Manufaktuuri 7, Tallinn
2022 audited consolidated
annual report
2
2022 audited consolidated annual report
Corporate name:
Hepsor AS
Commercial Register No:
12099216
Address:
E-mail:
info@hepsor.ee
Telephone:
+372 660 9009
Website:
www.hepsor.ee
Reporting period:
01 January 2022-31 December 2022
Financial year:
01 January 2022-31 December 2022
Supervisory Board:
Andres Pärloja, Kristjan Mitt, Lauri Meidla
Management Board:
Henri Laks
Auditor:
Grant Thornton Baltic OÜ
Hepsor AS (hereinafter referred to as “the Group” or “Hepsor”), a property development company based on Estonian capital, has
operations in Estonia and Latvia. The Group entered Latvian market in 2017 and has been operating under the same consolidating
group since 2019.
Translation of the company’s consolidated financial statements in pdf-format without European Single Electronic Format (ESEF)
markups. The original document is submitted in machine-readable .xhtml format to the Nasdaq Tallinn Stock Exchange and
digitally signed (Link: https://nasdaqbaltic.com/statistics/en/instrument/EE3100082306/reports)
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2022 audited consolidated annual report
Contents
Management Report .......................................................................................................................................................................... 4
Operating Environment ...................................................................................................................................................................... 8
Overview of the Development Projects ........................................................................................................................................... 12
Group Structure ................................................................................................................................................................................ 21
Main Events ...................................................................................................................................................................................... 22
Operating results .............................................................................................................................................................................. 25
Employees ........................................................................................................................................................................................ 30
Share and Shareholders .................................................................................................................................................................... 31
Corporate Governance Report ......................................................................................................................................................... 34
Remuneration Report ....................................................................................................................................................................... 41
Sustainability Report ........................................................................................................................................................................ 43
Consolidated Annual Financial Statements ...................................................................................................................................... 51
Management Board’s confirmation of the consolidated annual report ........................................................................................ 100
Independent Auditor`s report ........................................................................................................................................................ 101
Profit allocation proposal ............................................................................................................................................................... 111
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2022 audited consolidated annual report
Management Report
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2022 audited consolidated annual report
Dear shareholders of Hepsor
The consolidated audited revenues of Hepsor for the 2022 financial year amounted to 12.9 million euros and the net profit was
1.3 million euros (including net profit attributable to the owners of the parent of 1.4 million euros). This is a result worth being
pleased with.
The Group’s revenues and profitability are directly dependent on the project development cycle, which
is approximately 24 to 36 months. Sales revenue is only generated at the end of the cycle. Calendar
quarters vary in terms of the number of projects ending during the quarter, which is why both profits
and sales revenue can differ significantly across quarters. Therefore, performance can be considerably
weaker or stronger in some years and quarters than in others. To assess the overall sustainability and
economic results of a real estate development company, the portfolio of the company’s development
projects, and three-year average financial results are better criteria for assessing the group’s
performance.
The recent years have been turbulent in the real estate sector. Demand for real estate has moved from uncertainty due to Covid-
19 in 2020 to record high sales in late 2021. In the past year, the real estate market in Hepsor’s home markets in Estonia and
Latvia was affected by the Russo-Ukrainian war, skyrocketing energy prices and inflation, and rising interest costs. However, the
decline in consumer confidence, which reached its historical low in the autumn of 2022, shows a moderate improvement trend
since then.
Completed development projects
In 2022, the Group completed three residential and three commercial property projects. The sales
revenue for the financial year has been mainly generated from the sale of completed residential
development projects. As of the end of 2022, we have handed over 45 apartments to home buyers in
Latvia, including 26 apartments in the 4b Strēlnieku, 18 apartments in the 9 Baložu and 1 apartment in
the 24 Āgenskalna development projects, and 40 apartments in the Paevälja Hoovimajad development
project in Estonia. The sale of 76 apartments and 1,487 sqm of commercial space in the Priisle Kodu
development project is not reflected in the Group’s sales revenue as the result of the project is recorded using equity method of
accounting. In total, we handed over 161 new homes to home buyers in Estonia and Latvia in 2022.
In the first quarter of 2023, the Paevälja Hoovimajad development project of two apartment buildings with a total of 96
apartments was completed in Estonia. The first phase of the project with 48 apartments was completed at the end of 2022. As of
31 March 2023, we have concluded real right contracts for 74 apartments (77%) and contracts under the law of obligation for 3
apartments (3%).
At the end of the year, we handed over the Büroo113 commercial to a modern clinic using an innovative concept. This is the first
time that green solutions (geothermal heating and cooling, rainwater use, energy-efficient architecture, excellent indoor climate,
solar energy, etc.) have been applied in a city centre high-rise. In Riga, a stock office type commercial building was completed at
30 Ulbrokas 3,645 sqm of which are fully covered with lease agreements.
Delivered
161
new homes
in 2022
Revenues
13
million euros
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2022 audited consolidated annual report
Development projects under construction and available for sale
Hepsor has six residential development projects under construction in Estonia and Latvia, with a total of
527 new apartments. As of 31 March 2023, there are three development projects under construction
and available for sale in Riga, with a total of 246 apartments. Contracts under law of obligations and
reservation agreements have been signed for 198 apartments (80%). There are also three development
projects with a total of 281 new apartments under construction and available for sale in Tallinn. As of 31
March 2023, contracts under law of obligations and reservation agreements have been signed for 61 apartments (23%).
The commercial real estate development project, Grüne Maja is being completed in Tallinn following a green concept. The office
building is fully covered with lease agreements while approximately 79% of the space is already in active use. The last tenants are
expected to move to the new premises in Q2 2023 at the latest.
New development capacity added
In total, we added approximately 171 apartments to our development portfolio in 2022, including 40 in
Riga and 131 in Tallinn. Approximately 60 new apartments will be built on the 12 Manufaktuuri property
in the Manufaktuuri Quarter together with our long-term cooperation partner Tolaram Grupp. We
started the construction of the Lilleküla Kodud development project with 26 apartments already in
December 2022. Up to 45 new homes can be built on the properties purchased at 1a Alvari and 5 Alvari.
In Latvia, a property was added on Jūrmala Gatve, where we are planning to build an energy class A
three-storey residential building with 40 new homes.
Future prospects
In the third quarter of 2022, we adjusted the forecasts for the next three years taking into account the changes in the market. For
2023, we forecast the revenue of 41.3 million euros, net profit of 3.3 million euros, and net profit attributable to the owners of
the parent of 1.1 million euros. The Group's sales for the first quarter of 2023 give us confidence that we meet the forecasts for
2023. Customers do not make quick purchase decisions, but there is still interest in our projects, which makes us moderately
optimistic to continue with existing and new projects. We believe that the advantage of rather favourable construction prices
should be used to facilitate development projects. When monitoring the interest level among Hepsor’s customers in new
development projects, we feel that there is moderate space for a drop in the prices of new developments or for price negotiations
initiated by customers.
Henri Laks
Member of the Management Board
Added
development:
171
apartments
Under
construction
527
new homes
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2022 audited consolidated annual report
Kuldīgas Parks
Gregora iela 2a, Riga
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2022 audited consolidated annual report
Operating Environment
The economic environment. According to Statistics Estonia, the Estonian economy shrank by 1.1% in 2022 (2021: +8%) compared
to the same period a year before. The shrinking economy was caused by the multiple crises triggered by the war in Ukraine, which
provoked a temporary spike in energy prices and disrupted existing supply chains for several key raw materials, thus causing rapid
price increases until new supply chains could be established as well as increasing consumer uncertainty. Over the year, prices
grew by a total of 19.4%, with a significant part of the growth taking place in the first eight months, until August (+17.8%), and
with the price increase stabilising in the second half of the year. The Bank of Estonia, the Estonian central bank, quoted the
registered unemployment rate of 2022 as 5.6% (2021: 6.2%), and according to Statistics Estonia, the construction price index
increased by 17.8% during the year as well (2021: 8.1%).
The Latvian economy was slightly more
successful in withstanding the shocks of the
war in Ukraine compared to Estonia. According
to data provided by the Central Statistical
Bureau of Latvia, the country’s economy grew
by 2.2% in 2022 (2021: 4.6%). The inflation rate
in Latvia in 2022 was 17.3% (2021: 3.2%). The
country’s registered unemployment rate in
2022 was 6.9% (2021: 6.7%), whereas the
construction price index increased by 19.7%
(2021: 6.7%).
In their forecasts for 2023, both the Estonian and Latvian central banks expect a decrease in consumption due to the rapid price
growth and the simultaneous decrease in company profitability. The price increase is expected to continue in 2023, given that
high energy prices and the increase in the price of goods and services necessary for production have not yet fully reached the
final consumer (especially in the food sector). The cooling of the economy in turn increases unemployment, and the statistics are
even worse when Ukrainian war refugee data is added in.
The Bank of Estonia predicts a minor economic decline of 0.6% for 2023. The central bank anticipates a 9.0% increase in consumer
prices and an 7.2% unemployment rate for 2023. The Bank of Latvia also forecasts an economic recession of 0.3%, an increase of
10.9% in consumer prices and an unemployment rate of 7.8% in 2023.
The Estonian central bank expects an average wage growth of 8.7% in 2023, while the Latvian central bank expects a growth of
9.2%. In 2022, the average gross salary in Estonia reached 1,685 euros, and in Latvia, 1,373 euros. The average gross salaries in
the capitals of Tallinn and Riga were 1,881 euros and 1,535 euros, respectively. Despite rapid wage growth, real wages declined
in both countries, reducing the availability of affordable housing. While 2023 is expected to bring a rise in real wages, recovery to
the previous level will take place over a longer period.
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2022 audited consolidated annual report
Key indicators, Estonia and Latvia 2021-2023
Financial markets expect the Euribor rates that began rising in 2022 will continue rising in 2023. High inflation rates and a stronger-
than-forecasted real economy encourage the European Central Bank to continue raising base interest rates: at the time of writing
this report, the expectation is to have three more base interest rate hikes in 2023, bringing the rates to 3.75%. A slight decrease
in interest rates is predicted only in the last six months of 2024.
Residential real estate. Based on statistics from the Estonian Land Board, 9,652 apartment purchase and sale transactions were
made in Tallinn in 2022, which is 11.5% less than the year before (2021: 10,902). The decrease in the number of transactions was
expected, given that the statistics for 2021 were significantly affected by delayed transactions in 2020, which were cancelled or
postponed due to COVID-19. By the end of 2022, the median price of real estate purchase and sale transactions rose to 3,152
euros per square metre, which is 26.7% higher than the year before (31 December 2021: 2,488 euros per square metre). The rising
median price was shaped by the increase in construction prices, which significantly increased prices in the market of new
developments, as well as the rising Euribor rates, and the general increase in the cost of living. This was coupled with changes in
the structure of transactions – the uncertainty in consumer confidence caused by the war in Ukraine significantly reduced the
number of secondary market transactions, with previously agreed new development market transactions, which are priced more
highly than secondary market transactions, playing a key role in shaping the statistics. According to the Estonian real estate site
KV.ee, as of 31 December 2022, the number of active offers in Tallinn increased to 3,852 units, which is 84% more than the year
before (31 December 2021: 2,099).
In Tallinn’s new development
market, the rapid increase in sales
prices continued until mid-2022,
with prices stabilising in the third
quarter. The expectation of a price
drop, which dominated public
opinion in the last quarter of 2022,
has not materialised. As of 31
December 2022, the average price
of a new development in Tallinn
was 4,166 per square metre (31
December 2021: 3,492 euros per square metre), which is 19.2% higher than the year before. Similar to offers on the secondary
market, the number of offers for new developments went up during the year, increasing to 2,228 units as of 31 December 2022
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2022 audited consolidated annual report
(31 December 2021: 1,340 units), which is still slightly below the long-term average of previous periods. Transaction activity on
the new developments market scaled down significantly due to the drop in consumer confidence and the rise in Euribor rates in
the last six months, and especially in the last quarter. Home buyers are likely waiting for the Euribor rates to stabilise before
making their decision, and the expected short-term decrease in demand has prompted some developers to postpone the launch
of new developments. The interaction between the two sides has resulted in the recovery of the usual supply volume of new
developments, with oversupply no longer being an issue.
In Latvia, too, the rapid growth of
construction costs in the
residential real estate market
caused rapid price increases in the
market of new developments in
2022, with bid prices in the Riga
region rising by 36% year-on-year
to 2,750 euros per square metre.
While the first three quarters of
the year were active in both old
and new development
transactions, the activity took a hit
in the fourth quarter when the
market had to prepare for the
upcoming heating season against
the rising energy prices and Euribor rates, causing consumer confidence to plummet. As of 31 December 2022, the supply volume
of new developments in Riga was approximately 4,130 units, an estimated 38% of which were covered by pre-sale contracts. A
total of 2,239 purchase and sale transactions for new developments took place during the year, which is 10% more than the year
before.
According to data from the Central Statistical Bureau of Latvia, the price index of residential real estate increased by a total of
15.7% in 2022, with the rise in the price index of new developments accounting for 29.4% of that increase. Similar to Estonia, the
availability of real estate deteriorated significantly in Latvia, as the price of new developments grew considerably faster than gross
salaries. While the rise in Euribor rates further contributed to the decrease in availability, the general availability of real estate in
Riga continues to be very good.
Commercial real estate. The review is based on an analysis prepared by Newsec. In contrast to developed European countries,
and the Nordic countries, transaction activity in the Baltic commercial real estate market remained high in 2022, keeping with the
average level of previous periods, while capitalisation rates largely remained at the same level as the year before.
The Tallinn office market has continued to be actively developed in recent years: nearly 50,000 square metres of new office space
was completed in 2022, and by the end of the year, the city had a total of 1,020,000 square metres of office space. The office
segment has a vacancy rate of approximately 4.4%–8%, depending on the quality class. The demand for new office space
continues to be high, specifically in the information technology, healthcare, and service sectors. Rent levels for offices are
generally increasing across all quality classes.
The demand for warehouse and production real estate in Tallinn continues to be high, including the search for new large and
stock office type buildings that meet customer needs. During 2022, approximately 34,000 square metres of warehouse and
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2022 audited consolidated annual report
production real estate developments were completed in Tallinn and the surrounding areas. Due to demand, both rent levels and
vacancy rates have remained unchanged (vacancy approx. 3.1%).
Only a limited amount of new supply entered the Riga office market in 2022, with high construction costs and supply chain
disruptions causing the postponement of planned office projects. However, a significant number of new high-quality and energy-
efficient class A and class B office spaces is expected to be completed in 2023.
At the end of 2022, the vacancy rate of the Riga office segment was 10.6% on average, which, while significantly lower than the
year before (2021: 14.5%), is still the highest figure in the Baltic countries. In total, there are approximately 781,000 square metres
of office space in Riga and, despite the high vacancy rates, another 118,000 square metres are currently under development.
Interest in new energy-efficient spaces has grown, especially in light of higher energy prices. Rent prices remained stable in 2022,
but 2023 should expect to see an increase in rent prices for office spaces located in premium areas.
A total of 1,390,000 square metres of warehouse and production space are on offer in Riga and the surrounding areas, and about
140,000 square metres of new warehouse and production space are being developed. Interest in such spaces continues to be
high, especially in the transport, logistics, and 3PL sectors, which is why vacancy remains at the low level of 3.6%. As a result of
demand and rising input prices, rent levels are rising.
Real estate market outlook. In 2023, both Estonian and Latvian real estate markets will be affected by price increases, the rising
Euribor rates and the resulting low consumer confidence, and the low supply of new development projects. We expect the market
to adjust and transaction activity to increase in the last six months of the year.
There is a significant link between unemployment and vacancy rates in the office space market. Since both Estonia and Latvia are
forecast to experience a recession with growing unemployment rates in 2023, the demand for office spaces will most likely slightly
decrease next year, and the vacancy will increase.
The energy efficiency of residential and commercial buildings has received little attention in previous periods. However, rising
energy prices have significantly increased market expectations for energy efficiency, raising the awareness of both home buyers
and commercial real estate market participants. Recently, most companies have sought to adopt energy-saving measures, from
simple ones, such as adjusting lighting and upgrading energy equipment, to more comprehensive measures, such as hiring experts
to measure energy consumption and offer recommendations for optimisation. Increasingly, companies are turning to alternative
energy sources for additional efficiency. We expect this trend to continue in 2023, despite a drop in energy prices.
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2022 audited consolidated annual report
Overview of the Development
Projects
As of 31 December 2022, the Group had 26 active projects in different development phases (31 December 2021: 26 projects) and
176,000 sqm of sellable area (31 December 2021: 177,000 sqm).
In 2022, the Group acquired approximately 10,000 sqm of sellable area of which 27% is in Latvia.
Distribution of development portfolio between different development phases (as of 31 March 2023):
Distribution of development portfolio between countries and type (as of 31 March 2023):
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2022 audited consolidated annual report
Development projects in Tallinn (as of 31 March 2023)
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2022 audited consolidated annual report
Development projects in Riga (as of 31 March 2023)
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2022 audited consolidated annual report
Completed development projects (as of 31 March 2023):
Project:
Address:
Apartments:
Project completed:
Website:
Strēlnieku 4b
Hepsor S4B SIA
4b Strēlnieku St, Riga
54
2020
hepsor.lv/Strēlnieku4b
Project:
Address:
Apartments:
Start of construction:
Estimated completion:
Website:
Paevälja Hoovimajad
Hepsor PV11 OÜ
11 Paevälja, 7 Lageloo, Tallinn
96
Q4 2021
I phase Q4 2022
II phase Q1 2023
hepsor.ee/paevalja/en
Project:
Address:
Leasable area:
Occupancy:
Project completed:
Website:
StockOffice U30
Hepsor U30 SIA
Ulbrokas 30, Riga
3,645 m
2
100%
Q3 2022
hepsor.lv/stokofissu30/en/
Project:
Address:
Leasable area:
Occupancy:
Project completed:
Website:
Büroo 113
Hepsor P113 OÜ
Pärnu mnt 113, Tallinn
4,002 m2
100%
Q4 2022
byroo113.ee/
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2022 audited consolidated annual report
Residential development projects under construction (as of 31 March 2023):
Project:
Address:
Apartments:
Start of construction:
Estimated completion:
Website:
Kuldigas Parks
Kvarta SIA
2a Gregora iela, Riga
116
Q4 2021
Q2 2023
hepsor.lv/kuldigasparks/en/
Project:
Address:
Apartments:
Start of construction:
Estimated completion:
Website:
Mārupes Dārzs
Hepsor Mārupe SIA
45 Liela, Mārupe, Riga area
92
Q2 2022
Q2 2023
hepsor.lv/Mārupesdarzs/en/
Project:
Address:
Apartments:
Start of construction:
Estimated completion:
Website:
Ojakalda Kodud
Hepsor 3TORNI OÜ
Paldiski mnt 227c, Tallinn
101
III kvartal 2022
II kvartal 2024
hepsor.ee/ojakalda
Project:
Address:
Apartments:
Est. start of construction:
Estimated completion:
Website
Lilleküla Kodud
Hepsor N57 OÜ
Nõmme tee 57, Tallinn
26
Q4 2022
Q1 2024
hepsor.ee/lillekylakodud/en/
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2022 audited consolidated annual report
Project:
Address:
Apartments:
Est. start of construction:
Estimated completion:
Website:
Manufaktuuri Quarter
Hepsor Phoenix 2 OÜ
7 Manufaktuuri, Tallinn
154
Q1 2023
Q4 2024
hepsor.ee/manufaktuur/m7/en/
Project:
Address:
Apartments:
Est. start of construction:
Estimated completion:
Website:
Nameja Rezidence
Hepsor RD5 SIA
5 Ranka Dambis, Riga
38
Q1 2023
Q1 2024
hepsor.lv/namejarezidence/en/
Commercial development projects under construction (as of 31 March 2023):
Project:
Address:
Leasable area:
Start of construction:
Estimated completion:
Website:
Grüne Büroo
Hepsor M14 OÜ
14 Meistri, Tallinn
3,430 m2
Q4 2020
2022-Q2 2023
gryne.ee/en/
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2022 audited consolidated annual report
Development projects the construction of which starts in 2023 (as of 31 March 2023):
Project:
Address:
Leasable area:
Est. start of construction:
Estimated completion:
StockOffice U34
Hepsor U34 SIA
34 Ulbrokas, Riga
8 526 m
2
Q2 2023
2024
Project:
Address:
Apartments:
Est. start of construction:
Estimated completion:
Hepsor JG SIA
Jurmalas Gatve/Imanta 8.
linija, Riga
40
Q4 2023
Q4 2024
Project:
Address:
Apartments:
Est. start of construction:
Estimated completion:
Hepsor Jugla SIA
23 Braila, Riga
100
Q2 2023
Q3 2024
Project:
Address:
Apartments:
Est. start of construction:
Estimated completion:
Manufaktuuri 5
Hepsor Phoenix 3 OÜ
5 Manufaktuuri, Tallinn
148
Q3 2023
2025-2026
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2022 audited consolidated annual report
Residential development projects under construction and available for sale (as of 31 March 2023):
* Number of sold apartments includes paid bookings, contracts under law of obligation and real right contracts.
Project
Apartments
Apartments
Apartments %
Estimated
completion
Sold*
Available
Sold*
Available
4b Strēlnieku, Latvia
54
36
18
67%
33%
2020
Paevälja Hoovimajad
96
78
18
81%
19%
I phase Q4 2022
II phase Q1 2023
Kuldigas Parks, Latvia
116
110
6
95%
5%
Q2 2023
Mārupes Dārzs, Latvia
92
78
14
85%
15%
Q2 2023
Ojakalda Kodud
101
28
73
28%
72%
Q2 2024
Lilleküla Kodud
26
6
20
23%
77%
Q1 2024
Manufaktuuri 7
154
32
122
21%
79%
Q4 2024
Nameja Rezidence, Latvia
38
10
28
26%
74%
Q2 2024
Total
677
378
299
56%
44%
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2022 audited consolidated annual report
In 2023, the Group plans to start the development of two new commercial properties in Latvia (14,026 sqm) and the construction
of Manufaktuuri 7 and the first phase in Manufaktuuri 5 commercial property development (1,801 sqm).
Occupancy of commercial development projects (as of 31 March 2022):
Rentable area
sqm
Occupancy
sqm
Occupancy
%
Ulbokras 30 stock-office, Latvia
3,645
3,645
100
Büroo113
4,002
4,002
100
Grüne Maja
3,430
3,430
100
Total
11,077
11,077
100
In addition to the new commercial and office buildings developed by the Group, the Group rents out commercial premises in Riga
and Tallinn located on properties that are in the development phase for the construction of new buildings.
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2022 audited consolidated annual report
Group Structure
As of 31 December 2022, the Group was comprised of parent company, 38 subsidiaries and 2 associated companies (31 December
2021: parent company, 30 subsidiaries, 2 associated companies). Tatari 6a Arenduse OÜ is reported as financial investment.
