Hepsor — Interim / Quarterly Report 2023

Nov 1, 2023

Paevälja Hoovimajad, Paevälja 11/Lageloo 7, Tallinn

2023 III quarter and nine months consolidated unaudited interim report

Corporate name:	Hepsor AS
Commercial Register No:	12099216
Address:	Järvevana tee 7b, 10112 Tallinn
E-mail:	info@hepsor.ee
Telephone:	+372 660 9009
Website:	www.hepsor.ee
Reporting period:	01 January 2023-30 September 2023
Financial year:	01 January 2023-31 December 2023
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, Latvia and Canada. The Group entered the Latvian market in 2017 and has been operating under the same consolidating group since 2019. The Group entered the Canadian market in 2023.

Management Report 4
Overview of the Development Projects 7
Group Structure17
Main Events18
Operating Results 19
Adjusted Forecasts 22
Share and Shareholders24
Consolidated Financial Statements 26
Consolidated statement of financial position26
Consolidated statement of profit and loss and other comprehensive income 27
Consolidated statement of changes in equity 28
Consolidated statement of cash flows 29
Notes to the consolidated interim financial statement 30
Note 1. General information 30
Note 2. Inventories30
Note 3. Trade and other receivables32
Note 4. Loans granted 32
Note 5. Loans and borrowings33
Note 6. Trade and other payables35
Note 7. Other non-current liabilities35
Note 8. Embedded derivatives 36
Note 9. Contingent liabilities36
Note 10. Revenue 37
Note 11. Cost of sales37
Note 12. Marketing expenses37
Note 13. Administrative expenses37
Note 14. Personnel expenses 37
Note 15. Financial income and expenses 38
Note 16. Information about line item in the consolidated statement of cash flows 39
Note 17. Subsidiaries39
Note 18. Shares of associates40
Note 19. Operating segments41
Note 20. Related parties42
Note 21. Events after the reporting period 43
Note 22. Risk management 43
Management Board's Confirmation46

Management Report

PROJECT	Total number of apartments	Apartments sold*	Apartments sold %	Apartments available
Strelnieku 4b, Latvia	54	40	74%	14
Paevälja Courtyard Houses	96	83	85%	13
Kuldigas Parks, Latvia	116	114	98%	2
Marupes Darzs, Latvia	92	79	86%	13
Ojakalda Homes	101	30	30%	71
Lilleküla Homes	26	8	31%	18
Manufaktuuri 7	150	58	39%	92
Nameja Rezidence	38	10	26%	28
Total	673	422	63%	251
COMMERCIAL DEVELOPMENT PROJECTS IN PROCESS	Total rentable area m 2		Occupancy $m2$	Occupancy %
Büroo113 office building	4,002		431	11%
Grüne office building	3,430	3,430		100%
Manufaktuuri 7	453	О		0%
Total	7,885	3,861		49%

Started in 2022			Total under construction	Started in 2023
219	apartments	315	apartments	228	apartments
0 m 2	commercialarea		1453 m² commercial area		1453 m 2 commercialarea

Dear shareholders of Hepsor

Revenues

36 million euros Hepsor's consolidated revenue for the first nine months of 2023 amounted to 36 million euros, with a net profit of 4.8 million euros (including a share of 2.3 million euros for the parent company's owners). The consolidated revenue for the third quarter of 2023 was 15.5 million euros, and the net profit was 1.2 million euros (including a share of 0.5 million euros for the parent company's owners).

The Group's management revised the financial forecasts presented in 2022 for the financial years 2023-2024. We are increasing the profit forecast. While the previous forecast projected a net profit of 1.1 million euros for the Group's owners, the updated forecast now estimates it to be slightly over 1.5 million euros. We were also able to raise the profit forecast for 2024. Considering the complex situation in the real estate sector and the economic environment in general, this is a good result.

Completed development projects

During the first nine months of 2023, a total of 240 new homes were handed over to customers (number of real rights contracts).

Homes in Estonia were handed over to buyers in the following projects:

• The Paevälja courtyard house project started in 2022, and we constructed two apartment buildings with a total of 96 apartments. The first 40 apartments were handed over to buyers by the end of 2022. During the first nine months of 2023, we handed over 43 apartments to buyers. As of September 30, 2023, we have concluded real rights contracts for a total of 83 apartments (86%), and 13 apartments remain unsold.

The handover of homes to buyers continued in Latvia in the following projects:

• Under the Kuldigas Parks project, a total of 116 homes have been completed, and as of September 30, 2023, 114 real right contracts had been concluded for the sale of homes, and the homes had been handed over to new owners.
• Within the Mārupes Dārzs project, a total of 92 homes have been completed. As of September 30, 2023, 79 real right contracts had been concluded for the sale of homes, and these homes had already been handed over to buyers. In addition, by September 30, 8 contracts under law of obligations had been concluded.

Signing of real right contracts and the handover of homes in the Kuldigas Parks and

Mārupes Dārzs projects will continue in the fourth quarter of 2023, and we anticipate that by the end of the year, all apartments in these two projects will be sold. Additionally, in the first nine months, four apartments were sold in Latvia in the Strēlnieku 4b development project completed in 2020 (including 3 apartments in the third quarter).

In the commercial real estate segment, we sold the Ulbrokas 30 property with the StokOfiss 30 office building in Riga developed by Hepsor, and properties on Tooma Street in Tallinn in the second quarter. In addition, by the end of the second quarter, the environmentally friendly Grüne Maja in Tallinn was completed, with the last spaces handed over to tenants by the end of the period. As of the end of the third quarter, the office building is 100% covered with lease agreements. Regarding the associate company Büroo 113, Hepsor had to terminate the lease unilaterally in early September due to a breach of the lease agreement by the tenants, resulting in the availability of approximately 3,500 m2 of commercial space. Hepsor is already in negotiations with new tenants for the lease agreements. Interest in the vacant spaces in the building has proven to be greater than expected.

The Group's revenues and profitability are directly dependent on the development cycle of projects, which is approximately 24 to 36 months. Sales revenue is generated only 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.

The portfolio of the company's development projects and three-year average financial results are a better criteria for assessing the group's performance in order to assess the overall sustainability and economic results of a real estate development company.

240 new homes in 2023

Delivered

Due to differences in legislation, in Estonia, revenue from real estate sales is recognized upon the conclusion of the property rights agreement, while in Latvia, revenue from real estate sales is typically recognized after the entry in the Land Register and the transfer of possession, which may occur with a significant time delay after the conclusion of the property rights agreement.

