Liven AS - consolidated unaudited interim report for the II quarter
of 2024
Although there were no huge positive development leaps in the
operating environment, there were still some signs of renewed
optimism in the residential property market during the quarter.
During the second quarter, we signed 47 contracts under the law of
obligation (sales contract; 2024 Q1: 16; 2023 Q2: 12) and during
the first half of the year, we signed a total of 63 sales contracts
(2023: 19). Most of the new sales during the quarter came from the
start of signing sales contracts of apartments and new terraced
houses of phase II of Iseära development, and also the sales of
previously completed apartments of Luuslangi development. Liven's
market share of new sales in Tallinn and the surrounding area is
estimated to have been around 10% in the first half of 2024, up
from the 6-7% estimate of the previous two years.
The weekly sales ratio, which represents the
number of homes going out of supply under sales contract or paid
reservations, improved compared to the preceding quarters and
remined above the 1% mark throughout the period. By the end of
July, the ratio is approaching 2.0%. The long-term average is
considered to be 1.5-2.0%.
During the second quarter, we handed over a
total of 29 new homes in developments completed under the real
right contract (12 in 2023). Of these, 13 in the phase II of the
Iseära development, 10 were in phase I of the Luuslangi
development, 5 in phase II of the Uus-Meremaa development, and one
from the Magdaleena development. In the same order, the projects
also had an impact on the financial results of the second quarter.
Revenue for the quarter was EUR 8,546 thousand (Q2 2023: EUR 12,258
thousand) and net profit for the period was EUR 443 thousand (Q1
2023: EUR -431 thousand). The second quarter result was also
impacted by the income tax expense of EUR 169 thousand (2023: EUR
104 thousand) related to the payment of dividends.
In the first six months of the year, we have
delivered a total of 41 new homes (2023: 19), generated sales
revenue of EUR 12,045 thousand (2023: EUR 14,553 thousand) and a
net profit of EUR 293 thousand (2023: EUR -892 thousand).
Assets increased by EUR 5,250 thousand
during the quarter to EUR 72,801 thousand at the end of the period.
The greatest impact to the quarterly increase in the balance sheet
was from the EUR 6,200 thousand issue of publicly traded green
bonds quarter. During the quarter, we received new bank loans of
EUR 2,579 thousand to finance the construction of projects, but
together with home deliveries, we repaid EUR 5,437 thousand of
earlier construction loans. Total borrowings increased by EUR 4,392
thousand to EUR 43,737 thousand during the quarter. As the maturity
of construction loans approached, short-term borrowings increased
by EUR 5,120 thousand to EUR 10,053 thousand during the
quarter.
The balance of cash and cash equivalents
increased by EUR 5,528 during the quarter to EUR 8,530 at the end
of the quarter. Affected by the dividend payment during the quarter
the equity decreased by EUR 138 thousand to EUR 17,886
thousand by the end of the quarter.
Consolidated statement of financial
position
(in thousands of euros) |
30.06.2024 |
31.12.2023 |
30.06.2023 |
Current
assets |
|
|
|
Cash and cash
equivalents |
8,530 |
3,721 |
1,918 |
Trade and other receivables |
653 |
1,326 |
402 |
Prepayments |
617 |
321 |
1,186 |
Inventories |
60,785 |
62,112 |
57,265 |
Total current assets |
70,584 |
67,480 |
60,771 |
Non-current assets |
|
|
|
Investment property |
1,064 |
0 |
0 |
Property, plant and equipment |
404 |
388 |
211 |
Intangible
assets |
358 |
296 |
262 |
Right-of-use assets |
390 |
395 |
0 |
Total non-current assets |
2,217 |
1,079 |
473 |
TOTAL ASSETS |
72,801 |
68,559 |
61,244 |
Current
liabilities |
|
|
|
Borrowings |
10,053 |
17,106 |
1,108 |
Trade and other
payables |
8,814 |
9,121 |
7,893 |
Provisions |
1,570 |
2,384 |
0 |
Total current liabilities |
20,437 |
28,611 |
9,001 |
Non-current liabilities |
|
|
|
Borrowings |
33,684 |
21,328 |
35,051 |
Trade and other
payables |
753 |
469 |
815 |
Provisions |
41 |
29 |
5 |
Total non-current liabilities |
34,478 |
21,826 |
35,871 |
Total liabilities |
54,915 |
50,437 |
44,872 |
|
|
|
|
Equity |
|
|
|
Share
capital |
1,185 |
1,183 |
1,181 |
Share
premium |
9,405 |
9,339 |
9,250 |
Share option
reserve |
416 |
363 |
378 |
Own (treasury)
shares |
0 |
-1 |
-1 |
Statutory capital
reserve |
118 |
115 |
115 |
Retained earnings
(prior periods) |
6,468 |
6,347 |
6,342 |
Profit for the
year |
293 |
775 |
-892 |
Total
equity attributable to owners of the parent |
17,886 |
18,122 |
16,373 |
Total
equity |
17,886 |
18,122 |
16,373 |