In 2022, the following changes took place in the structure of the Group:
✓ On 12 January 2022, Hepsor Latvia OÜ acquired a 50% shareholding in Kvarta Holding OÜ in accordance with an option
agreement. Kvarta Holding OÜ owns a 100% shareholding in Kvarta SIA, which is developing Kuldigas Parks residential
development project with 116 apartments in Riga at Gregora 2a.
✓ On 20 January 2022, Hepsor Latvia OÜ established Hepsor Ganibu Dambis SIA, a subsidiary that is developing a commercial
property project in Riga.
✓ On 10 February 2022, Hepsor Latvia OÜ sold its 50% shareholding in Hepsor Marupe SIA to the co-owners in accordance with
the shareholders’ agreement. Hepsor Marupe SIA is developing a project with 92 apartments in Marupe, Latvia, near the Riga
city boundary.
✓ In March 2022, Hepsor AS acquired a minority stake in Hepsor P26b OÜ and Hepsor Peetri OÜ increasing its stake in both
companies to 100%. The development projects of these entities ended in 2021.
✓ On 8 July 2022, Hepsor Latvia OÜ established Hepsor JG SIA, a subsidiary that will develop a three-story A energy class
residential building with 40 apartments at Jurmala Gatve street, Imanta district, Riga.
✓ On 24 August 2022, Hepsor AS established Hepsor Phoenix 4 OÜ, a subsidiary where the Group holds a 50% stake. Hepsor
Phoenix 4 OÜ acquired a property in Manufaktuuri Quarter to develop approximately 60 new apartments with its long-term
cooperation partner Tolaram Grupp.
✓ On 8 September 2022, Hepsor AS established Hepsor N57 OÜ to develop a residential building with 26 apartments on the
property at Nõmme tee 57 in Tallinn.
✓ On 18 November 2022, Hepsor AS established a subsidiary Hepsor Kanada OÜ to start the process of establishing a subsidiary
in Canada.
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2022 audited consolidated annual report
Main Events
✓ Hepsor U30 SIA signed a loan agreement with Bigbank AS Latvian affiliate on 14 January 2022 in the amount of 2.65 million
euros to finance the construction of stock-office in Riga, Ulbrokas 30. Total leasable area of 3,645 sqm is fully covered with
lease agreements.
✓ Kvarta SIA signed a 7.5 million euro loan agreement with Bigbank AS Latvian affiliate on 1 February 2022. The purpose of the
three-year loan is to finance the construction of Kuldigas Parks project in Riga, Gregora 2a comprised of two buildings with
116 apartments.
✓ Hepsor Latvia OÜ, a subsidiary of Hepsor AS, signed a real right contract and acquired a property of 30,624 sqm in 17A Ganību
Dambis, City of Riga on 13 June 2022. The contract under law of obligations was signed on 28 December 2021. The property
has 13 buildings of different commercial functionality and approximately 70% of its total area of 11,564 sqm is covered by
lease agreements. The price of the transaction was 3,6 million euros.
✓ Hepsor Mārupe SIA, a subsidiary of Hepsor AS in Latvia, signed 7-million-euro loan agreement with Bigbank AS Latvian affiliate
on 17 June 2022. The purpose of the three-year loan is to finance the construction of development project in Mārupe, Riga
area. The construction agreement for the construction of four buildings with 92 A energy class apartments was signed with
SIA Mitt&Perlebach on 5 April 2022. The value of construction agreement is approximately 8.1 million euros excluding value
added tax.
✓ Hepsor 3TORNI OÜ, Hepsor AS group company, signed the 13.9 million euro loan agreement with LHV Pank AS on 15 July 2022.
The purpose of the three-year loan is to finance the construction of Ojakalda development project, a three-tower residential
building on the border of Tallinn and Harku with 101 spacious family apartments. The construction agreement of
approximately 14.1 million euros excluding value added tax was signed with Mitt&Perlebach OÜ on 25 August 2022.
✓ Hepsor A1 OÜ, a subsidiary of Hepsor AS, acquired two properties at Alvari 1a and Alvari 5, Tallinn on 2 August 2022. The
acquired properties will be an addition to Hepsor's existing development area (Narva Road 150, 150a, 150b, Alvari 1, Lageloo
7, Paevälja avenue 5, 7, 9 and 11). Based on the undertaken planning proceedings, a commercial and residential building for
a maximum of 45 apartments can be built on the property with approximate sellable area of 2,370 sqm.
✓ Hepsor JG SIA, a subsidiary of Hepsor AS, signed a sale-purchase agreement on 1 September 2022, for acquiring a property in
Jurmala Gatve Street, Imanta district, Riga. The property will accommodate a three-storey A-energy class residential building
with 40 apartments and sellable area of approximately 2,500 sqm.
✓ On 7 September 2022, a subsidiary of Hepsor AS signed the sale-purchase agreement for acquiring the Manufaktuuri 12
property in the Manufaktuuri Quarter, Tallinn. In total, approximately 60 new apartments, developed together with the
Tolaram Group, a long-term cooperation partner, will be built on the property.
✓ On 15 November 2022, Hepsor N170 OÜ, an associated company of Hepsor AS, and Priisle 1 OÜ signed a sale-purchase
contract under law of obligations for the sale of approximately 1,500 sqm of commercial space at Priisle 1a, the real right
contract of which was signed on 15 December 2021. The transaction cost is approximately 2.7 million euros.
✓ On 18 November 2022, Hepsors AS established a new subsidiary Hepros Kanda OÜ to start the process of establishing a
subsidiary in Canada. The new entity will hold a share in the Canadian subsidiary. Operations at the Montreal headquarters
will most likely be launched between March and April 2023. The objectives for the first nine months are to get to know the
local market, build a network of partners and identify suitable niches for Hepsor. The first investments such as land acquisitions
are expected to be made in the first half of 2024.
✓ Hepsor N57 OÜ, Hepsor AS group company, and Mitt&Perlebach OÜ signed a construction agreement for the construction of
Lilleküla Kodud development project in Kristiine, a highly valued district in Tallinn, on 22 December 2022. The value of
construction agreement is approximately 3.4 million euros excluding value added tax. Hepsor N57 OÜ acquired the property
on 19 August 2022.
23
2022 audited consolidated annual report
Events after the reporting period:
✓ Hepsor RD5 SIA, Hepsor AS group company, and Mitt&Perlebach SIA signed a construction agreement on 16 March 2023 for
the construction of the Nameja Rezidence development project in Riga. The value of the construction agreement is
approximately 4.6 million euros excluding VAT.
✓ Hepsor Phoenix 2 OÜ, Hepsor AS group company, and LHV Pank OÜ signed 17.5 million loan agreement on 15 March 2023.
The purpose of the three-year loan is to finance the construction of Manufaktuuri 7 development project.
✓ Hepsor Phoenix 2 OÜ, Hepsor AS group company, and Mitt&Perlebach OÜ signed a construction agreement on 8 March 2023
for the construction of the Manufaktuuri 7 development project in the Manufaktuuri Quarter in Tallinn. The value of the
construction agreement is approximately 18.5 million euros excluding VAT.
Projects completed and sold in 2022:
Project:
Address:
Apartments:
Project completed:
Profit share:
Baložu 9
Hepsor BAL9 SIA
Baložu 9, Riga
18
Q2 2022
56%
Project:
Address:
Apartments:
Project completed:
Profit share:
Āgenskalna 24
Hepsor AGEN24 SIA
Āgenskalna 24, Riga
28
Q2 2022
100%
Project:
Address:
Leasable area:
Project completed:
Profit share:
Priisle Kodu (commercial space)
Hepsor N170 OÜ
Priisle 1a, Tallinn
1,487 m
2
Q3 2022
25%
Project:
Address:
Apartments:
Project completed:
Profit share:
Priisle Kodu
Hepsor N170 OÜ
Priisle 1a, Tallinn
76
Q3 2022
25%
24
2022 audited consolidated annual report
New development potential acquired in 2022:
Name of SPV
Project address
Acquisition
date
Location
Development
type
Profit
share %
Planned
sqm
Planned # of
apartments
Hepsor JG SIA
Jurmalas Gatve/Imanta
8. linija, Riga
Q3 2022
Latvia
Residential
80%
2,458
40
Hepsor Phoenix 4 OÜ
Manufaktuuri Quarter,
Tallinn
Q3 2022
Estonia
Residential
50%
3,300
60
Hepsor N57 OÜ
Nõmme tee 57, Tallinn
Q3 2022
Estonia
Residential
100%
1,482
26
Hepsor A1 OÜ
Alvari 1, Tallinn
Alvari 5, Tallinn
Q3 2022
Estonia
Residential
100%
2,370
45
Total
9,610
171
25
2022 audited consolidated annual report
Operating results
Revenues
The Group’s sales revenue in 2022 was 12.9 million euros (compared with 15.0 million euros in 2021), of which 6.1 million euros
(2021: 1.7 million euros) was generated in Latvia and 6.8 million euros in Estonia (2021: 13.3 million euros). Latvia accounted for
47% (2021: 11%) of total revenues.
As of 31 December 2022, the Group had 26 apartments
available for sale (31 December 2021: 45) including 18
apartments in 4b Strēlnieku development project in
Riga and 8 apartments in Paevälja Hoovimajad
development project in Tallinn.
In 2022, the Group sold a total of 85 apartments under
real right contracts.
✓ Total of 45 apartments in Latvia including 26
apartments in 4b Strēlnieku, 18 apartments in 9
Baložu and 1 apartment in 24 Āgenskalna
development project.
✓ Total of 40 apartments in Paevälja Hoovimajad
development project.
In addition to sale of apartments, the Group also executes project management services to subsidiaries and associated companies
and generates rental income. In total, other sales revenue amounted to 916 thousand euros, or 7% of the Group's total sales
revenue in 2022 (2021: 539 thousand euros, or 4%). The increase in rental income was mainly generated from the renting out
commercial premises in Grüne Maja (Tallinn), StockOffice U30 (Riga) and Ganibu Dambis (Riga) commercial properties.
Large fluctuations in sales revenue are relatively common in real estate development business. The development cycle of the
Group's real estate projects lasts approximately 36 months. In year-on-year comparisons, sales revenues and profits may fluctuate
depending on the period between the completion of the construction of the development project and the sale of the completed
apartments.
26
2022 audited consolidated annual report
Profitability
In 2022, the Group’s operating profit was 0.2 million euros (2021: 1.9 million euros). The Group’s net profit for 2022 amounted
to 1.3 million euros (2021: 1.7 million euros), of which the net profit attributable to the owners of the parent amounted to
1.4 million euros (2021: net loss of 22 thousand euros), while the net loss to non-controlling interest was 65 thousand euros
(2021: net profit 1.8 million euros).
The gross profit margin of development projects sold during the
reporting period was 22.0% (2021: 22.4%). The Group's gross
profit margin was 13.8% (2021: 20.4%). The operating profit
margin was 1.8% (2021: 12.6%). Operating profit has been
affected the most by the following:
✓ The costs related to the activities in the kick-off phase of the
development projects have increased the cost of goods and
services sold. In recent years, the Group has acquired
several properties with buildings that have been partially or
fully rented out.
✓ The set up of the Group's sales team in Estonia in 2021 has
increased the costs related to marketing and sales activities
in 2022 in addition to labour costs.
✓ The general increase in labour costs is related to the
changes in the Group's management structure in 2021, salary growth and hiring of new employees.
27
2022 audited consolidated annual report
The Group's net profit margin for 2022 was 10.3% (2021: 11.6%). The net profit margin attributable to the owners of the parent
was 10.8% (2021: -0.1%). In 2022, the Group earned financial income of 1.1 million euros from the associated companies, Hepsor
N170 OÜ and Hepsor P113 OÜ, using equity method of accounting. In addition, the Group earned non-recurring financial income
from the assignment of the claim of the minority shareholder loan in the amount of 0.4 million euros. Financial income increased
by 1.6 million euros to 1.9 million euros year-on-year (2021: 0.3 million euros).
The Group’s interest expenses increased 0.3 million euros year-on-year. The Group's financial expenses totalled 0.8 million euros
(2021: 0.5 million euros).
Balance Sheet
Total assets of the Group amounted to 78.4 million euros as of 31 December 2022 (31 December 2021: 55.3 million euros), which
is 41.7% higher (2021: 81.9%) than at the end of the previous financial year. Inventories accounted for 89.0% or 69.8 million euros
of total assets (31 December 2021: 67.3% and 37.2 million euros).
As of 31 December 2022, cash and cash equivalents accounted for 4.8% or 3.8
million euros of the total assets (31 December 2021: 19.7% and 10.9 million
euros).
The Group's loan obligations totalled to 48.6 million euros or 61.9% of total
assets as of 31 December 2022. As of 31 December 2021, the Group’s loan
obligations amounted to 28.4 million euros or 45.9% of total assets. The
growth in loan obligations is mostly due to launching the construction of new
development projects.
The Group's equity increased by 6.7% over the year to 20.3 million euros.
Equity attributable to the owners of the parent increased by 5.3% to EUR 19.9
million. In November 2021, the Group raised 10 million euros by initial public
offering of its shares thus increasing its equity by almost 100% to 18.9 million
euros.
Cash Flows
The Group’s cash and cash equivalents amounted to 10.9 million euros at the beginning of 2022 (2021: 4.2 million euros) and to
3.8 million euros as of 31 December 2022. The negative cash flow for the period was 7.4 million euros (2021: positive at 6.7 million
euros).
Cash flow from operating activities for 2022 was negative at 28.6 million euros (2021: negative at 9.4 million euros). Cash flow
from operating activities was mostly affected by the growth in the portfolio of development projects, due to the increase in
inventories the negative cash flow was 30.9 million euros as of 31 December 2022 (2021: 13.0 million euros).
28
2022 audited consolidated annual report
Cash flow from investments was positive at 2.4
million euros as of 31 December 2022 (2021:
negative of 4.3 million euros). The largest impact
was from repayment of loans granted, the balance
of which decreased by 2.0 million euros. In 2021,
the group granted loans in the total amount of 4.4
million euros.
Cash flow from financing activities was positive at
18.8 million euros (2021: 20.4 million euros). In
2022, the Group received more loans than it
repaid. The net amount of loans received in nine
months 2022 was 20.2 million euros (2021: 11.9
million euros).
29
2022 audited consolidated annual report
Key Financials
In tousands of euros
2022
2021
2020
Revenue
12,870
14,961
38,771
Gross profit/-loss
1,774
3,059
4,084
EBITDA
383
2,037
3,572
Operating profit/-loss
235
1,880
3,411
Net profit/-loss
1,331
1,733
3,845
Incl net profit/-loss attributable to the owners of parent
1,396
-22
2,591
Comprehensive income/-loss
1,315
-12
2,834
Incl comprehensive profit/-loss attributable to the owners of parent
1,033
46
2,605
Total assets
78,368
55,345
30,433
Incl inventories
69,760
37,237
22,903
Total liabilities
58,045
36,308
20,914
Incl total loan commitments
48,580
28,363
16,160
Total equity
20,323
19,037
9,519
Incl equity attributable to the owners of parent
19,866
18,904
9,454
Key Ratios
2022
2021
2020
Gross profit margin
13.8%
20.4%
10.5%
Operating profit margin
1.8%
12.6%
8.8%
EBITDA margin
3.0%
13.6%
9.2%
Net profit margin
10.3%
11.6%
9.9%
General expense ratio
12.0%
8.1%
1.8%
Equity ratio
25.9%
34.4%
31.3%
Debt ratio
62.1%
51.6%
54.5%
Current ratio
2.5
4.2
3.5
Return of equity
6.8%
12.1%
47.3%
Return on equity attributable to the owners of the parent
7.2%
-0.2%
31.7%
Return on assets
2.0%
4.0%
11.4%
Gross profit margin = gross profit / revenue
Operating profit margin = operating profit / revenue
EBITDA margin = (operating profit + depreciation) / revenue
Net profit margin = net profit / revenue
General expense ratio = (marketing expenses + general and administrative expenses) / revenue
Equity ratio = shareholder’s equity / total assets
Debt ratio = interest-bearing liabilities / total assets
Current ratio = current assets / current liabilities
Return on equity = net profit of trailing 12 months / arithmetic average shareholder’s equity
Return on equity attributable to the owners of the parent = net profit of trailing 12 months attributable to owners of the parent / arithmetic average
shareholder’s equity attributable to owners of the parent
Return on assets = net profit of trailing 12 months / average total assets
30
2022 audited consolidated annual report
Employees
As of 31 December 2022, the Group employed 25 (31 December 2021: 21) people including the members of Management and
Supervisory Boards. 13 of these people worked in Estonia (31 December 2021: 13) and 12 in Latvia (31 December 2021: 8).
Total labour cost for the reporting period amounted to 1,530 thousand euros (2021: 908 thousand
euros). The increase in labour costs was mostly due to higher number of employees and changes in
management structure in 2021.
The Group’s definition of labour costs includes payroll expenses (incl. basic salary, additional
remuneration, holiday pay and performance pay), payroll taxes, special benefits and taxes calculated on
special benefits. The remuneration of a member of the Management Board and the remuneration of a member of the Supervisory
Board are also considered to be labour costs.
As of 14 October 2021, the Management Board of the Group has one member. The term of office of the member of the
Management Board, Henri Laks, is five years. In addition to the position of the member of the Management Board of Hepsor AS,
Henri Laks also belongs to the management boards of all the Estonian subsidiaries and associated companies of the Group.
The Member of the Management Board of the Latvian company is Martti Krass, who is responsible for development projects in
Latvia.
The Supervisory Board of the Group has three members. The mandate of the Supervisory Board is valid for three years from 1
November 2021. The work of the Supervisory Board is led by Andres Pärloja, the Chairman of the Supervisory Board. The members
of the Supervisory Board are Kristjan Mitt and Lauri Meidla.
The members of the Management Board and the Supervisory Board were paid for the reporting period gross fees in the amount
of 325 thousand euros (2021: 120 thousand euros).
More information about the personnel expenses is available in Note 22.
Number of
employees in
2022
25
31
2022 audited consolidated annual report
Share and Shareholders
The shares of Hepsor AS (HPR1T; ISIN EE3100082306) have been listed in the Main List of Nasdaq Tallinn Stock Exchange since 26
November 2021. The Group has issued 3,854,701 shares with nominal value of 1 euro. As of 31 December 2022, Hepsor AS had
11,628 (31 December 2021: 14,407) shareholders.
Hepsor AS shares held by the members of Management and Supervisory Boards and entities related to them:
Shareholder
Position
Number of shares
Shareholding %
Henri Laks
Member of Management Board
498 000
12,92
Andres Pärloja
Chairman of Supervisory Board
997 500
25,88
Kristjan Mitt
Member of Supervisory Board
997 500
25,88
Lauri Meidla
Member of Supervisory Board
507 000
13,15
Total
-
3 000 000
77,83
Shareholder structure by number of shares held as of 31 December 2022:
Number of shares
Number of
shareholders
% of shareholders
Number of shares
% of shares
100,001-…
5
0.04%
3,000,000
77.83%
10,001-100,000
8
0.07%
214,826
5.57%
1,001-10,000
51
0.44%
154,142
4.00%
101-1,000
784
6.74%
202,167
5.24%
1-100
10,780
92.71%
283,566
7.36%
Total
11,628
100.00%
3,854,701
100.00%
Between 1 January 2022 and 31 December 2022, a total of 15,817 transactions were conducted with
the shares of Hepsor AS with 297,239 shares in the total amount of 3.6 million euros. The highest price
for the period was 14.4 euros and the lowest price 9.1 euros. The opening price was 13.5 euros and
closing price 9.1 euros. As of 31 December 2022, the market capitalization of Hepsor AS was 35 million
euros and the Group’s equity amounted to 20 million euros.
Shareholder
structure
2022
2021
Number of shares
% of shareholders
Number of shares
% of shareholders
Institutions
127,748
3,3%
91,730
2.4%
Entities
1,282,209
33,3%
1,264,755
32.8%
Private individuals
2,444,744
63,4%
2,498,216
64.8%
3,854,701
100,00%
3,854,701
100.00%
In accordance with the Group’s strategy, the earned profits will be reinvested in the implementation of new and existing projects.
The Group’s shareholders may decide to pay dividends or establish a long-term dividend policy in the future, if the Group does
not have the opportunity to reinvest its profits in projects with a sufficient return on equity.
Market cap at
31 Dec 2022
35
million euros
32
2022 audited consolidated annual report
Trading volume and price range of Hepsor AS shares, January - December 2022:
Source: Nasdaq Baltic
Change in Hepsor share price in comparison with the benchmark OMX Tallinn index in January-December 2022:
Source: Nasdaq Baltic
Year
Opening price
(euro)
Closing price
(euro)
Lowest price
(euro)
Market cap
(million euros)
P/E ratio
2021
16.5
13.5
13.2
52
N/A
2022
13.5
9.1
9.1
35
25.3
33
2022 audited consolidated annual report
Ojakalda Kodud
Paldiski mnt 227c, Tallinn
34
2022 audited consolidated annual report
Corporate Governance Report
In its business operations, Hepsor AS adopts the set of Corporate Governance Recommendations approved by the Estonian
Financial Supervisory and Resolution Authority and Nasdaq Tallinn Stock Exchange. The following report describes the
management principles of Hepsor AS in 2022 and compliance with Corporate Governance Recommendations. Companies can
decide whether they adopt these recommendations as the basis of their management. The management practices of Hepsor AS
described below in accordance with the “comply or explain” principle.
General Meeting of Shareholders
Exercise of shareholder rights
Hepsor AS is a public limited company whose managing bodies are the General Meeting of Shareholders, Supervisory Board and
Management Board. The General Meeting of Shareholders is the Group’s highest managing body, the competence of which is
based on legislation and the Articles of Association of the Group. Among other things the General Meeting of Shareholders is
competent in amending the Articles of Association, electing and removing members of the Supervisory Board, electing an auditor
and approving the annual report as well as other matters in the competence of the General Meeting of Shareholders on the basis
of the Articles of Association and the law. The Annual General Meeting of Shareholders that approves the annual report no later
than six months after the end of the financial year is held at least once a year.
Every shareholder is ensured the right to participate in the General Meeting, to speak at the general meeting on themes presented
in the agenda, and to present reasoned questions and make proposals. A controlling shareholder refrains from unreasonably
harming the rights of other shareholders, both at the General Meeting and upon organizing Hepsor’s management and shall not
abuse his position.
Calling the General Meeting of Shareholders and information to be published
Notice of calling the General Meeting is published through the information system of the Nasdaq Tallinn Stock Exchange. The
notice is also published on the Hepsor website and in daily national newspapers at least three weeks before the General Meeting
takes place.
The Group’s Management Board determines the agenda of the General Meeting of Shareholders and prepares the draft of the
resolution in respect to each item on the agenda to be voted on at the General Meeting of Shareholders. If a General Meeting of
Shareholders is called by the shareholders, the Supervisory Board or an auditor, they prepare a draft of the resolution of each
item on the agenda and submit this to the Management Board. Shareholders whose shares represent at least one-twentieth of
the share capital may submit the Group a draft of the resolution in respect to each item on the agenda to be voted on at the
General Meeting of Shareholders. The agenda of the General Meeting of Shareholders, proposals by the Management Board and
Supervisory Board, draft of the resolution in respect to each item on the agenda and other relevant materials will be published
on the Group’s website prior to the General Meeting of Shareholders.