Development projects under construction and available for sale

In 2023, Hepsor has four residential development projects with a total of 315 apartments under construction – Ojakalda Homes (101 apartments), Manufaktuuri 7 (150 apartments and 453 m2 of commercial space), Lilleküla Homes (26 apartments), and Nameja Residence (38 apartments). The completion of these projects is scheduled for 2024, and most of the revenue will also be recognized in 2024. However, as of September 30, 2023, contracts under law of obligations and written reservations have been made for a total of 106 apartments (34%) across these four projects. In the third quarter of 2023, the Annenhof development project started in Latvia with plans for 40 apartments. Pre-sales began in the same quarter, and construction is set to begin in the fourth quarter.

New projects

In August 2023, Hepsor acquired new properties in Latvia by purchasing 50% of the shares of SIA "Riga Properties 4." SIA "Riga Properties 4" has entered into a purchase agreement for two properties in the Dreilini area near Riga with the goal of developing the properties incrementally into 40,000 square meters of commercial space. These properties are in an attractive area, where IKEA store and SAGA shopping centre are already situated. In the planned development area, we aim to create a distinctive and environmentally conscious business complex, consisting of various function-based commercial spaces, including stock-office type office buildings.

Hepsor in Canada. Hepsor began developing its Canadian business line in the spring of 2022 after the start of the war in Ukraine with the aim of finding new growth opportunities and diversifying the geopolitical risks associated with the current home markets. Within a year, a network of cooperation has been built in Canada, from legal and financial advisors to banks, market analysis and brokerage companies.

• In June 2023, together with Canadian partners, a property suitable for residential development was purchased at 3406-3434 Weston Road. To develop the property, Weston Limited Partnership was founded, in which, in addition to Hepsor and its Canadian partners, various Canadian and European investors also participate. The goal of the first phase of the acquired development project is to increase the construction volumes of the property from 27,000 m² to ca 53,000 m² and to obtain construction rights for the creation of two apartment buildings. The land valuation phase is expected to take 2-2.5 years, after which Weston Limited Partnership will be able to decide whether the additional value created by that point will be realized through the resale of the property or whether the project will move on to the construction phase.
• In September 2023, an assembly of 3 properties was acquired in downtown Toronto at 164-168 Isabella Street together with Canadian partners. Elysium Isbella Limited Partnership was founded to develop the property, with participation from Hepsor and its Canadian partners, as well as various Canadian and European investors. The goal of the first phase of the acquired development project is to assemble the 3 properties and apply and achieve zoning approvals to permit a residential hi-rise tower on a podium, with a projected Gross Floor Area of ca 42 000 sq. meters (450,000 sq. ft). The assembly and zoning are expected to take 2-2.5 years, after which the Elysium Isabella Limited Partnership will be able to decide whether the additional value created by that point will be realized through the resale of the property or whether the project will move on to the construction phase.

In Conclusion,

the Hepsor Group remains profitable despite the persistently challenging economic environment, security crises, and rising interest rates. Consequently, the overall activity in the real estate market, both in Tallinn and Riga, is still less than desired. However, it is noteworthy that the sales figures for several Hepsor development projects have been quite impressive during the first nine months of 2023. We are also pleased that, despite global geopolitical and economic headwinds, we have increased the forecast of net profit of 2023 compared to the previous projection.

Overview of the Development Projects

As of 30 September 2023, the Group had 25 active projects in different development phases (30 September 2022: 27 projects) and 169,300 sqm of sellable area (30 September 2022: 180,000 sqm).

Significant changes in the development portfolio in the three quarters of 2023

• A total of 14,200 m² of homes were handed over to clients in completed projects.
• In Tallinn, Lasnamäe, the properties located at Tooma 2, Tooma 4 and Tooma 6 were sold, with an estimated saleable area of 10,528 m².
• A stock-office type commercial building with 3,642 m² of leasable area was sold in Riga was sold as part of the Hepsor U30 SIA shares sale transaction, which is located at Ulbrokas iela 30.
• In August, Hepsor Latvia OÜ made a capital contribution to Riga Properties 4 SIA, acquiring a 50% ownership stake in the company.
• In collaboration with Canadian partners, a residential development property was purchased in Toronto in June, located at 3406-3434 Weston Road.
• In collaboration with Canadian partners, three adjacent residential development properties were acquired in downtown Toronto at the address 164 – 168 Isabella Street.

Distribution of development portfolio between different development phases* (as of 30 September 2023):

^*Excluding Canadian projects

Distribution of development portfolio between countries and type* (as of 30 September 2023):

*Excluding Canadian projects

Development projects in Canada (as of 30. September 2023):

We are presenting Canadian projects separately, as Hepsor's participation in the initial Canadian projects is proportionally smaller than in the Estonian and Latvian projects, and the Canadian projects are reflected as financial investments. We are initially dealing with the land development process in Canada.

The goal of the first phase of the Weston Road project is to increase the construction volume of the property from 27,000 m2 to approximately 53,000 m2 and obtain the right to build two apartment buildings.

The goal of the first phase of the Isabella project is to merge three properties located at 164 - 168 Isabella Street in Toronto and plan a residential high-rise building on the newly formed property with a construction volume of approximately 42,000 m2.

Development projects in Tallinn (as of 30 September 2023)

Development projects in Riga (as of 30 September 2023)

Completed development projects (as of 30 September 2023):

Project: Address: Apartments: Project completed: Website:

Strēlnieku 4b
Hepsor S4B SIA
4b Strēlnieku St, Riga
54
2020
hepsor.lv/Strēlnieku4b

Project:	Paevälja Hoovimajad Hepsor PV11 OÜ
Address: Address: Address:	11 Paevälja, 7 Lageloo, Tallinn
Apartments:	96
Start of construction:	Q4 2021
Project completed:	I phase Q4 2022 II phase Q1 2023
Website:	hepsor.ee/paevalja/en

Project:	Kvarta SIA
Address:
Apartments:	116
Start of construction:	Q4 2021
Project completed:	Q2 2023
Website:

Kuldigas Parks Kvarta SIA 2a Gregora iela, Riga hepsor.lv/kuldigasparks/en/

Project:

Address: Apartments: Start of construction: Project completed: Website:

Mārupes Dārzs Hepsor Mārupe SIA 45 Liela, Mārupe, Riga area 92 Q2 2022 Q2 2023 hepsor.lv/Mārupesdarzs/en/