TOTAL LIABILITIES AND EQUITY |
72,801 |
68,559 |
61,244 |
Consolidated statement of comprehensive
income
(in thousands of euros) |
2024 3 months
(April-June) |
2023 3 months
(April-June) |
2024 6 months
(January-June) |
2023 6 months
(January-June) |
Revenue |
8,546 |
12,258 |
12,045 |
14,553 |
Cost of sales |
-6,983 |
-12,079 |
-9,964 |
-14,315 |
Gross profit |
1,563 |
179 |
2,081 |
238 |
|
|
|
|
|
Distribution costs |
-376 |
-207 |
-651 |
-406 |
Administrative expenses |
-344 |
-299 |
-642 |
-618 |
Other operating income |
12 |
4 |
12 |
10 |
Other operating expenses |
-3 |
-4 |
-7 |
-4 |
Operating profit |
852 |
-327 |
793 |
-780 |
|
|
|
|
|
Finance income |
10 |
2 |
25 |
3 |
Finance costs |
-250 |
-2 |
-356 |
-11 |
Total finance income and finance costs |
-239 |
0 |
-331 |
-8 |
Profit before tax |
612 |
-327 |
462 |
-788 |
Income tax expense |
-169 |
-104 |
-169 |
-104 |
Net profit for the year |
443 |
-431 |
293 |
-892 |
Attributable to owners of the parent |
443 |
-431 |
293 |
-892 |
|
|
|
|
|
Comprehensive income for the year |
443 |
-431 |
293 |
-892 |
Attributable to owners of the parent |
443 |
-431 |
293 |
-892 |
|
|
|
|
|
Basic profit/loss per share |
0.037 |
-0.037 |
0.025 |
-0.076 |
Diluted profit/loss per share |
0.036 |
-0.036 |
0.024 |
-0.074 |
Similarly to the end of Q1 the customer satisfaction feedback
rating for the last 12 months, collected at different stages of the
customer journey, remained at 8.0 out of 10 by the end of the
quarter (Q2 2023: 8.9/10). The decline in feedback rating over last
year is primarily related to the delay in the completion of
construction and handover of homes at Magdalena and Iseära
phase I developments, the need to improve communication and
the quality of construction management. In 2024 the focus is on
increasing both the quantity and quality of customer feedback
assessments and in the first half of the year, we have already made
positive progress.
Key events in development
projects
During the quarter, the detailed spatial plan for Kadaka
tee 88 was adopted and will be publicly displayed until
the end of July. Construction of the Iseära phase
II apartment buildings started and the agreements for general
contracting and financing of the construction were signed for the
last 5 terraced houses of phase II in July. During the quarter, we
also signed an agreement for the long-term financing of the
commercial space in the Väike-Tallinn
development.
Annual General Meeting of
Shareholders
Liven AS held its Annual General Meeting of Shareholders on 19th
April. 28 shareholders attended at the meeting, forming 94,0% of
all the votes. Shareholders approved the annual report for the
financial year 2023, extended the authority of Andres Aavik and
Peeter Mänd as Supervisory Board Members, and approved the new
option program. Consequently, it was decided to preclude the
pre-emptive subscription rights of shareholders for the shares to
be issued under this program and give Liven AS the right to acquire
its own shares for exercising the option programs.
Additionally, the shareholders approved the
distribution of profits and payment of dividends in the amount of
EUR 635 thousand. According to the dividend policy, the amount of
dividends was 25% of the profit before income tax in 2023 (EUR 220
thousand), plus 12.5% of the profit before income tax in 2022 (EUR
416 thousand). In 2023, dividends were paid only on 12.5% of the
profit before income tax in 2022.
Public Offering of Green
Bonds
In May 2024, Liven AS held a public offering of green bonds to
finance the development of new and existing projects. The public
offering also allowed to increase the transparency of the company
and broaden the range of investors. The capital raised can only be
used by Liven to finance projects that meet the criteria outlined
in Liven's green financing framework. The offer and issuance of the
green bonds was organised by LHV Bank and the legal advisor was
Ellex Raidla law firm.
Liven offered a total of 4,000 unsecured green
bonds with a nominal value of EUR 1,000 per bond, maturing on 23
May 2028, with a fixed interest rate of 10.5% per annum, payable
quarterly. A total of 14,529 bonds were subscribed by the 2,819
investors who participated in the offer, representing a 3.63-fold
oversubscription. As a result of the oversubscription, Liven's
management board decided to increase the size of the offer up to
6,200 bonds, i.e. EUR 6,200 thousand.
Negotiations for the acquisition of a new
property, which started prior to the bond offer, are still ongoing
and it has not yet been possible to acquire a new property. We will
continue both the ongoing negotiations and the consideration of new
investment alternatives.