The Group notifies shareholders regarding the calling of an extraordinary General Meeting immediately after deciding to call the
Extraordinary Meeting. The notice indicates the reason for calling the Extraordinary Meeting and who made the proposal to call
it (e.g., management board, supervisory board, shareholders or auditor). Information concerning the Extraordinary Meeting is
immediately published on the Group’s website.
35
2022 audited consolidated annual report
The Annual General Meeting of Shareholders of Hepsor AS for the financial year 2021 was held on 25 May 2022 in the conference
centre of L'Embitu Hotel at Lembitu 12, Tallinn. The Annual General Meeting of Shareholder had a quorum as 34 shareholders
with 3,064,876 votes were represented, i.e. more than half of the votes represented by Hepsor AS shares, including 4 shareholders
who exercised the opportunity to vote before the meeting and who had 1,950 votes, i.e. 0.05% of all votes represented by Hepsor
AS shares. The Annual General Meeting of Shareholders of Hepsor AS approved the 2021 annual report and adopted the
resolution to cover the net loss for the financial year ended on 31 December 2021 in the amount of 22 thousand euros on the
account of retained earnings of the previous periods. The resolutions adopted by the Annual General Meeting of Shareholders
were published in the information system of the Nasdaq Tallinn Stock Exchange and on the websites of the Finantsinspektsioon
and the Group.
Management Board
Composition and duties of the Management Board
The Management Board is a governing body that represents and directs the Group on a daily basis. The Management Board makes
decisions based on the best interests of the Group and all shareholders and it is obliged to ensure the sustainable development
of the Group in accordance with set goals and strategy. The Management Board uses its best efforts to ensure that the Group and
all Group companies shall comply in their activities with current legislation.
The Management Board ensures that it undertakes proper risk management and internal audit controls based on the Group’s
business operations. To guarantee proper risk management and internal audit the Management Board:
✓ analyses risks connected with the purpose of the activities and financial objectives of the Group (incl. environmental,
competitive and legal risks);
✓ prepares adequate internal control provisions;
✓ elaborates forms for drawing up financial reports and instructions for drawing up these reports; and
✓ organizes the system of control and reporting.
The Management Board adheres to the lawful orders of the Supervisory Board. Transactions which are beyond the scope of
everyday economic activities may only be concluded by the Management Board with the consent of the Supervisory
Board. According to Articles of Association, the Management Board may be comprised of up to three members and elected for a
term of five years. The Management Board of the Group consists of one member. The contract as of a member of Management
Board has been signed with Henri Laks for a term of five years (until 14 October 2026). The member of the Group’s Management
Board may also be the member of the Management Boards of the Group’s subsidiaries and associated companies.
36
2022 audited consolidated annual report
The Group does not follow the recommendation in clause 2.2.1 of the Corporate Governance Code that the Management Board
should have more than one member considering the number of employees the Group employs. The Group’s extended
management also includes the CFO and the member of Management Board of the Group’s Latvian entities. Significant decisions
are made in cooperation with the Supervisory Board.
Principles for the remuneration of the Management Board
Upon determination of the Management Board remuneration, the Supervisory Board is guided by evaluations of the work of the
member of the Management Board. In evaluating of the work of the member of the Management Board, the Supervisory Board
takes into consideration the duties and activities of the member of the Management Board, the Group’s economic condition, the
actual state and future predictions and direction of the business in comparison with the same indicators for companies in the
same economic sector. The remuneration of the Management Board, including bonus schemes, is such that they motivate the
member to act in the best interests of the Group and refrain from acting in their own or another person’s interests. The
remuneration and principles of remuneration are specified in the contract with the member of the Management Board.
The member of the Management Board is paid a monthly fixed remuneration as agreed in the contract and performance pay for
meeting the objectives of the financial year. Performance pay is not paid when such objectives have not been met. Severance
packages for of a Management Board member are connected with their prior work performance and are not payable if doing so
would harm the interests of the Group.
Conflicts of interest
The member of the Management Board avoids conflicts of interests in their activity. The member of the Management Board does
not make decisions on the basis of their own interests or use business offers addressed to the Group in their own interests. The
member of the Management Board informs the Supervisory Board regarding the existence of a conflict of interests before the
conclusion of a contract of service and immediately is such conflict arises. The member of the Management Board promptly
informs the Chairman of the Supervisory Board of any business offer related to the business activity of the Group made to them,
a relative, acquaintance or associate.
The Supervisory Board approves transactions which are significant to the Group and concluded between the Group and the
member of the Management Board or another person connected with or close to them and determines the terms of such
transactions. In 2021, no such transactions took place.
The member of the Management Board may engage in other duties alongside their duties as member of the Management Board
only on approval by the Supervisory Board.
Supervisory board
Composition and duties of the Supervisory Board
The duty of the Supervisory Board is the regular supervision of the activities of the Management Board and making important
decisions relating to the activities of the Group. The Supervisory Board acts independently and in the best interests of the Group
and all shareholders.
According to the Articles of Association, the Supervisory Board may be comprised of three to five members and the members of
the Supervisory Board are elected for the term of three years. The chairman, who organizes the activities of the Supervisory Board,
is elected from among the members of the Supervisory Board. The members of the Supervisory Board are elected and removed
37
2022 audited consolidated annual report
by the General Meeting of Shareholders. The members of the Supervisory Board are elected from persons having sufficient
knowledge and experience to participate in the work of the Supervisory Board.
The Supervisory Board decides on and regularly assesses the Group’s strategy, general action plan, risk management principles
and annual budget.
Supervisory Board regularly assesses the activities of the Management Board in implementing the Group’s strategy, financial
condition, risk management system, the lawfulness of the Management Board activities and whether essential information
concerning the Issuer has been communicated to the Supervisory Board and the public as required.
The Chairman of the Supervisory Board determines the agenda of the Supervisory Board meeting, chairs meetings, monitors the
efficiency of the Supervisory Board’s work, organizes the transmission of information to the members of the Supervisory Board,
38
2022 audited consolidated annual report
ensures that the Supervisory Board has enough time to prepare for decisions and examines information and represents the
Supervisory Board in communications with the Management Board.
The Supervisory Board has formed an Audit Committee, whose task is to advise the Supervisory Board regarding the Group’s
financial reporting and accounting, auditing, risk management, internal controls and budgeting. The Audit Committee has two
members whose work is not remunerated.
In 2022, Supervisory Board convened 25 times during which 34 decisions were made of these 20 decisions were signed by all
Supervisory Board members. Decisions concerning granting of consent to the conclusion of a transaction between a person
related to the said member of the Supervisory Board and the Group, were signed by an independent member of the Supervisory
Board.
Hepsor AS does not follow the recommendation in clause 3.2.2. of the Corporate Governance Recommendations that at least half
of the Supervisory Board members are independent. The Group ensures independence by Supervisory Board members refraining
from voting at Supervisory Board meetings that decide the granting of consent to the conclusion of a transaction between a
person related to the said member of the Supervisory Board and the Group.
Principles of remuneration of the Supervisory Board
In determining the remuneration of members of the Supervisory Board, the General Meeting takes into consideration the duties
of the Supervisory Board and their scope and the economic situation of the Group. In determining the remuneration, the specific
work done by the Chairman of the Supervisory Board can be considered.
In 2022, gross remuneration of members of Supervisory Board of the Group amounted to 120 thousand euros.
Name
Position
Beginning of term
of office
End of term of
office
Gross
remuneration
# of Hepsor
shares held
Andres Pärloja
Chairman of Supervisory Board
1 November 2021
30 October 2024
4,500€ / month
997,500
Kristjan Mitt
Member of Supervisory Board
1 November 2021
30 October 2024
4,500€ / month
997,500
Lauri Meidla
Member of Supervisory Board
1 November 2021
30 October 2024
1,000€ / month
507,000
Conflicts of interest
The members of the Supervisory Board prevent conflicts of interests from arising through their activities. Members of the
Supervisory Board give preference to the interests of the Group over their own or those of a third party. Members of the
Supervisory Board do not use business offers addressed to the Group for their personal gain. The Supervisory Board operates in
the best interests of the Group and all shareholders.
The members of the Supervisory Board promptly inform the Chairman of the Supervisory Board and Management Board regarding
any business offer related to the business activity of the Group made to them, a person close to them or an associate. In 2022, no
such transactions took place.
The members of the Supervisory Board strictly adhere the requirements of the prohibition of competition as provided for in the
Commercial Code (§ 324) and immediately notifies other members of the Supervisory Board of their intention to engage in
entrepreneurship in the same field as the Group.
39
2022 audited consolidated annual report
Cooperation between the Management Board and the Supervisory Board
The Management Board and the Supervisory Board closely collaborate to achieve the better protection of the interests of the
Group. The Management Board and the Supervisory Board jointly participate in the development of the operational objectives
and strategy of the Group.
In making management decisions, the Management Board is guided by the strategic instructions supplied by the Supervisory
Board and discusses strategic management related issues with the Supervisory Board regularly, usually on a weekly basis.
The Management Board regularly notifies the Supervisory Board of any important circumstances concerning the planning and
business activities of the Group, activity-based risks, and the management of such risks. The Management Board separately calls
attention to such changes in the Group’s business activities that deviate from set plans and purposes and indicates the reasons
for such changes. The information is delivered promptly and covers all material circumstances.
Disclosure of information
The Group treats all shareholders equally and notifies all shareholders of important circumstances equally. The Group mainly uses
the information system of the Nasdaq Baltic Stock Exchange as well as the investor section on its own website. Disclosed
information is available in Estonian and in English.
Financial reporting and auditing
Financial reporting
Each year, the Group publishes the consolidated audited annual reports and quarterly interim reports consolidated during the
financial year. The Management Board prepares the annual accounts, which are audited by the auditor and approved by the
Supervisory Board.
The annual report is approved by the member of the Management Board and presented to the shareholders.
The Group discloses transactions with related parties in note 32, which is an integral part of the consolidated financial statements.
Election of the auditor and auditing
In 2021, the Group elected Grant Thornton Baltic OÜ as the auditor for 2021-2026 financial years. Total remuneration for auditing
financial reports for 2022 amounted to 73 thousand euros. The Group follows the principle of the rotation of auditors.
Together with the notice of convening the General Meeting of Shareholders, the Supervisory Board makes available to the
shareholders the assessment of the auditor’s activities with regard to the assurance services provided during the previous financial
year. The assessment includes the types of services provided and the fees paid to the auditor.
The auditor gave the Audit Committee formed by the Supervisory Board a written overview of the course of the audit of the Group
in 2022, the observations made and any other important topics that were discussed with the Management Board of the company.
40
2022 audited consolidated annual report
Grüne Maja
Meistri 14, Tallinn
41
2022 audited consolidated annual report
Remuneration Report
This remuneration report has been prepared in accordance with the remuneration principles of the Group’s Management Board
member. The member of the Management Board is remunerated pursuant to the signed contract. The remuneration report
discloses the remuneration and benefits paid to the member of the Management Board in the financial year 2022.
The principles of remuneration of the Management Board are based on the long-term strategic objectives of the Group, taking
into account the financial results of the Group and the interests of investors and creditors. The purpose of the remuneration
policy is to support the achievement of the Group's long-term strategic goals by recruiting and retaining qualified and results-
oriented members of the Management Board.
The remuneration of the Management Board is comprised of the following:
✓ basic remuneration - the purpose of a basic remuneration is to provide the member of the Management Board with a
basic income that corresponds to their experience and qualifications, as well as to the scope, complexity and
responsibilities of the duties of the position. The basic remuneration is generally reviewed once a year.
✓ performance pay – the performance pay depends on the achievement of objectives set for the member of the
Management Board and the Group for the respective financial year. The achievement of objectives is assessed by the
Supervisory Board of the Group after the end of the respective financial year. The calculation of performance fee is based
on the financial year. The remuneration decision is made by the Supervisory Board of the Group.
The remuneration report is prepared for the first time and submitted to the shareholders for approval at the General Meeting of
the Shareholders.
thousands of euros
2022
2021
2020
Group’s total labour costs
1,529
908
605
incl. Basic remuneration of the member of the
Management Baard
109
56
42
Average number of employees
18.0
13.8
11.4
Group’s revenues
12,870
14,961
38,771
Group’s revenues per employee
715
1,084
3,400
42
2022 audited consolidated annual report
Büroo113
Pärnu mnt 113, Tallinn
Büroo113
Pärnu mnt 113, Tallinn
43
2022 audited consolidated annual report
Sustainability Report
The contribution of the construction and real estate industry to the green transition
The European Union has set an objective of achieving a climate-neutral and environmentally friendly economy by 2050. One of
the main goals of the Paris climate agreement is to keep global warming below 2°C compared to pre-industrial levels and to
continue efforts to limit global warming to below 1.5°C. The European Union wants to reduce greenhouse gas emissions by 55%
by 2030. To that end, the Fit for 55 package has been launched, which includes several major legal amendments concerning
various branches of the economy.
With the EU’s goals in mind, Estonia has drawn up a long-term national strategy entitled “Estonia 2035”,
1
aiming to increase the
share of renewable energy to at least 55% of the final energy consumption by 2035 and to reduce the net emission of greenhouse
gases to 8 million tonnes of CO
2
equivalent (in 2019, the emission was 14 million tonnes of CO
2
equivalent). In order for Estonia
to reach these goals, all sectors must actively contribute to addressing climate problems.
In the spring of 2021, the Estonian government approved the “Long-Term View on Construction 2035”,
2
a vision of where the
construction sector should reach. The document stipulates that construction decisions shall be made on a long-term basis, based
on data and economically, by creating a balance between ecological and economic aspects throughout the life cycle of the
building. One of the goals is to apply the principles of the circular economy, so that the construction process and the building are
environmentally friendly, energy-saving and sustainable.
According to a 2021 report by the Intergovernmental Panel on Climate Change (IPCC),
3
the use and construction of housing
accounts for approximately 36% of energy consumption and approximately 37% of greenhouse gases globally. According to the
Government Office’s review of the implementation of the UN Sustainable Development Agenda 2030 in Estonia,
4
Estonia’s
average energy use per square metre of housing is higher than other EU Member States. Therefore, the state also contributes
significantly to the reconstruction of the building stock, considering that 75% of buildings are inefficient in terms of energy use.
For this purpose, a renovation marathon (the LIFE IP BuildEST project) and long-term strategy for building renovations have been
prepared and launched in Estonia,
5
according to which all homes and workplaces in Estonia should be renovated for efficiency by
the year 2050. The goal is to completely renovate the energy efficiency class C buildings built in Estonia before 2000.
The Group’s opportunity and plan for sustainable development
Hepsor has always been guided by a green philosophy in its operations and, therefore, considers it vital to manage its
environmental, social, and governance (ESG) risks. Sustainability is a major concern for the Group, especially because of the desire
to reduce the negative effects of operations on the natural environment and people, insofar as this is possible in real estate
development.
In 2022, Hepsor involved external experts in mapping the points of greatest impact and the prospects for contributing to the
sustainable development of society. The exercise provided an overview of the sustainability risks, future regulations, major
1
https://www.valitsus.ee/strateegia-eesti-2035-arengukavad-ja-planeering/strateegia/materjalid
2
https://www.mkm.ee/en/construction-and-residential-sector/construction/long-term-view-construction
3
https://www.ipcc.ch/assessment-report/ar6/
4
https://www.terveilm.ee/leht/wp-content/uploads/2017/08/Ulevaade-URO-tegevskava-2030-elluviimistes-Eestis.pdf
5
https://www.ekyl.ee/wp-content/uploads/Hoonete-rekonstrueerimise-pikaajaline-strateegia-l%c3%b5ppraport_2020-06-02.pdf
44
2022 audited consolidated annual report
impacts, and sustainable development goals concerning the field of construction and real estate. The primary focuses of
sustainable development were also established, which Hepsor will focus on in the future and which the Group wants to manage
strategically:
✓ Mitigation of climate impact – through the impact of the life cycle of the buildings being developed and reducing the
emissions directly resulting from operations, including the use of innovative technologies and green solutions (e.g.
geothermal heating);
✓ Socially responsible development activities – development of buildings with a healthy indoor climate and outdoor areas
that fit into the urban environment and contribute to the creation of cohesive communities;
✓ Integrity and a transparent business culture – ensuring law-abiding, open, and ethical business operations and
demanding the same of business partners.
Important but less direct sustainability topics also addressed:
✓ Designing the working environment (the well-being and engagement of employees, their development, health, and equal
treatment);
✓ Charity and making an additional social contribution;
✓ Customer guidance and cooperation for sustainable development.
In addition to the above, the field of construction and real estate has other important environmental and social aspects, such as
impacts on biodiversity, water and energy use, adaptation to climate change, waste generation, the security and accessibility of
buildings, and the elitism of the real estate sector. These topics are addressed at the level of legal and standard requirements, as
they are largely related to decisions made at the national level (for example, energy use, waste generation and the reduction of
water use, which are also related to mitigating climate change). Hepsor can make its contribution to dealing with the above
impacts through its activities in the Estonian Real Estate Association, in which Hepsor is a member.
Although Hepsor has consistently focused on green thinking in its development activities, we paid significantly more attention to
measuring our carbon footprint and, accordingly, to mitigating the climate impact of our operations in 2022. In the past financial
year, we worked with consultants to analyse Hepsor’s carbon footprint and assessed the impact of the organisation’s direct
activities as well as the life cycle impact of the buildings to be constructed in the course of the four development projects started
in 2022. The calculations made provide input to the Group for even better environmental impact management and more
environmentally conscious development activities.
This is the first step in measuring the Group’s sustainability goals, and the Group continues to elaborate its sustainability goals,
metrics, and activities. As a listed company, it is important for Hepsor to ensure transparency in these matters through high-
quality reporting.
Sustainability and mitigation of climate impact
The Group’s carbon footprint
In 2022, greenhouse gas emissions from Hepsor’s operations were calculated in accordance with the internationally recognised
and most commonly used greenhouse gas reporting standard, the GHG Protocol Corporate Accounting and Reporting Standard.
The standard divides the greenhouse gas emissions associated with an organisation’s activities into three areas of impact, or
scopes. Hepsor’s carbon footprint measured in 2022 includes the following categories:
45
2022 audited consolidated annual report
Scope 1. Direct emissions from sources owned or controlled by the organisation.
✓ Vehicle fuels
Scope 2. Indirect emissions resulting from purchased energy.
✓ Purchased electricity and thermal energy
Scope 3. All other indirect emissions that occur in the organisation’s value chain.
✓ The CO
2
footprint associated with buildings in development projects. All real estate development projects in the Group's
development portfolio create a CO
2
footprint, of which in 2022 Hepsor only measured the entire life-cycle CO
2
footprint
of development projects that were in the construction preparation phase and/or went into construction during the
reporting year. The useful life of buildings under development was assumed to be 50 years.
✓ energy consumption of leased areas
✓ business travel
✓ purchased products and services (office supplies, water)
✓ employees’ travel to work, home office
✓ indirect impacts of scopes 1–2
✓ waste
The calculation of the carbon footprint includes Hepsor’s offices in Estonia and Latvia, the consumption of electricity and heat
energy at premises rented out by Hepsor, and the construction of development projects started in 2022. The carbon footprint of
the development projects was calculated considering the entire life span of the development project (expected useful life of 50
years) and, unlike the rest of the measured carbon footprint categories, it therefore does not reflect the environmental impact of
only 2022.
Hepsor’s total carbon footprint measured in 2022 was 48,860 tonnes of CO
2
equivalent. The largest measured impact in 2022 was
the carbon footprint (48,420.9 tonnes of CO
2
equivalent) estimated over the entire life span resulting from the development
activities (construction, use, and final disposal) of projects that were in construction preparation phase in 2022 (i.e. construction
started shortly after), which essentially accounted for Hepsor’s entire footprint. Consequently, in this report, the carbon footprints
of building development and the Hepsor operations are separated in order to better observe the greenhouse gas emissions
resulting from Hepsor’s operations.
CO
2
footprint from development activities
CO
2
footprint from operations
Scope
t CO
2
eq
Relative share
t CO
2
eq
Relative share
Scope 1
0
0%
2.5
0.57%
Scope 2
0
0%
7.2
1.64%
Scope 3
48,420.9
100%
429.8
97.79%
Total
48,420.9
100%
439.5
100.00%
46
2022 audited consolidated annual report
Carbon footprint from Hepsor’s operations
The 2022 carbon footprint from Hepsor’s operations
was 439.5 tonnes of CO
2
equivalent (exclusive of
development activities). Scopes 1 and 2 account for
0.57% and 1.64% of the footprint, respectively. Scope 3
has the largest share, with the electricity and heat
energy consumption of the premises rented out by
Hepsor accounting for 83% of the carbon footprint of
office operations, and business travel accounting
for 12%. The rest of scope 3 categories accounted for a
total of 5.7% of Hepsor’s entire carbon footprint.
Carbon footprint of buildings
In 2022, Hepsor measured the carbon footprint of the buildings it developed so as to map the main impact points and thereby set
data-based longer-term goals for reducing the climate impact. To assess the climate impact of buildings, Hepsor used the
calculation methodology of the carbon footprint of construction works in Estonia, which was developed by TalTech researchers
in cooperation with experts from the Finnish company One Click LCA at the request of the Ministry of Economic Affairs and
Communications
6
.
The calculation method is based on the ISO 14040 standard, the European sustainability assessment standards EN 15804 and EN
15978, the European Level(s) framework, and international best practices for carbon footprint assessment. The result of the
calculation shows the total greenhouse gas emissions for the life cycle of the building (e.g. 50 years), which includes emissions
resulting from building materials and products, construction, use, and final disposal.
In 2022, Hepsor started the preparation of construction of four new apartment building projects: Mārupes Dārzs in Latvia and 7
Manufaktuuri, Lilleküla Homes, and Ojakalda Homes in Estonia. The average carbon footprint of the life cycle of these buildings
was 1.64 tonnes of CO
2
equivalent per
square metre.
Of the life cycle, the energy during the use of the buildings accounted for an
average of 59%, and the production phase of building materials accounted for
an average of 34%. Consequently, it is important to pay attention to the
building’s energy efficiency and alternative energy sources (e.g., solar panel
installation) from the very beginning of the construction process. The more the
market trend moves towards the use of sustainable building materials, the more
the relative share of the climate impact from construction decreases, and the
importance of energy consumption management during the building’s lifetime
increases. The final disposal of the building, i.e., demolition and disposal of the
generated waste, is not the most significant in the context of the climate impact,
but the availability of building materials during demolition and their reuse or
recycling is an important part of the circular economy model, towards which the
Group plans to set its targets in the following years.