	Project:	Büroo 113 Hepsor P113 OÜ
	Address:	Pärnu mnt 113, Tallinn
	Leasable area:	4,002 m2
	Occupancy:	100%
	Project completed:	Q4 2022
	Website:	byroo113.ee/
	Project:	Grüne Büroo Hepsor M14 OÜ
	Address:	14 Meistri, Tallinn
	Leasable area:	3,430 m2
	Start of construction:	Q4 2020
	Project completed:	Q2 2023
	Website:	gryne.ee/en/

Residential development projects under construction (as of 30 September 2023):

Project:	Ojakalda Kodud Hepsor 3TORNI OÜ
Address:	Paldiski mnt 227c, Tallinn
Apartments:	101
Start of construction:	Q3 2022
Estimated completion:	Q2 2024
Website:	hepsor.ee/ojakalda

Project:	Lilleküla Kodud Hepsor N57 OÜ
Address:	Nõmme tee 57, Tallinn
Apartments:	26
Start of construction:	Q4 2022
Estimated completion:	Q1 2024
Website	hepsor.ee/lillekylakodud/en/

Project:	Manufaktuuri Quarter Hepsor Phoenix 2 OÜ
Address:	7 Manufaktuuri, Tallinn
Apartments:	154
Leasable area:	453 m2
Start of construction:	Q1 2023
Estimated completion:	Q4 2024
Website:	hepsor.ee/manufaktuur/m7 /en/

Project:

Address:	5 Ranka Dambis, Riga
Apartments:	38
Start of construction:	Q1 2023
Estimated completion:	Q2 2024
Website:	hepsor.lv/namejarezidence/
	en/

Nameja Rezidence Hepsor RD5 SIA

Development projects the construction of which starts in 2023 (as of 30 September 2023):

Project:	Hepsor JG SIA
Address:	Jurmalas Gatve/Imanta 8. linija, Riga
Apartments:	40
Est. start of construction:	Q4 2023
Estimated completion:	Q4 2024
Website:	https://hepsor.lv/annenhofmaj as/

Residential development projects under construction and available for sale (as of 30 September 2023):

Project	Status	Apartments	Apartments		Apartments %		Estimated completion
			Sold*	Available	Sold*	Available
4b Strēlnieku, Latvia	Completed	54	40	14	74%	26%	2020
Paevälja Hoovimajad	Completed	96	83	13	86%	14%	I phase Q4 2022 II phase Q1 2023
Kuldigas Parks, Latvia	Completed	116	114	2	98%	2%	Q2 2023
Mārupes Dārzs, Latvia	Completed	92	79	13	86%	14%	Q2 2023
Ojakalda Kodud	In construction	101	30	71	30%	70%	Q1 2024
Lilleküla Kodud	In construction	26	8	18	31%	69%	Q4 2023
Manufaktuuri 7	In construction	150	58	92	39%	61%	Q3 2024
Nameja Rezidence, Latvia	In construction	38	10	28	26%	74%	Q3 2024
Total		673	422	251	63%	37%

* Number of sold apartments includes paid bookings, contracts under law of obligation and real right contracts.

The Group started the construction of Manufaktuuri 7 commercial premises (453 sqm) and in the second quarter the last leasable premises were handed over to Grüne Maja tenants. No new commercial spaces will be under construction in the last quarter of 2023.

Occupancy of commercial development projects (as of 30 September 2023):

Project name	Rentable area sqm	Occupancy sqm	Occupancy %
Büroo113	4,002	431	11
Grüne Office	3,430	3,430	100
Manufaktuuri 7	453	0	0
Total	7,885	3,861	49

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.

Group Structure

As of 30 September 2023, the Group was comprised of parent company, 41 subsidiaries and one associated company (30 September 2022: parent company, 37 subsidiaries, 2 associated companies). Tatari 6a Arenduse OÜ, Weston Limited Partnership and Elysium Isabella Limited Partnership is reported as financial investments.

During the nine months of 2023 the following changes took place in the structure of the Group:

• ✓ On 23 January 2023, Hepsor Latvia OÜ acquired a 29% shareholding in Hepsor BAL9 OÜ bringing its shareholding in the subsidiary up to 100%. The share repurchase agreement was concluded in connection with the completion of the Balozu 9 residential development project in Riga.
• ✓ Hepsor Kanada OÜ established a subsidiary Hepsor Kanada SPV 1 OÜ in April. Hepsor Kanada SPV 1 OÜ in turn established a subsidiary in Canada, Hepsor SPV I Ltd.
• ✓ Hepsor Latvia OÜ, a subsidiary of Hepsor AS, sold the shares of Hepsor U30 SIA based on a sales contract signed on 10 May 2023.
• ✓ In August 2023, Hepsor AS acquired the minority shares, becoming the sole owner of Hepsor N170 OÜ.
• ✓ In August 2023, Hepsor Latvia OÜ acquired a 50% stake in the company SIA 'Riga Properties 4.'
• ✓ In June and September 2023, Hepsor's Canadian subsidiary, Hepsor SPV I Ltd, entered into partnership agreements for the development of the Weston and Isabella properties in Toronto.

Main Events

• ✓ 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.
• ✓ Hepsor Kanada OÜ established a subsidiary Hepsor Kanada SPV 1 OÜ in April. Hepsor Kanada SPV 1 OÜ in turn established a subsidiary in Canada, Hepsor SPV I Ltd.
• ✓ Hepsor Latvia OÜ's subsidiary Hepsor RD5 SIA and the Latvian branch of Bigbank AS signed a loan agreement in the amount of 4 million euros on 20 April 2023. The purpose of the three-year loan is to finance the construction of the Nameja Rezidence development project in Riga.
• ✓ Hepsor Latvia OÜ, a subsidiary of Hepsor AS, signed a share sales agreement Hepsor U30 SIA shares to East Capital Real Estate IV real estate fund on 10 May 2023. Hepsor U30 SIA owns a property located at Ulbrokas iela 30 in Riga, on which is located a stock-office type commercial building with 3,642 m2 of rental space developed by Hepsor called StokOfiss U30.
• ✓ On 10 May 2023 T2T4 OÜ and Hepsor Tooma OÜ, which are part of the Hepsor AS group, entered into a real rights purchase and sales agreement for the sale of 44,959 m² properties located at Tooma 2, Tooma 4 and Tooma 6 in Lasnamäe, Lasnamäe, of which 24,060 m2 was commercial land and the rest was public land.
• ✓ Hepsor's Canadian subsidiary, Hepsor SPV I Ltd, made its first investment in the Canadian real estate market in June, where, together with Canadian partners, a property suitable for residential development was purchased in Toronto, at 3406-3434 Weston Road.
• ✓ Hepsor AS subsidiary, Hepsor Latvia OÜ, signed a contract on August 25, 2023, to acquire a 50% stake in SIA 'Riga Properties 4.' SIA 'Riga Properties 4' has entered into purchase agreements for two properties near Riga, Latvia, with a total area of 74,314 square meters. Hepsor's partners in the development of these properties are Rīgas Īpašumu Fonds SIA and Venturecorp Property Holdings UAB.
• ✓ Hepsor AS's associate company, Hepsor P113 OÜ, with a 45% ownership stake, terminated its lease agreement with Novel Clinic Assets OÜ due to a significant breach of lease terms by the tenant. Hepsor is actively seeking new tenants for the vacated rental space (3,575 square meters).
• ✓ Hepsor AS's registered subsidiary in Canada, Hepsor SPV I Ltd, made its second investment in the Canadian real estate market on September 20, 2023. Together with Canadian partners, three adjacent properties suitable for residential development in downtown Toronto were purchased. A partnership named Elysium Isabella Limited Partnership was established to develop the property.

