In 2019–2020, we ramped up our development portfolio multiplying the Company’s capitalization and improving its financial and operating performance.
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
|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|
|Profit/(loss) from the change in fair value of investment property||(44)||22||1.5x|
|General and administrative expenses||(1,967)||(2,131)||8.3|
|Reversal of impairment of / (impairment loss from) accounts receivable||(113)||35||1.3x|
|Operating profit for the year||10,883||9,151||−15.9|
|Net finance costs||(4,660)||(3,308)||−29.0|
|Profit before tax||6,223||5,843||−6.1|
|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 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.
|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|
|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|
|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|
|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|
|General and administrative expenses||(1,663)||(711)||−57|
|VAT paid to the budget||(949)||(597)||−37|
|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|
|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|
|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).
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%.
|Unsecured bank loans and borrowings||1,986||1,235||−37,8|
|Secured bank loans||—||13,805||—|
|Unsecured bank loans and borrowings||2,690||1,756||−34.7|
|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.
|Net debt |
(adjusted for escrow accounts)
|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|
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.
|Project||Site area, ha||Total area, thousand sq m||Area of flats, thousand sq m||Date of commissioning the last building|
|Pyatiy Element ||34.0||504.8||340.8||Q2 2023|
|Leventsovka Park ||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|