6
https://eehitus.ee/timeline-post/study-carbon-footprint-construction/
47
2022 audited consolidated annual report
Developing buildings with a green mindset
Green thinking starts during the selection of a suitable plot and continues throughout the planning and architectural design
phases. To ensure the use of the best environment-friendly solutions at Hepsor, a “green ideas innovation academy” consisting
of employees is usually involved in the new development project, so as to find and implement innovative practices through idea
harvesting. At the green ideas innovation academy, solutions are sought for various design-related issues, such as:
✓ increasing the building’s energy efficiency;
✓ using more sustainable heating and cooling systems;
✓ planning systems that reduce water consumption;
✓ increasing the reuse of building materials;
✓ increasing the use of wood as a building material;
✓ planning building functions that support a sustainable lifestyle (for example, car chargers and bicycle parks).
In 2022, the academy developed an innovative geothermal heating and cooling solution for the 5 Manufaktuuri factory building
in the Manufaktuuri Quarter, which has not been used in the development of apartment buildings in Estonia before. The academy
also focused on finding solutions for the green stock office building development project at 34 Ulbrokas, Riga, Latvia, to be
completed in 2024. The Manufactory Quarter is one of the Group’s largest and longest-term development projects, where, among
other things, it is planned to reuse the materials obtained during the demolition as much as possible. In total, approximately 30
thousand silicate bricks have already been collected, which will be used in the interior design of the 5 Manufaktuuri factory
building. The new apartment buildings will receive part of their energy from the solar panels installed on the buildings, and it is
planned to use geothermal energy for heating and cooling the factory building at 5 Manufaktuuri.
Hepsor develops commercial buildings based on a Green Building Concept, where the following special solutions are applied:
✓ Room temperature and thermal energy distribution with automatically regulated thermo-active ceilings. The system
allows rooms to be heated and cooled through a single piping system in the ceilings, which is why there are no radiators
or traditional air conditioners in the buildings. Apart from lower heating and cooling costs, tenants will have a better and
more stable indoor climate.
✓ A geothermal system that uses natural renewable energy for heating in winter and cooling in summer. The system helps
keep heating and cooling costs lower than district or gas heating costs and ensures less dependence on service providers.
✓ Energy-efficient architectural solutions prevent excessive solar heat from reaching rooms in summer and, thus, reduce
the need for cooling.
✓ Solar panels installed on roofs.
✓ Rainwater harvesting systems. Using rainwater in toilets and for watering plants helps significantly reduce water
consumption.
✓ Bicycle parks and charging facilities for electric vehicles help tenants make more environmentally conscious transport
choices.
In 2014, Hepsor completed Estonia’s first office building designed according to the principles of green thinking, at 157 Sõpruse,
Tallinn and, since then, the concept of green thinking has been applied in all the office buildings developed by Hepsor.
In 2022, Büroo113 was completed, which is the first high-rise green building in Estonia. Grüne Maja, designed according to the
same principles, will be completed in 2023. In addition to the other special solutions mentioned, the latter stands out for an
extraordinary green facade of climbing plants around the building. Over time, the facade will become a habitat for insects and
48
2022 audited consolidated annual report
birds and promote biodiversity in the surrounding area. Thermo-active ceilings are used in commercial buildings, which ensure a
better and more stable indoor climate through automatic and uniform heating and cooling.
Socially responsible development activities
Hepsor’s goal is to offer its customers the best environment, and it is important for the Group to know that people will feel good
in a building where they spend a large part of their time. Also, development activities take into account the best room solutions
and the surrounding environment to ensure that the buildings fit into the urban space. Hepsor contributes to the creation of high-
quality outdoor areas, so people can enjoy spending time around the buildings and have opportunities for a healthy lifestyle. The
Hepsor team values good architecture and construction mastery and, therefore, we collaborate with the best architects and
engineers to create distinctive buildings that enrich the urban space. The Group also works with public sector representatives and
municipalities to ensure consistency with the city’s needs and to contribute to broader development plans to enable cohesive
communities.
A good example of high-quality urban space design is the development of the Manufactory Quarter. It is an old industrial area
where several new apartment buildings will be completed, the former Baltic Manufactory industrial building will be renovated,
and multifunctional green and recreational areas will be established in 2024 and 2025. The project aims to create a cosy and
complete living and business environment, while preserving the unique character of the industrial area. The community has been
involved in the development project from an early stage to map the needs of customers and various interest groups as regards
the area and the buildings under development. For example, various venues and rental premises have already been built in the
old buildings so that those interested can use the buildings and their environment in their authentic form.
In cooperation with the Estonian Centre for Architecture, tours presenting the history and future of the factory are held in the
premises of the historic Baltic Manufactory and in the surrounding area. A sidewalk through the block has been built to connect
Manufaktuuri and Kopli Street for the convenience of the local residents. In addition, last year, a cafe was built in the old
guardhouse at the end of Kopli Street, next to the dignified old apple orchards, in order to improve the appeal of the quarter.
Despite the construction activities planned for the quarter, the plan is to keep the entire area open to those interested and to
continue holding events and renting rooms.
The aspect of social responsibility is also emphasised in the Paevälja Courtyard buildings. Special attention has been paid to the
functionality of the courtyard between the buildings, where there will be sports grounds, children’s playgrounds, green areas and
recreation areas. The formerly abandoned urban area is being given a new sense of purpose. The first building of the development
project was completed in 2022 and the second building will be ready in 2023.
Charity
Hepsor has been operating successfully for over 11 years. One way to share our success is to give back to society. In previous
years, we have supported the Youth to Olympics Foundation and the Estonian Association of Parents of Children with Cancer. On
24 February 2022, the world was shocked by the invasion of Russian troops into the territory of the independent state of Ukraine.
Like many other companies and individuals, we considered our contribution to the independence of Ukraine to be particularly
important in the past financial year and sponsored the activities of the non-profit organisation Slava Ukraini. We also helped the
Food Bank organise the food aid donated by the European Union for those in need in Estonia. The Group also actively participates
in the daily activities of the Estonian Real Estate Association.
Employee appreciation
The Group’s team works together, based on our shared values, trust, and appreciation of each other’s contribution. The Group
contributes to the development of our employees on a daily basis by providing need-based training opportunities, joint activities,
49
2022 audited consolidated annual report
and an inspiring working environment. Annual individual development interviews are conducted with employees to receive
feedback on management and employee expectations and to map training needs. Employee feedback is shown in that most
people who have joined the Group so far remain committed, and there is essentially no labour turnover. To strengthen
cooperation between employees in the two countries, the Group organises joint events in Estonia and Latvia.
50
2022 audited consolidated annual report
Stock-office Ulbrokas 30
Ulbrokas 30, Riga
51
2022 audited consolidated annual report
Consolidated Annual Financial Statements
Consolidated Financial Statements .............................................................................................................................................. 52
Consolidated statement of financial position ........................................................................................................................... 52
Consolidated statement of profit and loss and other comprehensive income ........................................................................ 53
Consolidated statement of changes in equity .......................................................................................................................... 54
Consolidated statement of cash flows ..................................................................................................................................... 55
Notes to the consolidated interim financial statements .............................................................................................................. 56
Note 1. Accounting policies .......................................................................................................................................................... 56
Note 2. Cash and cash equivalents ............................................................................................................................................... 69
Note 3. Trade and other receivables ............................................................................................................................................ 69
Note 4. Inventories ....................................................................................................................................................................... 69
Note 5. Property, plant and equipment ....................................................................................................................................... 71
Note 6. Intangible assets .............................................................................................................................................................. 72
Note 7. Financial investments ...................................................................................................................................................... 72
Note 8. Other non-current receivables ........................................................................................................................................ 72
Note 9. Loans granted .................................................................................................................................................................. 73
Note 10. Loans and borrowings ................................................................................................................................................... 74
Note 11. Lease liabilities ............................................................................................................................................................... 76
Note 12. Trade and other payables .............................................................................................................................................. 76
Note 13. Other non-current liabilities .......................................................................................................................................... 76
Note 14. Embedded derivatives ................................................................................................................................................... 77
Note 15. Equity ............................................................................................................................................................................. 78
Note 16. Contingent liabilities ...................................................................................................................................................... 78
Note 17. Revenue ......................................................................................................................................................................... 79
Note 18. Cost of sales ................................................................................................................................................................... 79
Note 19. Marketing expenses ....................................................................................................................................................... 80
Note 20. Administrative expenses ................................................................................................................................................ 80
Note 21. Personnel expenses ....................................................................................................................................................... 80
Note 22. Other operating income and expenses .......................................................................................................................... 80
Note 23. Financial income ............................................................................................................................................................ 81
Note 24. Financial expenses ......................................................................................................................................................... 81
Note 25. Corporate income tax and deferred income tax ............................................................................................................ 82
Note 26. Earnings per share ......................................................................................................................................................... 82
Note 27. Information about line items in the consolidated statement of cash flows .................................................................. 83
Note 28. Shares of associates ....................................................................................................................................................... 84
Note 30. Operating segments ....................................................................................................................................................... 88
Note 31. Non-controlling interest ................................................................................................................................................ 89
Note 32. Related parties ............................................................................................................................................................... 91
Note 33. Events after the reporting period .................................................................................................................................. 92
Note 34. Risk management .......................................................................................................................................................... 93
Note 35. Primary financial statements of the parent company ................................................................................................... 96
Management Board’s confirmation of the consolidated annual report ........................................................................................ 100
Independent Auditor`s report ........................................................................................................................................................ 101
Profit allocation proposal ............................................................................................................................................................... 111
52
2022 audited consolidated annual report
Consolidated Financial Statements
Consolidated statement of financial position
in thousands of euros
Note
31 Dec 2022
31 Dec 2021
Assets
Current assets
Cash and cash equivalents
2
Trade and other receivables
3
Current loan receivables
9
Inventories
4
Total current assets
Non-current assets
Property, plant and equipment
5
Intangible assets
6
Financial investments
7
Investments in associates
23
Non-current loan receivables
9
Other non-current receivables
8
Total non-current assets
Total assets
30
Liabilities and equity
Current liabilities
Loans and borrowings
10
Current lease liabilities
11
Trade and other payables and prepayments
12
Total current liabilities
Non-current liabilities
Loans and borrowings
10
Non-current lease liabilities
11
Other non-current liabilities
13
Total non-current liabilities
Total liabilities
30
Equity
Share capital
15
Share premium
15
Retained earnings
Total equity
incl. total equity attributable to owners of the parent
incl. non-controlling interest
Total liabilities and equity
The notes presented
on pages to
form an integral part
of the consolidated
financial
statements.
The notes presented on pages 56 to 99 form an integral part of the consolidated financial statements.
53
2022 audited consolidated annual report
Consolidated statement of profit and loss and other comprehensive income
in thousands of euros
Note
2022
2021
Revenue
17,30
Cost of sales (-)
18
-11,096
-11,902
Gross profit
Marketing expenses (-)
19
-446
-271
Administrative expenses (-)
20
-1,095
-942
Other operating income
22
Other operating expenses (-)
22
-68
-49
Operating profit of the year
30
Financial income
23
Financial expenses (-)
24
-787
-512
Profit before tax
Current income tax
25
-6
-16
Deferred income tax
25
Net profit for the year
Attributable to owners of the parent
-22
Non-controlling interest
-65
Other comprehensive income (-loss)
Changes related to change of ownership
29
-26
Change in value of embedded derivatives with minority
shareholders
14
-1,815
Other comprehensive income (-loss) for the period
-16
-1,745
Attributable to owners of the parent
-434
Non-controlling interest
-1,813
Comprehensive income (-loss) for the period
-12
Attributable to owners of the parent
Non-controlling interest
-58
Earnings per share
Basic (euros per share)
26
-0.01
Diluted (euros per share)
26
-0.01
The notes presented on pages 56 to 99 form an integral part of the consolidated financial statements.
54
2022 audited consolidated annual report
Consolidated statement of changes in equity
in thousands of euros
Attributable to equity owners of the parent
Non-
controlling
interests
Total equity
Share capital
Share
premium
Retained
earnings
Balance of 31 December 2020
Net profit/(-loss) for the year
-22
Other comprehensive income/
(-loss) for the period
-1,813
-1,745
Increase of share capital
-2,994
Issue of shares (less costs related to share
issue)
Dividends paid
-151
-64
-215
Voluntary reserve
Balance of 31 December 2021
Net profit/(-loss) for the year
-65
Other comprehensive income/
(-loss) for the period
-434
-16
Dividends paid
-29
-29
Balance of 31 December 2022
Information on equity is presented in note 15.
The notes presented on pages 56 to 99 form an integral part of the consolidated financial statements.
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2022 audited consolidated annual report
Consolidated statement of cash flows
in thousands of euros
Note
2022
Adjusted 2021
Net cash flows from (to) operating activities
Operating profit of the year
30
Adjustments for:
Depreciation of property, plant and equipment
5
Profit from the sale of property, plant and equipment
22
-18
Other adjustments
Income tax paid
27
-6
-74
Changes in working capital:
Change in trade receivables
-1,112
Change in inventories
27
-30,935
-13,045
Change in liabilities and prepayments
Cash flows from (to) operating activities
-28,612
-9,435
Net cash flows from (to) investing activities
Payments for property, plant and equipment
5
-100
Payments for intangible assets
6
-8
Proceeds from sale of property, plant and equipment
5
Payments for financial investments
7
-2
Payments for acquisition of subsidiaries
7
-400
Proceeds from sale of subsidiaries
29
Interest received
27
Loans granted
9
-176
-4,369
Loan repayments received
9
Other receipts from investing activities
23
Cash flows from (to) investing activities
-4,311
Net cash flows from (to) financing activities
Net cash flow from issuing shares
15
Loans raised
10
Loan repayments
10
-11,672
-10,391
Interest paid
27
-1,150
-851
Payments of finance lease principal
11
-26
-15
Payments of right to use lease liabilities
11
-107
-129
Dividends paid
15
-29
-252
Non-controlling interest contributions to equity
29
Other receipts from financing activities
-59
-62
Cash flows from financing activities
Net cash flow
-7,377
Cash and cash equivalents at beginning of year
2
Cashflow in from acquisitions of subsidiaries
Increase / decrease in cash and cash equivalents
-7,377
Cash and cash equivalents at end of year
2
Additional information on the 2021 adjustments is provided in Note 1.3.
The notes presented on pages 56 to 99 form an integral part of the consolidated financial statements.
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2022 audited consolidated annual report
Notes to the consolidated interim financial statements
Note 1. Accounting policies
1.1. General information
The consolidated financial statements of the Group for 2022 were signed by the member of management Board of Hepsor AS on 28 April 2023.
In accordance with the requirements of the Commercial Code of the Republic of Estonia, the annual report prepared by the Management Board
and approved by the Supervisory Board, which also includes the consolidated financial statements, is approved by the general meeting of
shareholders. Shareholders have the right not to approve the annual report prepared by the Management Board and approved by the
Supervisory Board and to request that a new report is prepared. The Annual General Meeting of Shareholders, one of the items on the agenda
of which is the approval of the consolidated annual report of Hepsor AS for 2022, will be held on 25 May 2023.
1.2. Basis of preparation of consolidated financial statements
unless stated otherwise.
The preparation of consolidated annual financial statements in conformity with IFRS (EU) requires the use of certain critical accounting
estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. Changes in
assumptions may have a significant impact on the consolidated financial statements in the period the assumptions changed. The management
of the Group believes the underlying assumptions in the preparation of consolidated annual financial statements for 2022 are appropriate.
These consolidated annual financial statements consist of consolidated statements of financial position, consolidated statement of
comprehensive income, statement of changes in equity, consolidated statement of cash flows, and explanatory notes.
The consolidated annual financial statements are presented in euros and all values are rounded to the nearest thousand (€000), except when
otherwise indicated.
1.3. Accounting policies, changes in accounting estimates and errors (IAS 8)
When an IFRS (EU) specifically applies to a transaction, other event, or condition, the accounting policy or policies applied to that item shall be
determined by applying the IFRS (EU). In the absence of an IFRS (EU) that specifically applies to a transaction, other event or condition,
management shall use its judgement in developing and applying an accounting policy that results in information that is relevant to the economic
decision-making needs of users and reliable.
The Group selects and applies its accounting policies consistently for similar transactions, other events, and conditions, unless an IFRS (EU)
specifically requires or permits categorization of items for which different policies may be appropriate. In an IFRS (EU) requires or permits such
categorization, an appropriate accounting policy shall be selected and applied consistently to each category.
The Group changes an accounting policy only if the change is required by IFRS (EU) or results in the financial statements providing reliable and
more relevant information about the effects of transactions, other events, or conditions on the entity’s consolidated financial position,
consolidated financial performance or consolidated cash flows. When a change in accounting policy is applied retrospectively the Group adjusts
the opening balance of each affected component of equity for the earliest prior period presented and the other comparative amounts disclosed
for each prior period presented as if the new accounting policy had always been applied.
The effect of a change in an accounting estimate shall be recognized prospectively by including it in profit or loss in the period of the change, if
the change affect that period only or the period of the change and future periods, if the change affects both.
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2022 audited consolidated annual report
The Group corrects material prior period errors retrospectively in the first set of consolidated financial statements authorized for issue at their
discovery by restating the comparative amounts for the prior period(s) presented in which the error occurred; or if the error occurred before
the earliest prior period presented, restating the consolidated opening balances of assets, liabilities and equity for the earliest prior period
presented.
The Group corrects the comparative data of the number of shares for 2021 in note 26 "Profit per share" of the 2022 annual report. More
information in Note 26.
in thousands of pieces
Initial 2021
Change
Adjusted 2021
Weighted average number of ordinary shares
3,855
-731
3,124
The Group amends the reference of „The accounting policies applied in the preparation of these financial statements are the same as those
used by the Group as of 31 December in the consolidated financial statements for the year ended 31 December 2020, except as described
below.“ as stated in note 1.5 „ Accounting policies, changes in accounting estimates and errors“ in the Annual Report for 2021:. The correct
reference would have been to the special purpose financial statements not the consolidated annual report. For periods up to and including the
year ended 31 December 2020, the Group prepared its statutory financial statements in accordance with Estonian Financial Reporting Standards
(EFS). The Group prepared financial statements in accordance with IFRS 1 for the first time for consolidated special purpose financial report for
the periods from 1 January 2018-31 December 2018, 1 January 2019-31 December 2019 and 1 January 2020-31 December2020.The special
purpose financial report is available at Hepsor’s website https://hepsor.ee/wp-content/uploads/2021/11/Hepsor-IFRS-2018-2020-audited.pdf
and the Website of Finantsinspektsioon https://www.fi.ee/sites/default/files/2021-11/hepsor_ifrs_2018-2020_audited.pdf. When
preparing the Group’s consolidated special purpose financial statements, the opening statement of the Group's financial position was prepared
as of 1 January 2018, which is also considered the date of the Group's transition to IFRS (EU).
The Group has adjusted the consolidated cash flow statement for 2021 in the annual report for 2022as follows:
In thousands of euros
Initial 2021
Change
Adjusted 2021
Changes in inventories
-12,816
-229
-13,045
Cash flows from operating activities
-9,206
-229
-9,435
Loans raised
22,682
-369
22,313
Loan repayments
-10,479
88
-10,391
Interest paid
-1,361
510
-851
Cash flows from financing activities
20,199
229
20,428
1.4. Impact of new and revised standards and interpretations
The accounting principles applied in the preparation of this report are the same as those used in the Group's consolidated report for the financial
year ended on 31 December 2021, except for the cases described below.
Revised standards effective on or after 1 January 2023
Certain new or revised standards and interpretations have been issued that are mandatory for the Group’s annual reporting periods beginning
on or after 1 January 2023 and that have not been adopted by the Group ahead of effective date.
Amendments to IAS 1 „Presentation of Financial Statements“ and IFRS Practise Statement 2 „Making Materiality Judgments“- amendments aim
to help entities provide accounting policy disclosures that are more useful by:
- requiring companies to disclose their material accounting policies rather than their significant accounting policies;
- clarifying that accounting policies related to immaterial transactions, other events or conditions are themselves immaterial and
as such need not be disclosed; and
- clarifying that not all accounting policies that relate to material transactions, other events or conditions are themselves
material to a company’s financial statements.
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2022 audited consolidated annual report
The Board of IFRS also amended IFRS Practice Statement 2 to include guidance and two additional examples on the application of materiality to
accounting policy disclosures.
The amendments are consistent with the refined definition of material: “Accounting policy information is material if, when considered together
with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users
of general purpose financial statements make on the basis of those financial statements”.
Effective for annual reporting periods beginning on or after 1 January 2023. The EU has approved the changes.
The Group does not expect the amendments to have a material impact on its financial statements when initially applied.
Amendments to IAS 1 „Presentation of Financial Statements“ (classification of liabilities as current and non-current) – amendments are aimed
to promote consistency in applying the requirements by helping the companies determine whether liabilities and other liabilities with uncertain
settlement dates should be classified as current (to be settled within 12 months) or non-current. The amendments clarify what is meant by the
right to defer settlement; that a right to deferral must exist at the end of the reporting period; that classification is unaffected by the likelihood
that an entity will exercise its deferral right and that only if the embedded derivative in a convertible liability is itself an equity instrument would
the terms of a liability not impact its classification.
Effective for annual reporting periods beginning on or after 1 January 2023. The EU has approved the changes.
The Group does not expect the amendments to have a material impact on its financial statements when initially applied.
Amendments to IAS 8 „Accounting Policies, Changes in accounting Estimates and Errors“ – amendments introduce a new definition for
accounting estimates. According to the new definition, accounting estimates are "monetary amounts in financial statements that are subject to
measurement uncertainty". Entities should develop accounting estimates when the accounting policies require the measurement of items in
the financial statements that are subject to measurement uncertainty. The amendments clarify that a change in an accounting estimate resulting
from new information or new developments is not a correction of an error. Effective for annual reporting periods beginning on or after 1 January
2023. The EU has approved the changes.
The Group does not expect the amendments to have a material impact on its financial statements when initially applied.
Amendments to IAS 12 „Income Taxes“ - The amendments clarify the accounting for deferred tax on transactions that involve recognising both
an asset and a liability with a single tax treatment related to both. The amendments narrow the scope of the initial recognition exemption (IRE)
so that it does not apply to transactions that give rise to equal and offsetting temporary differences. As a result, companies will need to recognise
a deferred tax asset and a deferred tax liability for temporary differences arising on initial recognition of a lease and a decommissioning
provision. Effective for annual reporting periods beginning on or after 1 January 2023. The EU has approved the changes.
The Group does not expect the amendments to have a material impact on its financial statements when initially applied.
Amendments to IFRS 16 „Leases“ – amendments impact how a seller-lessee accounts for variable lease payments that arise in a sale-and-
leaseback transaction. The amendments introduce a new accounting model for variable payments. The amendments confirm the following:
- On initial recognition, the seller-lessee includes variable lease payments when it measures a lease liability arising from a sale-
and-leaseback transaction.
- After initial recognition, the seller-lessee applies the general requirements for subsequent accounting of the lease liability such
that it recognises no gain or loss relating to the right of use it retains.
A seller-lessee may adopt different approaches that satisfy the new requirements on subsequent measurement. Effective for annual reporting
periods beginning on or after 1 January 2024. Not yet endorsed for use in the EU.
