are received when legal title transfers which is usually within six months from the
date when contracts are signed.
(ii) Inventory property under development
The Group considers whether there are promises in the contract that are separate
performance obligations to which a portion of the transaction price needs to be allocated. For
contracts relating to the sale of property under development, the Group is responsible for the
overall management of the project and identifies various goods and services to be provided,
including design work, procurement of materials, site preparation and foundation pouring,
framing and plastering, mechanical and electrical work, installation of fixtures (e.g., windows,
doors, cabinetry, etc.) and finishing work. The Group accounts for these items as a single
performance obligation because it provides a significant service of integrating the goods and
services (the inputs) into the completed property (the combined output) which the customer
has contracted to buy. For the sale of property under development, the Group has determined
that it generally does not meet the criteria to recognise revenue over time. In these cases,
control is transferred and hence revenue is recognised at a point in time. This is either property
sold to one customer encompassing either all of the land and building or multi-unit property.
For contracts that meet the over time revenue recognition criteria, the Group’s performance
is measured using an input method, by reference to the costs incurred to the satisfaction of a
performance obligation (e.g., resources consumed, labour hours expended, costs incurred,
time elapsed or machine hours used) relative to the total expected inputs to the completion
of the property. The Group excludes the effect of any costs incurred that do not contribute to
the Group’s performance in transferring control of goods or services to the customer (such as
unexpected amounts of wasted materials, labour or other resources) and adjusts the input
method for any costs incurred that are not proportionate to the Group’s progress in satisfying
the performance obligation (such as uninstalled materials).
(iii) Other consideration related to the sale of inventory property
In determining the transaction price, the Group considers the effects of variable consideration,
the existence of significant financing components, non-cash consideration, and consideration
payable to the customer (if any).
AS Pro Kapital Grupp consolidated annual report 2021 98
If the consideration in a contract for the sale of property under development includes a
variable amount in the form of delay penalties and, in limited cases, early completion bonuses,
the Group estimates the amount of consideration to which it will be entitled in exchange for
transferring the goods to the customer. The variable consideration is constrained until it is
highly probable that a significant revenue reversal in the amount of cumulative revenue
recognised will not occur. At the end of each reporting period, an entity updates the estimated
transaction price, including its assessment of whether an estimate of variable consideration is
constrained to represent faithfully the circumstances present at the end of the reporting
period and the changes in circumstances during the reporting period.
For some contracts involving the sale of property, the Group is entitled to receive an initial
deposit. This is not considered a significant financing component because it is for reasons other
than the provision of financing to the Group. The initial deposits are used to protect the Group
from the other party failing to adequately complete some or all of its obligations under the
contract where customers do not have an established credit history or have a history of late
payments.
In addition, for certain contracts involving the sale of property under development, the Group
may require customers to make advance payments of 10-20% of the selling price, as work goes
on, that give rise to a significant financing component. For contracts where revenue is
recognised over time, the Group uses the practical expedient for the significant financing
component, as it generally expects, at contract inception, that the length of time between
when the customers pay for the asset and when the Group transfers the asset to the customer
will be one year or less. For contracts where revenue is recognised at a point in time (i.e., upon
completion of the development) and the practical expedient cannot be applied, the Group
adjusts the transaction price for the effects of the significant financing component by
discounting it using the rate that would be reflected in a separate financing transaction
between the Group and its customers at contract inception. However, the Group has
concluded that the impact from this adjustment is immaterial to the financial statements of
both the current and prior years.
The Group has determined that contracts involving the sale of completed property do not
contain significant financing components. In addition, there is no non-cash consideration or
consideration payable to customers.
Revenue from hotel operations
The Group operates a hotel in Bad Kreuznach, Germany. The hotel derives revenue from
providing accommodation, renting of banquet halls and related facilities, providing catering,
offering access to the thermal bath etc. Revenue from the sale of goods and sale of services is
recognised when the Group sells a product or services to the customer which represents the
point in time at which the right to consideration becomes unconditional. Payment of the
transaction price is usually due immediately when the customer purchases a product or the
service is provided.
AS Pro Kapital Grupp consolidated annual report 2021 99
Revenue from maintenance services
The Group provides maintenance services, which includes only one performance obligation to
apartment associations in the residential buildings that the Group has developed. These
services represent a series of daily services that are individually satisfied over time because the
tenants simultaneously receive and consume the benefits provided by the Group. The services
are regularly provided to the customers for a fixed fee based on long-term contracts and the
Group records revenues monthly on accrual basis and receives payments accordingly. The
Group applies the time elapsed method to measure progress and revenue is recognised over
time.
Revenue from other services
Revenue from other services is irregular and is recognised depending on the provided service
over time or at point in time when the promised goods or service is transferred to the
customer.
Rental income
The Group’s policy for recognition of revenue from operating leases is described in
paragraph 3.23 below.
Other income
Income, which is not related to the core operations of the Group entities, is recorded as other
income.
Dividend and interest income
Dividend income from investments is recognised when the shareholder’s right to receive
payment has been established (provided that it is probable that the economic benefits will flow
to the Group and the amount of income can be measured reliably).
Interest income from a financial asset is recognised using the effective interest rate method.
Interest income is accrued on time basis, by reference to the principal outstanding and at the
effective interest rate applicable, which is the rate that exactly discounts estimated future cash
payments or receipts through the expected life of the financial asset to the gross carrying
amount of a financial asset.
3.24. Expenses
Cost of sales
Cost of sales includes the costs of bringing real estate objects that are realized during the
reporting period and recorded in the net sales to a marketable condition. Real estate rental,
development and management expenses, and costs related to hotel management services are
also recorded in income statement under “Cost of sales”.
AS Pro Kapital Grupp consolidated annual report 2021 100
Marketing expenses
Marketing expenses include selling expenses, i.e. advertising, agency fees and other marketing
expenses.
Administration expenses
Administration expenses include personnel and office management expenses, amortisation
cost of plant, property and equipment.
Other expenses
Expenses, which are not related to the core operations of the Group entities, are recorded as
other expenses.
Borrowing cost
Borrowing costs directly attributable to the acquisition, construction or production of
qualifying assets, which are assets that necessarily take a substantial period of time (more than
one year) to get ready for their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their intended use or sale. Investment
income earned on the temporary investment of specific borrowings pending their expenditure
on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other
borrowing costs are recognised in profit or loss in the period in which they are incurred.
Interest and financing costs are recorded using effective interest rate method on the accrual
basis as financial expenses of the reporting period.
3.25. Leases
The Group as a Lessee
The Group assesses whether a contract is or contains a lease, at inception of the contract. The
Group recognises a right-of-use asset and a corresponding lease liability with respect to all
lease arrangements in which it is the lessee, except for short-term leases (defined as leases
with a lease term of 12 months or less) and leases of low value assets (such as tablets and
personal computers, small items of office furniture and telephones). For these leases, the
Group recognises the lease payments as an operating expense on a straight-line basis over the
term of the lease unless another systematic basis is more representative of the time pattern in
which economic benefits from the leased assets are consumed.
The lease liability is initially measured at the present value of the lease payments that are not
paid at the commencement date, discounted by using the rate implicit in the lease. If this rate
cannot be readily determined, the Group uses its incremental borrowing rate.
AS Pro Kapital Grupp consolidated annual report 2021 101
Lease payments included in the measurement of the lease liability comprise:
- Fixed lease payments, less any lease incentives receivable;
- Variable lease payments that depend on an index or rate, initially measured using the
index or rate at the commencement date;
- The amount expected to be payable by the lessee under residual value guarantees;
- The exercise price of purchase options, if the lessee is reasonably certain to exercise
the options; and
- Payments of penalties for terminating the lease, if the lease term reflects the exercise
of an option to terminate the lease.
The lease liability is subsequently measured by increasing the carrying amount to reflect
interest on the lease liability (using the effective interest method) and by reducing the carrying
amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related
right-of-use asset) whenever:
- The lease term has changed or there is a significant event or change in circumstances
resulting in a change in the assessment of exercise of a purchase option, in which case
the lease liability is remeasured by discounting the revised lease payments using a
revised discount rate.
- The lease payments change due to changes in an index or rate or a change in expected
payment under a guaranteed residual value, in which cases the lease liability is
remeasured by discounting the revised lease payments using an unchanged discount
rate (unless the lease payments change is due to a change in a floating interest rate, in
which case a revised discount rate is used).
- A lease contract is modified and the lease modification is not accounted for as a
separate lease, in which case the lease liability is remeasured based on the lease term
of the modified lease by discounting the revised lease payments using a revised
discount rate at the effective date of the modification.
The Group did not make any such adjustments during the periods presented.
The right-of-use assets comprise the initial measurement of the corresponding lease liability,
lease payments made at or before the commencement day, less any lease incentives received
and any initial direct costs. They are subsequently measured at cost less accumulated
depreciation and impairment losses.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the
underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-
of-use asset reflects that the Group expects to exercise a purchase option, the related right-
of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts
at the commencement date of the lease.
The right-of-use assets are presented as a separate line in the consolidated statement of
financial position.
The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts
for any identified impairment loss as described in 3.13 Impairment of non-current assets other
than goodwill policy.
AS Pro Kapital Grupp consolidated annual report 2021 102
The Group as a Lessor
The Group earns revenue from acting as a lessor in operating leases which do not transfer
substantially all of the risks and rewards incidental to ownership of an investment property.
Rental income arising from operating leases on investment property is accounted for on a
straight-line basis over the lease term and is included in revenue in the statement of profit or
loss due to its operating nature, except for contingent rental income which is recognised when
it arises. Initial direct costs incurred in negotiating and arranging an operating lease are
recognised as an expense over the lease term on the same basis as the lease income.
Leases are classified as finance leases whenever the terms of the lease transfer substantially
all the risks and rewards of ownership to the lessee. All other leases are classified as operating
leases.
For investment property held primarily to earn rental income, the Group enters as a lessor into
lease agreements that fall within the scope of IFRS 16. These agreements include certain
services offered to tenants (i.e., customers) including common area maintenance services
(such as cleaning, security, landscaping and snow removal of common areas), as well as other
support services. The consideration charged to tenants for these services includes fees charged
based on proportion of rented spaces and reimbursement of certain expenses incurred. These
services are specified in the lease agreements and separately invoiced.
The Group has determined that these services constitute distinct non-lease components
(transferred separately from the right to use the underlying asset) and are within the scope of
IFRS 15. The Group allocates the consideration in the contract to the separate lease and
revenue (non-lease) components on a relative stand-alone selling price basis.
The Group has entered into commercial property leases on its investment property portfolio.
The Group has determined, based on an evaluation of the terms and conditions of the
arrangements, such as the lease term not constituting a major part of the economic life of the
commercial property and the present value of the minimum lease payments not amounting to
substantially all of the fair value of the commercial property, that it retains substantially all the
risks and rewards incidental to ownership of this property and accounts for the contracts as
operating leases.
Rent receivables
Rent receivables are recognised at their original invoiced value except where the time value of
money is material, in which case rent receivables are recognised at fair value and subsequently
measured at amortised cost. For more details see financial assets section 3.16 in this note.
Tenant deposits
Tenant deposits are initially recognised at fair value and subsequently measured at amortised
cost. Any difference between the initial fair value and the nominal amount is included as a
component of operating lease income and recognised on a straight-line basis over the lease
term. Refer also to accounting policies on financial liabilities in this note.
AS Pro Kapital Grupp consolidated annual report 2021 103
3.26. Government grants
Government grants are not recognised until there is reasonable assurance that the Group will
comply with the conditions attaching to them and that the grants will be received. Government
grants are recognised in profit or loss on a systematic basis over the periods in which the Group
recognises as expenses the related costs for which the grants are intended to compensate.
Government grants that are receivable as compensation for expenses or losses already
incurred or for the purpose of giving immediate financial support to the Group with no future
related costs are recognised in profit or loss in the period in which they become receivable.
3.27. Taxation
Estonia
According to the Estonian Income Tax Act the accrued profit of a resident legal entity is not
subject to corporate income tax, instead the tax is due on the distribution of dividends. Income
tax should be calculated also on other payments made from equity that are exceeding the
monetary or non-monetary contributions made to the equity. The tax rate applicable is 20/80
from taxable amount since 1 January 2015. From 2019, tax rate of 14/86 can be applied to
dividend payments that be used for dividend payments in the amount of up to the average
dividend payment during the three preceding years that were taxed with the tax rate of 20/80.
2018 is the first year to be taken into account.
Income tax expense to be incurred at the payment of dividends is recognized in the income
statement as expense at announcement of dividends or any other distribution of equity.
The Group recognises a deferred tax liability for all taxable temporary differences associated
with subsidiaries, except if the timing of reversal of the temporary differences can be
controlled and it is probable will not reverse in the foreseeable future.