Operating Results

The Group's sales revenue in Q3 2023 was 15.5 million euros (Q3 2022: 1.7 million euros), of which 14.9 million euros (Q3 2022: 1.4 million euros) or 96.4% (Q3 2022: 86.2%) was earned in Latvia.

In nine months 2023, the Group`s sales revenue was 36.0 million euros (9M 2022: 5.6 million euros), of which 25.5 million euros (9M 2022: 5.0 million euros) or 71.7% (9M 2022: 96.4%) was earned in Latvia.

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.

In the first nine months of 2023 the Group sold a total of 240 apartments of which 43 apartments in Paevälja Hoovimajad development project, Paevälja 11, Tallinn and 197 apartments in Latvia, Riga in Kuldigas Parks development project, Gregora iela 2a 114 apartments were handed over to customers, in Mārupes Dārzs development project in Liela 45, 79 apartments were handed over to the customers and in Strelnieku 4b development project 4 apartments. In the second quarter, land plots at Tooma st 2, Tooma st 4 and Tooma st 6 were sold in Tallinn.

In addition to the sale of apartments, the Group also offers project management services and generates rental income from real estate. In the third quarter the total other sales revenue amounted to 392 thousand euros (Q3 2022: 317 thousand euros) or 2.5% (Q3 2022: 19.0%) of the Group's total sales revenue. In nine months, the Group earned other sales revenue in the amount of 1,275 thousand euros (9M 2022: 723 thousand euros), which was 3.5% (9M 2022: 12.7%) of the Group's total sales revenue.

Profitability

The gross profit of the third quarter of the Group was 2,033 thousand euros and the gross profit margin was 13.2% (Q3 2022: 320 thousand euros and 19.2%) and the gross profit for nine months was 6,824 thousand euros, the gross profit margin was 18.9% (9M 2022: 522 thousand euros and 9.3%). The gross profit was most affected by the higher number of sold apartments. The gross profit of development projects sold during the third quarter was 2,381 thousand euros (Q3 2022: 348 thousand euros) and gross profit margin was 15.8% (Q3 2022: 25.8%) and the gross profit of the sold development projects for nine months was 7,632 thousand euros (9M 2022: 634 thousand euros) and the gross profit margin was 22.0% (9M 2022: 12.9%).

The operating profit of the Group for the third quarter of 2023 was 1,585 thousand euros and the operating profit for nine months was 5,311 thousand euros (Q3 2022: operating loss 19 thousand euros and 9 months 2022: operating loss 519 thousand euros), the operating profit margin for the third quarter of the reporting year was 10.3% (Q3 2022: -1.1%) and the operating profit margin for nine months was 14.7% (9M 2022: -9.2%).

The net profit of the Group in the third quarter was 1,190 thousand euros (Q3 2022: 129 thousand euros), of which the profit of the owners of the parent company was 469 thousand euros (Q3 2022: 132 thousand euros) and the net profit of the minority interest was 721 thousand euros (Q3 2022: net loss 3 thousand euros). The net profit for the nine months of the reporting year was 4,778 thousand euros (9M 2022: net loss 129 thousand euros), of which the profit of the owners of the parent company was 2,272 thousand euros (9M 2022: net loss 141 thousand euros) and the net profit of the minority interest was 2,506 thousand euros (9M 2022: 12 thousand euros). The net profit margin was 7.7% in the third quarter of the reporting year and 13.3% in nine months (Q3 2022: 7.7% and 9M 2022: -2.3%). The profit margin of the owners of the parent company was 3.0% in the third quarter (Q3 2022: 7.9%) and 6.3% in nine months (9M 2022: -2.5%).

Balance Sheet

Total assets of the Group amounted to 85.8 million euros as of 30 September 2023 (30 September 2022: 74.3 million euros), which is 15.5% higher than at the end of the comparable period. Inventories made up 80.2% or 68.8 million euros of total assets (30 September 2022: 90.3% and 67.1 million euros). In the period from 01.10.2022 to 30.09.2023, the Group has purchased two new development projects: residential development project in Tallinn, Nõmme tee 57 and commercial development Smaidu, Dreilini, with which 26 new apartments and 23,500 m² commercial area were added to the development portfolio. In the second quarter of 2023, land plot at Tooma st 2, Tooma st 4 and Tooma st 6 in Tallinn and commercial development project in Riga Ulbrokas 30 were sold, which reduced the development portfolio by 14,170 m² . In the period 01.10.2022- 30.09.2023, the Group has sold 286 apartments with real rights contracts.

Cash and cash equivalents accounted for 8.2% or 7.1 million euros of the total assets as of 30 September 2023. As at 30 September 2022, cash and cash equivalents accounted for 4.2% or 3.1 million euros of total assets.

The Group's loan obligations totalled 49.0 million euros as at 30 September 2023, compared to 45.7 million euros as at 30 September 2022. The Group's equity increased by 21.9% over the year to 23.2 million euros. Equity attributable to the owners of the parent increased by 19,5% to 22.2 million euros.