The Group does not expect the amendments to have a material impact on its financial statements when initially applied.
Changes in standards
Annual Improvements to IFRS Standards 2018–2020 (the Group will apply the amendment for annual periods beginning on or after 1 January
2022). Not yet endorsed for use in the EU.
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2022 audited consolidated annual report
IFRS 9 - Amendments clarify which fees to consider when assessing whether or not the terms of a converted debt Instrument have changed -
only fees paid or received between the borrower and the lender (including payments made or received by the borrower or lender on behalf of
another party).
IFRS 16 - Amendment removes illustrative example 13 due to confusion it creates both for the lessee and the lessor regarding the recognition
of improvements to leased assets.
The Group does not expect the amendments to have a material impact on its financial statements when initially applied.
Other new standards, amendments to standards and interpretations that are not yet effective are not expected to have a significant impact on
the Group’s financial statements.
1.5. Consolidation (IFRS 10)
The Group’s financial statements consolidate those of the parent entity and all its subsidiaries as of 31 December. All subsidiaries have a
reporting date of 31 December. Consolidation of a subsidiary begins when the parent entity obtains control over the subsidiary and ceases when
the parent entity loses control over the subsidiary.
The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and could
affect those returns through its power over the entity. Subsidiaries where the Group holds 50% ownership interest are consolidated based on,
the assessment of the Management of the Group that the Group effectively controls the subsidiary by virtue of managing the real estate
development projects and/or through a shareholder agreement.
All transactions and balances between Group entities are eliminated on consolidation, including unrealized gains and losses on transactions
between Group entities. Amounts reported in the statutory financial statements of subsidiaries have been adjusted, where necessary, to ensure
consistency with the accounting policies adopted by the Group.
The Group prepares consolidated financial statements using uniform accounting policies for like transactions and other events in similar
circumstances.
The Group presents non-controlling interests in the consolidated statement of financial position within equity, separately from the equity of the
owners of the Group.
Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the reporting period is recognized from the
effective date of acquisition, or up to the effective date of disposal, as applicable.
1.6. Business combinations (IFRS 3, IAS 36)
The Group uses the acquisition method of accounting to account for business combinations where the Group has obtained control over a
subsidiary or merged the net assets of one or more businesses into the Group. Cost of acquisition is calculated as the sum of the acquisition
date fair values of assets transferred. Acquisition-related costs that Group incurs in a business combination are expensed as incurred.
As of the acquisition date, the Group recognizes the identifiable assets acquired, and the liabilities assumed at their fair values.
The Group applies adjusted purchase method when acquiring business combinations under common control by recognizing the assets and
liabilities of the acquiree or business on the acquirer's statement of financial position at the carrying amount. The difference between the cost
of acquisition and the carrying amount of the acquired net assets shall be recognized as an increase or decrease of the equity of the acquirer.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group
reports in its financial statements’ provisional amounts for the items for which the accounting is incomplete. The measurement period is the
period after the acquisition date during which the acquirer may adjust the provisional amounts recognized for a business combination. During
the measurement period, the acquirer shall recognize adjustments to the provisional amounts as if the accounting for the business combination
had been completed at the acquisition date. Thus, the acquirer shall revise comparative information for prior periods presented in financial
statements as needed, including making any change in depreciation, amortization or other income effects recognized in completing the initial
accounting. After the measurement period ends, the acquirer shall revise the accounting for a business combination only to correct an error.
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1.7. Investments in associates (IAS 28)
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and
operating policy decisions of the investee but is not control or joint control over those policies.
Investments in associates are accounted for using the equity method. The initial recognition of the investment in associate is recognized at cost.
The carrying amount of the investment in associates are increased or decreased to recognize the Group’s share of the profit or loss and other
comprehensive income of associates, adjusted where necessary to ensure consistency with the accounting policies of the Group.
The Group discontinues the use of the equity method from the date when the investment ceases to be an associate, or when the investment is
classified as held for sale.
1.8. Property, plant and equipment (IAS 16)
Property, plant, and equipment are assets used for production, provision of services or administrative purposes over a period of more than one
year.
Items of property, plant and equipment are recognized at an acquisition cost less any accumulated depreciation and impairment losses, if any.
Acquisition cost consists of the purchase price and other costs directly attributable to the acquisition that are necessary for bringing the asset
to its working condition and location. When an item of property, plant and equipment consists of separately identifiable components that have
different useful lives, these components are accounted as separate assets and separate depreciation rates are assigned to them according to
the useful lives of the components. Items of property, plant and equipment leased under the lease terms are accounted for similarly to
purchased property, plant and equipment.
Depreciation is recognized as an expense on a straight-line basis over the estimated useful life of an item of property, plant and equipment and
its identifiable components.
The following estimated useful lives are applied:
- Buildings and structures 2–33 years
- Plant and equipment 5–10 years
- Other equipment and fixtures 3-5 years
- Vehicles 5-7 years
Land and construction in progress are not depreciated.
The Group use uniform depreciation rates in all Group companies. The estimated useful lives, residual values and depreciation methods are
reviewed annually. The effect of the changes is reflected in the reporting period and in subsequent periods.
Items of property, plant and equipment are derecognized on disposal or when no future economic benefits are expected from the continued
use or disposal of the asset. Gains or losses arising from derecognition of items of property, plant and equipment are included either within
other operating income or other operating expenses in the income statement.
1.9. Intangible assets (IAS 38, IAS 36)
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination
is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization
and accumulated impairment losses. The useful lives of intangible assets are assessed as either finite or indefinite.
Depreciation is recognized as an expense on a straight-line basis over the estimated useful life of an item of property, plant and equipment
and its identifiable components.
The following estimated useful lives are applied:
- Licenses and software 2-5 years
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An intangible asset is derecognized upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are
expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in the statement of comprehensive income for the period.
Goodwill
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognized for non-
controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed). If the fair value of the net
assets acquired is more than the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all the assets
acquired and all the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If
the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is
recognized in statement of comprehensive income for the period.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For impairment testing, goodwill acquired in a
business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the
combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
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 recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in
subsequent periods.
Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated
with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed
in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.
1.10. Cash and cash equivalents, cash flows (IAS 7)
Cash and cash equivalents are cash at bank and on hand, short-term extremely high liquidity investments (up to three months) that are readily
convertible into a known amount of cash and which are subject to an insignificant risk of changes in value.
Restricted cash and cash equivalent balances are those which meet the definition of cash and cash equivalents but are not available for use by
the group. The Group has a requirement, as part of its business operations, to set aside cash by way of deposit into an escrow account. Such
escrow accounts are classified in cash flow statement as change in receivables from operating activities.
The statement of cash flows reports cash flows during the period classified by operating, investing and financing activities. The Group reports
cash flows from operating activities using the indirect method whereby operating profit or loss is adjusted for the effects of transactions of a
non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated
with investing or financing cash flows.
1.11. Inventories (IAS 2, IAS 23)
In inventories, development projects are recorded under development projects ready for sale from the moment the project has been granted
a use permit, otherwise development projects under development are recorded under development projects in progress.
Inventories are stated at the lower of cost and net realizable value. Cost comprises direct materials and, where applicable, direct labor costs
and those overheads that have been incurred in bringing the inventories to their present location and condition. If inventory items are not
clearly distinguishable from each other, then the weighted average cost method is used. Net realizable value represents the estimated selling
price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Borrowing costs related to real estate development projects are included in the cost of inventories. The Group capitalizes borrowing costs that
are directly attributable to the real estate development projects and ceases to capitalize when real estate development project is ready for sale
but not later than the real estate development project has been granted a permit for use. Interest expenses that are related to real estate
which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
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2022 audited consolidated annual report
Completed real estate inventories are sold either in units or as a whole. Revenue from the sale is recognized as income from sale of real estate.
All the Group's development projects are recorded as inventories, even if the Group earns rental income before the full or partial sale of the
development project. The Group aims to develop the acquired properties and sell the developed projects.
1.12. Financial instruments (IFRS 9, IAS 32)
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another
entity.
Financial assets and financial liabilities are recognized in the Group’s statement of financial position when the Group becomes a party to the
contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value, except for trade receivables that do not have a significant financing
component which are measured at transaction price. 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 or 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 recognized immediately in profit or loss.
An entity typically incurs various costs in issuing or acquiring its own equity instruments. Those costs might include registration and other
regulatory fees, amounts paid to legal, accounting and other professional advisers, printing costs and stamp duties. The transaction costs of an
equity transaction are accounted for as a deduction from equity to the extent that they are incremental costs directly attributable to the equity
transaction that otherwise would have been avoided. The Group raised 10 million euros in 2021 by listing its shares in Nasdaq Tallinn stock
exchange. The transaction costs of share issue are accounted for as a deduction from equity.
Financial assets
At initial recognition, the Group measures a financial asset at its fair value plus or minus, in the case of a financial asset not at fair value through
profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset. After initial recognition, the Group
measures a financial asset in amortized cost, fair value through other comprehensive income, or fair value through profit or loss.
Purchase and sale of financial asset is recognized using settlement date accounting. Settlement date is the date that an asset is delivered to or
by the Group.
Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the
Group has transferred substantially all the risks and rewards of ownership. On derecognition the Group recognizes the difference between the
carrying amount and consideration received as profit or loss. Transaction costs of financial assets carried at fair value plus or minus are expensed
in profit or loss. Subsequent measurement of debt instruments depends on the group’s business model for managing the asset and the cash
flow characteristics of the asset.
Group measures its debt instruments at amortized cost. The amortized cost of a financial asset is the amount at which the financial asset is
measured at initial recognition minus the principal repayments, plus the cumulative amortization using the effective interest method of any
difference between that initial amount and the maturity amount, adjusted for any loss allowance.
The Group recognizes loss allowance for expected credit losses on loan instruments, lease receivables, trade receivables, contract assets and
financial guarantee contracts. Expected credit loss is based on the difference between all contractual cash flows that are due in accordance with
the contract and all the cash flows that the Group expects to receive, discounted at the at an approximation of original effective interest rate.
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 recognizes lifetime expected credit losses 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 factors
that are specific to the debtors, 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.
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2022 audited consolidated annual report
For all other financial instruments, the Group recognizes lifetime expected credit losses 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 expected credit losses. Lifetime expected credit
losses represent the expected credit losses that will result from all possible default events over the expected life of a financial instrument. At
the same time, 12-month expected credit losses represent the portion of lifetime expected credit losses that is expected to result from default
events on a financial instrument that are possible within 12 months after the reporting date.
Interest income is recognized using the effective interest method for receivables measured subsequently at amortized cost. For financial assets
that have subsequently become credit-impaired, interest income is recognized by applying the effective interest rate to the amortized cost of
the financial asset. If, in subsequent reporting periods, the credit risk on the credit-impaired financial instrument improves so that the financial
asset is no longer credit impaired, interest income is recognized by applying the effective interest rate to the gross carrying amount of the
financial asset.
Financial liabilities
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable
transaction costs.
The Group’s financial liabilities include trade and other payables, loans, and borrowings. Interest bearing loans and borrowings are recognized
at amortized cost using the effective interest method.
The effective interest method is a method of calculating the amortized 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 transaction costs and
other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortized cost
of a financial liability.
The Group derecognizes 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 derecognized and the consideration paid and payable is recognized in profit or
loss.
Embedded derivatives
When the Group enters SPV agreement with a business partner, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances, and pertinent conditions as at the acquisition
date. This includes the separation of embedded derivatives in host contracts. A derivative embedded in a hybrid contract, with a financial liability
or non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not
closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative;
and the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives are measured at fair value with changes in
fair value recognized in profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies
the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through comprehensive income.
1.13. Provisions and contingent liabilities (IAS 37)
Provisions are recognized when the Group has a present obligation (legal or constructive) because 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 recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the
reporting period, considering the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows
estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of
money is material).
When some or all the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized
as an asset if it is virtually certain that reimbursement will be received.
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2022 audited consolidated annual report
Contingent liabilities
Contingent liabilities are those liabilities the realization of which is less probable than non-realization or the amount of which cannot be
measured sufficiently reliably. The Group does not recognize contingent liabilities but discloses brief description of the nature of the contingent
liability and, where practicable an estimate of its financial effect; an indication of the uncertainties relating to the amount or timing of any
outflow; and the possibility of any reimbursement unless the possibility of any outflow in settlement is remote.
1.14. Government grants (IAS 20)
Grants related to assets are government grants whose primary condition is that an entity qualifying for them should purchase, construct or
otherwise acquire long-term assets. Grants related to income are government grants other than those related to assets. Grants related to
operating expenses are government grants that are not government grants related to assets.
Government grants shall be recognized in profit or loss on a systematic basis over the periods in which the entity recognizes as expenses the
related costs for which the grants are intended to compensate. A government grant that becomes receivable as compensation for expenses or
losses already incurred shall be recognized in profit or loss of the period in which it becomes receivable.
1.15. Leases (IFRS 16)
The Group assesses at contract inception whether a contract is, or contains, a lease. Lease is a contract that conveys the right to control the use
of an identified asset for a period in exchange for consideration.
Group as a lessee
The Group recognizes a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee,
except for leases which are both short-term and of low value.
The right-of-use asset is measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of
lease liabilities. The cost of right-to-use assets includes the amount of the initial measurement of the lease liability, any lease payments made
at or before the commencement date (less any lease incentives received), any initial direct costs incurred by the Group; and an estimate of costs
to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying
asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories.
At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made
over the lease term. Lease payments are discounted using the interest rate implicit in the lease or, alternatively, the lessee’s incremental
borrowing rate. The incremental borrowing rate is the interest rate that the group would have to pay to borrow the funds necessary to obtain
a similar asset.
The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments
that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the
exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the
lease term reflects the Group exercising the option to terminate.
If the lease transfers ownership of the underlying asset to the Group by the end of the lease term or if the cost of the right-of-use asset reflects
that the Group will exercise a purchase option, the Group shall depreciate the right-of-use asset from the commencement date to the end of
the useful life of the underlying asset. Otherwise, the Group depreciates the right-of-use asset from the commencement date to the earlier of
the end of the useful life of the right-of-use asset or the end of the lease term.
The lease liability is measured as follows:
- increasing the carrying amount to reflect interest on the lease liability;
- reducing the carrying amount to reflect the lease payments made; and
- remeasuring the carrying amount to reflect any reassessment or lease modifications, or to reflect revised in-substance fixed lease
payments.
65
2022 audited consolidated annual report
Group as a lessor
Leases for which the Group is a lessor are classified as finance or operating leases. Whenever the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as operating leases.
Rental income from operating leases is recognized on a straight-line basis over the lease term. Gains from the expected disposal of assets shall
not be taken into account in measuring a provision. Initial direct costs incurred in negotiating and arranging an operating lease are added to the
carrying amount of the leased asset and recognized on a straight-line basis over the lease term on the same basis as lease income.
The Group enters into short-term lease agreements as a lessor with respect to some of its real estate development properties in Latvia until the
property is sold. Such real estate property is continuously recognized as inventories because being held for sale in the ordinary course of
business.
1.16. Revenue (IFRS 15)
The Group recognizes revenue from the following major source:
- revenue from sale of real estate;
- revenue from project management services;
- rental income;
- revenue from other services.
The Group recognizes 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. The Group recognizes revenue when it transfers control of a
product or service to a customer.
Revenues from sale of real estate
Revenue from the sale of goods purchased and finished goods, including real estate developed by the Group, is recognized when control of the
goods has been substantially transferred to the buyer, it is probable that economic benefits associated with the transaction will flow to the
group, the costs incurred or to be incurred in respect of the transaction including potential returns can be measured reliably, the group retains
no continuing involvement with the goods, and the amount of the revenue can be measured reliably. The sale is considered completed upon
signing the real right contract with the buyer.
The Group recognizes revenue in the amount of the transaction price. The transaction price is the amount of consideration to which the Group
expects to be entitled in exchange for transferring promised goods or services to a customer.
Revenue from project management services
Project management income includes revenues from project management services the Group provides to external partners and associated
companies. Project management income is recognized in the accounting period when the service is rendered.
Rental income
Rental income includes revenues from renting Group’s residential and commercial property. Rental income from operating leases is recognized
on a straight-line basis over the lease term.
Revenue from other services
Revenue from other services includes revenues from services provided by the Group other than project management or rental income and
income from sale of good other than development projects.
1.17. Operating segments (IFRS 15, IFRS 8)
A segment is a distinguishable component of the Group, which generates revenues and incurs expenditures. The segment reporting is presented
in respect of operating and geographical segments.
The Group reports separately information about the following operating segments:
- residential real estate;
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2022 audited consolidated annual report
- commercial real estate;
- headquarters
Geographical segments refer to the location of the real estate. The Group operates in Estonia and Latvia .
The operating results are regularly reviewed by the Group’s Management Board to monitor the performance of the various segments in terms
of sales revenue and operating profit (loss). Segment profit represents the segment’s external sales and operating profit (loss).
1.18. Income tax (IAS 12)
Corporate income tax in Estonia
According to the Income Tax Act entered into force in Estonia at 1 January 2000, it is not the company's profits that are taxed but net dividends
paid. Income tax is paid on dividends, fringe benefits, gifts, donations, costs of reception of guests, non-business payments and transfer price
adjustments. The effective income tax rate is 20/80 on net dividends paid out. Starting from 2019, it is possible to apply a more favourable tax
rate on dividend payments (14/86). The more favourable tax rate can be applied to a dividend distribution that amounts to up to three preceding
years’ average dividend distribution that has been taxed at 20/80 rate.
Corporate income tax in Latvia
From 1 January 2018, profits earned after 2017 will be taxed at a rate of 20/80. The transitional rules of the Income Tax Act allow for a reduction
in the profit payable on dividends if the company has unused tax losses or certain provisions as of 31 December 2017. As a result of the
implementation of the Income Tax Act effective from 2018, there are no longer differences between the tax accounting and carrying amounts
of assets and liabilities in Latvia, and therefore deferred income tax assets and liabilities to Latvian subsidiaries are not recognized.
Deferred income tax liability
Deferred income tax liability is recognized in respect to investments in subsidiaries, except for if the Group can control the timing of the reversal
of the taxable temporary differences and it is probable that the reversal will not occur in the foreseeable future. As the parent controls the
payment of dividends, the sale or liquidation of an investment, and other transactions in subsidiaries it can control the timing of the reversal of
taxable temporary differences associated with these investments. Therefore, when the parent has determined that those profits will not be
distributed in the foreseeable future the parent does not recognize a deferred tax liability. If the parent company assesses that the dividend will
be paid in the foreseeable future, the deferred income tax liability is measured to the extent of the planned dividend payment provided that as
at the reporting date, there are sufficient funds to pay the dividend and owner’s equity on account of which to distribute profit in foreseeable
future.
1.19. Fair value measurement (IFRS 13)
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 under current market conditions. The Group measures its financial instruments at fair value at each statement of
financial position date. A fair value measurement assumes 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.
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.
In estimating the fair value of an asset or a liability, the Group uses market-observable data to the extent it is available.
Cash and cash equivalents include deposits in local commercial banks. Cash equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Due to their short-term nature, the
carrying amounts approximate the fair value of cash and cash equivalents.
Expected credit loss rate for current loan receivables, non-current loans and other non-current receivables is 0%, historical average of trade
receivables as at 31 December 2022: 3.0% (31 December 2021: 2.6%). The impact on recoverability of receivables in short perspective and in
consideration of expected lifetime losses is estimated as insignificant at each statement of financial position date.
67
2022 audited consolidated annual report
Inventories are stated at the lower of cost and net realizable value in the statement of financial position. Fair value is evaluated based on net
realization value with 15% discount to cover any risks and setback before the development is completed and properties sold (hair-cut). The
applied percentage is based on the management’s estimate made based on their professional expertise in the field of operations.
Property, plant and equipment fair value is assumed to be equal to carrying value as its estimated useful lives, residual values and depreciation
methods are reviewed annually.
According to the estimation of the Group, the carrying values of financial liabilities in the consolidated statement of financial position as at 31
December 2022 does not vary significantly from the fair value since they are measured at net cash flows discounted at the effective interest
rate that considers all additional direct costs of lending, as well as timing of settling of such financial obligations.
Part of the Group’s long-term borrowings have a floating interest rate (includes 6 months Euribor). Based on the estimation of the management,
the Group’s financial outlook and market risks have not materially changed since the loans were obtained and the interest rates on the Group’s
debt are on the market conditions.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy,
described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level (L) 1 - quoted (unadjusted) market prices in active markets for identical assets and liabilities.
Level (L) 2 - fair value is estimated using market information and valuation is based on observable inputs.
Level (L) 3 - fair value is estimated using the discounted cash flow valuation technique and the valuation is based on non-observable inputs.
In thousands of euros
31.12.2022
31.12.2021
Carrying value
Fair value
L
Carrying value
Fair value
L
Assets
Current assets
Cash and cash equivalents
3,754
3,754
1
10,889
10,889
1
Trade and other receivables
1,731
1,731
3
652
652
3
Current loan receivables
0
0
3
2,388
2,388
3
Inventories
69,760
74,053
3
37,237
38,789
3
Total current assets
75,245
79,538
51,166
52,718
Non-current assets
Property, plant and equipment
232
232
3
229
229
3
Intangible assets
7
7
3
0
0
3
Financial investments
2
402
3
402
402
3
Investments in associated
companies
1,086
1,086
3
0
0
3
Non-current loans
1,766
1,766
3
3,408
3,408
3
Other non-current receivables
30
30
3
140
140
3
Total non-current assets
3,123
3,123
4,179
4,179
Total assets
78,368
82,661
55,345
56,897
Liabilities and equity
Current liabilities
Loans and borrowings
22,565
22,565
3
5,501
5,501
3
Current lease liabilities
46
46
3
123
123
3
Prepayments from customers
3,054
3,054
3
1,164
1,164
3
Trade and other payables
4,007
4,007
3
5,539
5,539
3
Total current liabilities
29,672
29,672
12,327
12,327
Non-current liabilities
Loans and borrowings
26,015
26,015
3
22,862
22,862
3
Non-current lease liabilities
68
68
3
66
66
3
Other non-current liabilities
2,290
2,290
3
1,053
1,053
3
Total non-current liabilities
28,373
28,373
23,981
23,981
Total liabilities
58,045
58,045
36,308
36,308
68
2022 audited consolidated annual report
1.20. Employee benefits (IAS 19)
The Group operates only short-term employee benefits (expected to be settled wholly before twelve months after the end of the reporting
period in which the employees render services) such as salaries, and social security contribution; paid annual leave and sick leave; and bonuses.
There are no special benefits, share-based payments or share options granted for the Group employees during the reporting periods or
subsequent to the last statement of financial position date 31 December 2022.
1.21. Related parties (IAS 24)
A related party is a person or entity that is related to the entity that is preparing its financial statements. A related party transaction is a transfer
of resources, services, or obligations between a reporting entity and a related party, regardless of whether a price is charged. Such transactions
could have an effect on the profit or loss and financial position of the Group. For this reason, knowledge of the Group’s transactions, outstanding
balances, including commitments, and relationships with related parties may affect assessments of its operations by users of financial
statements, including assessments of the risks and opportunities facing the Group.