Other subsidiaries
Profit earned by subsidiaries of the Group is imposed to income tax according to the tax rate
stipulated by the legislation of domicile countries. Deferred income tax liability is accounted
from all relevant temporary differences between the tax bases of assets and liabilities and their
book value. Deferred income tax assets, which are mainly caused by the tax losses carried to
future periods, are recognized in the statement of financial position only, when it is likely that
it will be realized through the taxable profit earned in the future. Deferred tax assets and
liabilities are offset when there is a legally enforceable right in the Group subsidiaries’ countries
of incorporation to set off current tax assets against current tax liabilities. For calculation of
the deferred income tax assets and liabilities, generally the income tax rate enacted or
substantially enacted at the balance sheet date is used.
AS Pro Kapital Grupp consolidated annual report 2021 104
3.28. Segment reporting
According to IFRS 8 Operating Segments, segment reporting is applicable to operating
segments whose results are regularly reviewed by the chief decision makers of the Company
to make business-related decisions. The primary decisions are made on country basis.
Operating segments are components of the entity for which it is possible to obtain discrete
financial information to make decisions about resources to be allocated to the segment and
assess its performance. Primary criteria for monitoring of operating segments are the
following: Revenue from third parties, EBIT, net profit earned and total assets.
3.29. Subsequent events
Consolidated financial statements include impact of significant events that are related with the
events of previous periods that affect the valuation of assets and liabilities and occurred
between the end of the reporting period and the date that the financial statements are
finalized by the management board of the Company.
Events after the reporting period that do not affect the valuation of assets and liabilities but
have a significant effect on the result of the following financial year, are disclosed in the Notes
to the consolidated financial statement.
Note 4. Significant accounting judgements, estimates
and assumptions
In the application of the Group’s accounting policies, which are described in Note 3, the
management is required to make judgements, estimates and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the period in which the estimate is revised if the
revision affects only that period or in the period of the revision and future periods if the
revision affects both current and future periods.
4.1. Significant judgements in applying accounting policies
The following are the critical judgements, that the management have made in the process of
applying the Group’s accounting policies and that have the most significant effect on the
amounts recognised in the consolidated financial statements.
Classification of real estate
Real estate classification to inventory, investment property or property, plant and equipment
is done based on management’s intention over the future use of the object (see Note 10; 12
and 13). Property is recognized as inventory, if the objective of purchase is connected with its
AS Pro Kapital Grupp consolidated annual report 2021 105
development, sale or resale during ordinary course of business. Items are recognized as
investment property if purchase objective is gaining profit from rent or capital appreciation.
Also, items are recognized as investment property if it is intended to keep them for long time
and which have unclear purposes of use.
The Group takes into account the following considerations when reviewing the strategy and
which are decisive for classification of the real estate asstes as investment properties:
- there has been no development of such properties over the past 10 years;
- during the upcoming 5+ years perspective the Group has no intention to start developing
these properties;
- there are no current plans to sell these properties in the near future;
- the essence of these properties is to be held for capital appreciation;
- an average operating cycle of the Group is usually about 2 years, very complex projects can
take up to 4 years, which is less than 5+ years perspective.
Property used for rendering services or for administrative purposes and with useful life of over
one year is considered to be property, plant and equipment.
4.2. Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of
estimation uncertainty at the end of the reporting period, that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within the next financial
year. In respect of those assets Notes 10, 11, 12, 13 include details of their nature and their
carrying amount through the end of the reporting period.
Estimation of net realisation value of inventories
According to the Group principles, inventories are stated on the statement of financial position
at the lower of cost or net realizable value, depending on which is lower. The management
should decide upon net realization value if indication occurs that inventory value might be
fallen below cost price. If this is the case inventories are written down to their net realization
value.
Real estate that has been acquired and developed for sale is presented on the statement of
financial position as inventories. In assigning value to such assets, management takes in
account market sale transactions of similar type of assets made close to the balance sheet
date. If actual sale prices of real estate objects were below the statement of financial position
value the assets were written down to their net realizable value.
Fair value of investment property
As of balance sheet date the investment properties are measured at their fair value. In
determination of the fair value opinion of independent certified real estate appraisers is used.
In determination of the fair value two methods are used: discounted cash flow method and
comparative transaction price method, whichever is more appropriate considering the
circumstances.
AS Pro Kapital Grupp consolidated annual report 2021 106
Recoverable value of property, plant and equipment
At the end of each reporting period, the management reviews the carrying amounts of its
assets to determine whether there are any indications that the assets may be impaired. If the
indication is detected, recoverable value is calculated. In determining the recoverable value of
an asset, the impairment test is carried out during what the recoverable value is identified. The
recoverable value of the asset is the higher of the present value of the future cash flows from
the asset or the fair value of the asset less costs to sell.
For assets carried at revalued amount the management is assessing yearly whether carrying
amount approximates fair value.
Useful life of property, plant and equipment
In determining useful life of property, plant and equipment, taken into account the Group
business conditions and volumes, previous experience in relevant field and future plans.
According to management estimation useful life for buildings is 20-50 years. Useful life for
machinery and equipment 5 to 12.5 years depending on the purpose of use and for other
equipment 2 to 5 years.
Loss of control over subsidiary
On 2 June 2021 Harju County Court declared bankruptcy of AS Tallinna Moekombinaat and
appointed bankruptcy trustees. In evaluating the timing of loss of control, the Group applied
judgment by evaluating the provisions of IFRS 10 along with the provisions of the Estonian
Reorganisation Act § 2 and Bankruptcy Act § 1. Based on the above, management concluded
that the loss of control occurred on 02 June 2021 concurrently with the declaration of the
bankrupcy as until that time all control criteria (Note 3.3) were met. From 2 June 2021 and
considering the provisions of the Estonian Bankrupcy Act, the Group lost its power over the
investee, rights to variable return and consequently its ability to affect and its rights to variable
returns. Thus the Group deconsolidated the subsidiary from its consolidated reports from that
time. As the net assets of the subsidiary had negative value at the moment of deconsolidation
and the fair value of the investment was assessed to be zero, the Group did not recognise the
subsidiary as a financial asset.
AS Pro Kapital Grupp consolidated annual report 2021 107
Note 5. Entities belonging to the Group
* AS Tallinna Moekombinaat was declared bankrupt on 2 June 2021 and derecognised from the Group’s
consolidated accounts (Note 37).
Name of the Entity
Country of
incorporation
and operation
Proportion of ownership
interest and voting power
held by the Group
Principal activity
31.12.2021
31.12.2020
AS Pro Kapital Grupp
Estonia
Holding activities, parent
Held directly by AS Pro Kapital Grupp:
AS Pro Kapital Eesti
Estonia
100.00%
100.00%
Real estate development
Pro Kapital Vilnius Real Estate UAB
Lithuania
100.00%
100.00%
Real estate development
Pro Kapital Latvia PJSC
Latvia
100.00%
100.00%
Real estate development
OÜ Pro Kapital Germany Holdings
Estonia
100.00%
100.00%
Real estate development
Pro Kapital Germany GmbH
Germany
100.00%
100.00%
Real estate development
Held directly by AS Pro Kapital Eesti:
OÜ Ilmarise Kvartal
Estonia
100.00%
100.00%
Real estate development
AS Tondi Kvartal
Estonia
100.00%
100.00%
Real estate development
OÜ Pro Halduse
Estonia
100.00%
100.00%
Real estate management
AS Tallinna Moekombinaat*
Estonia
93.35%
93.35%
Shopping centre
OÜ Kalaranna Kvartal
Estonia
100.00%
100.00%
Real estate development
Held directly by AS Tondi Kvartal:
OÜ Marsi Elu
Estonia
100.00%
100.00%
Real estate development
OÜ Dunte Arendus
Estonia
100.00%
100.00%
Real estate development
Held directly by Pro Kapital Vilnius Real Estate UAB:
PK Invest UAB
Lithuania
100.00%
100.00%
Real estate development
In Vitam UAB
Lithuania
100.00%
100.00%
Real estate management
Held directly by Pro Kapital Latvia PJSC:
Klīversala SIA
Latvia
100.00%
100.00%
Real estate development
Tallina Nekustamie Īpašumi SIA
Latvia
100.00%
100.00%
Real estate development
Nekustamo īpašumu sabiedrība
Zvaigznes centrs SIA
Latvia
100.00%
100.00%
Real estate development
Held directly by OÜ Pro Kapital Germany Holdings:
PK Hotel Management Services GmbH
Germany
100.00%
100.00%
Hotel management
AS Pro Kapital Grupp consolidated annual report 2021 108
Note 6. Segment reporting
Group companies consolidated segment information derived from geographical intercompany
segment reporting is presented below.
Segment result, assets and liabilities are presented in line with items associated directly with
particular segment. Internal transactions are not eliminated in separate segment reporting
provided below.
The business activity of the Group is exercised in Estonia (sale of real estate, rent revenues
from operating T1 Mall of Tallinn until loss of control in subsidiary and real estate
maintenance), Latvia (sale of real estate, rent and real estate maintenance), Lithuania (sale of
real estate, rent and real estate maintenance) and Germany (hotel operating).
in thousands of euros
PKG
Holding
Estonia
Latvia
Lithuania
Germany
Elimina-
tions
Total
2021
Revenue (Note 25)
749
37 101
2 411
1 639
1 998
-803
43 095
Incl. sales of real estate
0
36 971
2 314
1 331
0
40 616
Incl. rental income
0
3
78
18
0
99
Incl. hotel operating
0
0
0
0
1951
1 951
Incl. maintenance services
0
73
0
278
0
351
Incl. other services
749
54
19
12
47
-803
78
Other operating income & expenses
(net)
-21
33 953
272
5
1 002
2
35 213
Incl. fair value adjustments
0
5 278
262
0
0
0
5 540
Segment operating profit/ loss
-2 020
41 443
252
-135
571
16
40 127
Finance income and cost (net)
-5 964
-3 849
-454
52
-156
-9
-10 380
Profit/ loss before income tax
-7 984
37 594
-202
-83
415
7
29 747
Income tax
0
0
-1
16
-5
10
Non-controlling interest
0
0
0
0
0
0
Net profit/ loss for the financial year
attributable to owners of the
Company
-7 984
37 594
-203
-67
410
7
29 757
31.12.2021
Assets
55 494
158 914
27 969
13 815
7 220
-147 385
116 027
Liabilities
133 882
28 712
20 254
1 488
4 692
-115 844
73 184
Acquisition of non-current assets
(excluding investment properties)
0
4
8
6
166
185
Write-off of non-current assets
0
-129
-22
-19
0
-170
Depreciation and amortisation
0
46
-23
-8
-231
-216
AS Pro Kapital Grupp consolidated annual report 2021 109
in thousands of euros
PKG
Holding
Estonia
Latvia
Lithuania
Germany
Elimina-
tions
Total
2020
Revenue (Note 25)
736
6 687
2 007
8 874
1 684
-754
19 234
Incl. sales of real estate
0
1 002
1 903
8 574
0
11 479
Incl. rental income
0
5 588
78
23
0
5 689
Incl. hotel operating
0
0
0
0
1 684
-12
1 672
Incl. maintenance services
0
62
0
224
0
286
Incl. other services
736
35
26
53
0
-742
108
Other operating income & expenses
(net)
22
-42 874
-602
0
346
-43 108
Incl. fair value adjustments
0
-42 526
-602
0
0
-43 128
Segment operating profit/ loss
-1 369
-43 517
-613
2 786
-404
9
-43 108
Finance income and cost (net)
-5 917
-9 425
-475
-15
-148
-14
-15 994
Profit/ loss before income tax
-7 286
-52 942
-1 088
2 771
-552
-5
-59 102
Income tax
0
0
-2
-348
-4
-354
Non-controlling interest
0
-3 778
0
0
0
-3 778
Net profit/ loss for the financial year
attributable to owners of the
Company
-7 286
-49 164
-1 090
2 423
-556
-5
-55 678
31.12.2020
Assets
53 832
214 948
28 224
13 518
7 492
-138 966
179 048
Liabilities
124 237
125 854
20 306
1 401
5 096
-107 417
169 477
Acquisition of non-current assets
(excluding investment properties)
0
60
1
3
73
137
Write-off of non-current assets
0
-33
-11
0
0
-44
Depreciation and amortisation
-5
-62
-49
-29
-227
-372
Note 7. Changes in ownership in subsidiaries
AS Tallinna Moekombinaat received a loan of 65 million euros for the construction of T1 Mall
of Tallinn during 2016-2018. Operating profitability of AS Tallinna Moekombinaat was lower
than expected and it triggered non-fulfilment of two financial maintenance covenants under
the loan facility agreement. The subsidiary entered into negotiations with the lender.
Negotiations turned to be unsuccessful and on 3 April 2020 Harju County Court initiated
reorganisation proceedings of AS Tallinna Moekombinaat. However, the court proceedings in
all three instances did not support reorganisation of the subsidiary. On 26 April 2021 the
reorganisation proceedings of AS Tallinna Moekombinaat were terminated and the subsidiary
became permanently insolvent. The Company is not consolidating the subsidiary into group
financial reports from the moment of loss of control since 2 June 2021, when AS Tallinna
Moekombinaat was declared bankrupt. More information can be found in Notes 24 and 37.