Cash Flows

The Group's cash and cash equivalents amounted to 3.8 million euros at the beginning of 2023 (01.01.2022: 10.9 million euros) and to 7,1 million euros as at 30 September 2023 (30 September 2022: 3.1 million euros). The positive cash flow for the period was 3.3 million euros (9M 2022: negative 7.8 million euros).

Cash flow from operating activities for the first nine months of 2023 was positive at 6.3 million euros (9M 2022: negative 26.7 million euros). Cash flow from operating activities was mostly affected by the growth of operating profit and a decrease in inventories due to the sale of several development projects. Due to the change in inventories, the cash flow for the 9 months of 2023 was a positive 3.1 million euros. In the comparable period in 2022 inventories increased so the cash flow from changes in inventories was a negative 28.4 million euros.

Cash flow from investment activities was a negative 1.2 million euros in the first nine months of 2023 (9M 2022: positive 2.3 million euros). The net cash flow from the sale of the subsidiary Hepsor U30 SIA was 0.6 million euros. The financial investment in the Weston Road development project in Canada was 1.5 million euros. In the first nine months of the reporting year, the Group has granted loans of 0.3 million euros. In the comparable period, the net cash flow of granted loans was 1.9 million euros.

Cash flow from financing activities was negative at 2.0 million euros (9M 2022: positive 16.4 million euros). The net amount of loans received in nine months 2023 was 0.6 million euros (9M 2022: 17.4 million euros).

Key financials

in thousands of euros	Q3 2023	Q3 2022	Q3 2021	9M 2023	9M 2022	9M 2021
Revenue	15,458	1,668	3,072	36,048	5,622	6,946
Gross profit/-loss	2,033	320	571	6,824	522	1,155
EBITDA	1,632	16	272	5,452	-414	534
Operating profit/-loss	1,585	-19	236	5,311	-519	416
Net profit/-loss	1,190	129	148	4,778	-129	182
Incl net profit/-loss attributable to the owners of parent	469	132	-91	2,272	-141	-175
Comprehensive income/-loss	1,002	160	-177	2,871	24	-174
Incl comprehensive profit/-loss attributable to the owners of parent	441	184	-23	2,284	-375	-107

in thousands of euros	30.09.2023	30.09.2022	30.09.2021
Total assets	85,797	74,300	41,456
Incl inventories	68,807	67,118	35,925
Total liabilities	62,603	55,268	32,136
Incl total loan commitments	48,966	45,767	26,385
Total equity	23,194	19,032	9,320
Incl equity attributable to the owners of parent	22,150	18,529	9,196

Key Ratios

	Q3 2023	Q3 2022	Q3 2021	9M 2023	9M 2022	9M 2021
Gross profit margin	13.2%	19.2%	18.6%	18.9%	9.3%	16.6%
Operating profit margin	10.6%	-1.0%	8.9%	15.1%	-7.4%	7.7%
EBITDA margin	10.3%	-1.1%	7.7%	14.7%	-9.2%	6.0%
Net profit margin	7.7%	7.7%	4.8%	13.3%	-2.3%	2.6%
General expense ratio	2.9%	20.0%	11.3%	4.2%	18.6%	10.7%

	30.09.2023	30.09.2022	30.09.2021
Equity ratio	27.0%	25.6%	22.5%
Debt ratio	57.2%	61.7%	64.6%
Current ratio	6.2	2.5	4.6
Return of equity	29.5%	12.5%	22.6%
Return on equity attributable to the owners of the parent	18.7%	-3.8%	10.6%
Return on assets	7.8%	3.1%	5.0%

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

Adjusted Forecasts

The Group's management has decided to change the previously published financial forecasts for the financial years 2023 to 2024.

The main reason for adjusting the forecast is:

• The development projects that have already ended in 2023 and those that will end in the 2023 and 2024 financial years ensure higher profitability, compared to the previous financial forecast.

Consolidated forecasts for the 2023:

in thousands of euros	2023 Previous forecast	2023 Adjusted forecast	Change
Revenues	41,100	40,785	-315
Gross profit	7,020	7,656	636
Operating profit	5,260	5,589	329
Profit before taxes	4,010	4,276	266
Net profit	3,306	4,276	970
Net profit attributable to the owners of the parent	1,056	1,546	490

Key assumptions for the adjusted forecast for the 2023 financial year:

Project	Assumptions of the previous forecast	Assumptions of the adjusted forecast
Ulbrokas 30 stock office	Sold during financial year 2023.	In 2023, stakes of Hepsor U30 SIA were sold, the Group earned financial income.
Paevälja Hoovimajad	48 apartments will be sold during the financial year	44 apartments will be sold during the financial year.
Strelnieku 4B	Last 20 apartments sold; rental income earned before the apartments are sold.	8 apartments will be sold in 2023, the Group will earn rental income from unsold apartments.
Grüne Maja	Measured at fair value using DCF method. The Group earns rental income from the development project.	The Group earns rental income from the development project. The development project will be sold in 2024.
Ganibu Dambis	Rental income earned during the development of the project.	Rental income earned during the development of the project.
Kuldīgas Parks	All 116 apartments sold.	All 116 apartments sold.
Mārupes Dārzs	All 92 apartments sold.	All 92 apartments sold.
Büroo 113	The Group earns financial income with the equity method of accounting from associated company.	The Group receives a financial loss from the recognition of an associate using the equity method.
Lilleküla Kodud	-	8 apartments will be sold in 2023.
Land plots on Tooma 2/Tooma 4, Tallinn	-	In 2023, land plots at Tooma tn 2, Tooma tn 4 and Tooma tn 6 were sold in Tallinn

The adjusted consolidated forecast for the 2024 financial year:

In the previous forecast, we made two forecasts for 2024, one more conservative and the other more optimistic.