Relationships between a parent and its subsidiaries are disclosed irrespective of whether there have been transactions between them. The
Group discloses the related party relationship when control exists, irrespective of whether there have been transactions between the related
parties.
The Group considers key members of the management (supervisory and management board), their close relatives and entities under their
control or significant influence as well as associated companies as related parties.
1.22. Earnings per share (IAS 33)
Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the weighted
average number of shares outstanding during the year. Diluted earnings per share is calculated by dividing the profit attributable to equity
holders of the parent (after adjusting for interest on the convertible preference shares) by the weighted average number of shares outstanding
during the year plus the weighted average number of shares that would be issued on conversion of all the dilutive potential shares into shares.
1.23. Events after the reporting period (IAS 10)
Events after the reporting period are those events, favourable and unfavourable, that occur between the end of the reporting period and the
date when the financial statements are authorized for issue. Events after the reporting period are those that provide evidence of conditions
that existed at the end of the reporting period (adjusting events after the reporting period) and those that are indicative of conditions that arose
after the reporting period (non-adjusting events after the reporting period).
69
2022 audited consolidated annual report
Notes to the consolidated financial statements
Note 2. Cash and cash equivalents
in thousands of euros
31.12.2022
31.12.2021
Bank accounts
3,754
10,889
Total cash and cash equivalents
3,754
10,889
All cash and cash equivalents are in euros.
Note 3. Trade and other receivables
in thousands of euros
31.12.2022
31.12.2021
Trade receivables
718
86
Allowance for doubtful receivables (Note 22)
-10
-6
Net trade receivables
708
80
Prepayments
Tax prepayments
318
382
Value added tax
317
382
Other taxes
1
0
Other prepayments for goods and services
279
146
Total prepayments
597
528
Other current receivables
Interest receivables (Note 27)
1
33
Other current receivables
20
11
Escrow account
405
0
Total other current receivables
426
44
Total trade and other receivables
1,731
652
Note 4. Inventories
Inventories are accounted as ready for sale development projects once the project has been granted usage permit.
As of 31 December 2022, usage permits have been issued for the 30 Ulbrokas, 4b Strēlnieku development projects in Riga, and a
partial usage permit has been issued for the Meister 14 development project in Tallinn.
As at 31 December 2022 the Group had 26 (31 December 2021: 45) unsold apartments, including 8 apartments in Tallinn, Paevälja
11 development project 8 and 18 apartmets in Riga, 4b Strēlnieku development project.
As at 31 December 2022 changes in inventories as stated in cash flow statements have been adjusted by loan interest expense,
which are capitalised in the amount of 1,842 thousand euros (31 December 2021: 1,518 thousand euros). Further information
about paid interests is provided in the note 24.
70
2022 audited consolidated annual report
in thousands of euros
31.12.2022
31.12.2021
Work in progress
Address
Project company
Location
Segment
Acquisition
cost
Project
status
Acquisition
cost
Project
status
Pirita Road 26b, Tallinn
Hepsor P26B OÜ
Residential
0
-
13
E
Paevälja 11, Tallinn
Hepsor PV11 OÜ
Estonia
Residential
909
E
0
-
Paevälja 11, Tallinn
Hepsor PV11 OÜ
Estonia
Residential
5,585
D
2,965
D
Paldiski mnt 227c, Tallinn
Hepsor 3Torni OÜ
Estonia
Residential
3,482
D
2,517
C
Narva mnt 150,150a,150b
Tallinn
Hepsor N450 OÜ
Estonia
Residential/
Commercial
3,609
A
3,582
A
Manufaktuuri 5, Tallinn
Hepsor Phoenix 3 OÜ
Estonia
Residential/
Commercial
4,168
B
3,268
B
Manufaktuuri 7, Tallinn
Hepsor Phoenix 2 OÜ
Estonia
Residential/
Commercial
3,018
C
2,303
B
Tooma 2/Tooma 4 Tallinn
T2T4 OÜ
Estonia
Commercial
1,248
C
1,159
C
Lembitu 4, Tallinn
Hepsor L4 OÜ
Estonia
Commercial
2,954
C
2,811
C
Meistri 14, Tallinn
Hepsor M14 OÜ
Estonia
Commercial
3,193
D
5,765
D
Alvari 2/Paevälja 9, Tallinn
Hepsor Fortuuna OÜ
Estonia
Residential
1,657
A
1,656
A
Alvari 1, Tallinn
Hepsor A1 OÜ
Estonia
Residential
2,023
A
1,004
A
Kadaka Road 197, Tallinn
H&R Residentsid OÜ
Estonia
Residential
1,168
A
614
A
Manufaktuuri 12, Tallinn
Hepsor Phoenix 4 OÜ
Estonia
Residential
843
A
0
-
Nõmme Road 57, Tallinn
Hepsor N57 OÜ
Estonia
Residential
1,704
C
0
-
Balozu 9, Riga
Hepsor Bal9 SIA
Latvia
Residential
0
-
1,770
D
Saules aleja 2, Riga
Hepsor SA2 SIA
Latvia
Residential
886
B
957
B
Liela 45, Marupe
Hepsor Marupe SIA
Latvia
Residential
7,766
D
663
C
Ranka Dambis 5, Riga
Hepsor RD5 SIA
Latvia
Residential
416
B
354
B
Ulbrokas 30, Riga
Hepsor U30 SIA
Latvia
Commercial
0
-
1,485
D
Ulbrokas 34, Riga
Hepsor U34 SIA
Latvia
Commercial
1,128
B
1,019
B
Braila 23, Riga
Hepsor Jugla SIA
Latvia
Residential
314
B
0
-
Gregora iela 2a, Riga
Hepsor Kvarta SIA
Latvia
Residential
10,125
D
0
-
Ganibu Dambis 17a, Riga
Hepsor Ganibu Dambis
SIA
Latvia
Commercial
3,918
A
0
-
Jurmala Gatve, Riga
Hepsor JG SIA
Latvia
Residential
360
B
0
-
-other properties
Estonia
18
A
21
A
Total work in progress
60,492
33,926
Finished real estate
development
Meistri 14, Tallinn
Hepsor Meistri 14 OÜ
Estonia
Commercial
4,026
E
0
-
Manufaktuuri 22, Tallinn
(parkimiskohad)
Hepsor Phoenix OÜ
Estonia
Residential
16
E
16
E
Āgenskalna 24, Riga
Hepsor Agen24 SIA
Latvia
Residential
0
-
50
E
Strēlnieku 4b, Riga
Hepsor S4B SIA
Latvia
Residential
1,106
E
3,245
E
Ulbrokas 30, Riga
Hepsor U30 SIA
Latvia
Commercial
4,120
E
0
-
Total finished real estate
development
9,268
3,311
Total inventories
69,760
37,237
71
2022 audited consolidated annual report
Project statuses are classified as following:
in thousands of euros
31.12.2022
31.12.2021
Change %
A – planning proceedings
13,236
6,877
92
B – building permit proceedings
7,272
7,901
-8
C – building permit available / construction has not yet started
8,924
7,150
25
D – construction started / sale started
30,151
11,985
152
E – construction ready for sale
10,177
3,324
206
Total inventories
69,760
37,237
87
Note 5. Property, plant and equipment
in thousands of euros
Buildings and
structures
Machinery and
equipment
Other items
Total
2022
Cost at 31.12.2021
248
23
135
406
Accumulated depreciation at 31.12.2021
-79
-6
-92
-177
Carrying amount at 31.12.2021
169
17
43
229
New lease contracts
0
58
0
58
Acquisition
76
0
24
100
Depreciation
-113
-12
-23
-148
Termination of lease contracts
-78
0
0
-78
Write-off of accumulated depreciation from terminations of lease
contracts
78
0
0
78
Write-off of acquisition cost
0
0
-6
-6
Write-off of accumulated depreciation
0
0
6
6
Acquisition cost of property, plant and equipment sold
0
-23
0
-23
Accumulated depreciation of property, plant and equipment sold
0
16
0
16
Cost at 31.12.2022
246
58
153
457
Accumulated depreciation at 31.12.2022
-114
-2
-109
-225
Carrying amount at 31.12.2022
132
56
44
232
2021
Cost at 31.12.2020
581
79
135
795
Accumulated depreciation at 31.12.2020
-186
-52
-65
-303
Carrying amount at 31.12.2020
395
27
70
492
New lease contracts
78
0
0
78
Depreciation
-120
-10
-27
-157
Termination of lease contracts
-411
-56
0
-467
Write-off of accumulated depreciation from terminations of lease
contracts
227
56
0
283
Cost at 31.12.2021
248
23
135
406
Accumulated depreciation at 31.12.2021
-79
-6
-92
-177
Carrying amount at 31.12.2021
169
17
43
229
72
2022 audited consolidated annual report
The lease agreement of an office in Riga is recorded in the asset class of buildings and structures. The term of the lease agreement
for the Riga office is 2024. In Riga the Group subleases assets under operating leases to a related party. In 2022, the income from
rent amounted to 20 thousand euros (2021: 19 thousand euros). Sublease of the operating lease is recorded in a simplified manner
as other operating income and other operating expenses (note 22).
In 2022, the Group bought a car with a lease agreement. The asset is recorded in the machinery and equipment asset class.
Information on lease liabilities and payments are presented in note 11.
In 2022, 25 thousand euros were received from the sale of machines and equipment.
Note 6. Intangible assets
in thousands of euros
Licenses and software
Carrying amount at 31.12.2021
0
Acquisition
8
Depreciation
-1
Cost at 31.12.2022
8
Accumulated depreciation at 31.12.2022
-1
Carrying amount at 31.12.2022
7
Note 7. Financial investments
Tatari 6A Arenduse OÜ, where the Group holds 80% shareholding, is accounted as financial investment. The Group is providing
management services for the project. In order to ensure the quality and control of the management process, the Group will hold
an 80% shareholding in the company during the development period, which will be transferred to the co-owner at the end of the
development process. The Group has no profit share in the project. The acquisition value of the financial investment is 2 thousand
euros.
Hepsor Latvia OÜ signed a sales-purchase agreement on 15 December 2021 to acquire 100% of Latvian company Hepsor Jugla SIA
(previously Brofits SIA).The acquisition cost was 400 thousand euros. The holding was not consolidated since the Group lacked
sufficient control over Hepsor Julga SIA as stated by the management of the Group and the transaction was formalized only in the
beginning of 2022, then as of 31 December 2021, the purchase of the company is recorded as a financial investment, and from
January 2022, Hepsor Jugla SIA belongs to the Hepsor AS consolidation group.
Note 8. Other non-current receivables
in thousands of euros
31.12.2022
31.12.2021
Interest receivables (Note 27)
30
140
Total
30
140
73
2022 audited consolidated annual report
Note 9. Loans granted
in thousands of euros
Owner of non-
controlling
interest
Unrelated
legal entities
Associates
Related legal
entities
Total
2022
Loan balance as at 31.12.2021
-current portion
2,109
0
279
0
2,388
-non-current portion
0
1,100
2,308
0
3,408
Total loan balance as at 31.12.2021
2,109
1,100
2,587
0
5,796
Loan granted
0
0
0
176
176
Loan collected
-29
-1,100
-821
-176
-2,126
Division of subsidiary
-2,080
0
0
0
-2,080
Total loan balance as at 31.12.2022
0
0
1,766
0
1,766
-non-current portion
0
0
1,766
0
1,766
contractual/effective interest rate per annum
0-3%
0%
7%
12%
2021
Loan balance as at 31.12.2020
-current portion
720
56
0
0
776
-non-current portion
0
0
1,371
0
1,371
Total loan balance as at 31.12.2020
720
56
1,371
0
2,147
Loan granted
2,109
1,044
1,216
0
4,369
Division of subsidiary
-720
0
0
0
-720
Total loan balance as at 31.12.2021
2,109
1,100
2,587
0
5,796
-current portion
2,109
0
279
0
2,388
-non-current portion
0
1,100
2,308
0
3,408
contractual/effective interest rate per annum
0-3%
0%
7%
0
The loan granted in 2021 to unrelated legal entities in the amount of 1,100 thousand euros was a loan to Kvarta Holding OÜ, in
January 2022 Hepsor Latvia OÜ acquired a 50% shareholding in Kvarta Holding OÜ. As a result of the acquisition, Kvarta Holding
OÜ became a subsidiary of Hepsor Latvia OÜ.
In December 2021, the shareholders of Hepsor P26b OÜ approved the resolution of division of the company, based on which in
2022 Hepsor P26b OÜ transferred assets to minority shareholders in the amount of 2,098 thousand euros. Of this, 2,080 thousand
euros as loan receivable. Additional information is available in Note 14.
Additional information on transactions with related legal entities is provided in Note 32.
74
2022 audited consolidated annual report
Note 10. Loans and borrowings
in thousands of euros
Bank loans
Unrelated legal
entities
Related legal
entities
Total
2022
Loan balance as of 31.12.2021
- current portion
2,821
2,680
0
5,501
- non-current portion
8,130
12,901
1,831
22,862
Total loan balance as of 31.12.2021
10,951
15,581
1,831
28,363
Received
27,655
3,773
464
31,892
Repaid
-8,287
-3,316
-69
-11,672
Actual interest rate impact
-190
-247
75
-362
Compound interest rate
0
354
5
359
Loan balance as of 31.12.2022
30,129
16,145
2,306
48,580
- current portion
17,040
3,352
2,173
22,565
- non-current portion
13,089
12,793
133
26,015
Contractual interest rate per annum
6M Euribor+3.75%-
8%; 5.5%
0-12%
3%-12%
Effective interest rate per annum
7.6%-12.3%
5.3%-12.2%
12.2%
2021
Loan balance as of 31.12.2020
- current portion
1,308
2,230
500
4,038
- non-current portion
3,397
8,585
140
12,122
Total loan balance as of 31.12.2020
4,705
10,815
640
16,160
Received
14,008
6,555
1,750
22,682
Repaid
-7,807
-2,084
-500
-10,479
Actual interest rate impact
45
-172
-75
-202
Compound interest rate
0
467
16
483
Loan balance as of 31.12.2021
10,951
15,581
1,831
28,363
- current portion
2,821
2,680
0
5,501
- non-current portion
8,130
12,901
1,831
22,862
Contractual interest rate per annum
EU6+5.85%-8%;
8.2%
0-12%
3%-12%
Effective interest rate per annum
6.8%-11%
0-24%
3%-12%
Additional information on transactions with related legal entities is provided in Note 32.
The adjustment in change in inventories in the cash flow statement of the reporting period arising from capitalizing the actual
interest rate impact on loans as part of the cost of the inventories amounted to 254 thousand euros (2021: 229 thousand euros)
and the adjustment in the interest paid due to the effect of actual and compound interest amounted to 360 thousand euros
(2021: 510 thousand euros). Additional information on cash flows is provided in Appendix 27.
In March 2021, Hepsor AS signed a three-year 4-million-euro loan agreement with LHV Pank. In July the parties signed an
addendum to the loan agreement increasing the loan amount by 2 million euros to 6 million euros. The shares of Hepsor AS held
by the members of Management and Supervisory Board of the Group and the shares of Hepsor Finance OÜ were pledged as
collateral to secure the loan. The loan agreement states two financial covenants that are measured quarterly:
a) LHV Pank loan and equity ratio of maximum 55%,
75
2022 audited consolidated annual report
b) the ratio of loan commitment taken by the consolidation group to the total assets, cash and cash equivalents and
investments to property developments of the consolidation group is a maximum of 70% (seventy percent).
As of 31 December 2022, 89% (31 December 2021: 86%) of all loans granted to the Group have been received against the risk of
development projects.
in thousands of euros
Bank loans
Unrelated legal
entities
Related legal entities
Total
Balance as of 31.12.2022
Loans for development projects
24,635
16,145
2,306
43,086
Loans to headquarters to finance
development projects
5,494
0
0
5,494
Total
30,129
16,145
2,306
48,580
Balance as of 31.12.2021
Loans for development projects
6,925
15,581
1,831
24,337
Loans to headquarters to finance
development projects
4,026
0
0
4,026
Total
10,951
15,581
1,831
28,363
As of 31 December 2022, the Group had the following bank loans under the following conditions:
Lender
Country
Loan
balance
Contract
term
Loan
limit
Interest per
annum
Collateral
Cost value of
the
collateral
Guarantee
given
LHV Pank AS
Estonia
2,655
2023
8,605
6M Euribor+4.5%
Mortgage - Paevälja pst 11,
Lageloo 3//5, Lageloo 7, Tallinn
6,495
-
LHV Pank AS
Estonia
4,483
2024
4,900
6M Euribor+3.75%
Mortgage - Meistri 14, Tallinn
7,220
-
LHV Pank AS
Estonia
1,254
2025
1,300
6M Euribor+8%
Mortgage - Lembitu 4, Tallinn
2,953
-
LHV Pank AS
Estonia
0
2025
13,900
6M Euribor+5.9%
Mortgage - Paldiski mnt 227c,
Tallinn
3,477
-
Bigbank AS
Latvia
4,822
2025
7,000
5.5%
Mortgage-Liela 45, Mārupe
7,766
-
Bigbank AS
Latvia
828
2024
1,225
6M Euribor+4.5%
Commercial pledge; Mortgage-
Strēlnieku 4b, Riga
1,106
-
Bigbank AS
Latvia
2,650
2024
2,650
5.5%
Mortgage - Ulbrokas 30, Riga,
Commercial pledge
4,120
500
Bigbank AS
Latvia
5,958
2025
7,500
5.5%
Mortgage – Gregora 2a, Riga
10,125
423
Bigbank AS
Latvia
1,985
2025
2,000
6M Euribor+4.5%
Mortgage -Ganību dambis 17A,
Riga; Commercial pledge
3,918
-
As of 31. December 2021, the Group had the following bank loans under the following conditions:
Lender
Country
Loan
balance
Contract
term
Loan
limit
Interest per annum
Collateral
Cost value of the
collateral
LHV Pank AS
Estonia
1,285
2022
1,300
6M Euribor +8%
Mortgage - Lembitu 4, Tallinn
2,811
LHV Pank AS
Estonia
562
2023
8,605
6M Euribor + 4.5%
Mortgage - Paevälja pst 11, Lageloo
tn 3 // 5, Lageloo tn 7, Tallinn
2,965
LHV Pank AS
Estonia
2,375
2024
3,115
6M Euribor + 4.75%
Mortgage - Meistri 14, Tallinn
5,765
Bigbank AS
Latvia
982
2023
1,150
6%
Mortgage - Baložu 9, Riga
1,770
Bigbank AS
Latvia
1,687
2024
2,500
6M Euribor + 4.5%
Commercial pledge; Mortgage -
Strēlnieku 4b, Riga
3,245
In addition to bank loans, Hepsor N450 OÜ has a joint mortgage in the amount of 2.1 million euros as a loan collateral until the
loan obligation to unrelated legal entity has been fulfilled.
Additional information on other guarantees given by the group is provided in Note 16.
76
2022 audited consolidated annual report
Note 11. Lease liabilities
in thousands of euros
Right to use lease
liabilities
Finance lease liabilities
Total
2022
Balance as at 31.12.2021
- current portion
112
11
123
- non-current portion
61
5
66
Total lease liabilities balance as at 31.12.2021
173
16
189
New lease contracts
0
58
58
Repaid
-107
-26
-133
Total lease liabilities balance as at 31.12.2022
66
48
114
- current portion
36
10
46
- non-current portion
30
38
68
2021
Balance as at 31.12.2020
- current portion
134
40
174
- non-current portion
267
0
267
Total lease liabilities balance as at 31.12.2020
401
40
441
New lease contracts
78
0
78
Repaid
-129
-15
-144
Termination of lease contracts
-177
-9
-186
Total lease liabilities balance as at 31.12.2021
173
16
189
- current portion
112
11
123
- non-current portion
61
5
66
Additional information on assets under finance and right to use leases is provided in Note 5.
Note 12. Trade and other payables and prepayments
in thousands of euros
31.12.2022
31.12.2021
Prepayments from customers
3,054
1,164
Trade payables
1,906
1,506
Tax payables
Value added tax
910
254
Personal income tax
28
18
Social security tax
51
33
Other taxes
5
5
Total tax payables
994
310
Accrued expenses
Payables to employees
109
72
Interest payables (Note 27)
552
135
Other accrued expenses
35
29
Total accrued expenses
696
236
Other current payables
Embedded derivatives (Note 14)
8
2,115
Other payables
403
1,372
Total other current payables
411
3,487
Total trade and other payables
7,061
6,703
Customer prepayments for apartments under contract under law of obligations and reservation agreements for apartments are
recorded as customer prepayments.
77
2022 audited consolidated annual report
Note 13. Other non-current liabilities
in thousands of euros
31.12.2022
31.12.2021
Interest payables (Note 27)
1,652
1,020
Other non-current payables
638
33
Total other non-current liabilities
2,290
1,053
Other non-current liabilities include the Group’s commitment to finance the construction of kindergarten for the city of Tallinn at
the Manufaktuuri Quarter development project. The liability in the amount of 624 thousand euros is measured in present value
using 5% discount rate. As of 31 December 2022, the book value of the liability amounted to 566 thousand euros.
Note 14. Embedded derivatives
Liabilities assumed by the Group to minority shareholders in accordance with the concluded shareholders’ agreements are
recognized as embedded derivatives. According to shareholders agreements the profit is shared with minority shareholders in
the form as it is agreed in the agreement. As of the end of the reporting periods, upon partial or full realization of the business
plan of the development project, the Group had liabilities arising from embedded derivatives with regard to the following projects:
in thousands of euros
31.12.2022
31.12.2021
Current liabilities arising from embedded derivatives balance as at 01.01
2,115
1,022
Settlements with shareholder loan arising from the division agreement:
Residential development project in Pirita Road 26b, Tallinn (Note 9)
-2,080
0
Residential development project in Kadaka Road 141, Ehitajate Road 91/91a, Tallinn
0
-448
Residential development project in Valge 10/10a
0
-274
Dividends paid
Residential development project Mõigu Road 11, Rae
-37
0
Total change in liabilities arising from embedded derivatives
-2,117
-722
Change in the value of the embedded derivative of the non-controlling interest during the reporting year
Residential development project in Pirita Road 26b, Tallinn
-17
-1,827
Residential development project in Mõigu Road 11, Rae
35
12
Commercial development project in Meistri 14, Tallinn
-8
0
Total change in the value of embedded derivatives of the non-controlling interest for the reporting year
10
-1,815
Total current liabilities arising from embedded derivatives (Note 12)
8
2,115
According to shareholders agreements the profit is shared with minority shareholders in the form as it is agreed in the agreement.
Pursuant to the division agreement entered into between the shareholders of Hepsor P26b OÜ the loan granted by the Group to
the shareholders was settled with the liability arising from embedded derivatives in the amount of 2,080 thousand euros. The
related expense in the amount of 17 thousand euros was recognized in other comprehensive income for 2022.
