PERFORMANCE HIGHLIGHTS

In 2019–2020, we ramped up our development portfolio multiplying the Company’s capitalization and improving its financial and operating performance.


FINANCIAL REVIEWAll financial results are based on the audited consolidated financial statements of JSC INTECO and its subsidiaries for the year ended 31 December 2020.

Despite the COVID-19 pandemic and construction suspended in 2020, the Company managed to improve its key metrics, increase supply by more than 40%, and expand contract sales by 59% in value terms.

As a result, revenue exceeded RUB 26 billion, EBITDA was above RUB 9 billion, and EBITDA margin came in at 34%. For 2020, leverage (net debt to EBITDA) went down to 0.46x.

INTECO was among the first players in the industry to switch to project financingUnder Federal Law No. 214-FZ On Participating in Shared-Equity Construction of Multi-Apartment Residences and Other Real Estate and Amending Certain Laws of the Russian Federation dated 30 December 2004.. In 2020, more than 90% of the Company’s portfolio was represented by projects financed through escrow accounts.

INTECO’s key metrics, RUB million
Metric 2019Including adjustments related to the spin-off of discontinued operations. 2020 2020 vs 2019 change, %
Revenue, including: 30,685 26,882 −12.4
from sales of real estate 30,083 26,400 −12.2
from sales of other products and services 602 482 −19.9
Cost of sales (21,232) (15,074) −29.0
Gross profit 9,453 11,808 24.9
Profit/(loss) from the change in fair value of investment property (44) 22 1.5x
Selling expenses (528) (789) 49.4
General and administrative expenses (1,967) (2,131) 8.3
Reversal of impairment of / (impairment loss from) accounts receivable (113) 35 1.3x
Other income 4,240 487 −88.5
Other expenses (158) (281) 77.8
Operating profit for the year 10,883 9,151 −15.9
Net finance costs (4,660) (3,308) −29.0
Finance income 124 522 4.2x
Finance costs (4,784) (3,830) −19.9
Profit before tax 6,223 5,843 −6.1
Income tax (58) (1,264) 21.8x
Total net profit for the year from continuing operations 6,165 4,579 −25.7
Profit after tax from discontinued operations 3,699 57 −98.5
Total net profit for the year 9,864 4,636 −53.0

In 2020, the Company’s revenue was down 12.4% year-on-year, totalling RUB 26.9 billion. This was mostly due to the methodology of accounting for revenue under IFRS 15, namely:

  • revenue from projects where shared-equity construction contracts underwent state registration before 1 January 2017 is recognised following the commissioning and signing of transfer and acceptance certificates for the real estate;
  • revenue from projects where shared-equity construction contracts underwent state registration after 1 January 2017 is recognised pro rata to the physical progress in project construction.

In 2019, a considerable share of the revenue (66%) came from the Sadovye Kvartaly housing estate (buildings 3.1–3.9), where sales were in progress before 1 January 2017. In line with the approved methodology, the entire revenue was recognised in 2019.

In 2020, the Company did not commission any projects with shared-equity construction contracts signed before 1 January 2017. As a result, in 2020, the entire revenue under these contracts was recognised during a certain period as the projects’ physical progress improved. These projects accounted for the bulk of the 2020 revenue (93%).

The Company’s gross profit delivered strong growth in 2020, driven by higher prices for housing under construction and start of sales of new projects in Moscow. This resulted in an improved gross margin.

Gross margin, %
Metric 2019Including adjustments related to the spin-off of discontinued operations. 2020 2020 vs 2019 change, pp
Gross margin from sales of real estate 30 44 14
Gross margin from sales of other products and services 46 60 14
Total gross margin 31 44 13

In 2020, the Company saw a marked decline in other income as compared to 2019 following the disposal of its subsidiary, SK Strategiya.

In 2020, income tax increased to RUB 1.3 billion due to deferred tax expenses. At the same time, profit before tax from discontinued operations was removed from the revenue sources due to the 2020 reorganisation of INTECO Group and disposal of subsidiaries (see below for details).

INTECO’s net profit for the year declined to RUB 4.6 billion, mostly on the back of the disposal of SK Strategiya in 2019 and dissolution of Patriot (see below) in 2020.

At the same time, EBITDA for 2020 added 4.6% year-on-year, driven by higher gross profit. EBITDA margin was up from 28.5% in 2019 to 34% in 2020.