The corrected forecast we do on the assumption that the pace of sales of new homes in Group's development projects, both in Tallinn and Riga, will remain at today's average monthly level, i.e. based on the corrected forecast, Hepsor does not expect a significant increase in market activity.

in thousands of euros	2024 previous forecast	2024 previous optimistic forecast	2024 adjusted forecast	Change compared to previous forecast	Change compared to the previous, more optimistic forecast
Revenues	50,957	65,699	43,113	-7,844	-22,586
Gross profit	7,723	10,467	8,332	609	-2,135
Operating profit	5,795	8,539	6,189	394	-2,350
Profit before taxes	4,463	7,935	4,531	68	-3,404
Net profit	4,463	7,935	4,531	68	-3,404
Net profit attributable to the owners of the parent	1,594	3,766	2,478	884	-1,288

Key assumptions for the adjusted forecast for the 2024 financial year:

Project	Assumptions of the previous forecast	Assumptions of the previous optimistic forecast	Assumptions of the adjusted forecast
Lilleküla Kodud	All 26 apartments will be sold.	All 26 apartments will be sold.	The last 18 apartments will be sold.
Manufaktuuri Kvartal	92 apartments of total of 150 apartments will be sold.	123 apartments of total of 150 apartments will be sold.	120 apartments of total of 150 apartments will be sold.
Ojakalda Kodud	All 101 apartments sold.	All 101 apartments sold.	50 apartments of total of 101 apartments will be sold.
Nameja Rezidence	All 38 apartments sold.	All 38 apartments sold.	25 apartments of total of 38 apartments will be sold.
Grüne Maja	The Group earns rental income.	The Group earns rental income. The development project is sold in the end of 2024 financial year.	The Group earns rental income. The development project is sold in the end of 2024 financial year.
Büroo 113	The Group earns financial income with the equity method of accounting from associated company.	The Group earns financial income with the equity method of accounting from associated company. The development project is sold in the end of 2024 financial year.	The Group earns financial income with the equity method of accounting from associated company.
Strelnieku 4B	-	-	The last 12 apartments will be sold.

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 30 September 2023, Hepsor AS had 10,851 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 30 September 2023:

Number of shares	Number of shareholders	% of shareholders	Number of shares	% of shares
100 001-…	5	0.05%	3,000,000	77.83%
10 001-100 000	7	0.06%	228,235	5.92%
1001 -10 000	53	0.49%	152,429	3.95%
101-1000	816	7.52%	210,195	5.45%
1-100	9,970	91.88%	263,842	6.84%
Total	10,851	100.00%	3,854,701	100.00%

Between 1 January 2023 to 30 September 2023 a total of 5,641 transactions were conducted with the shares of Hepsor AS with 92,804 in the total amount of 801,077 euros. The highest transaction price in the period was 9.23 euros and the lowest was 7.9 euros. The market capitalization of Hepsor AS was 30.5 million euros as of 30 September 2023, and the equity of the Group amounted to 23.2 million euros.

30 Sept. 2023 30.5

Trading volume and price range of Hepsor AS shares, 12 months (1 October 2022 - 30 September 2023):

Source: Nasdaq Baltic

Change in Hepsor share price in comparison with the benchmark OMX Tallinn index, 12 months (1 October 2022 – 30 September 2023):

Source: Nasdaq Baltic

Consolidated Financial Statements

Consolidated statement of financial position

in thousands of euros	Note	30 September 2023	31 December 2022	30 September 2022
Assets
Current assets
Cash and cash equivalents		7,083	3,754	3,110
Trade and other receivables	3	5,578	1,731	1,596
Current loan receivables	4	311	0	100
Inventories	2	68,807	69,760	67,118
Total current assets		81,779	75,245	71,924
Non-current assets
Property, plant and equipment		193	232	230
Intangible assets		5	7	2
Financial investments	4	1,504	2	2
Investments in associates	18	384	1,086	209
Non-current loan receivables	4	1,766	1,766	1,766
Other non-current receivables		166	30	167
Total non-current assets		4,018	3,123	2,376
Total assets	19	85,797	78,368	74,300
Liabilities and equity
Current liabilities
Loans and borrowings	5	2,270	22,565	2,445
Current lease liabilities		26	46	33
Prepayments from customers		2,227	3,054	3,497
Trade and other payables	6	8,683	4,007	3,213
Total current liabilities		13,206	29,672	9,188
Non-current liabilities
Loans and borrowings	5	46,696	26,015	43,322
Non-current lease liabilities		68	68	66
Other non-current liabilities	7	2,633	2,290	2,692
Total non-current liabilities		49,397	28,373	46,080
Total liabilities	19	62,603	58,045	55,268
Equity
Share capital		3,855	3,855	3,855
Share premium		8,917	8,917	8,917
Reserve capital		385	0	0
Retained earnings		10,037	7,551	6,260
Total equity		23,194	20,323	19,032
incl. total equity attributable to owners of the parent		22,150	19,866	18,529
incl. non-controlling interest		1,044	457	503
Total liabilities and equity		85,797	78,368	74,300

Consolidated statement of profit and loss and other comprehensive income

in thousands of euros	Note	9M 2023	9M 2022	Q3 2023	Q3 2022
Revenue	10,19	36,048	5,622	15,458	1,668
Cost of sales (-)	11	-29,224	-5,100	-13,425	-1,348
Gross profit		6,824	522	2,033	320
Marketing expenses (-)	12	-399	-279	-131	-106
Administrative expenses (-)	13	-1,110	-764	-323	-227
Other operating income		112	47	30	0
Other operating expenses (-)		-116	-45	-24	-6
Operating profit (-loss) of the year	19	5,311	-519	1,585	-19
Financial income	15.1	1,129	849	83	282
Financial expenses (-)	15.2	-1,662	-454	-478	-142
Profit before tax		4,778	-124	1,190	121
Current income tax(-)		0	-5	0	0
Deferred income tax		0	0	0	8
Net profit for the year		4,778	-129	1,190	129
Attributable to owners of the parent		2,272	-141	469	132
Non-controlling interest		2,506	12	721	-3
Other comprehensive income (-loss)
Changes related to change of ownership	17	250	135	182	0
Change in value of embedded derivatives with minority shareholders	8	-2,157	18	-370	31
Other comprehensive income (-loss) for the period		-1,907	153	-188	31
Attributable to owners of the parent		12	-234	-28	52
Non-controlling interest		-1,919	387	-160	-21
Comprehensive income (-loss) for the period		2,871	24	1,002	160
Attributable to owners of the parent		2,284	-375	441	184
Non-controlling interest		587	399	561	-24
Earnings per share
Basic (euros per share)		0.59	-0.04	0.12	0.03
Diluted (euros per share)		0.59	-0.04	0.12	0.03