Subject to the resolution of the shareholders of Hepsor Peetri OÜ, the dividends in the amount of 29 thousand euros were paid
to the minority shareholder, from which income tax of 6 thousand euros was calculated and paid.
78
2022 audited consolidated annual report
Note 15. Equity
According to the articles of association of Hepsor AS, the minimum share capital of the company is 3 million euros and the
maximum share capital is 12 million euros. As of 31 December 2022, the share capital of Hepsor AS was 3,855 thousand euros
(31.12.2021: 3,855 thousand euros).
At the general meeting of shareholders on 9 August 2021, it was decided to transform the private limited company (OÜ) into a
capital to 3 million euros at the expense of the share premium. After the share capital increase, the company had 3 million shares
with a nominal value of 1 euro.
On November 8, 2021, the general meeting of shareholders decided to list the shares of Hepsor AS on the main list of the Nasdaq
Tallinn Stock Exchange and to issue up to 854,701 shares at an offer price of 11.70 euros, of which 1 euro was the nominal value
and 10.70 was the share premium. The Group's shares were listed on the main list of the Nasdaq Tallinn Stock Exchange on
November 26, 2021. Additional information on the number of shares is provided in the Note 26.
10 million euros were raised from investors through the issue and listing of shares. Expenses related to the issue and listing of
shares amounted to 650 thousand euros, of which expenses related to the listing of existing shares in the amount of 205 thousand
euros have been recognized through profit attributable to owners of the parent company and expenses related to the issue and
listing of new shares amounted to 445 thousand euros through comprehensive income. Net cash flow from issuing shares was
9,555 thousand euros.
In 2022 Hepsor Peetri OÜ paid dividends to minority shareholders in the amount of 29 thousand euros (2021: 64 thousand euros).
In January and August 2021 Hepsor AS paid dividends to shareholders in the amount of 188 thousand euros.
Note 16. Contingent liabilities
16.1. Contingent liabilities arising from embedded derivatives
In accordance with the shareholders agreements between the Group and minority shareholders of subsidiaries (SPV’s), the Group
has an obligation as of 31 December 2022 to pay 12,904 thousand euros (31 December 2021: 7,501 thousand euros) to the
minority shareholders upon realization of the business plan. The obligations amounts are estimations calculated based on current
business plans of the development projects as of statement of financial position dates. Contingent liabilities are estimated before
the full realization of the development projects at each reporting date. As of 31 December 2022, the realization time of contingent
liabilities remains between 2023 and 2027.
16.2 Based on the investor agreement signed in December, 2022 regarding the 4b Strēlnieku development project, the investor
will be paid interest depending on how successful the project is upon its completion. In the opinion of the Group's management,
there is certain uncertainty arising from the macroeconomic environment both in terms of the interest depending on the success
of the project and the time when the payment obligation arises, therefore it is not possible to reliably determine the amount of
the interest obligation.
16.3. Group guarantees given
Additional information on the guarantees given is provided in Note 10.
The Group is obliged to provide warranty services during the warranty period. The Group has outsourced the provision of warranty
period services for general repairs of defects of real estate developed to contracted construction service partners.
79
2022 audited consolidated annual report
Notes to the Consolidated statement of profit and loss and other comprehensive
income
Note 17. Revenue
in thousands of euros
2022
2021
Revenue from sale of real estate
11,750
14,347
Revenue from project management services
145
227
Revenue from rent
771
312
Revenue from other services
204
75
Total
12,870
14,961
In 2022, 9,878 thousand euros (2021: 12,769 thousand euros) were earned, which is 84% (2021: 89%) of real estate sales from
private clients.
In 2022, 85 (2021: 94) apartments were sold, of which 45 in Latvia (2021: 11) and 40 in Estonia (2021: 83).
Revenue by geographical area:
in thousands of euros
2022
2021
Estonia
6,817
13,278
Latvia
6,053
1,683
Total
12,870
14,961
Revenue by operating segments:
in thousands of euros
2022
2021
Residential real estate
11,069
14,085
Commercial real estate
1,654
643
Headquarters
147
233
Total
12,870
14,961
Additional information on operating and geographical segments is provided in the Note 30.
Note 18. Cost of sales
in thousands of euros
2022
2021
Cost of real estate sold
-9,165
-11,137
Personnel expenses (Note 21)
-770
-444
Interest expenses (Note 24)
-218
-257
Depreciation
-32
-32
Other costs
-911
-32
Total
-11,096
-11,902
80
2022 audited consolidated annual report
Note 19. Marketing expenses
in thousands of euros
2022
2021
Personnel expenses (Note 21)
-117
-81
Other marketing expenses
-329
-190
Total
-446
-271
Note 20. Administrative expenses
in thousands of euros
2022
2021
Personnel expenses (Note 21)
-643
-383
Depreciation
-110
-125
Traveling and transport expenses
-49
-40
Purchased service expenses
-246
-347
Office expenses
-45
-18
Other administrative expenses
-2
-29
Total
-1,095
-942
Note 21. Personnel expenses
in thousands of euros
2022
2021
Salaries
-1,054
-680
Social security and other payroll taxes
-476
-228
Total (Notes 18, 19, 20)
-1,530
-908
As of 31 December 2022, the Group, together with the members of the Management Board and the Supervisory Board, had 25
(31.12.2021: 21) employees, of which 13 in Estonia (31.12.2021: 13) and 12 in Latvia (31.12.2021: 8).
The average number of employees of the Group in 2022 was 18 (2021: 13.8), of which 9 in Estonia (2021: 7.8) and 9 in Latvia
(2021: 6).
No special benefits, share-based payments or share options have been granted to the Group's employees, including key
personnel. Key personnel include members of the Management Board and Supervisory Board of Hepsor AS and members of the
Management Board of Hepsor Latvia OÜ.
Note 22. Other operating income and expenses
Other operating income
in thousands of euros
2022
2021
Fines and compensations
4
16
Income from government grants
0
21
Income from sale of passthrough services (Note 5)
20
19
Profit from the sale of property, plant and equipment
18
0
Other operating income
28
27
Total
70
83
81
2022 audited consolidated annual report
Other operating expenses:
in thousands of euros
2022
2021
Fines and compensations
-2
-17
Cost of assigning the contractual claim
-3
-8
Loss on doubtful accounts receivable (Note 3)
-4
-6
Sublease expenses (Note 5)
-20
-18
Other operating expenses
-39
0
Total
-68
-49
Note 23. Financial income
in thousands of euros
2022
2021
Interest income (Note 27)
183
145
Profit from associates of equity method
1,086
0
Other financial income from financial investment
460
43
Financial income from discounting
160
133
Total
1,889
321
In 2022, the Group earned non-recurring financial income from waiver of minority shareholder’s loan liability in the amount of
437 thousand euros. During the financial year, the Group earned profit of 566 thousand euros from Hepsor P113 OÜ and 520
thousand euros from Hepsor N170 OÜ, its associated companies, by using equity method of accounting.
Note 24. Financial expenses
in thousands of euros
2022
2021
Interest expenses (Note 27)
-717
-434
Loss from associates of equity method
0
-2
Financial expenses from discounting
-29
-14
Other financial expenses
-41
-62
Total
-787
-512
In 2022 borrowing costs in the amount of 1,842 thousand euros 2021: 1,518 thousand euros) have been capitalized as the cost of
inventories (Note 4). Interest expenses of 218 thousand euros have been recognized in the cost of sales in 2022 (2021: 257
thousand euros) (Note 18).
The interest rate used for discounting long-term financial receivables and liabilities is 5% per annum, which, according to the
management, is the average interest rate that the Group should pay when borrowing.
82
2022 audited consolidated annual report
Note 25. Corporate income tax and deferred income tax
Historically the Group has financed its development activity mainly from retained earnings and dividend payments have been
made in minor amounts.
Group’s dividend policy considers Group’s growth ambition, capital need for development projects, financial position, liquidity
ratios of the Group and other factors. Based on the 2023 forecast the dividend payments are not expected as most of the Group’s
development projects are in the active pipeline and need further investments. The Group reinvests all expected profits to further
support the Group’s growth.
The Group’s deferred income tax liability is based on the profit or loss from subsidiaries with minority holding, and where the
distribution of profit has not been agreed in the shareholders’ agreement. If the parent company assesses that the dividend will
be paid in the foreseeable future, the deferred income tax liability is measured to the extent of the planned dividend payment as
at the reporting date. The deferred income tax liability is reduced if the distribution of profit from the development project has
been agreed between the shareholders.
In April 2021 the shareholders of Hepsor Peetri OÜ decided to pay out dividends to the minority holders in the amount of 64
thousand euros. Income tax expense on dividends paid amounted to 16 thousand euros and in 2022 in the amount of 29 thousand
euros, income tax expense on dividends paid amounted to 6 thousand euros.
in thousands of euros
2022
2021
Current income tax expense (Note 27)
-6
+16
Deferred income tax
Deferred income tax balance as at 01.01
0
60
Deferred income tax expense reduction (-)
0
-60
Deferred income tax balance as at 31.12
0
0
Total income tax and deferred tax expense
-6
-16
Note 26. Earnings per share
The number of shares of Hepsor AS: 3,854,701 (EUR) * 1 (EUR) nominal value = 3,854,701 shares.
2022
2021 adjusted
Profit for the year attributable to owners of the parent (thousands of euros)
1,396
-22
Weighted average number of ordinary shares (thousand pcs) (Note 1.3)
3,855
3,124
Basic earnings per share (euros)
0.36
-0.01
Diluted earnings per share (euros)
0.36
-0.01
On October 14, 2021, during the transformation of Hepsor private limited company (OÜ) into a public limited company (AS), the
company's share capital became 3 million euros, the nominal value of which was 1 euro per share. The company's share capital
was increased at the expense of the share premium. The number of Hepsor AS shares was after the transformation: share capital
3,000,000 (EUR)/1 (EUR) nominal value = 3,000,000 shares.
On November 8, 2021, the general meeting of shareholders decided to list the shares of Hepsor AS on the main list of the Nasdaq
Tallinn Stock Exchange and to issue up to 854,701 shares at an offer price of 11.70 euros, of which 1 euro was the nominal value
and 10.70 was the share premium. The average number of ordinary shares in 2021 was 3,124,107 shares. Additional information
on share capital is provided in the Note 15.
Earnings per share is calculated when profit for the year attributable to owners of the parent is divided by number of shares.
83
2022 audited consolidated annual report
Note 27. Information about line items in the consolidated statement of cash flows
in thousands of euros
2022
2021
Inventories
Reclassification of cash flows from financing activities to operating activities (Note 4)
1,842
1,518
Decrease (-)/ increase (+) of change inventories balances (Note 4)
-32,523
-14,334
Actual interest rate impact
-254
-229
Change in inventories
-30,935
-13,045
Corporate income tax
Income tax expense in statement of profit or loss and other comprehensive income (Note 25)
-6
-16
Decrease (-)/ increase (+) of corporate income tax liability
0
-58
Corporate income tax paid
-6
-74
Interest paid
Interest expense in statement of profit or loss and other comprehensive income (Note 24)
-717
-434
Reclassification of cash flows from financing activities to operating activities (Note 24)
-1,842
-1,518
Decrease (-)/ increase (+) of interest payables (Notes 12,13)
1,049
591
Actual and compound interest rate impact
360
510
Interest paid
-1,150
-851
Interest received
Interest income in statement of profit or loss and other comprehensive income (Note 23)
183
145
Decrease (+)/increase (-) (Notes 3,8)
141
-128
Interest received
324
17
84
2022 audited consolidated annual report
Note 28. Shares of associates
At the end of reporting periods, the Group has ownership in the following associates:
Ownership and voting rights %
31.12.2022
31.12.2021
Hepsor P113 OÜ
45
45
Hepsor N170 OÜ
25
25
Financial information about associates:
in thousands of euros
31.12.2022
31.12.2021
Hepsor P113 OÜ
Hepsor N170 OÜ
Hepsor P113 OÜ
Hepsor N170 OÜ
Current assets
Cash and cash equivalents
919
2
218
373
Trade and other receivables
94
103
85
82
Current loan receivables
0
1,536
0
0
Inventories
0
160
6,991
6,591
Total current assets
1,013
1,801
7,294
7,046
Non-current assets
Investment property
13,100
0
0
0
Trade and other receivables
297
0
0
0
Total non-current assets
13,397
0
0
0
Total assets
14,410
1,801
7,294
7,046
Current liabilities
Loans and borrowings
158
0
0
5,534
Trade and other payables
286
2
1,034
1,595
Total current liabilities
444
2
1,034
7,129
Non-current liabilities
Loans and borrowings
12,165
0
6,198
0
Other non-current liabilities
228
0
147
0
Total non-current liabilities
12,393
0
6,345
0
Total liabilities
12,837
2
7,379
7,129
Total equity
1,573
1,799
-85
-83
Total liabilities and equity
14,410
1,801
7,294
7,046
The construction of commercial property development project by Hepsor P113 OÜ in Tallinn, Pärnu road 113 was completed in
the fourth quarter of 2022. The occupancy of the office building is 100%. As of 31 December 2022, the building was reclassified
as an investment property. The investment property is recorded at fair value. The fair value measurement was conducted by
Colliers International Advisors OÜ using the discounted cash flow method, the best method for income generating investment
property. The valuation is based on existing cash flows or cash flows based on market averages, the investment yield and the
appropriate discount rate, which takes into account the average expected yield of similar assets, taking into account the property's
location, technical condition, risk levels of tenants, etc. The valuation as at the end of 2022 was based on 6.3% yield and 7.7%
discount rate.
As of 31 December 2022, all 76 apartments and commercial space of 1,488 sqm in the project of an apartment building with
commercial space in Tallinn, Narva mnt 170 developed by Hepsor N170 OÜ have been sold under real right contracts.
85
2022 audited consolidated annual report
Note 29. Subsidiaries
Ownership and voting rights %
31.12.2022
31.12.2021
Location
Segment
Hepsor Finance OÜ
100
100
Estonia
Headquarter
Hepsor Tooma OÜ
100
100
Estonia
Commercial development
Hepsor Kadaka OÜ
100
100
Estonia
Residential development
Hepsor Phoenix OÜ
100
100
Estonia
Residential development
Hepsor Peetri OÜ
100
68
Estonia
Residential development
Hepsor V10 OÜ
100
100
Estonia
Residential development
Hepsor Latvia OÜ
80
80
Estonia
Headquarter
Hepsor L4 OÜ
100
100
Estonia
Commercial development
Hepsor P26 OÜ
100
51
Estonia
Residential development
T2T4 OÜ
50
50
Estonia
Commercial development
Hepsor Phoenix 2 OÜ
50
50
Estonia
Residential/ Commercial development
Hepsor Phoenix 3 OÜ
50
50
Estonia
Residential/ Commercial development
Hepsor PV 11 OÜ
100
100
Estonia
Residential development
Hepsor M14 OÜ
51
51
Estonia
Commercial development
Hepsor 3Torni OÜ
51
51
Estonia
Residential development
Hepsor N450 OÜ
100
100
Estonia
Residential/ Commercial development
H&R Residentsid OÜ
50
50
Estonia
Residential development
Hepsor Fortuuna OÜ
100
100
Estonia
Residential development
Hepsor A1 OÜ
100
100
Estonia
Residential development
Hepsor Phoenix 4 OÜ
50
-
Estonia
Residential development
Hepsor N57 OÜ
100
-
Estonia
Residential development
Hepsor Kanada OÜ
100
-
Estonia
Headquarter
Hepsor Kvarta Holding OÜ
40
-
Estonia
Headquarter
Hepsor Bal 9 OÜ
57
57
Estonia
Headquarter
Hepsor Bal 9 SIA
57
57
Latvia
Residential development
Hepsor Bal 7 SIA
100
100
Latvia
Residential development
Hepsor Agen24 SIA
100
100
Latvia
Residential development
Hepsor SIA
80
80
Latvia
Headquarter
Hepsor Marupe SIA
40
80
Latvia
Residential development
Hepsor U30 SIA
80
80
Latvia
Commercial development
Hepsor S4B SIA
100
100
Latvia
Residential/ Commercial development
Hepsor SA2 SIA
41
41
Latvia
Residential development
Hepsor RD 5 SIA
80
80
Latvia
Residential development
Hepsor U34 SIA
56
56
Latvia
Commercial development
Hepsor JG SIA
80
-
Latvia
Residential development
Hepsor Jugla SIA
80
-
Latvia
Residential development
Hepsor Ganibu Dambis SIA
80
-
Latvia
Commercial development
Kvarta SIA
40
-
Latvia
Residential development
Subsidiaries where the Group holds 50% ownership interest are consolidated based on, the assessment of the Management of
the Group that the Group effectively controls the subsidiary by virtue of managing the real estate development projects and/or
through a shareholder agreement.
86
2022 audited consolidated annual report
In 2022, the following changes took place in the structure of the Group:
✓ In February 2022, Hepsor Latvia OÜ sold its 50% shareholding in Hepsor Marupe SIA to the co-owners in accordance with the
shareholders’ agreement. Hepsor Marupe SIA is developing a project with 92 apartments in Marupe, Latvia, near the Riga
city boundary.
✓ In March 2022, Hepsor AS acquired a minority stake in Hepsor P26b OÜ and Hepsor Peetri OÜ increasing its stake in both
companies to 100%. The development projects of these entities ended in 2021.
✓ In January 2022, Hepsor Latvia OÜ acquired a 50% shareholding in Kvarta Holding OÜ in accordance with an option
agreement. Kvarta Holding OÜ owns a 100% shareholding in Kvarta SIA, which is developing Kuldigas Parks residential
development project with 116 apartments in Riga at Gregora 2a.
✓ In January Hepsor Latvia OÜ acquired a 100% shareholding in Hepsor Jugla SIA-s (former business name Brofits SIA). Hepsor
Jugla SIA is developing residential development with 100 apartments in Riga at Braila 23.
Purchase price allocation as of 31 December 2021:
in thousands of euros
Hepsor Jugla SIA
Kvarta Holding OÜ (consolidated)
Assets
Cash and cash equivalents
0
290
Trade receivables and prepayments
0
315
Inventories
240
3,108
Total assets
240
3,713
Liabilities
Trade and other payables
1
639
Loans and borrowings
161
3,074
Loans and borrowings to Group company
-161
-1,100
Total liabilities
1
2,613
Net assets
239
1,100
Acquisition cost
239
1,100
Goodwill
0
0
The acquisition cost of Kvarta Holding OÜ includes loan issued by Hepsor Latvia OÜ in the amount of 1,100 thousand euros.The
purchase price of shareholding in Hepsor Jugla SIA amounted to 239 thousand euros plus loan receivable in the amount of 161
thousand euros.
The Group established 5 new real estate development companies in 2022:
✓ On 20 January 2022, Hepsor Latvia OÜ established Hepsor Ganibu Dambis SIA, a subsidiary that is developing a commercial
property project in Riga.
✓ On 8 July 2022, Hepsor Latvia OÜ established Hepsor JG SIA, a subsidiary that will develop a three-story A energy class
residential building with 40 apartments at Jurmala Gatve street, Imanta district, Riga.
✓ On 24 August 2022, Hepsor AS established Hepsor Phoenix 4 OÜ, a subsidiary where the Group holds a 50% stake. Hepsor
Phoenix 4 OÜ acquired a property in Manufaktuuri Quarter to develop approximately 60 new apartments with its long-term
cooperation partner Tolaram Grupp.
✓ On 8 September 2022, Hepsor AS established Hepsor N57 OÜ to develop a residential building with 26 apartments on the
property at Nõmme tee 57 in Tallinn.
✓ On 18 November 2022, Hepsor AS established a subsidiary Hepsor Kanada OÜ to start the process of establishing a subsidiary
in Canada.
87
2022 audited consolidated annual report
Changes in Group structure in 2022 and impact on comprehensive income and cash flows:
in thousands of euros
Other comprehensive income
Cash flows from investing
activities
Comprehensive income
attributable to owners of the
parent
Comprehensive income
attributable to non-
controlling interest
Proceeds from sale of
subsidiaries
Changes related to the change of
ownership
Hepsor P26B OÜ
-85
85
-
Hepsor Peetri OÜ
-10
10
-
Hepsor Mārupe SIA
-18
153
135
Hepsor Ganibu Dambis SIA
-100
100
-
Hepsor SIA
-100
100
-
Hepsor Bal 9 SIA
68
-68
-
Hepsor JG SIA
-16
16
-
Hepsor U34 SIA
-28
28
Hepsor RD5 SIA
-16
16
Hepsor Jugla SIA
-129
-32
-
Total
-434
408
135
Changes in Group structure in 2021 and impact on comprehensive income and cash flows:
in thousands of euros
Cash flows from financing activities
Cash flows from financing activities
Owners of the parent
Non-controlling interest
Non-controlling interest
contributions to share capital
Reserves
Contributions to equity
Hepsor Latvia OÜ
0
10
10
190
Hepsor U34 SIA
0
60
60
0
Changes related to the
change of ownership
Hepsor Kadaka OÜ
66
-66
-
-
Hepsor Phoenix OÜ
-125
125
-
-
Hepsor V10 OÜ
90
-90
-
-
Hepsor Bal 9 OÜ
4
-4
-
-
Hepsor Bal 9 SIA
1
-1
-
-
Hepsor SA2 SIA
3
-3
-
-
Hepsor Marupe SIA
1
-1
-
-
Hepsor U30 SIA
1
-1
-
-
Hepsor SIA
27
-27
-
-
Total
68
2
70
190
88
2022 audited consolidated annual report
Note 30. Operating segments
The segment reporting is presented in respect of operating and geographical segments. .
The Group reports separately information about the following operating segments:
✓ residential real estate;
✓ commercial real estate;
✓ headquarters.
Revenues generated by headquarters are gained from the provision of project management services. All personnel expenses are
accounted in headquarters.
Geographical segments refer to the location of the real estate. The Group operates in Estonia and Latvia.
Segment reporting is presented on the basis of consolidated indicators, where all transactions between the Group’s companies
have been eliminated.
in thousands of euros
Residential development
Commercial development
Headquarters
Total
2022
Estonia
Latvia
Estonia
Latvia
Estonia
Latvia
Revenue
6,064
5,005
608
1,046
145
2
12,870
incl. revenue from rent
0
129
391
251
0
0
771
Operating profit
1,274
864
251
284
-1,594
-844
235
Assets
26,975
21,994
13,816
9,748
5,547
288
78,368
Liabilities
17,813
16,154
9,627
5,397
6,218
2,836
58,045
in thousands of euros
Residential development
Commercial development
Headquarters
Total
2021
Estonia
Latvia
Estonia
Latvia
Estonia
Latvia
Revenue
12,893
1,192
181
462
204
29
14,961
incl. revenue from rent
15
209
61
27
0
0
312
Operating profit
3,200
219
-5
23
-1,104
-453
1,880
Assets
22,859
6,707
10,640
3,515
8,827
2,797
55,345
Liabilities
16,853
3,893
6,693
1,735
4,991
2,143
36,308
89
2022 audited consolidated annual report
Note 31. Non-controlling interest
As of 31 December 2022, the Group had 21 (31.12.2021: 17) companies with non-controlling holding.