Significant developments in the economic
environment in the period under review
The 6-month
Euribor (Euribor), which peaked in autumn 2023 at 4.143%, has
fallen somewhat in 2024. Compared to the first quarter of 2024, the
Euribor remained stable in the second quarter, showing a slight
decrease and reaching 3.682% at the end of the period (31.03.2024:
3.851%). Since the reporting date, the Euribor has continued to
decline, reaching 3.591%.
At the Governing Council of the European Central
Bank in June 2024, it was decided to cut the base rate by 25 basis
points. The July meeting left the base rate unchanged, and while
the ECB President has not given any direct indication of the ECB's
future actions, the general expectation in the markets is that the
ECB will cut rates a further 1-2 times in the second half of
2024.
The main presumption for lowering Euribor rates
is declining inflation, and in Estonia, the consumer price
inflation rate continued to fall during the quarter. In the second
quarter of 2024, the annual inflation rate was 2.5% (Q1 2024:
3.9%).
According to the latest data from Statistics
Estonia, the estimated annual increase in average gross wages in
the second quarter (9.3%) exceeded the increase in prices. Despite
this, consumer confidence, which had remained low for a long time,
remained weak in the latest quarter. Consumers are more likely to
view the purchase of durable goods as a bargain in the next 12
months than they do now, leading to a general sentiment to continue
to be on hold and to delay purchasing decisions. Based on the July
data from the Institute of Economic Research, the consumer
confidence indicator has improved somewhat compared to Q1 2024, but
still remains at a low level (Q1 2024 average: -34; July 2024:
-28).
Despite the above, there were signs of
activation of home buyers in the market. For example, according to
the Land Statistical Office's transaction statistics, the volume of
secondary sales of apartments increased by 8.5% in the second
quarter compared to the previous quarter (Q2 2024: 1,486
transactions; Q1 2024: 1,370 transactions). There was also an
increase in the volume of transactions on the new developments
market.
Compared to the first quarter of 2024, the offer
prices of new developments remained stable in the second quarter of
2024, showing a decrease only of 0.5%. The number of transactions
on the market increased by 63% compared to the first quarter of
2024, being well above the sales performance in the second quarter
of 2023 (79%). The number of new listings was 46, which is compared
to the previous quarter.
Due to the completion of construction of several
development projects in spring 2024, the stock of unsold
ready-to-move-in apartments remained relatively high in the second
quarter, reaching 933 apartments by the end of the quarter (Q1
2024: 833; Q2 2023: 525). Consequently, options for homebuyers and
market competition remain high.
During the second quarter, around 513 apartments
were sold in new developments (based on market data), which is 63%
higher than in the previous quarter (Q1 2024: around 314). Compared
to the same period last year, the increase has been even higher (Q2
2023: ca 286).
The average price per square metre of a new
apartment in Tallinn was EUR 4,350 in Q2, showing an annual
increase of 4.8%. On a quarterly comparison, prices have remained
relatively unchanged, dipping by only 0.5%.
Outlook for the future
Despite some recovery
in the market during the second quarter, the main challenges in the
second half of 2024 and beyond will continue to be the impact of
the external factors on demand and sales. We expect the external
influences affecting the residential real estate sector to continue
to improve gradually, in particular falling interest rates and real
wage growth. Provided that the demand holds up or increases we are
ready to quickly bring new supply to the market.
We expect continued challenges and risk also
from all levels of the public sector, as part of the operating
environment. There have been positive developments in Tallinn's
planning procedures, but significant challenges still remain. We
look forward to the conclusion of several long-drawn-out procedures
either in 2024 or the first half of 2025. Planned increases in the
VAT and income taxation have negative impact on real estate
affordability in the coming years by simultaneously contributing to
increasing sales prices and reduction in personal income.
In real estate development, results are achieved
with a significant time lag and an increase in marketing expenses
in the periods preceding the sales growth. The results for 2024
will reflects the conditions and decisions of 2022 and 2023, when
construction work started on only a few projects and the cost base
was heavily affected by high inflation. To meet our 20% return on
equity target we need an annual revenue in excess of EUR 40
million. While we have the necessary capacity in our portfolio for
the coming years, we can deliver only up to 110 units in total this
year and consequently our revenue potential for 2024 will be at
approximately EUR 30 million. In the first half of the year, we
achieved revenue of EUR 12.0 million and delivered 41 homes, i.e
37% of the total potential. By the end of July, 54% of the total
potential.
With the decisions and actions undertaken in
2024, we will build on our economic performance in 2025 and 2026.
Achieving good results will require improvements in external
factors as well as internal efforts to reduce construction costs.
As a result of the developments in the Regati and Iseära projects,
we expect to see a significant improvement in financial performance
in 2025 and 2026. There is sufficient capacity in the development
portfolio for the next 3-4 years, but we continue to actively
negotiate and consider acquisition alternatives to increase the
development portfolio.
Joonas Joost
Liven AS CFO
E-mail: joonas.joost@liven.ee
- Liven 2024 Q2 interim report