AS Pro Kapital Grupp consolidated annual report 2021 110
Note 8. Cash and cash equivalents
in thousands of euros
31.12.2021
31.12.2020
Cash at hand
8
12
Bank accounts
9 618
9 381
Total
9 626
9 393
Cash and cash equivalents recorded in the statement of financial position and statement of
cash flows comprise cash at hand and bank accounts as at the end of each reporting period.
Foreign currency accounts in SEK (Swedish krona) have been translated into euros at the
European Central Bank currency exchange rates prevailing on the reporting date.
Note 9. Current receivables
in thousands of euros
31.12.2021
31.12.2020
Trade receivables from contracts with customers
667
152
Trade receivables related to operating leases (IFRS 15)
0
1 027
Allowance for doubtful debts
-41
-511
Other receivables
44
60
Accrued income
10
27
Total
680
755
Trade receivables from contracts with customers have increased by 515 thousand euros
compared to the previous period mainly due to final sales transactions concluded in Kalaranna
Kvartal at the end of 2021. The decrease in allowance for doubtful debts is related to
derecognition of T1 Mall of Tallinn from the group.
Note 10. Inventories
in thousands of euros
31.12.2021
31.12.2020
Completed property
20 635
11 534
incl. Kristina Houses, Tallinn
19
58
incl. Kalaranna District, Tallinn
11 548
0
incl. River Breeze, Riga
7 213
8 705
incl. Šaltinių Namai | Attico, Vilnius
1 747
2 663
incl. other properties
108
108
Works in progress
36 731
46 694
incl. Kristiine City, Tallinn
11 361
7 059
incl. Kalaranna District, Tallinn
19 352
33 663
incl. Šaltinių Namai, Vilnius
6 018
5 972
Goods bought for resale
52
124
Prepayments for inventories
115
0
Total
57 533
58 352
AS Pro Kapital Grupp consolidated annual report 2021 111
Completed property include completed real estate stock in Tallinn, Riga and Vilnius. In 2021
completed property with the total value of 23 937 thousand euros has been finalised as sales
in Kalaranna District. The balance of Completed property of Kalaranna District is expexted to
be handed over to the buyers within 2022 – almost all premises have been booked or presold.
Works in progress include properties under development or waiting for development in the
nearest future in Tallinn and Vilnius. After completion properties are transferred from “works
in progress” to “completed property”). Works in progress include two development projects
being currently under construction in Tallinn - Kindrali Houses (part of Kristiine City
development) and Kalaranna District. The following phase of Šaltinių Namai is waiting for the
start of development, construction tender is ongoing.
Note 11. Non-Current receivables
in thousands of euros
31.12.2021
31.12.2020
Accrued income
0
3 490
Finance leases
21
26
Other non-current receivables
0
1
Total
21
3 517
Accrued income in reference period includes accrued rental income of T1 Mall of Tallinn
according to IFRS 16, which has been adjusted with expected credit losses in the amount of
901 thousand euros according to IFRS 9.
Note 12. Property, plant and equipment
Since 2011 the Group’s land and buildings are carried at a revalued amount, being the fair
value at the date of revaluation less any subsequent accumulated depreciation and
subsequent accumulated impairment losses. Fair value of a property is determined either
based on the valuation of an independent expert or the management. Revaluations are
performed with sufficient regularity so that the carrying amounts do not differ materially from
those that would be determined using fair values at the end of each reporting period.
AS Pro Kapital Grupp consolidated annual report 2021 112
Property, plant and equipment at cost
in thousands of euros
Land and
buildings
revaluation
value
Machinery
and
equipment
Other
property,
plant and
equipment
Total
Right-of-
use
assets
01.01.2020
9 077
959
336
10 372
674
Additions:
Acquired
47
27
20
94
0
Disposals and write offs:
Change in fair value
-278
0
0
-278
-10
Written off
0
0
-34
-34
0
31.12.2020
8 846
986
322
10 154
664
Additions:
Acquired
125
40
22
187
0
Change in fair value
40
0
0
40
0
Disposals and write offs:
Derecognition of subsidiary
0
0
-70
-70
-66
Written off
0
0
-12
-12
-24
31.12.2021
9 011
1 026
262
10 299
574
Accumulated depreciation
in thousands of euros
Land and
buildings
revaluation
value
Machinery
and
equipment
Other
property,
plant and
equipment
Total
Right-of-
use
assets
01.01.2020
2115
889
222
3 226
155
Additions:
Charge for the period
152
20
52
224
152
Change in fair value
-16
0
0
-16
0
Disposals and write offs:
Written off
0
0
-25
-25
0
31.12.2020
2 251
909
249
3 409
307
Additions:
Charge for the period
149
26
33
208
138
Change in fair value
-15
0
0
-15
0
Disposals and write offs:
Derecognition of subsidiary
0
0
-46
-46
-50
Written off
0
0
-11
-11
-23
31.12.2021
2 385
935
225
3 545
372
Balance sheet value
in thousands of euros
Land and
buildings
revaluation
value
Machinery
and
equipment
Other
property,
plant and
equipment
Total
Right-of-
use
assets
31.12.2020
6 595
77
73
6 745
357
31.12.2021
6 626
91
37
6 754
202
Valuation of properties
AS Pro Kapital Grupp consolidated annual report 2021 113
According to IFRS 13 classification, land and buildings measured at revalued amounts are
classified as belonging to Level 3 fair value hierarchy. The valuation of such properties is based
on inputs that are not observable and significant to the overall fair value measurement.
Valuations of the Group’s properties are mainly being made by using discounted cash flows
(DCF) method. Considering that the Group is operating a hotel in a property owned by real
estate subsidiary, the valuators do not take into account rental income to property owner, but
hotel’s ability to generate cash flows and to operate properties effectively. Historical data and
expected projections of hotel performance, which include such inputs as occupancy, average
rate, departmental revenues and costs, administrative and marketing costs are used for
valuation. This information is derived from management reporting prepared by hotel manager
and reviewed by Financial Controller. Also, assumptions and valuation models, which are
typically market related such as discount rates and exit yields, are used. Valuation reports are
reviewed and accepted by the Management of the Group.
Sensitivity of measurement to variance of significant unobservable inputs:
- a decrease in the estimated revenues either due to lower occupancy or lower average
room rate will decrease the fair value;
- an increase of departmental and other costs will decrease the fair value;
- an increase in discount and exit yield rates will decrease the fair value.
Discount and exit yield rates are partially determined by market rate conditions but are also
influenced by expected return rate, which is the rate of return expected by the shareholders.
Latest independent valuation was carried out in 2016 for the hotel. However, as per
management’s decision it was not used for revaluation because of too optimistic approach of
the valuator. Due to COVID-19 effect to accommodation industry, the Group decided not to
renew valuation but to use the management assessment of the fair value of the hotel property.
The following assumptions have been used by the management. Gross operating profit (GOP)
of the 1
st
year is based on estimated budget for 2022, 2
nd
year the same as the actual result in
2019. Growth rate of 2% has been used for GOP starting from the 2
nd
year. Calculations include
property taxes, insurance expenses and payments related to the property which are made by
the owner of the heritable right. Although historical investments into property have been lower
with an exception of renovation works in 2016-2017, the management has estimated 100 000
euros for CAPEX expenditure. Discount rate of 7.45% was used. No exit value nor related sales
costs were accounted for.
Sensitivity analyses
GOP
CAPEX
Discount rate
in thousands of euros
+5%
-5%
+5%
-5%
+5%
-5%
Fair value of the hotel property
(5 850 thousand euros)
451
-451
-64
64
-311
339
AS Pro Kapital Grupp consolidated annual report 2021 114
Note 13. Investment property
in thousands of euros
Property held for
increase in value
Properties held for
operating lease
Total
Balance at 01.01.2020
36 465
108 639
145 104
Additions:
Acquired
687
157
844
Changes in fair value:
Income/ loss from change in fair value (Note 26)
2 880
-42 520
-39 640
Double-counted adjustment –
recognised as separate assets
0
-3 487
-3 487
Reclassified into inventories (Note 10)
-4 309
0
-4 309
Balance at 31.12.2020
35 723
62 789
98 512
Additions:
Acquired
435
23
458
Changes in fair value:
Gain/ Loss from change in fair value (Note 26)
5 484
0
5 484
Disposals and write-offs:
Sold
-908
0
-908
Derecognition of Subsidiary (Note 37)
0
-62 812
-62 812
Balance at 31.12.2021
40 734
0
40 734
The fair value of most of the Group’s investment property at 31 December 2021 and
31 December 2020 has been derived on the basis of valuations carried out by Colliers
International independent valuators not related to the Group. Valuation company has
appropriate qualifications and recent experience in the valuation of properties in the relevant
locations. The valuations were performed by reference to recent market information. Mainly
discounted cash flow method was used due to low number of comparable market transactions
in 2020. In 2021 the valuators to use sales comparison method due to uncertainty in the
markets, especially in Latvia.
The total result of valuations in 2021 was 5.5 million euros income, in 2020 respectively
43 million euros loss, of which 46 million from T1 Mall of Tallinn. During 2021 the Group has
paid for investments 0.5 million euros (2020: 0.9 million euros). During reporting period, the
Group lost control of the operator of T1 mall of Tallinn and sold a property in Tallinn, which
was planned to be developed in the latest stage of the project.
Valuation of properties
According to IFRS 13 classification, investment properties owned by the Group are classified as
belonging to Level 3 value hierarchy. The valuation of such properties is based on inputs that
are not observable and significant to the overall fair value measurement.
Valuations of the Group’s properties are being made by independent and qualified experts.
The Group provides valuators with the following information: purpose of a property,
development plans, estimated construction costs and estimated sales or rental prices if
available. Valuators also use assumptions and valuation models, which are typically market
AS Pro Kapital Grupp consolidated annual report 2021 115
related such as discount rates and exit yields. Valuation reports prepared by the experts are
reviewed and accepted by the Management of the Group.
Ülemiste 5, Tallinn
Ülemiste property is situated next to the railway and the future Rail Baltica Ülemiste joint
terminal. It is planned to develop office and retail spaces with total leasable area of 14 410
square meters. In the previous years the market value was calculated using Residual approach
as the property was considered to be an extension to the shopping centre nearby. For 2020
valuation the valuator has considered the following inputs: construction period of 3 year,
starting after 2-year of waiting period, construction cost 906 €/m², total average cost of net
leasable area 1 532 €/m², average rent 13.20 €/m² for retail spaces, total average rent
including annual increase and vacancy loss 11.30 €/m², exit yield after 3.5-year rental period
7% with exit price after vacancy, operating expenses and brokerage fee 13.64 €/m². 6-year
discounted cash flow method was used by the valuator with a discount rate of 12.0%. For 2021
valuation the market value was determined by using sales comparison method. Five
comparable objects were found and comparable transactions were adjusted with different
factor weights. As a result, the value of 203 €/ m² was reached per building right (GBA) square
meter above ground. 18 500 square meters have been considered as GBA for the project. The
change in value comparing to last year was 1 150 thousand euros, the subsidiary has invested
450 euros into the project in 2021, total net effect of revaluation is 1 150 thousand euros.
Kristiine City, Tallinn
Kristiine City is one of the largest residential blocks in the Baltics, located close to the city centre
in the former Dunte summer manor and latter territory of the military school. It has been
planned to develop the territory in 5 phases. The first two phases have been completed: a red
brick historical building (Tondi 51), former officers’ building (Marsi 6 lofts) and stable (Ratsuri
Houses) have been renovated and 10 new houses with more than 300 apartments have been
built. The valuator has considered the following inputs in valuation of investment for different
phases: total net sellable residential area of 50 804 square meters and rentable commercial
area of 1 531 square meters (2020: 46 929 square meters and 4 130 square meters),
construction period for each phase 2-3 years (2020: the same), construction cost 884 €/m²
(2020: 691-738 €/m²), total average cost of net areas 1 640 €/m² (2020: 1 524 €/m²), starting
average sale price 2 300 €/m² (2020: 2 130 €/m²), total average apartment sale price with
annual increase including storage and parking areas 2 600 €/m² (2020: 2 384 €/m²). Rental
revenues were not assumed for commercial spaces (2020: starting average rent 11 €/m², total
average rent including annual increase and vacancy loss 12.01 €/m², exit yield after 2-year
rental period 7.25-7.75% with exit price after vacancy, operating expenses and brokerage fee
11.99 €/m²). For valuation 13-years (2020: 11.5-years) discounted cash flow method has been
used by the valuator with discount rate 12.0% (2020: the same). The change in value comparing
to last year was 3 240 thousand euros, the subsidiary has invested 76 thousand euros into the
project in 2021, sold a property at cost of 908 thousand euros, total net effect of revaluation
is 4 072 thousand euros.