Company
Non-controlling interest and voting rights at %
Location
Segment
31.12.2022
31.12.2021
Hepsor Bal 9 OÜ
43
43
Estonia
Headquarter
Hepsor Bal9 SIA
43
43
Latvia
Residential development
Hepsor Peetri OÜ
-
32
Estonia
Residential development
Hepsor T2T4 OÜ
50
50
Estonia
Commercial development
Hepsor P26B OÜ
-
49
Estonia
Residential development
Hepsor Phoenix 2 OÜ
50
50
Estonia
Residential development
Hepsor Phoenix 3 OÜ
50
50
Estonia
Residential development
Hepsor M14 OÜ
49
49
Estonia
Commercial development
Hepsor 3 Torni OÜ
49
49
Estonia
Residential development
Hepsor SA2 SIA
59
59
Latvia
Residential development
Hepsor Latvia OÜ
20
20
Estonia
Headquarter
H&R Residentsid OÜ
50
50
Estonia
Residential development
Hepsor U34 SIA
44
44
Latvia
Commercial development
Hepsor RD5 SIA
20
20
Latvia
Residential development
Hepsor U30 SIA
20
20
Latvia
Commercial development
Hepsor SIA
20
20
Latvia
Headquarter
Hepsor Marupe SIA
60
20
Latvia
Residential development
Hepsor Phoenix 4 OÜ
50
-
Estonia
Residential development
Hepsor JG SIA
20
-
Latvia
Residential development
Hepsor Jugla SIA
20
-
Latvia
Residential development
Hepsor Ganibu Dambis SIA
20
-
Latvia
Commercial development
Kvarta Holding OÜ
60
-
Estonia
Headquarter
Kvarta SIA
60
-
Latvia
Residential development
90
2022 audited consolidated annual report
Financial information for subsidiaries with non-controlling interest:
in thousands of euros
*Project
status
Current
assets
Non-current
assets
Current
liabilities
Non-current
liabilities
Equity
Net profit for
the year
Comprehensive
income (-loss)
Company
Balance as of 31.12.2022
2022
Hepsor Bal 9 OÜ
-
156
3
169
0
-10
3
3
Hepsor Bal9 SIA
-
59
0
2
0
57
105
105
Hepsor T2T4 OÜ
C
1,458
0
0
1,449
9
-4
-4
Hepsor Phoenix 2 OÜ
C
3,424
0
50
3,348
26
29
29
Hepsor Phoenix 3 OÜ
B
4,429
0
18
4,346
65
-6
-6
Hepsor M14 OÜ
E, D
8,053
0
219
7,879
-45
32
24
Hepsor 3Torni OÜ
D
4,274
0
477
3,815
-18
-17
-17
Hepsor SA2 SIA
B
898
0
2
920
-24
-2
-2
Hepsor Latvia OÜ
-
4,314
5,775
1,031
8,012
1,046
94
94
H&R Residentsid OÜ
A
1,235
0
0
1,232
3
0
0
Hepsor U34 SIA
B
1,310
0
2
1,110
198
-2
-2
Hepsor RD5 SIA
B
591
0
20
516
55
-25
-25
Hepsor U30 SIA
E
4,633
0
4,350
0
283
31
31
Hepsor SIA
-
71
6
243
0
-166
-316
-316
Hepsor Marupe SIA
D
8,578
0
8,361
0
217
-30
-30
Hepsor Phoenix 4 OÜ
A
893
0
12
879
2
0
0
Hepsor JG SIA
B
417
0
0
337
80
0
0
Hepsor Jugla SIA
B
691
0
26
346
344
-2
-2
Hepsor Ganibu Dambis SIA
A
4,283
0
78
3,699
506
6
6
Kvarta Holding OÜ
-
3,175
0
3,175
0
0
0
0
Kvarta SIA
D
9,685
0
10,421
0
-736
-45
-45
in thousands of euros
*Project
status
Current
assets
Non-current
assets
Current
liabilities
Non-current
liabilities
Equity
Net profit for
the year
Comprehensive
income (-loss)
Company
Balance as of 31.12.2021
2021
Hepsor Bal 9 OÜ
-
530
240
783
0
-13
14
14
Hepsor Bal9 SIA
D
2,067
0
1,878
0
189
-44
-44
Hepsor Peetri OÜ
-
232
0
35
0
197
228
240
Hepsor T2T4 OÜ
C
1,300
0
0
1,286
14
11
11
Hepsor P26B OÜ
E
3,558
0
2,454
0
1,104
2,646
819
Hepsor Phoenix 2 OÜ
B
2,518
0
20
2,501
-3
-3
-3
Hepsor Phoenix 3 OÜ
B
3,399
0
33
3,296
70
69
69
Hepsor M14 OÜ
D
6,585
0
267
6,387
-69
-60
-60
Hepsor 3Torni OÜ
C
2,858
0
3
2,857
-2
-4
-4
Hepsor SA2 SIA
B
967
0
0
990
-23
0
0
Hepsor Latvia OÜ
-
2,165
4,338
1,386
4,165
952
-48
-48
H&R Residentsid OÜ
A
626
0
0
623
3
0
0
Hepsor U34 SIA
B
1,242
0
278
764
200
0,
0
Hepsor RD5 SIA
B
405
0
0
325
80
0
0
Hepsor U30 SIA
D
1,830
0
355
1,224
251
-44
-44
Hepsor SIA
-
131
10
472
0
-331
-213
-213
Hepsor Marupe SIA
C
771
0
35
489
247
-17
-17
In 2022, Hepsor Peetri OÜ paid out dividends in the amount of 29 thousand euros (2021: 64 thousand euros) to the non-controlling
interest.
91
2022 audited consolidated annual report
Project statuses are classified as following:
A – planning proceedings
B – building permit proceedings
C – building permit available / construction has not yet started
D – construction started / sale started
E – construction ready for sale
Note 32. Related parties
The Group considers key members of the management (supervisory and management board), their close relatives and entities
under their control or significant influence as well as associated companies as related parties.
Balances and transactions with related parties
in thousands of euros
31.12.2022
31.12.2021
Receivables
Loans granted (Note 9)
Associated companies
Opening balance 01.01
2,587
1,371
Loan granted
0
1,216
Repaid
-821
0
Balance at the end of period
1,766
2,587
Key members of the management and all companies directly or indirectly
owned by them
Opening balance 01.01
0
0
Loan granted
176
0
Repaid
-176
0
Balance at the end of period
0
0
Trade and other receivables
Key members of the management and all companies directly or indirectly
owned by them
208
12
Interest receivables
Associated companies
36
169
Payables
Loans and borrowings (Note 10)
Associated companies
Opening balance 01.01
0
0
Received
464
0
Repaid
-41
0
Balance at the end of period
423
0
Key members of the management and all companies directly or indirectly
owned by them
Opening balance 01.01
1,831
640
Received
80
1,691
Repaid
-28
-500
Balance at the end of period
1,883
1,831
Trade payables
Key members of the management and all companies directly or indirectly
owned by them
1,762
1,126
Interest payables
Associated companies
2
0
Key members of the management and all companies directly or indirectly
owned by them
167
70
92
2022 audited consolidated annual report
Purchases and sales of goods and services
in thousands of euros
2022
2021
Sales of goods and services
Associated companies
115
160
Key members of the management and all companies
directly or indirectly owned by them
159
65
Total sales of goods and services
274
225
Purchases of goods and services
Associated companies
46
0
Key members of the management and all companies
directly or indirectly owned by them
25,707
11,349
incl. construction service
25,467
11,160
Interest income earned
Associated companies
Interest earned
166
141
Interest received
313
0
Key members of the management and all companies
directly or indirectly owned by them
Interest earned
3
0
Interest received
3
0
Interest expenses incurred
Associated companies
Accrued interest
2
0
Interest paid
0
0
Key members of the management and all companies
directly or indirectly owned by them
Accrued interest
229
136
Interest paid
132
68
Note 33. Events after the reporting period
✓ In January 2023, Hepsor AS bought a minority stake in its subsidiary Hepsor Bal9 OÜ thus increasing its stake to 100%.
✓ Hepsor N57 OÜ, a subsidiary of Hepsor AS, signed a loan agreement with LHV Pank in the amount of 3.06 million euros to
finance the construction of the Lilleküla Kodud development project. The loan repayment deadline is in 2026.
✓ In January 2023, based on the decision of the Tallinn District Court, the lawsuit filed against Hepsor Phoenix 3 OÜ, where
the procurement of demolition works was disputed, was not satisfied.
✓ Hepsor RD5 SIA, Hepsor AS group company, and Mitt&Perlebach SIA signed a construction agreement on 16 March 2023 for
the construction of the Nameja Rezidence development project in Riga. The value of the construction agreement is
approximately 4.6 million euros excluding VAT.
✓ Hepsor Phoenix 2 OÜ, Hepsor AS group company, and LHV Pank OÜ signed 17.5 million loan agreement on 15 March 2023.
The purpose of the three-year loan is to finance the construction of Manufaktuuri 7 development project.
✓ Hepsor Phoenix 2 OÜ, Hepsor AS group company, and Mitt&Perlebach OÜ signed a construction agreement on 8 March
2023 for the construction of the Manufaktuuri 7 development project in the Manufaktuuri Quarter in Tallinn. The value of
the construction agreement is approximately 18.5 million euros excluding VAT.
93
2022 audited consolidated annual report
Note 34. Risk management
Risk management is part of the Group’s strategic planning and decision-making process. The Group is exposed to a number of
risks and uncertainties related to, among other factors, the business and financial risks. The materialisation of any such risks could
have a material adverse effect on the Group’s business, financial condition, results of operations and future prospects. The
Group’s risk management process is based on the premise that the Group’s success depends on constant monitoring, accurate
assessment, and effective management of risks. The Group’s management monitors the management of these risks.
Strategic risk
The Group’s strategic risks are risks that can significantly impact the execution of its business strategies and ability to achieve the
objectives. Such risks are impacted by changes in political environment and market demand as well as microeconomic
developments. While the risks can have negative impact on the Group’s business, they can also create new business opportunities.
The Group carefully selects the new development projects and monitors the market trends in order to adjust its strategy when
significant changes occur.
Market risk
Market risk is the risk arising from changes in the markets to which the Group is exposed. The main market risks are price risk and
interest rate risk. The Group is exposed to price risk resulting from a decrease in the market values of the group's real estate
development projects or a price increase due to a change in input prices. There can be no guarantee that the Group will be able
to sell its development projects in future with prices that are similar or higher than the expected market value of these projects.
The Group cannot ensure it is able to sell its development projects with expected prices could have an unfavourable impact on
the Group’s statement of financial position and may have a material adverse effect on the Group’s business, financial condition,
prospects and results of operations and execution of its strategy. For mitigating the market risk, the management of the Group
constantly monitors the changes and situation in the market when making development decisions.
The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group
actively uses external and internal borrowings to finance its real estate development projects in Estonia and Latvia. A project’s
external financing is either in the form of a bank loan, investor loan or loan from minority interest holders.
The interest rates of investor loans are usually fixed, ie interest rates are not floating and do not depend on Euribor.
The Group’s bank loans have both fixed and floating interest rates based on Euribor. Bank loans have 0% floor clause as protection
against negative Euribor meaning that in case of negative Euribor, Euribor is equalized to zero and the margin of such loans does
not decrease. The management constantly monitors the Group’s exposure to interest rate risk which arises from loans with
floating interest rates. Such risk is mainly related to the potential upward movement in Euribor as already warned by European
Central Bank. In 2022, the 6-month Euribor has increased by 2.69%, in 2021, the 6-month Euribor was negative.
in thousands of euros
31.12.2022
31.12.2021
Financial liabilities with fixed interest rate
18,451
18,393
incl. bank loan liabilities with fixed interest rate
13,430
981
Bank loan liabilities with floating interest rate
16,699
9,970
Total
48,580
28,363
For undrawn borrowings the Group is charged commitment fee, which is based on the average balance of the undistributed loan
amount thus having direct impact on the effective interest rate of the Group.
94
2022 audited consolidated annual report
Interest rate sensitivity
Increases in interest rates could adversely affect the Group's ability to cover interest costs from current cash-flows. The impact
to the Group’s profit would appear on the realisation year of each specific project.
If Euribor had been 50 basis points higher and all other variables were held constant, the Group's cash-flow need to cover interest
costs for the year ended 31 December would increase as follows:
in thousands of euros
31.12.2022
31.12.2021
Increase by 50 basis points
70
34
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations towards the Group under a financial instrument or customer
contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities such as trade receivables from
rental property and from its financing activities, including deposits with banks and other financial instruments.
In order to minimise credit risk, the Group is only dealing with creditworthy counterparties and deposits cash in banks well-
recognized banks in Estonia and Latvia. If such rating is not available, the Group uses other publicly available financial information
and its own trading records to rate its major customers.
The Group is in real estate development business and upon sale of completed property the Group enters into notarized agreement
with the buyer. Since most of the transactions are ensured either with money deposited in the notary's deposit account or a bank
loan, the Group is not exposed to material credit risk from trade receivables.
As at 31 December the following financial assets were exposed to credit risk:
in thousands of euros
2022
2021
Cash and cash equivalents
3,754
10,889
Trade and other receivables
728
91
Interest receivables
31
173
Escrow account
405
0
Current loan receivables
0
2,388
Non-current loan receivables
1,766
3,408
Total
6,684
16,949
As at 31 December the aging of trade receivables was as follows:
in thousands of euros
2022
2021
Current
666
46
Up to 2 months past due date
22
16
2-4 months past due date
4
10
More than 4 months past due date
16
8
Total
708
80
As at 31 March 2023, the completion date of current report, trade receivables in the amount of 73 thousand euros (31.03.2022:
31 thousand euros) were past the due date as at 31 December 2022.
95
2022 audited consolidated annual report
Liquidity risk
The Group’s liquidity represents its ability to settle its liabilities to creditors on time. A careful management of liquidity and
refinancing risks implies maintaining the availability of funding through an adequate amount of committed credit facilities. Due
to the nature of the Group’s business activities, the Group actively uses external and internal funds to ensure that timely resources
are always available to cover capital needs.
The Group manages liquidity risk by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles
of financial assets and liabilities. The Group mitigates refinancing risk by monitoring liquidity positions, analyzing different
financing options on an ongoing basis and negotiating with financing parties over the course of financing.
Group’s financial liabilities by maturity date:
in thousands of euros
up to 6 months
up to 12 months
1-5 years
Total
31.12.2022
Loan and lease liabilities
8,043
14,569
26,083
48,694
Trade payable
1,906
0
0
1,906
Other liabilities
1,996
105
2,290
4,391
in thousands of euros
up to 6 months
up to 12 months
1-5 years
Total
31.12.2021
Loan and lease liabilities
2,758
2,866
22,928
28,552
Trade payable
1,506
0
0
1,506
Other liabilities
3,091
942
1,053
5,086
Capital risk
The core purpose of the Group’s capital risk management is to ensure the most optimal capital structure to support the
sustainability of the Group’s business operations and shareholders’ interests. The Group finances its operations with both debt
and equity capital.
The Group uses the debt-to-equity ratio to monitor capital structure. The debt-to-equity ratio is calculated as the ratio of net debt
to total capital. The Group also monitors the ratio of equity and balance sheet volume.
The management considers the Group’s capital structure optimal.
in thousands of euros
2022
2021
Interest-bearing loan liabilities
48,628
28,379
Cash and bank accounts
3,754
10,889
Net debt (interest-bearing loan liabilities - cash and bank accounts)
44,874
17,490
Total equity attributable to owners of the parent
19,866
18,904
Total of net debt and equity (net debt + total equity attributable to owners of the parent)
64,740
36,394
Debt-equity ratio (net debt / net debt and total equity attributable to owners of the parent)
69%
48%
Total assets
78,368
55,345
Equity to total assets (equity / total assets)
25%
34%
96
2022 audited consolidated annual report
Note 35. Primary financial statements of the parent company
Pursuant to the Estonian Accounting Act, the information on the unconsolidated main financial statements of the consolidating
entity is disclosed in the notes to the consolidated financial statements. The main financial statements of the parent company
have been prepared using the same accounting and valuation principles as used in the preparation of the consolidated financial
statements, except for subsidiaries, which are accounted for in the parent company's separate unconsolidated financial
statements using the acquisition method.
Statement of financial position
in thousands of euros
31.12.2022
31.12.2021
Assets
Current assets
Cash and cash equivalents
156
3,110
Trade and other receivables
257
82
Current loan receivables
2,900
3,079
Inventories
15
20
Total current assets
3,328
6,291
Non-current assets
Property, plant and equipment
72
50
Investments in subsidiaries
1,636
1,629
Financial investments
2
2
Investments in associates
1,086
0
Non-current loan receivables
12,742
8,641
Other non-current receivables
1,204
598
Total non-current assets
16,742
10,920
Total assets
20,070
17,211
Liabilities and equity
Current liabilities
Current lease liabilities
9
11
Trade and other payables
86
67
Total current liabilities
95
78
Non-current liabilities
Loans and borrowings
5,494
4,026
Non-current lease liabilities
38
5
Total non-current liabilities
5,532
4,031
Total liabilities
5,627
4,109
Equity
Share capital
3,855
3,855
Share premium
8,917
8,917
Retained earnings
1,671
330
Total equity
14,443
13,102
Total liabilities and equity
20,070
17,211
97
2022 audited consolidated annual report
Statement of profit and loss and other comprehensive income
in thousands of euros
2022
2021
Revenue
35
25
Cost of sales (-)
-86
-91
Gross profit
-51
-66
Marketing expenses (-)
-24
-40
Administrative expenses (-)
-553
-359
Other operating income
43
31
Other operating expenses
-2
0
Operating profit of the year
-587
-434
Financial income
2,556
825
interest income
1,305
760
profit on the sale of a subsidiary
1,086
0
other financial income
165
65
Financial expenses (-)
-628
-405
interest expenses (-)
-492
-315
loss from associate (-)
0
-2
other financial expenses (-)
-136
-88
Profit before tax
1,341
-14
Deferred income tax
0
60
Net profit for the year
1,341
46
Other comprehensive income for the period
1,341
46
98
2022 audited consolidated annual report
Statement of changes in equity
in thousands of euros
Share capital
Share premium
Retained earnings
Total
Balance at 31.12.2020
6
3,211
435
3,652
Other comprehensive income for
the period
0
0
46
46
Increase of share capital
2,994
-2,994
0
0
Issue of shares
855
8,700
0
9,555
Dividends paid
0
0
-151
-151
Balance at 31.12.2021
3,855
8,917
330
13,102
Other comprehensive income for
the period
0
0
1,341
1,341
Balance at 31.12.2022
3,855
8,917
1,671
14,443
Adjusted unconsolidated equity
in thousands of euros
31.12.2021
31.12.2020
Parent company’s unconsolidated equity
14,443
13,102
Carrying amount of investments in subsidiaries and associates in the parent company’s
unconsolidated statement of financial position (-)
-2,722
-1,629
Value of investments in subsidiaries and associates under the equity method (+)
8,145
7,431
Parent company’s adjusted unconsolidated equity
19,866
18,904
At the general meeting of shareholders on 9 August 2021, it was decided to transform the private limited company (OÜ) into a
public limited company (AS) and to increase the share capital of the company. The shareholders decided to increase the share
capital to 3 million euros at the expense of the share premium.
On November 8, 2021, the general meeting of shareholders decided to list the shares of Hepsor AS on the main list of the Nasdaq
Tallinn Stock Exchange and to issue up to 854,701 shares at an offer price of 11.70 euros, of which 1 euro was the nominal value
and 10.70 was the share premium. The Group's shares were listed on the main list of the Nasdaq Tallinn Stock Exchange on
November 26, 2021.
99
2022 audited consolidated annual report
Statement of cash flows
in thousands of euros
2022
2021
Net cash flows from (to) operating activities
Operating profit of the year
-587
-434
Adjustments for:
Depreciation of property, plant and equipment
29
30
Profit from sale of property, plant and equipment
-18
0
Other adjustments
-1
-97
Changes in working capital:
Change in trade receivables
-23
-13
Change in inventories
5
0
Change in liabilities and prepayments
-13
-194
Cash flows from (to) operating activities
-608
-708
Net cash flows to investing activities
Payments of for acquisition of subsidiaries
-7
-7
Payments of for acquisition of financial investment
0
-2
Proceeds from sale of property, plant and equipment
25
0
Interest received
404
523
Loans granted
-8,562
-9,760
Loan repayments received
4,672
2,765
Other proceeds from investing activities
40
64
Cash flows to investing activities
-3,428
-6,417
Net cash flows from (to) financing activities
Net cash flow from issuing shares
0
9,555
Loans raised
1,575
4,885
Loan repayments
0
-4,723
Interest paid
-461
-315
Payments of finance lease principal
-26
-15
Dividends paid
0
-188
Other receipts from financing activities
-6
0
Cash flows from financing activities
1,082
9,199
Net cash flow
-2,954
2,074
Cash and cash equivalents at beginning of year
3,110
1,036
Increase / decrease in cash and cash equivalents
-2,954
2,074
Cash and cash equivalents at end of year
156
3,110
100
2022 audited consolidated annual report
Management Board’s confirmation of the
consolidated annual report
The Management Board confirms that the audited consolidated annual report for 2022, which is comprised of the Management
Report, Corporate Governance Report, Remuneration Report and Sustainability Report as set out on pages 4 to 49, provides a
true and fair view of the Group’s operations, financial position and results of operations and describe the significant risks and
uncertainties the Group faces.
The Management Board confirms that according to their best knowledge, the audited consolidated annual accounts for 2022 as
set out on pages 52 to 99 present a correct and fair view of the financial position, profit and loss and other comprehensive income
and cash flows of Hepsor AS. The consolidated annual accounts are prepared in accordance with International Financial Reporting
Standards as adopted by the European Union.
Hepsor AS Group is going concern.
The consolidated annual report of Hepsor AS for 2022 will be submitted for approval to the General Meeting of Shareholders in
May 2023.
Henri Laks
Member of the Management Board
/ sign digitally /
Tallinn, 28 April 2023
101
2022 audited consolidated annual report
Independent Auditor`s report
102
2022 audited consolidated annual report
103
2022 audited consolidated annual report
104
2022 audited consolidated annual report
105
2022 audited consolidated annual report
106
2022 audited consolidated annual report
107
2022 audited consolidated annual report
108
2022 audited consolidated annual report
109
2022 audited consolidated annual report
110
2022 audited consolidated annual report
111
2022 audited consolidated annual report
Profit allocation proposal
Retained earnings attributable to the owner of the parent of the Group:
in thousands of euros
31.12.2022
Retained earnings for prior periods as at 31 December 2021
6,132
Net profit for 2022
1,396
Formation of mandatory reserve capital
-385
Total distributable profit as at 31 December 2022
7,143
Henri Laks
Member of Management Board
/ signed digitally/
Tallinn, 28 April 2023