EBITDA based on IFRS data, RUB million
Metric 2019 2020 2020 vs 2019 change, %
EBITDA 8,736 9,138 4.6
Profit before tax 6,223 5,843 −6.1
Depreciation of fixed assets in cost of sales 381
Depreciation and amortisation of fixed assets and intangible assets in general and administrative expenses and selling expenses 63 68 7.9
Finance costs 4,784 3,830 −19.9
Finance income (124) (522) 4.2x
Profit/(loss) from the change in fair value of investment property 44 (22) 1.5x
Reversal of impairment of / (impairment loss from) accounts receivable 113 (35) 1.3x
Income from disposal of a subsidiary (2,758)
(Gain)/loss from revaluation of fixed assets 10 (24) 3.4x
Consolidated cash flow statement, RUB million
Metric 2019 2020 2020 vs 2019 change, %
Cash flows from operating activities (1,962) (12,244) 5.2x
Inflows from operating activities 17,414 15,044 −14
Inflows from sales of real estate 15,305 13,825 −10
Other inflows 2,109 1,219 −42
Outflows from operating activities (19,376) (27,288) 41
Payments to suppliers (contractors) for raw materials, other materials, work and services (12,490) (22,302) 79
Salaries and wages (2,879) (2,594) −10
Selling expenses (773) (853) 10
General and administrative expenses (1,663) (711) −57
VAT paid to the budget (949) (597) −37
Other payments (622) (231) −65
Interest paid (2,106) (990) −53
Income tax payments (671) (96) −86
Net cash flows in operating activities (4,739) (13,330) 1.8x
Net cash flows from investment activities 2,168 358 −83
Disposals in investment activities (2,189) (2,145) −2
Loans issued (2,140) (2) 100x
Investments in fixed assets (48) (155) 2.2x
Net cash outflows from disposal of subsidiaries (1) (1,985)
Payments related to other investment activities (3)
Inflows from investment activities 4,357 2,503 −43
Repayment of loans issued 2,500 2,135 −15
Interest received 1,388 91 −93
Inflows from other investment activities 469 277 −41
Net cash flows from financing activities 3,315 13,897 3.2x
Disposals in financing activities (10,601) (10,273) −3
Repayment of loans and borrowings (10,601) (10,273) −3
Inflows from financing activities 13,916 24,170 74
Loans and borrowings 13,916 24,170 74
Cash and cash equivalents at the beginning of the year 2,196 2,940 34
Cash and cash equivalents at the end of the year 2,940 3,865 31
Net increase in cash and cash equivalents 744 925 24

Cash flows from operating activities do not include cash received by the authorised bank from escrow account holders that participate in shared-equity construction (i.e. that purchase real estate).

As at 31 December 2020, the balance in escrow accounts was RUB 22,541 million (compared to RUB 6,634 million as at 31 December 2019).

LEVERAGE

In 2020, the Company’s total loans and borrowings increased to RUB 30.6 billion, with considerable changes in the debt structure. The share of long-term funding and project financing was up, while short-term loans saw a pronounced reduction. The change in the metrics was driven by reclassification. In 2020, the Company repaid RUB 7.9 billion of bank loans (vs RUB 10.3 billion in 2019).

As at the end of 2020, the weighted average interest rate was 5.7%.

INTECO’s loans and borrowings, RUB million
Category 2019 2020 2020 vs 2019 change, %
Long-term
Total 5,571 28,556 5.1x
Promissory notes 400 35 −91,2
Unsecured bank loans and borrowings 1,986 1,235 −37,8
Project financing 3,185 13,481 4.2x
Secured bank loans 13,805
Short-term
Total 22,030 2,023 −90.8
Promissory notes 634
Unsecured bank loans and borrowings 2,690 1,756 −34.7
Project financing 2,839 56 −98
Secured bank loans 15,867 211 −98.6
Total loans and borrowings 27,601 30,579 10.8

After the reporting date, in January and February 2021, INTECO obtained credit facilities with limits of RUB 3.6 billion from National Bank TRUST and RUB 4.6 billion from Bank Otkritie Financial Corporation as part of the acquisition of the Sergeya Makeeva project.

In 2020, INTECO’s net debt (adjusted for the balances in escrow accounts) went down to RUB 4.2 billion. This was driven by higher receipts from the Group’s projects as a result of increased demand and higher selling prices. For 2020, net debt / EBITDA declined to 0.46x.

INTECO’s net debt, RUB million
Category 2019 2020 2020 vs 2019 change, %
Net debt
(adjusted for escrow accounts)
(18,027) (4,173) −76.9
Cash and cash equivalents 2,940 3,865 31.5
Escrow accounts of participants of shared-equity construction 6,634 22,541 3.4x
Long-term loans and borrowings (5,571) (28,556) 5x
Short-term loans and borrowings (22,030) (2,023) −90.8
Net debt metrics

DISPOSAL OF SUBSIDIARIES

In line with the strategic decision to focus on core competencies in real estate development in the Moscow segment, in September 2020, INTECO sold controlling stakes in JSC Patriot and its subsidiaries, which own projects KudroVO!, ZemlYAnino, Pyatiy Element, Angliyskiy Kvartal, and Leventsovka Park, to related parties. This move was driven by poor margins of regional businesses, high execution risks, small market capacity, and limited effective demand.

The transaction price is RUB 626 million payable in cash in 2021. In 2019 and 2020, the above companies generated revenue of RUB 6.7 billion and RUB 5.5 billion, respectively. As at the end of 2020, their total loans due stood at RUB 11.3 billion, while net asset value was RUB 2.5 billion. Following the recognition of the companies’ loans outstanding and receivables due to INTECO, the disposal generated a net gain of RUB 3.4 billion.

Projects disposed of by INTECO
Project Site area, ha Total area, thousand sq m Area of flats, thousand sq m Date of commissioning the last building
Pyatiy Element (Rostov-on-Don) 34.0 504.8 340.8 Q2 2023
Leventsovka Park (Rostov-on-Don) 23.7 326.9 210.0 Q2 2024
KudroVO! (Leningrad Region) 2.5 82.2 51.7 2021
ZemlYAnino (Leningrad Region) 2.5 29.5 18.3 2020