Kliversala residential complex, Riga
AS Pro Kapital Grupp consolidated annual report 2021 116
Kliversala is a residential and commercial development project located on the left bank of river
Daugava. The land is located between two main bridges, next to one of the biggest parks in
Riga and has a long coastline. The property is situated on the waterfront and provides views of
the Old Town on the opposite bank. The project for the residential area foresees a series of
exclusive apartment buildings coupled with commercial premises. It has been planned to
develop the property in phases. The first phase, the River Breeze Residence, was completed in
spring 2018 and is recorded as saleable inventories. Remaining phases are classified as
investment property. Net sellable residential area of 52 493 square meters and rentable
commercial area of 1 271 square meters were valued in 2021 (2020: residential area of 51 575
square meters and rentable commercial area of 1 271 square meters). The valuator has used
in valuation two approaches – income approach for the next phase and market approach for
the remaining of the property. For 6 682 net sellable area the following inputs were considered
(comparative data in 2020 is for the full project), construction period of
2 years for each phase, average construction cost 1 000 €/m² (2020: 992 €/m²), total average
cost of net areas 2 305 €/m² (2020: 2 232 €/m²), starting average apartment sale price
3 200 €/m² (2020: 3 000 €/m²), total average apartment sale price with annual increase
including storage and parking areas 3 388 €/m² (2020: 3 583 €/m²). 4-year discounted cash
flow method has been used by the valuator with a discount rate of 11.00% and starting without
delay (2020: 13-year discounted cash flow method has been used by the valuator with a
discount rate of 11.35% and starting without delay). For market approach and sales
comparison method in 2021 five comparable objects were found and comparable transactions
were adjusted with different factor weights. As a result, the value of 155.30 €/ m² was reached
per building right (GBA) square meter above ground. 73 413 square meters have been
considered as GBA for the project. The change in value comparing to last year was
556 thousand euros, the subsidiary has invested 80 thousand euros into the project in 2021,
total net effect of revaluation is 476 thousand euros.
City Oasis residential complex, Riga
City Oasis is a residential development project located in Tallinas street, Riga at the right bank
of river Daugava, right next to the border of Riga’s historical City Centre. The project for the
residential area foresees a series of apartment buildings with commercial functions on the first
floor with net sellable area of 20 814 square meters and 357 square meters respectively. It has
been planned to develop the property in one phase. In 2021 the valuator has used the market
(comparable sales) approach for valuation. In 2020 the valuator has considered the following
inputs in valuation: construction period of two years, construction cost 857 €/m², total average
cost of net areas 1 810 €/m², starting average apartment sale price 2 500 €/m², total average
apartment sale price with annual increase including storage and parking areas 2 768 €/m²,
starting average rent 13 €/m² for commercial spaces, total average rent including annual
increase and vacancy loss 12.55 €/m², exit yield after 2 year rental period 7.25% with exit price
after vacancy, operating expenses and brokerage fee 7.21 €/m², 7-year discounted cash flow
method has been used by the valuator with a discount rate of 11.00% and with the assumption
of start after one year waiting period.
For market approach and sales comparison method in 2021 four comparable objects were
found and comparable transactions were adjusted with different factor weights. As a result,
the value of 114.9 €/ m² was reached per building right (GBA) square meter above ground. 31
631 square meters have been considered as GBA for the project. The change in value
comparing to last year was 60 thousand euros, the subsidiary has invested 176 thousand euros
AS Pro Kapital Grupp consolidated annual report 2021 117
into the projecting of the property in 2021, total net effect of revaluation is 116 thousand
euros.
Brivibas Business Quarter, Riga
Brivibas is a mixed development project located at one of the main transport arteries heading
through the city, next to the railways within a former industrial area. The project foresees
renovation of the existing industrial building into mostly office buildings with total net rentable
area of 18 080 square meters. The project is expected to be developed in two phases as the
initial phase includes the renovation. In 2021 the valuator has used the market (comparable
sales) approach for valuation. In 2020 the valuator has considered the following inputs in
valuation: construction period of 2 years of each phase, 4 years in total without a waiting
period, construction cost 822 €/m², total average cost of net areas 1 678 €/m², starting rent
11.5-13.5 €/m² for commercial spaces, total average rent including annual increase and
vacancy loss 7.39 €/m², exit yield after 3-5-year rental period 7.5% with exit price after vacancy,
operating expenses and brokerage fee 13.17 €/m². For valuation 6 -year discounted cash flow
method has been used by the valuator with a discount rate of 11.25%. For market approach
and sales comparison method in 2021 four comparable objects were found and comparable
transactions were adjusted with different factor weights. As a result, the value of 76.70 €/ m²
was reached per building right (GBA) square meter above ground. 31 212 square meters have
been considered as GBA for the project. The change in value comparing to last year was
6 thousand euros, the subsidiary has invested 103 thousand euros into the project in 2021,
total net effect of revaluation is -97 thousand euros.
For all investment properties the average of 4.5% disposal costs (property costs and
maintenance until sales, direct sales costs including commissions) from total sales and rental
revenue is considered by the valuator in discounted cash flows model.
The following tables illustrate possible changes to fair value of investment property (in
thousands of euros) given changes in main unobservable inputs as presented in Colliers’s
valuation reports:
31.12.2020
Fair value
Construction
costs/m
2
Sale price/ m
2
Rent price/ m
2
Exit yield
5%
-5%
5%
-5%
5%
-5%
5%
-5%
T1 Mall*
66 276
N/A
N/A
N/A
N/A
3 660
-3 660
-2 763
4 463
Ülemiste
2 610
-780
760
N/A
N/A
920
-900
-730
790
Kristiine City
13 800
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Kliversala
13 348
-3 450
3 450
4 080
-4 090
100
-100
N/A
N/A
City Oasis
3 576
-1 560
1 560
1 735
-1 735
36
-36
N/A
N/A
Brivibas
2 388
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
31.12.2021
Fair
value
Construction
costs/m
2
Sale price/ m
2
Rent price/ m
2
Discount rate
5%
-5%
5%
-5%
5%
-5%
5%
-5%
Ülemiste
(SCA)**
3 760
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Kristiine City
17 040
N/A
N/A
N/A
N/A
N/A
N/A
-590
640
AS Pro Kapital Grupp consolidated annual report 2021 118
Kliversala
(Income +
SCA)***
13 904
-1 370
690
770
-770
N/A
N/A
-140
140
City Oasis
(SCA)
3 636
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Brivibas
(SCA)
2 394
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
*In 2021 the Group lost control over the subsidiary who owned and operated the mall
** SCA as sales comparison approach, no sensitivity analyses provided by the valuator
***Sensitivity is provided for the component of income approach with the value of 2.5 million euros
All estimated costs, sales and rental prices in this Note are presented without VAT.
Investment properties of the Group are evaluated based on the assumed highest and best use
according to management judgement.
Information about investment property pledged as collaterals is disclosed in Note 21 to these
consolidated financial statements.
Note 14. Current debt
in thousands of euros
Loans and
overdrafts
(Note 19)
Convertible
bonds
(Note 20)
Non-
convertible
bonds
(Note 20)
Current
portion of
financial
lease
Total
01.01.2020
77 726
5 875
27 967
191
111 759
Changes from financing cash flows
345
-33
-28 000
-181
-27 869
Other changes
387
-4 546
27 675
175
23 691
31.12.2020
78 458
1 296
27 642
185
107 581
Changes from financing cash flows
0
-337
0
-142
-479
Other changes
-74 818
-765
-27 642
79
-103 146
31.12.2021
3 640
194
0
122
3 956
The balance of current debt has changed mainly due to refinancing of convertible and non-
convertible bonds in 2020.
AS Pro Kapital Grupp consolidated annual report 2021 119
The major change in current debt in 2021 is related to the subsidiary AS Tallinna
Moekombinaat. Due to loss of control on 2 June 2021, the loans related to the subsidiary were
deconsolidated including the development loan with accumulated interests in the total
amount of 75.4 million euros. Non-convertible bonds were refinanced in 2020, but new bonds
were remained classified as current debt due to the breach with financial covenants at this
point of time. Investors provided the waiver until the end of the year 2021. At the end of the
reporting year the requested covenants were met and the bonds were classified as non-current
debt (Note 20).
Other changes are mainly related to reclassification of debt for non-current debt to current
debt and vice versa (Note 17).
Note 15. Current payables
in thousands of euros
31.12.2021
31.12.2020
Trade payables
1 498
7 069
Accrued expenses
1 522
1 629
Accrued interests
1 359
13 511
Payables to construction companies
2 918
0
Other
0
2
Total
7 297
22 211
Accrued expenses at the end of 2020 included interest payable to the main creditor T1 Mall of
Tallinn Lintgen Adjacent Investments S.A.R.L. in the amount of 12.3 million euros. Due to
derecognition of a subsidiary AS Tallinna Moekombinaat as at 2 June 2021 these have been
deconsolidated from Company’s financial statements (Note 19).
The balance of trade payables consists mostly of construction invoices issued at the end of the
year related to ongoing constructions in Kalaranna Quarter and Kristiine City.
Note 16. Short-term provisions
in thousands of euros
31.12.2021
31.12.2020
Deferred income
701
454
Other short-term provisions
12
5
Total
713
459
Deferred income includes revenues from contracts signed at the end of the year for the
properties that were handed over to customers in the beginning of new year.
Note 17. Non-current debt
in thousands of euros
Loans and
overdrafts
(Note 19)
Convertible
bonds
(Note 20)
Non-
convertible
Payables to
minority
Non-current
portion of
Total
AS Pro Kapital Grupp consolidated annual report 2021 120
bonds
(Note 20)
share-
holders
financial
lease
01.01.2020
5 687
4 250
0
510
424
10 871
Changes from financing
cash flows
12 688
0
27 451
100
0
40 239
Other changes
-487
-4 059
-19 158
41
-192
-23 855
31.12.2020
17 888
191
8 293
651
232
27 255
Changes from financing
cash flows
-8 241
0
0
0
0
-8 241
Other changes
-537
-191
28 955
-651
-135
27 441
31.12.2021
9 110
0
37 248
0
97
46 455
The Group received loans for 22.3 million euros and repaid loans for 30.6 million euros. The
balance of non-current debt has changed due to repayment of long-term loans in amount of
8.8 million euros and reclassification of secured non-convertible bonds from current to non-
current debt (Note 14).
Note 18. Customer advances
in thousands of euros
31.12.2021
31.12.2020
Advances for real estate
12 382
7 809
Advances from hotel services
37
57
Total
12 419
7 866
Customer advances are recorded in the financial statements from receiving the deposit and
instalment payments until the properties are handed over to customers. The increase in
customer advances is mainly related to high sales activity in Kalaranna Quarter and Kristiine
City.
AS Pro Kapital Grupp consolidated annual report 2021 121
Note 19. Loans and overdrafts
Loan balance
in thousands of euros
Borrower
Creditor
31.12.2021
31.12.2020
Maturity
AS Tondi Kvartal
Luminor Bank AS
0
387
02.09.2021
OÜ Marsi Elu**
Coop Pank AS
0
1 722
25.02.2022
OÜ Marsi Elu
AS LHV Pank
3 638
0
22.08.2024
OÜ Kalaranna Kvartal
AS LHV Pank
8 610
8 610
21.02.2023
OÜ Kalaranna Kvartal**
AS LHV Pank
0
8 778
18.02.2023
PK Hotel Management
Services GmbH
Sparkasse
500
500
30.06.2030
Kliversala SIA
AS Swedbank (Latvia)
0
993
14.11.2021
AS Tallinna Moekombinaat*
Lintgen Adjacent Investments
S.A.R.L.
0
75 356
27.12.2021
AS Tallinna Moekombinaat*
Colosseum Finance OÜ
0
104
31.12.2022
AS Tallinna Moekombinaat*
Fiduciaria Emiliana SRL
0
353
22.05.2029
AS Tallinna Moekombinaat*
Anndare Limited
0
194
14.10.2029
Total
12 748
96 997
* On 2 June 2021 AS Tallinna Moekombinaat was declared bankrupt and the Company lost control over the
subsidiary. As a result, subsidiary’s loans were derecognised from Company’s financial reports (Note 37).
** Loans were repaid prematurely
All debts are related to development activities with an exception of loan from Sparkasse to our
German hotel as part of the subsidy related to Covid-19 support.
All agreements and liabilities are concludedin euros. Loan amounts to be repaid within
12 months total to 3.6 million euros, 8.6 million euros are expected to be repaid within five
years and 0.5 million euros by the end of June in 2030. Current loans are described in Note 14,
non-current loans in Note 17, collaterals of the loans in Note 21 and finance costs in Note 29.
The total interest cost on loans for the reporting period was 6.6 million euros (2020:
12.1 million euros).
Note 20. Convertible and non-convertible bonds
in thousands of euros
31.12.2021
31.12.2020
Current convertible debt (Note 14)
194
1 296
Current non-convertible debt (Note 14)
0
27 642
Non-current convertible debt (Note 17)
0
191
Non-current non-convertible debt (Note 17)
37 248
8 293
Total
37 442
37 422
AS Pro Kapital Grupp consolidated annual report 2021 122
Convertible bonds
In accordance with the decision of extraordinary meeting of shareholders of AS Pro Kapital
Grupp on 13 April 2009, the total of 4 025 758 convertible bonds within seven separate
issuances were subscribed with an issue price of 4.5 euros per bond. All convertible bonds have
been registered in the Estonian Central Register of Securities. In 2011 the Group was split and
as a result the issue price of the convertible bonds remains 2.8 euros per bond. According to
the terms convertible bonds of AS Pro Kapital Grupp issued during the period 2009-2011 could
be converted into shares of the Company with the exchange rate one convertible Note per
share. No bonds have been converted into shares until 31 December 2021 (Note 23).
During 2017-2021 the total of 411 738 bonds in amount of 1 152 866.40 euros have been
redeemed.
On 22 May 2020 the Company announced about the intention to issue new non-convertible
bonds to refinance its PKG1-PKG7 convertible bonds in the aggregate nominal value up to 10
252 258.80 euros (the total value of convertible bonds at that moment). The bonds were issued
in several tranches. Within the three tranches the total of 3 459 081 convertible bonds were
refinanced and new bonds in the same amount with the total value of 9 685 426.80 euros were
subscribed and issued. New non-convertible bonds were issued against the same amount of
PKG1-PKG7 convertible bonds. The new bonds carry an interest at 8%, they are non-convertible
and not secured. The final redemption date is 31 October 2024.
Remaining balance of convertible bonds was 196 thousand euros on 31 December 2021 (2020:
1.5 million euros). The balance sheet value was 194 thousand euros as 2 thousand euros of
prolongation fees have been deducted from the value of the convertible bonds (2020: 1.49
million euros and 15 thousand euros respectively.)
Bonds to be redeemed in 2022
PKG2*
PKG3
PKG4
PKG5
Number of bonds
10 666
6 900
27 999
24 500
Issue price per bond
2.80 EUR
2.80 EUR
2.80 EUR
2.80 EUR
Issued amount, in euros
29 865
19 320
78 397
68 600
Annual return (%) from issue price
7%
7%
7%
7%
Interest payment frequency
Twice a year
Twice a year
Twice a year
Twice a year
Redemption date/ exchange date
20 Jan 2022
10 Aug 2022
16 Sept 2022
29 Nov 2022
*PKG2 bonds were redeemed after the reporting date.
Interest cost of the period is described in Note 29.
AS Pro Kapital Grupp consolidated annual report 2021 123
Number of bonds
2021
2020
Number of convertible bonds at the beginning of period
536 434
3 661 521
Number of redeemed bonds
-120 431
-11 994
Number of refinanced bonds
-345 938
-3 113 143
Number of convertible bonds at the end of period
70 065
536 434
in thousands of euros
2021
2020
Value of convertible bonds at the beginning of period
1 502
10 252
Value of redeemed bonds
-337
-33
Value of refinanced bonds
- 969
-8 717
Value of the bonds at the end of the period
196
1 502
Current portion of liabilities at the end of the reporting period
196
1 306
Non-current portion of liabilities at the end of the reporting period
0
196
Unsecured and secured non-convertible bonds
Due to the refinancing of PKG1-PKG7 convertible bonds as described in the chapter
“Convertible bonds” above, new 2 925 641 unsecured and non-convertible bonds with the
total face value of 8 191 794.80 euros were issued in August 2020. During the second
subscription period, 187 502 bonds with the total issue value of 525 005.60 euros were issued
in November 2020. During the third subscription period, 345 938 bonds with the total issue
value of 968 626.40 euros were issued in January 2021. New unsecured non-convertible bonds
have been listed on Nasdaq Tallinn bond list since 27 January 2021. The balance sheet value
on the reporting date was 9.4 million euros – nominal value minus 325 thousand refinancing
costs (2020: 8.3 million euros and 423 thousand euros).
Registration date of bonds issued
February 2020
(secured)
August 2020 – January 2021
(unsecured)
Number of bonds
285
3 459 081
Issue price per bond
100 000 EUR
2.80 EUR
Total nominal value, in euros
28 500 000
9 685 426.80
Annual return (%) from issue price
8%
8%
Interest payment
Twice a year
Twice a year
Redemption date
20 February 2024
31 October 2024
In February 2020 the Company secured refinancing of the senior secured bonds 2015/2020
(the “Old Bonds”) in full by issuing new senior secured, called, fixed rate bonds 2020/2024 (the
“New Bonds”) in total amount of 28.5 million euros. The New bonds are similar to the Old
Bonds with minor differences. All shares of Pro Kapital subsidiaries with and exception of AS
Tallinna Moekombinaat were pledged. 285 bonds (value of 100 000 euros each) carry a fixed
rate coupon 8% and mature in February 2024. The Existing Bonds were redeemed on
17 March 2020. The New Bonds were approved for trading on Nasdaq Stockholm bonds list on
9 July 2020.
Due to not meeting financial covenants and the breach of secured non-convertible bonds
terms as a result of an adjusting event (permanent insolvency of AS Tallinna Moekombinaat),
the Company has reclassified the bonds as a short-term liability as at the end 2020, however
as the Company is meeting financial covenants as at the end of 2021, the bonds have been
AS Pro Kapital Grupp consolidated annual report 2021 124
reclassified as long term, considering their redemption date. According to terms and conditions
of the bonds, the Company has to meet maintenance test, which requires equity to assets ratio
to be higher than 35%. The equity ratio was 36.90% as at the end of the reporting period.
Remaining balance of the secured non-convertible bonds is 28.5 million euros on 31 December
2021. The balance sheet value is 27.6 million euros as nominal value minus 612 thousand euros
of refinancing costs, which are being discounted over the effective period of the New Bonds.
Number of unsecured bonds
2021
2020
Number of unsecured non-convertible bonds at the beginning of period
3 113 143
0
Number of unsecured non-convertible bonds issued
345 938
3 113 143
Number of unsecured non-convertible bonds at the end of period
3 459 081
3 113 143
in thousands of euros
2021
2020
Value of unsecured non-convertible bonds at the beginning of period
8 717
0
Value of unsecured non-convertible bonds issued
968
8 717
Value of the unsecured bonds at the end of the period
9 685
8 717
Current portion of liabilities at the end of the reporting period
0
0
Non-current portion of liabilities at the end of the reporting period
9 685
8 717
Number of secured bonds
2021
2020
Number of secured fixed rate bonds at the beginning of period
285
293
Number of secured fixed rate bonds issued
0
285
Number of secured fixed rate bonds redeemed
0
-293
Number of secured fixed rate bonds at the end of period
285
285
in thousands of euros
2021
2020
Value of secured fixed rate bonds at the beginning of period
28 500
29 300
Value of secured fixed rate bonds issued
0
28 500
Value of secured fixed rate bonds redeemed
0
-29 300
Value of secured fixed rate bonds issued at the end of the period
28500
28 500
Current portion of liabilities at the end of the reporting period
0
28 500
Non-current portion of liabilities at the end of the reporting period
28 500
0
AS Pro Kapital Grupp consolidated annual report 2021 125
Note 21. Collaterals and pledged assets
Liabilities disclosed in Notes 14, 17 and 19 of these consolidated financial statements are
partially pledged with the following properties in book value:
in thousands of euros
Beneficiary
Collateral description
31.12.2021
31.12.2020
Bank accounts
Nordic Trustee & Agency AB (Sweden)
Nordea Bank AB
23
25
Inventories (Note 10)
AS LHV Pank (EE)
Kalaranna St. 8, 22, Tallinn
30 901
33 663
AS LHV Pank (EE)
Rivi 6, Sammu 5, Sõjakooli 14/16,
Talli 2/4, Tallinn
11 361
0
AS Swedbank (LV)*
Trijadibas St. 5, Riga
N/A
23 489
Coop Pank AS (EE)*
Talli 5, Tallinn
N/A
3 310
Property, plant and equipment (Note 12)
Luminor Bank AS (EE)*
Sõjakooli 11, Tallinn
N/A
730
Colosseum Finance OÜ (EE)**
AS Tallinna Moekombinaat fixed
assets and trademark
N/A
67
Investment property (Note 13)
Lintgen Adjacent Investments S.A.R.L.**
Peterburi tee 2, Tallinn
N/A
62 789
* Loans have been repaid during the reporting period
** The subsidiary has been derecognised since 2 June 2021
AS Pro Kapital Grupp has pledged in favour of Nordic Trustee & Agency AB the shares of all
subsidiaries. The pledges have been set to guarantee the secured non-convertible bonds
issued in February 2020 in total amount of 28.5 million euros. The total value of pledged shares
is 56 million euros (total nominal value of share capital of subsidiaries). In addition to share
pledges, the Company’s bank accounts held with Nordea Bank AB in Sweden are pledged. The
cash balance in Nordea bank pledged accounts was 23 thousand euros on 31 December 2021.
The Estonian parent company has issued a guarantee to LHV Pank AS to assure a potential loan
liability of OÜ Kalaranna Kvartal, an entity belonging to AS Pro Kapital Eesti subsidiary group, in
amount of 4 million euros and with termination date of 21 February 2023.
Note 22. Other non-current payables
in thousands of euros
31.12.2021
31.12.2020
Payables to construction companies
0
1 585
Other non-current liabilities
20
710
Incl. rent deposits from tenants
0
682
Total
20
2 295
Payables to construction companies have been reclassified into current payables during 2021
as they are to be settled within next year. The balance of other non-current payables has
AS Pro Kapital Grupp consolidated annual report 2021 126
decreased due to loss of control and derecognition of subsidiary AS Tallinna Moekombinaat
since 2 June 2021.
Note 23. Share capital and reserves
Share capital
Owners of AS Pro Kapital Grupp ordinary shares have the right to receive dividends, in case
these are announced, and to participate in voting at general shareholders’ meetings of the
entity with one vote per share. The Company has not issued any preference shares.
On 31 December 2021 and on 31 December 2020 the share capital in the amount of
11.3 million euros consisted of 56 687 954 ordinary shares at a nominal value of 0.20 euros per
share. All shares have been paid for in full.
According to the articles of association effective on 31 December 2021, the minimum share
capital amounts to 6 million euros, whereas maximum share capital amounts to 24 million
euros.
As described in Note 20 to these consolidated financial statements, AS Pro Kapital Grupp has
issued convertible bonds. The owners of the convertible bonds have not exercised their option
to convert the bonds into shares of the Group.
Reserves
Statutory legal reserve of the Company is recorded based on the requirements of the Estonian
Commercial Code § 336 and the decision of Annual General Meeting. Losses are covered from
reserves and share premium except for revaluation reserve, which cannot be used to cover
Group’s losses.
The statutory legal reserve as at 31 December 2021 amounted to 0 euros (2020: 1.1 million
euros). Due to positive retained earnings as at 31 December 2021, the Company will propose
for changes to be made in the statutory legal reserve.
Revaluation surplus results from adoption of revaluation model to property, plant and
equipment (specifically land and buildings) under IAS 16 “Property, Plant and Equipment”
(Note 12). Revaluation surplus as at 31 December 2021 is 3 million euros (2020: 3 million
euros).
Note 24. Non-controlling interest
in thousands of euros
31.12.2021
31.12.2020
Arising from AS Pro Kapital Eesti subgroup
0
-3 515
Total
0
-3 515
AS Pro Kapital Grupp consolidated annual report 2021 127
At the end of 2020 the Group had one subsidiary with non-controlling interests - AS Tallinna
Moekombinaat in Estonia. On 2 June 2021 the subsidiary was declared bankrupt and the
Company lost control over the subsidiary. After loss of control the Group stopped consolidation
of AS Tallinna Moekombinaat financials into the group financial statements. Discontinuing
consolidation had a positive effect to the Group (Note 37).
AS Tallinna Moekombinaat
Principal place of business
Estonia
Non-controlling interest as at 31.12.2018
6.65%
Non-controlling interest as at 31.12.2019
6.65%
Non-controlling interest as at 31.12.2020
6.65%
Loss of control on 2 June 2021
-6.65%
Non-controlling interest as at 31.12.2021
0%
in thousands of euros
Non-controlling interest as at 31 December 2019
263
Loss for the reporting period
-3 778
Non-controlling interest as at 31 December 2020
-3 515
Loss for the reporting period
-285
Loss of control on 2 June 2021
3 800
Non-controlling interest as at 31 December 2021
0
Note 25. Revenue
Segment revenue (Note 6)
in thousands of euros
2021
2020
Revenue from contracts with customers
Revenue from sale of real estate
40 616
11 479
Hotel operating revenue
1 951
1 672
Revenue from maintenance and other services
429
382
Total revenue from contracts with customers
42 996
13 533
Rental income
99
104
Total
43 095
13 637
Timing of revenue recognition
in thousands of euros
2021
2020
At a point in time
Revenue from sale of real estate
40 616
11 479
Hotel operating revenue
1 951
1 672
Revenue from other services
79
108
Total revenue recognised at a point in time
42 646
13 259
AS Pro Kapital Grupp consolidated annual report 2021 128
Over time
Revenue from maintenance fees
350
274
Total revenue recognised over time
350
274
Rental income
99
104
Total
43 095
13 637
Revenue from discontinued operations is disclosed in Note 37.
Revenue from sale of real estate has increased by 254% compared to reference period due to
completion of Ratsuri Houses in spring 2021 and beginning of sales of Kalaranna District
apartments at the end of the year. Sales of available inventory have continued in Kliversala in
Riga and in Šaltinių Namai in Vilnius. Revenue from hotel operations has increased by 17%
compared to the previous reference period. Due to COVID-19 restrictions the hotel was closed
form 2 November 2020 until reopening in the middle of June 2021.
Customer advances decrease when real right agreements are signed and real estate have been
handed over to the customers and is the point in time when the Group is entitled for
consideration and revenue from sale of real estate is recognised. Most of the balance of
12.4 million euros of customer advances at the end of 2021 will be recognized as revenue from
sale of real estate during 2022 (Note 18).
Note 26. Cost of sales
Split by activities
in thousands of euros
2021
2020
Cost of real estate sold
30 469
7 385
Cost of providing rental services
36
18
Cost of hotel operations
1807
1 852
Cost of maintenance and other services
207
169
Total
32 519
9 424
Split by type
in thousands of euros
2021
2020
Personnel expenses
520
707
Depreciation charge
205
208
Other
31 794
8 509
Incl. cost of real estate sold
29 916
7 118
Incl. maintenance services purchased
638
547
Incl. supplies costs
754
606
AS Pro Kapital Grupp consolidated annual report 2021 129
Incl. commissions and service fees
481
195
Incl. other
5
43
Total
32 519
9 424
Cost of sales from discontinued operations is disclosed in Note 37.
Cost of real estate sold has increased in proportion to the revenues from sale of real estate
(Note 25).
Note 27. Marketing and administration expenses
Marketing expenses
in thousands of euros
2021
2020
Personnel expenses
215
326
Other
287
284
Total
502
610
Administration expenses
in thousands of euros
2021
2020
Personnel expenses
3 563
2 811
Depreciation charge
126
128
Allowance for doubtful debt
505
0
Land and real estate taxes
334
391
Other
1 064
1 042
Total
5 592
4 372
As at the end of 2021 the number of employees in the Group was 67 (2020: 84) and total
personnel cost (included in direct, marketing and administrative costs) in 2021 were 3.6 million
euros comparing to 2.8 million euros in 2020. Personnel expenses were influenced by one time
severance payment to the former CEO.
Note 28. Other operating income and expenses
Other income
in thousands of euros
2021
2020
Fines collected
6
0
Profit from sale of investment property (Note 13)
1 092
0
Net gain from fair value adjustments
5 540
3 508
Incl. from investment property (Note 13)
5 484
3 487
Gain from derecognition of subsidiary (Note 37)
27 747
0
Other
1 230
357
AS Pro Kapital Grupp consolidated annual report 2021 130
Total
35 615
3 865
Other expenses
in thousands of euros
2021
2020
Fines and penalties paid
21
0
Net loss from fair value adjustments
0
602
Incl. from investment property (Note 13)
0
602
Other
256
-6
Total
277
605
In 2021 the investment properties were valued 5.5 million euros higher resulting a gain from
fair value adjustments. Gain from derecognition of subsidiary is the net result from positive
effect of derecognition of negative net assets of subsidiary and written off receivables from
the subsidiaey. Other income includes non-refundable state aid received by our German hotel
in the amount of 1 million (2020: 351 thousand) euros in relation to COVID-19 pandemic.
Note 29. Finance income and cost
Finance income
in thousands of euros
2021
2020
Interest income
6
4
Total
6
4
Finance cost
in thousands of euros
2021
2020
Interest expenses:
5 945
5 386
Interest expenses of the bonds
3 724
3 804
Interest expenses of loans and overdrafts
2 221
1 582
Loss from foreign currency translation
0
1
Other financial expenses
19
33
Total
5 964
5 420
Bond interest conditions are described in Note 20.
AS Pro Kapital Grupp consolidated annual report 2021 131
Note 30. Income tax
Rates of statutory corporate income tax
2021
2020
Estonia
20%
20%
Latvia
20%
20%
Lithuania
15%
15%
Germany
15%
15%
According to Income Tax Acts in Estonia and Latvia net profit is not taxed until distribution.
Income tax expense in unconsolidated reports
2020
in thousands of euros
Estonia
Latvia
Lithuania
Germany
Total
Profit/ loss before taxation (unconsolidated)
-61 028
-627
2 896
-341
-59 100
Income tax, statutory rate
0
0
434
0
434
Non-deductible expenses
0
0
25
0
25
Non-taxable income and tax incentive
0
0
-25
0
-25
Tax loss utilised
0
0
-54
0
-54
Reversals
0
0
0
0
0
Total income tax expense
0
0
381
0
381
Effective income tax rate
0%
0%
13%
0%
1%
2021
in thousands of euros
Estonia
Latvia
Lithuania
Germany
Total
Profit/ loss before taxation (unconsolidated)
33 544
308
-60
641
34 433
Income tax, statutory rate
0
0
-9
0
-9
Non-deductible expenses
0
0
5
0
5
Non-taxable income and tax incentive
0
0
-5
0
-5
Tax loss utilised
0
0
0
0
0
Reversals
0
0
0
0
0
Total income tax expense
0
0
-9
0
-9
Effective income tax rate
0%
0%
15%
0%
0%
Income tax expense in consolidated report
in thousands of euros
2021
2020
AS Pro Kapital Grupp consolidated annual report 2021 132
Profit/loss before income tax
29 747
-59 102
Estimated income tax respective to the tax rates
-37
-178
Adjustments to estimated income tax:
Income tax, statutory rate
-9
434
Non-deductible expenses (+)
5
25
Non-taxable income and tax incentive
-5
-25
Tax loss utilised
0
-54
Income tax expense
-46
203
Including tax expense in continuing operations
-46
203
Effective tax rate
N/A
N/A
Income tax expense
27
532
Deferred income tax expense
-37
-178
Total effect on income statement
-10
354
Income tax paid
323
815
Deferred income tax asset and liability (net) movements
in thousands of euros
Accelerated tax
depreciation
Deferred
development
cost
Revaluation of
assets
Deferred tax
losses
Total
01.01.2020
0
918
430
0
1 348
Effect on income statement:
Income tax expenses and
reclaims of the reporting
period
0
-178
0
0
-178
31.12.2020
0
740
430
0
1 170
Effect on income statement:
Income tax expenses and
reclaims of the reporting
period
0
-37
0
0
-37
31.12.2021
0
703
430
0
1 133
Deferred income tax balances
in thousands of euros
31.12.2021
31.12.2020
Deferred income tax liability (+)
1 133
1 170
Total, net
1 133
1 170
Contingent corporate income tax
The Group’s retained earnings and maximum possible amount of corporate income tax (CIT)
obligation were as follows:
in thousands of euros
31.12.2021
31.12.2020
Group’s retained earnings
26 773
-8 031
Estonian tax rate applicable
20%
20%
Contingent CIT obligation
5 355
0
Maximum net dividend
21 418
0
AS Pro Kapital Grupp consolidated annual report 2021 133
The calculation of maximum possible income tax liability is based on the assumption that the
sum of distributable net dividends and the income tax expense which occurs on distribution of
dividends cannot exceed total retained earnings as at 31 December 2021 and 31 December
2020.
The Company has received dividends from its subsidiary Pro Kapital Latvia PJSC, which is the
resident and taxable person in the Republic of Latvia. As at 31 December 2021 the Company
has potential opportunity (in case of retained earnings) to pay dividends that are not taxable
with income tax in amount of 44.2 million euros (31 December 2020: 44.2 million euros). The
Company has also the potential opportunity to distribute paid in capital in the total amount of
78.4 million euros without income tax applied. The total maximum possible income tax free
amount that could be considered as contingent asset and could be paid as net dividends is
30.7 million euros.
Note 31. Earnings per share
Earnings per share are calculated by dividing the net profit/ loss for the period with the
weighted average number of shares in the period:
Average number of shares:
For the period
01.01.2021-31.12.2021
(56 687 954 x 366/366)
=56 687 954
For the period
01.01.2020-31.12.2020
(56 687 954 x 365/365)
=56 687 954
Indicative earnings per share from continuing operations:
2021
33 872 thousand euros/ 56 687 954=0.60 euros
2020
-3 279 thousand euros/ 56 687 954 = -0.06 euros
Indicative earnings per share from discontinued operations:
2021 -4 115 thousand euros/56 687 954=-0.07 euros
2020 -56 177 thousand euros/56 687 954=-0.99 euros
Note 32. Transactions and balances with related parties
Balances and transactions between a parent and its subsidiaries have been eliminated within
consolidation and are not disclosed in this Note. Details of transactions between the Group
and other related parties are disclosed below.
Transactions with related parties are considered to be transactions with shareholders,
members of the Supervisory Council and the Management Board (defined as “key
management”), their immediate families and the companies in which they hold control or have
significant influence.
Transactions with related parties
in thousands of euros
2021
2020
AS Pro Kapital Grupp consolidated annual report 2021 134
Significant owners and owner related companies
Sales of goods/ services
13
144
Loans received
0
100
Interest expenses incurred
8
4
Minority shareholders
Interest expenses incurred
10
37
Other shareholders/ bondholders
Interest expenses incurred
912
754
Redemption of non-convertible bonds
337
100
Interest payments
746
789
Members of the Management Board and Council
Salaries and bonuses paid to management*
1 733
915
Purchase of goods/ services
161
19
*Including remuneration paid to supervisory council and management board members of all subsidiaries, not only
Group management remuneration as stated in the Management Remuneration Report.
The Company is disclosing information about redemption, interest calculations/ payments for
convertible bonds as most of the bondholders are shareholders of the Company as well.
No expense has been recognized in the current or prior periods for bad or doubtful debts in
respect of the amounts owed by related parties.
The Group has provided loans to related parties within consolidation group at rates
comparable to the average commercial rate of interest. The loans to related parties have no
collaterals.
Payables to related parties
in thousands of euros
31.12.2021
31.12.2020
Long-term payables
To significant owner related company
0
104
To minority shareholders
0
547
Total
0
651
Long-term payables at the end of 2020 included loan and interest balances owed to minority
shareholders of AS Tallinna Moekombinaat. Due to loss of control on 2 June 2021 the subsidiary
was derecognised from consolidated financial statements.
The amounts outstanding are unsecured and will be settled in cash. No guarantees have been
given or received.
Holdings in the Company
31.12.2021
31.12.2020
Significant owner and owner related companies
49.59%
45.99%
Members of the Council and individuals related them
0.05%
0.08%
Members of the Board and individuals related them
0.50%
0.50%
AS Pro Kapital Grupp consolidated annual report 2021 135
Mr Emmanuele Bozzone, member of the Supervisory Council, with his affiliates holds
357 000 unsecured, fixed rate nonconvertible bonds of the Company with the nominal value
of 2.80 euros each, i.e. 999 600 euros in total.
Note 33. Risk management
The business of the Group involves business risk and several financial risks: market risk (interest
and currency risk), credit risk and liquidity risk. It is aimed to minimize the negative impact of
these risks to the Group’s financial results with the risk management. The main purpose of the
risk management is to assure the retention of Group’s equity and to carry Group activities as a
going concern.
Financial risks
Financial assets
in thousands of euros
31.12.2021
31.12.2020
Cash and bank balances
9 626
9 393
Current receivables
802
1 797
Non-current receivables
21
3 517
Total
10 449
14 707
Financial assets include cash and bank balances and short-term and long-term receivables.
Financial liabilities
in thousands of euros
31.12.2021
31.12.2020
Current debt
3 955
107 581
Current payables
7 297
22 211
Non-current debt
46 455
27 255
Non-current payables
20
2 295
Total
57 727
159 342
Financial liabilities include loans, convertible and non-convertible bonds, payables to suppliers.
Financial liabilities of the Group belong to category ‘other financial liabilities at amortised cost’.
Interest risk
Interest risk is reffering to potentially higher financing costs due to possible change of interest
rate. The Group is exposed to interest rate risk because entities in the Group borrow funds at
both fixed and floating interest rates. The risk is managed by the Group by maintaining an
appropriate mix between fixed and floating rate borrowings. Main interest risk rises from loans
of the Group. In general, the interest rates of loans raised by the entities belonging to Group
AS Pro Kapital Grupp consolidated annual report 2021 136
are fixed through Euribor plus a risk margin. Interest risk appears from Euribor and the volatility
of the average market interest rates which affect the Group’s interest expenses.
The breakdown of interest-bearing financial debt is as follows:
in thousands of euros
31.12.2021
31.12.2020
Fixed rate liabilities
41 801
114 346
Variable rate liabilities (1-12 months)
0
3 102
Variable rate liabilities (12+ months)
8 610
17 388
The management does not expect significant changes in base interest rates as those have
shown stability and interest rates remain low.
Cash in banks also bear interest risk, especially due to negative rates and possible flooring. As
at 31 December 2021 the Group had 9.6 million euros on bank accounts (31 December 2020:
9.4 million euros).
Currency risk
Currency risk is a form of risk that arises from the change in price of one currency against
another. Entities belonging to the Group perform transactions in currency applicable in the
resident country, currency risk arises in case of exchange currency transactions, which are
performed with currencies not related to euro. To ground the currency risk, all the relevant
contracts in the Group are signed in Euro or in currencies related to euro. Thus, the main
currency risk is related with devaluation of currencies related to euro, against which the Group
is not protected.
Due to the fact that Group’s liabilities are all in euro and majority of Group’s income comes
from euro-based contracts, the Group’s management estimates that it has limited exposure to
foreign currency risk.
Credit risk
The Credit risk expresses potential loss that occurs, when counterparty does not fulfil their
contractual obligations to the Group resulting in financial loss.
In general, the sales of real estate are secured with clients’ prepayments. In case of sales of
the real estate under the instalment, the creditworthiness of each client is analysed separately.
The ownership of the sales object belongs to the Group entities until the client has settled all
debt. In extremely rare cases it may happen that the ownership is transferred to the buyer
prior to final settlement. In this case a mortgage is set in favour of the Group entity to secure
the debt. There were no such cases in 2021.
For rental, hotel and maintenance businesses the payment discipline of the customers is
consistently followed and dealt with for mitigating the credit risk. Credit evaluations are
performed and prepayments are requested for, where appropriate. The highest risk of credit
losses was related to rental activities since the opening of T1 Mall of Tallinn shopping centre
at the end of 2018. Due to derecognition of the subsidiary on 2 June 2021 the Group is no
longer exposed to credit losses risk related to rental activities.
AS Pro Kapital Grupp consolidated annual report 2021 137
Also, cash accounts with the banks are subjects to the credit risk. The Group has narrowed the
risk by having its assets in different high ratings assigned banks. Currently the Group is holding
assets in the following banks: LHV, Swedbank, Luminor, Nordea, Kölner Banken and Sparkasse.
Cash on accounts in the banks as at 31 December 2021 was distributed as follows:
Liquidity risk
Liquidity risk expresses the potential risk that if the Group’s financial condition will change, the
Group’s ability to settle its liabilities on time will degrade. The Group manages liquidity risk by
maintaining adequate reserves, banking facilities and reserve borrowing facilities, by
constantly monitoring cash flow forecasts and actual cash balances, and by matching the
maturity profiles of financial assets and liabilities. As at 31 December 2021 the working capital
of the Group’s is positive and the current assets portion of short-term liabilities is 2,7 (as at 31
December 2020: 0.6). The current liabilities described below for comparative period of 2020
include the loan of AS Tallinna Moekombinaat, which became permanently insolvent, in
amount of 75.4 million euros and interests until the due date in amount of 22.5 million euros.
Financial liabilities of the Group by due dates:
Repayment of liabilities
Repayment of liabilities
in thousands of
euros
31.12.2021
Within
1 year
Within
2-5 years
After
5 years
31.12.2020
Within
1 year
Within
2-5 years
After
5 years
Loans
14 189
4 862
8 774
553
121 882
101 915
19 399
568
Lease liabilities
219
122
97
0
417
185
232
0
Other loans
0
0
0
0
977
0
114
863
Convertible bonds
212
212
0
0
1 606
1 394
212
0
Non-convertibles
11 882
775
11 107
0
11 627
697
10 929
0
Secured bonds
32 202
2 280
29 922
0
30 780
30 780
0
0
Trade payables
1 498
1 498
0
0
7 069
7 069
0
0
45%
7%
9%
39%
Swedbank
LHV
Sparkasse
Other
AS Pro Kapital Grupp consolidated annual report 2021 138
Other debt
18 394
17 193
1 201
0
12 432
8 785
3 647
0
Total
78 596
26 942
51 102
553
186 789
150 826
34 533
1 430
Financial liabilities carrying interests include accumulated interest amounts until repayment.
Short-term liabilities of the Group (loans and bonds) by due dates:
Repayment of liabilities
Repayment of liabilities
in thousands of euros
31.12.2021
Within
1 month
2-3
months
4-12
months
31.12.2020
Within
1 month
2-3
months
4-12
months
Loans
4 862
0
0
4 862
101 915
0
0
101 915
Lease liabilities
122
10
20
92
185
15
31
139
Convertible bonds
212
38
0
174
1 394
44
69
1 281
Non-convertibles
775
387
0
387
697
349
0
349
Secured bonds
2 280
0
1 140
1 140
30 780
28 500
1 140
1 140
Total
8 251
435
1 160
6 656
134 971
28 908
1 240
104 824
Financial liabilities carrying interests include accumulated interest amounts until repayment.
Interest bearing liabilities have decreased significantly due to derecognition of the subsidiary
AS Tallinna Moekombinaat on 2 June 2021.
Fair value
Based on the estimates of the Group’s management, book value of the financial assets and
liabilities does not differ significantly from their fair value.
Fair value of interest-bearing receivables and liabilities is not considered to be significantly
different from their book value, because the interest rates fixed by the contracts underlying
the corresponding receivables and liabilities do not significantly differ from the effective
market interest rates.
Capital risk management
The purpose of capital risk management is to provide the Group’s sustainability and to ensure
profit for the shareholders through optimal structure of capital. The Group uses debt and
equity instruments for financing business activities and it monitors percentage of equity to
total assets in designing its financial structure and in assessment of risk.
31.12.2021
31.12.2020
Equity to total assets
36.9%
5.3%
Debt to total assets
63.1%
94.7%
Long-term debt to total assets
41.1%
17.3%
The Group strives to pursue conservative financing policy. The goal is to use external financing
so as to avoid interest and loan covenant related risk during low economic periods and to have
sufficient additional external financing capacity in case attractive business opportunities occur.
AS Pro Kapital Grupp consolidated annual report 2021 139
The Group seeks to maintain such long-term debt levels that are in reasonable proportion to
growth in operations and which preserve the Group’s credit standing.
Long-term financing is planned and obtained on project-by-project basis. Prior to application
for external finance a company constructs budget for the project in question, performs
sensitivity analysis. When applying for external financing, company carefully considers the
effect such additional financing may have on its debt/equity ratio, gearing ratio and NPV of the
project. Additional borrowing conditions in face of loan/financial covenants, as well as interest
rate risks are taken into consideration. If any special conditions are set in external financing
agreement (rental income, ratio of rented/vacant space, etc.), company seeks to meet them
yet before the agreement is signed. Generally, the Group’s policy is to finance its assets and
operating requirements in the currency of the country/currency zone concerned, in order to
create a natural hedge and avoid any currency risk.
Long-term partners are preferred for external financing, given their offers are most favourable.
Long-term loans are to be approved by the Company’s Council prior to the assumption of loan
obligations. Short term overdrafts may be used to smooth out the seasonality of company’s
business and to maintain cash balances that are adequate for operating levels. Short term
financing partners are usually those through whom everyday banking operations of a company
are carried out.
Estonian Commercial Code §301 establish a restriction to the level of mandatory equity level:
total equity shall not be less than ½ of registered share capital. Under the Estonian Accounting
Act such a compliance assessment is made based on the adjusted unconsolidated equity of the
Company. The adjusted unconsolidated equity equals unconsolidated equity of the Company
less book values of investments into subsidiaries measured at cost less impairment plus the
amount of investments into subsidiaries measured under the equity method of accounting. As
disclosed in Note 35 to these consolidated financial statements, the Company has been in
compliance with such an equity restriction as at 31 December 2021 and 31 December 2020.
Note 34. Lawsuits
As at 31 December 2020, AS Pro Kapital Eesti had two interlinked administrative court cases in
progress. In the first court case, the company is requesting nullification of a decision of the
Land Board whereby a cadastral unit located at Kalasadama 3, Tallinn, with 100% purpose of
land under water bodies was not registered. On 27 March 2020, the Tallinn District Court
decided in favour of AS Pro Kapital Eesti and ruled that the Land Board should make a new
decision or, then, should invalidate its original 30 April 1999 decision from the privatisation
era. On 27 April 2020 the Land Board appealed the District Court’s decision to the Supreme
Court, which has accepted the appeal and granted AS Pro Kapital Eesti the right of response.
The company has responded on time on 6 October 2020. On 24 March 2021, the Supreme
Court issued its judgment, upholding Land Board’s view and denying AS Pro Kapital Eesti’s
claim. The Supreme Court concluded that AS Pro Kapital Eesti has never been the owner of the
water cadastral unit. This case is now terminated and AS Pro Kapital Eesti can only pursue
AS Pro Kapital Grupp consolidated annual report 2021 140
compensation from the state for illegal allocation of water land that should never have been
owned by the company.
The second court case is a claim of compensation against the state in relation to the same
cadastral unit – court proceedings were halted until 23 March 2021 when a final court decision
took effect in the first court case. Since the Supreme Court in the preceding case has decided
in favour of the Land Board, then AS Pro Kapital Eesti has unjustly paid a portion of the purchase
price and land tax from this cadastral unit. Following the Supreme Court decision in the
previous case, the Administrative Court ordered AS Pro Kapital Eesti to submit a revised
complaint by 15 April 2021. For purposes of gathering additional evidence, AS Pro Kapital Eesti
applied for and was granted the extension of the deadline until 30 April 2021 and submitted
required documents on time. The company is claiming from the state compensation of
192 338 euros of land tax paid in excess during 01.01.2004-31.12.2018 as well as that the state
compensate 681 816 euros of the purchase price overpaid by the company for that portion of
land, the claim for compensation amounting to 874 152 euros in total in the principal sum plus
1 176 261.55 euros of interest in arrears.
The court has ordered Land Board to reply to the company’s revised complaint by 3 June 2021.
The Land Board argued that since the company should have brought the complaint earlier,
then as the company did not sue the state within the 10-year limitation period, the court
should dismiss the case; and as the company has never been the owner of the plot, then
bearing the associated cost (purchase price, notary fees, state fee and land tax) does not
infringe on the company’s rights. On 05 July, 2021, by order of the Tallinn Administrative Court
the case was terminated due to the limitation period being exceeded and the court refused to
reinstate the time limit for the appeal. On 22 July 2021, the company appealed the court order
to the District Court, requesting reinstatement of the time limit since the company first found
out about the infringement of its rights (and resulting damages) with the Land Board’s 27 June
2018 decision whereby it refused to register one cadastral unit into the register in the process
of division of the real estate into smaller plots. The Land Board responded on 10 August 2021,
reinstating its claims and Tallinn District Court decided to terminate the case. On 22 September
2021 AS Pro Kapital Eesti appealed the District Court order from 7 September 2021 to the
Supreme Court. In January 2022 the Supreme Court has decided to process the appeal. AS Pro
Kapital Eesti submitted its additional written position to the Supreme Court on 14 February
2022.
Note 35. Going concern
According to terms and conditions of secured bonds, the Company has to meet maintenance
test, which requires equity to assets ratio to be higher than 35%. Due to the adjusting event of
insolvency of the subsidiary in 2021, the equity ratio fell to 32.4% as at 31 December 2020.
Investors provided a waiver to give the Company time to reach the necessary ratio as at the
end of 2021. On 31 December 2021 the equity ratio was 36.9%.
AS Pro Kapital Grupp consolidated annual report 2021 141
Taking into consideration the results of the reporting year, the management assesses that the
Company is a going concern. The Company has enough assets to meet its liabilities.
Note 36. Supplementary disclosures on the parent
The financial information of the parent comprises separate primary statements of the
Company (statement of financial position, statement of income, statement of cash flows and
statement of changes in equity), the disclosure of which is required by the Estonian Accounting
Act. The primary financial statements of the parent have been prepared using the same
accounting methods and measurement bases as those used for the preparation of the
consolidated financial statements, except for subsidiaries which are reported at cost in the
separate primary financial statements of the parent.
Statement of financial position
in thousands of euros
31.12.2021
31.12.2020
ASSETS
Current assets
Cash and cash equivalents
848
182
Current receivables
6 148
5 972
Total current assets
6 996
6 154
Non-current assets
Investments in subsidiaries
29 165
29 165
Non-current receivables
16 953
16 128
Intangible assets
5
10
Total non-current assets
46 123
45 303
TOTAL ASSETS
53 119
51 457
LIABILITIES AND EQUITY
Current liabilities
Current debt
36 451
62 452
Current payables
2 445
1 711
Tax liabilities
55
52
Total current liabilities
38 951
64 215
Non-current liabilities
Long-term debt
37 248
8 484
Non-current payables
57 650
51 489
Other non-current payables
33
48
Total non-current liabilities
94 931
60 021
Total liabilities
133 882
124 236
Equity
Share capital in nominal value
11 338
11 338
Share premium
5 661
5 661
Statutory reserve
1 134
1 134
AS Pro Kapital Grupp consolidated annual report 2021 142
Accumulated losses
-98 896
-90 912
Total equity
-80 763
-72 779
TOTAL LIABILITIES AND EQUITY
53 119
51 457
AS Pro Kapital Grupp consolidated annual report 2021 143
Statement of income
in thousands of euros
2021
2020
Operating income
Revenue
749
736
Gross profit
749
736
Marketing expenses
-6
-8
Administration expenses
-2 742
-2 120
Other operating income
0
22
Other operating expenses
-21
0
Operating loss
-2 020
-1 370
Finance income and cost
Interest income
575
559
Interest expense
-6 509
-6 445
Other finance income and cost
-30
-30
Loss for the year
-7 984
-7 286
Statement of changes in equity
in thousands of euros
Share
capital
Share
premium
Statutory
reserve
Retained
earnings
Loss for
the year
Total
equity
01.01.2020
11 338
5 661
1 134
-77 230
-6 396
-65 493
Result of the financial year
0
0
0
0
-7 286
-7 286
Total comprehensive income
0
0
0
0
-7 286
-7 286
Allocation of net loss
0
0
0
-6 396
6 396
0
31.12.2020
11 338
5 661
1 134
-83 626
-7 286
-72 779
Cost of subsidiaries’ shares
X
X
X
X
X
-29 165
Book value of the shares in subsidiaries
calculated on equity method
X
X
X
X
X
111 515
Adjusted unconsolidated equity 31.12.2020
11 338
5 661
1 134
X
X
9 571
Result of the financial year
0
0
0
0
-7 984
-7 984
Total comprehensive income
0
0
0
0
-7 984
-7 984
Allocation of net loss
0
0
0
-7 286
7 286
0
31.12.2021
11 338
5 661
1 134
-90 912
-7 984
-80 763
Cost of subsidiaries’ shares
X
X
X
X
X
-29 165
Book value of the shares in subsidiaries
calculated on equity method
X
X
X
X
X
152 771
Adjusted unconsolidated equity 31.12.2021
X
X
X
X
X
42 843
AS Pro Kapital Grupp consolidated annual report 2021 144
Statement of cash flows
in thousands of euros
2021
2020
Cash flows from operating activities
Loss for the year
-7 984
-7 286
Adjustments for:
Amortisation of intangible assets
5
5
Finance income and costs
5 963
5 916
Change in foreign currency translation
1
1
Change in receivables and prepayments
-37
371
Change in liabilities and prepayments
575
196
Change in provisions
-15
38
Cash flow used in operating activities
-1 492
-759
Cash flows from investing activities
Loans granted
-740
-654
Repayments of loans granted
350
1 658
Interest received
0
3 473
Cash flows used in/ generated by investing activities
-390
4 477
Cash flows from financing activities
Bonds issued
0
28500
Convertible bonds redeemed
-337
-33
Non-convertible bonds redeemed
0
-28 000
Proceeds from borrowings
6 108
481
Repayments of borrowings
0
-501
Interests paid
-3 223
-4 375
Cash flows generated by financing activities
2 548
-3 928
Net change in cash and cash equivalents
666
-210
Cash and cash equivalents at the beginning of the year
182
392
Cash and cash equivalents at the end of the year
848
182
AS Pro Kapital Grupp consolidated annual report 2021 145
Note 37. Discontinued operations
On 31 March 2020 the owner and operator of T1 Mall of Tallinn shopping centre, AS Tallinna
Moekombinaat (TMK), submitted an application to Harju County Court for commencement of
reorganisation proceedings with the purpose to overcome temporary liquidity issues,
reasonably reorganise liabilities and increase profitability of TMK. On 3 April 2020 Harju County
Court initiated reorganisation proceedings. Based on experts’ opinions the court should have
decided on the approval of the reorganization plan. On 14 August 2020 the county court made
a new ruling in the matter and terminated the reorganization proceedings because it had
established that AS Tallinna Moekombinaat is allegedly permanently insolvent. AS Tallinna
Moekombinaat disagreed with the views expressed in the county court ruling and disputed the
termination of the reorganisation proceedings. On 29 January 2021 the country court issued
a ruling, which decided not to satisfy the appeals of AS Tallinna Moekombinaat (TMK) and its
three creditors - Elkoral OÜ, OÜ Kristiine KVH and AS Merko Ehitus Eesti - against the ruling in
which Harju County Court decided to terminate the reorganization proceedings. AS Tallinna
Moekombinaat filed an appeal to the Supreme Court of Estonia. On 26 April 2021 the the
Supreme Court decided not to take AS Tallinna Moekombinaat’s appeal into proceedings.
Without the reorganisation proceedings AS Tallinna Moekombinaat was not capable of
fulfilling its obligations and become permanently insolvent. On 2 June 2021 Harju County Court
declared bankruptcy of AS Tallinna Moekombinaat and the Group lost control over this
subsidiary.
As a consequence, the subsidiary was derecognised from the group since 2 June 2021 and T1
Mall of Tallinn related operations are considered as discontinued operations.
As net assets of the subsidiary at the time of derecognition were negative, after loss of control,
the Group considers the fair value of the financial asset as 0.
AS Pro Kapital Grupp consolidated annual report 2021 146
Statement of financial position
in thousands of euros
02.06.2021
31.12.2020
DISCONTINUED OPERATIONS
ASSETS
Current assets
Cash and cash equivalents
182
192
Current receivables
432
583
Inventories
51
52
Total current assets
666
827
Non-current assets
Non-current receivables
3 823
4 053
Property, plant and equipment
40
55
Investment property
62 813
62 790
Intangible assets
12
11
Total non-current assets
66 689
66 909
TOTAL ASSETS
67 354
67 736
LIABILITIES AND EQUITY
Current liabilities
Current debt
75 381
75 404
Other short-term liabilities
2 408
2 112
Customer advances
1
0
Current payables
20 684
17 395
Tax liabilities
41
52
Total current liabilities
98 514
94 963
Non-current liabilities
Long-term debt
8
8
Non-current payables
24 944
24 712
Long-term provisions
68
119
Total non-current liabilities
25 020
24 838
Total liabilities
123 534
119 802
Net assets directly associated with discontinued operations
-57 322
-52 066
Equity
Share capital in nominal value
12 829
12 829
Share premium
1 541
1 541
Statutory reserve
855
855
Accumulated losses
-71 405
-67 291
Total equity
-56 180
-52 066
TOTAL LIABILITIES AND EQUITY
67 354
67 736
AS Pro Kapital Grupp consolidated annual report 2021 147
Statement of income
in thousands of euros
2021
2020
DISCONTINUED OPERATIONS
Operating income
Revenue
1 735
5 597
Cost of sales
-887
-3 035
Gross profit
848
2 562
Marketing expenses
-1
-11
Administration expenses
-415
-1 782
Other operating income
60
94
Other operating expenses
-185
-46 462
Operating profit/ loss
307
-45 599
Interest income
0
0
Finance cost
-4 422
-10 578
Profit/ loss before income tax
-4 115
-56 177
Income tax
0
0
Profit/ loss from discontinued operations
-4 115
-56 177
Earnings per share
From discontinued operations
Basic (euros per share)
-0.07
-0.99
AS Pro Kapital Grupp consolidated annual report 2021 148
Statement of cash flows
in thousands of euros
2021
2020
DISCONTINUED OPERATIONS
Cash flows from operating activities
Loss for the year
-4 115
-56 177
Adjustments for:
Amortisation of intangible assets
15
42
Change in disposal of PPE
0
8
Change from fair value of investment proprety
0
46 007
Finance income and costs
4 993
10 961
Other non-monetary changes
1 543
0
Change in receivables and prepayments
4 069
-1 371
Change in liabilities and prepayments
-5 829
380
Change in inventories
52
-2
Change in provisions
-119
18
Cash flow used in operating activities
609
-134
Cash flows from investing activities
Additions to PPE
0
-10
Payments for intangible assets
-1
0
Payments for investment property
-23
-157
Cash flows used in/ generated by investing activities
-25
-167
Cash flows from financing activities
Proceeds from borrowings
0
391
Payments for lease obligations
-23
-13
Interests paid
-572
-3
Cash flows generated by financing activities
-594
375
Net change in cash and cash equivalents
-10
74
Cash and cash equivalents at the beginning of the year
192
119
Cash and cash equivalents at the end of the year
182
192
The Group has recognised 27.7 million euros as profit from discontinued operations in its other
operating income (Note 28), which includes the following: share capital of AS Tallinna
Moekombinaat 12.8 million euros, share premium 1.5 million euros, reserves 855 thousand
euros, retained loss 72.5 million euros, minority interest correction 3.5 million euros and
written off loans to subsidiary 26 million euros.
AS Pro Kapital Grupp consolidated annual report 2021 149
Note 38. Subsequent events
Russia started a military conflict in Ukraine this February. Already recovering from COVID-19,
the construction market is facing another setback – most of the steel had been delivered by
Ukrainian, Russian and Belorussian markets and with the start of the war, accompanying
economic sanctions and increase in prices have influenced the situation. Also, there are still
problems with delivery of other construction and finishing materials. In our ongoing projects
these problems are not significant because we are towards the end of the development
process. However, the problems on construction market influence our future projects.
Ukraine, Russia and Belorussia have been main providers for steel and other materials and it
takes time for the suppliers to rearrange their sources and it will influence the prices. Today
construction companies prefer to sign open end contracts or minimise their risks with higher
margins. If construction prices for the new projects are not in corelation with the sales prices,
we will have to postpone start of the new projects until the situation on market stabilises.
In Tallinn we are currently developing sea-side residential area of Kalaranna District in the City
centre and Kristiine City close to the heart of Tallinn. The bank financing of the ongoing
developments is secured and relevant presales agreements with the clients have been signed
to guarantee the necessary proceeds to complete the works. We expect to finalise construction
of Kalaranna Kvartal and Kindrali Houses within this year.
In Riga there is no ongoing construction and preparations are being made to start the new
stage of development in Kliversala Quarter. Projecting is ongoing for the other two
developments: in Tallinas and Brivibas streets. There is unsold inventory available in the River
Breeze Residence, which is one of the high-end projects in the city. As the prices are in
accordance with the luxury quality of the product, the sale of this project has been slower than
in other projects already before the start of the pandemic. Though, there has been some
interest towards the apartment sale in spite of the economic situation in the world.
In Vilnius we are planning to start construction of the next stage of Saltiniu Namai project.
Last years have 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 2020
and from November until June 2021. PK Parkhotel Kurhaus operating company received a long-
term government support loan in amount of 500 000 euros on favourable conditions (Note 19)
and non-refundable grants (Note 28). These funds have helped to support the period of
uncertainty. Hotel has not laid off employees and hotel operator has received state support
also for salary payments. We are adjusting plans according to the changes in the situation and
restrictions imposed by the German Government.
Considering the start of new residential developments, AS Pro Kapital Grupp monitors the
economic situation in all Baltic countries and in the world in general and if necessary, might
postpone its development plans until the situation stabilizes. To secure health and wellbeing
of our employees, clients and partners, the employees in our offices are working remotely if
needed, however being available by e-mails and on the phone. We have reviewed and reduced
our fixed and variable costs and plan to make adjustments to spending where appropriate in
the future. Although the economies of the world have been severely hit by the current
situation, the business model of AS Pro Kapital Grupp is having a long- term view. We are
constantly reviewing our risks and we strive to minimize any external impact to enable AS Pro
Kapital Grupp reach its targets.
The major shareholder of AS Pro Kapital Grupp has informed the company that he plans to
participate with his asset portfolio in the SPAC (special purpose acquisition company), which is
AS Pro Kapital Grupp consolidated annual report 2021 150
listed on the NYSE EURONEXT in Paris. The companies related to the major shareholder have
signed a letter of intent to contribute assets belonging to them. However this LOI is not a
binding agreement.
On 26 April 2022 AS Pro Kapital Grupp signed a preliminary agreement with an intention to buy
100% of the shares of P.K. Sicily S.P.A. which owns and operates hotel Domina Zagarella Sicily.
With the agreement AS Pro Kapital Grupp reserves its rights to buy 100% of the shares for 12
million euros. Financial and legal due diligence has been initiated.
AS Pro Kapital Grupp consolidated annual report 2021 151
Signatures of the Management Board and Supervisory
Council
The Management Board of AS Pro Kapital Grupp has prepared the management report, the
consolidated financial statements and the profit allocation proposal for 2021.
Edoardo Preatoni
Chairman of the Management Board /digitally signed/
Angelika Annus
Member of the Management Board /digitally signed/
AS Pro Kapital Grupp consolidated annual report 2021 152
The Supervisory Council has reviewed the consolidated annual report which consists of the
management report and the consolidated financial statements prepared by the Management
Board, and which also includes the auditor’s report and the profit allocation proposal and
approved it for presentation at the General Meeting of Shareholders.
Emanuele Bozzone /digitally signed/
Chairman of the Supervisory Council
Petri Olkinuora /digitally signed/
Member of the Supervisory Council
Oscar Crameri /digitally signed/
Member of the Supervisory Council
AS Pro Kapital Grupp consolidated annual report 2021 153
Independent certified auditor’s report
AS Pro Kapital Grupp consolidated annual report 2021 154
Profit allocation proposal
The Management Board of AS Pro Kapital Grupp proposes to distribute the profit of the year
ended at 31 December 2021 in amount of 29 757 million euros to recover share premium,
statutory reserve and the remaining amount into retained earnings.