Consolidated statement of changes in equity

in thousands of euros		Attributable to equity owners of the parent
	Share capital	Share premium	Reserve capital	Retained earnings	Non controlling interests	Total equity
Balance of 31 December 2021	3,855	8,917	0	6,132	133	19,037
2022
Net profit/(-loss) for the year	0	0	0	-141	12	-129
Other comprehensive income/ (-loss) for the period	0	0	0	-234	387	153
Dividends paid	0	0	0	0	-29	-29
Balance of 30 September 2022	3,855	8,917	0	5,757	503	19,032
01 October – 31 December 2022
Net profit/(-loss) for the year	0	0	0	1,537	-77	1,460
Other comprehensive income/ (-loss) for the period	0	0	0	-200	31	-169
Balance of 31 December 2022	3,855	8,917	0	7,094	457	20,323
2023
Net profit/(-loss) for the year	0	0	0	2,272	2,506	4,778
Other comprehensive income/ (-loss) for the period	0	0	0	12	-1,919	-1,907
Reserve capital	0	0	385	-385	0	0
Balance of 30 September 2023	3,855	8,917	385	8,993	1,044	23,194

Consolidated statement of cash flows

in thousands of euros	Note	9M 2023	9M 2022
Net cash flows from (to) operating activities
Operating profit/(-loss) of the year	19	5,311	-519
Adjustments for:
Depreciation of property, plant and equipment		141	105
Other adjustments		25	37
Income tax paid		0	-5
Changes in working capital:
Change in trade receivables		-3,887	-984
Change in inventories	16	3,117	-28,403
Change in liabilities and prepayments		1,566	3,094
Cash flows from (to) operating activities		6,273	-26,675
Net cash flows to investing activities
Payments for property, plant and equipment		-17	-111
Payments for intangible assets		-2	0
Payments of for acquisition of subsidiaries		-3	-400
Payments of for acquisition of financial investment	4	-1,502	0
Proceeds from sale of subsidiaries	17	595	135
Interest received		24	317
Loans granted	4	-311	-176
Loan repayments received	4	0	2,026
Other receipts from investing activities		0	460
Cash flows to investing activities		-1,216	2,251
Net cash flows from (to) financing activities
Loans raised	5	26,064	22,367
Loan repayments	5	-25,435	-4,963
Interest paid	16	-2,467	-824
Payments of finance lease principal		-7	-8
Payments of right to use lease liabilities		-94	-81
Dividends paid		0	-29
Payments of for division of a subsidiary		0	-18
Other receipts from financing activities		-15	-41
Cash flows from financing activities		-1,954	16,403
Net cash flow		3,103	-8,021
Cash and cash equivalents at beginning of year		3,754	10,889
Cashflow in from acquisitions of subsidiaries	17	226	242
Increase / decrease in cash and cash equivalents		3,103	-8,021
Cash and cash equivalents at end of year		7,083	4,361

Notes to the consolidated interim financial statement

Note 1. General information

The Hepsor AS (hereinafter "the Group") consolidated unaudited interim report for 2023 Q3 and 9 months have been prepared in accordance with IAS 34 Interim Financial Reporting of International Financial Reporting Standards as endorsed in the European Union ("IFRS (EU)"). The Group has consistently applied the accounting policies throughout all periods presented, unless stated otherwise. The interim report for 2023 Q3 and nine months follow the same accounting principles and methods used in the 2022 audited consolidated financial statements. The current interim financial statements contain the audited financial results for 31.12.2022 and unaudited comparative figures for 2022 Q3 and 9 months.

The Group has not made any changes in their critical accounting estimates which may have impact on the consolidated unaudited interim financial statements for 2023 Q3 and nine months.

The Group has not made any changes in the valuation techniques applied for fair value measurement in 2023.

In 2023, the Group established a subsidiary in Canada, foreign currency transactions are recorded based on the foreign currency exchange rates of the European Central Bank prevailing at the dates of the transactions. Monetary financial assets and liabilities denominated in foreign currencies at the statement date are translated into euros based on the foreign currency exchange rates of the European Central Bank prevailing at the balance sheet date. Exchange rate differences from translation are reported in the income statement of the reporting period. The functional currency of subsidiaries located abroad is the currency of their business environment; therefore the financial statements of such subsidiaries are translated into euros for consolidation purposes; the asset and liability items are translated using the foreign exchange rates of the European Central Bank prevailing at the balance sheet date, income and expenses using the weighted average foreign exchange rates for the year and other changes in equity using the foreign exchange rates at the date at which they arose. Exchange rate differences arising from translation are reported in the equity.

Note 2. Inventories

Inventories are accounted as ready for sale development projects once the project has been granted usage permit. As at 30 September 2023, building permits has been issued to Gregora iela 2a and Strēlnieku 4b development projects in Riga, Liela 45 development project in Marupe and to Meistri 14 development project in Tallinn.

As of 30 September 2023, in ready for sale development projects the Group had 29 (31 December 2022: 26; 30 September 2022: 24) apartments which had not been handover to customers. 14 apartments in Strelnieku 4b, 13 apartments in Liela 45 and 2 apartments in Gregora iela 2a development projects.

In addition, a development project are ready for sale in Tallinn, Paevälja 11 for which a usage permit has not been issued. In Paevälja 11 project, as of 30 September 2023, there are 13 apartments unsold with real right contracts.

As of 30 Septembere 2023, the changes in inventories as stated in cash flow statements have been adjusted by loan interest expense. The capitalized loan interest amounted to 1,779 thousand euros (31 December 2022: 1,842 thousand euros; 30 September 2022: 1,478 thousand euros). Further information is provided in Note 16.

in thousands of euros	30 September 2023	31 December 2022	30 September 2022
A – planning proceedings	9,820	13,236	13,489
B – building permit proceedings	10,803	7,272	9,539
C – building permit available /construction not yet started	4,547	8,924	8,590
D – construction started / sale started	31,720	30,151	29,780
E – construction ready for sale	11,917	10,177	5,720
Total inventories	68,807	69,760	67,118

Project statuses are classified as following:

The following development projects are stated as inventories:

in thousands of euros				30 September 2023		31 December 2022		30 September 2022
Address	Project company	Location	Segment	Acquisition cost	Project status	Acquisition cost	Project status	Acquisition cost	Project status
Work in progress
Paevälja 11, Tallinn	Hepsor PV11 OÜ	Estonia	Residential	1,718	E	909	E	0	-
Paevälja 11, Tallinn	Hepsor PV11 OÜ	Estonia	Residential	0	-	5,585	D	8,877	D
Paldiski mnt 227C, Tallinn	Hepsor 3Torni OÜ	Estonia	Residential	12,309	D	3,482	D	2,984	C
Narva mnt 150, Tallinn	Hepsor N450 OÜ	Estonia	Residential/ Commercial	3,726	A	3,609	A	3,637	A
Manufaktuuri 5, Tallinn	Hepsor Phoenix 3 OÜ	Estonia	Residential/ Commercial	4,905	B	4,168	B	4,033	B
Manufaktuuri 7, Tallinn	Hepsor Phoenix 2 OÜ	Estonia	Residential/ Commercial	11,989	D	3,018	C	2,755	B
Tooma 2/Tooma 4 Tallinn	T2T4 OÜ	Estonia	Commercial	0	-	1,248	C	1,211	C
Lembitu 4, Tallinn	Hepsor L4 OÜ	Estonia	Commercial	3,056	C	2,954	C	2,890	C
Meistri 14, Tallinn	Hepsor M14 OÜ	Estonia	Commercial	0	-	3,193	D	7,181	D
Alvari 2, Paevälja 9, Tallinn	Hepsor Fortuuna OÜ	Estonia	Residential	1,657	A	1,657	A	1,657	A
Alvari 1, Tallinn	Hepsor A1 OÜ	Estonia	Residential	2,022	A	2,023	A	2,023	A
Kadaka Road 197, Tallinn	H&R Residentsid OÜ	Estonia	Residential	1,223	A	1,168	A	1,153	A
Manufaktuuri 12, Tallinn	Hepsor Phoenix 4 OÜ	Estonia	Residential	922	A	843	A	812	A
Nõmme tee 57, Tallinn	Hepsor N57 OÜ	Estonia	Residential	4,595	D	1,704	C	1,505	C
Saules alley 2, Riga	Hepsor SA2 SIA	Latvia	Residential	890	B	886	B	965	B
Liela 45, Mārupe	Hepsor Mārupe SIA	Latvia	Residential	0	-	7,766	D	5,539	D
Ranka Dambis 5, Riga	Hepsor RD5 SIA	Latvia	Residential	2,827	D	416	B	393	B
Ulbrokas 30, Riga	Hepsor U30 SIA	Latvia	Commercial	0	-	0	-	4,069	E
Ulbrokas 34, Riga	Hepsor U34 SIA	Latvia	Commercial	1,491	C	1,128	B	1,109	B
Braila 23, Riga	Hepsor Jugla SIA	Latvia	Residential	496	B	314	B	284	B
Gregora iela 2a, Riga	Hepsor Kvarta SIA	Latvia	Residential	0	-	10,125	D	8,183	D
Ganību Dambis 17a, Riga	Hepsor Ganību Dambis SIA	Latvia	Commercial	4,047	B	3,918	A	3,855	A
Jurmala Gatve, Riia	Hepsor JG SIA	Latvia	Residential	465	B	360	B	329	A
Smaidu, Dreilini	Riga Properties 4 SIA	Latvia	Commercial	252	A	0	-	0	-
-other properties		Estonia		18	A	18	A	23	A
Total work in progress				58,608		60,492		65,467
Ready for sale real estate development
Manufaktuuri 22, Tallinn (parking spaces)	Hepsor Phoenix OÜ	Estonia	Residential	16	E	16	E	16	E
Meistri 14, Tallinn	Hepsor Meistri 14 OÜ	Estonia	Commercial	7,637	E	4,026	E	0	-
Strēlnieku 4b, Riga	Hepsor S4B SIA	Latvia	Residential	884	E	1,106	E	1,635	E
Ulbrokas 30, Riga	Hepsor U30 SIA	Latvia	Commercial	0	-	4,120	E	0	-
Gregora iela 2a, Riga	Hepsor Kvarta SIA	Latvia	Residential	308	E	0	-	0	-
Liela 45, Mārupe	Hepsor Mārupe SIA	Latvia	Residential	1,354	E	0		0	-
Balozu 9, Riga	Hepsor Bal 9 SIA	Latvia	Residential	0	-	0	-	0	E
Total ready for sale real estate development				10,199		9,268		1,651
Total inventories				68,807		69,760		67,118

Note 3. Trade and other receivables

in thousands of euros	30 September 2023	31 December 2022	30 September 2022
Trade receivables
Trade receivables	1,480	718	174
Allowance for doubtful receivables	-1	-10	-12
Net trade receivables	1,479	708	162
Prepayments
Tax prepayment
Value added tax	3,526	317	418
Other taxes	13	1	15
Other prepayments for goods and services	500	279	996
Total prepayments	4,039	597	1,429
Other current receivables
Interest receivables	3	1	1
Other current receivables	57	20	4
Escrow account	0	405	0
Other current receivables	60	426	5
Total trade receivables	5,578	1,731	1,596

Note 4. Loans granted

The loan granted in the second quarter of 2023 to the Weston Road partnership in the amount of 1,467 thousand euros has been reclassified as a financial investment. As of 30.09.2023, the acquisition cost of the financial investment is 1,502 thousand euros.

in thousands of euros	Owner of non controlling interest	Unrelated legal entities	Related legal entities (Note 20)	Total
2023
Loan balance as of 31 December 2022	0	0	1,766	1,766
Loan granted	311	1,467	0	1,778
Reclassification as a financial investment	0	-1,467	0	-1,467
Loan balance as of 30 September 2023	311	0	1,766	2,077
- current portion	311	0	0	311
- non-current portion	0	0	1,766	1,766
contractual/effective interest rate per annum	3%	0%	7%
2022
Loan balance as of 31 December 2022	2,109	1,100	2,587	5,796
Loan granted	0	0	176	176
Loan collected	-29	-1,100	-897	-2,026
Division of subsidiary	-2,080	0	0	-2,080
Loan balance as of 30 September 2022	0	0	1,866	1,866
- current portion	0	0	100	100
- non-current portion	0	0	1,766	1,766
Loan balance as of 01 October 2022	0	0	1,866	1,866
Loan collected	0	0	-100	-100
Loan balance as of 31 December 2022	0	0	1,766	1,766
- non-current portion	0	0	1,766	1,766
contractual/effective interest rate per annum			7%-12%

Note 5. Loans and borrowings

in thousands of euros	Bank loans	Unrelated legal entities	Related legal entities (Note 20)	Total
2023
Loan balance as of 31 December 2022	30,129	16,145	2,306	48,580
Received	20,731	4,244	1,089	26,064
Repaid	-21,171	-2,764	-1,500	-25,435
Reclassification as a Group loan	0	0	-512	-512
Effective interest rate impact	0	-3	0	-3
Compound interest rate impact (Note 16)	0	272	0	272
Loan balance as of 30 September 2023	29,689	17,894	1,383	48,966
- current loan payable	400	620	1,250	2,270
- non-current loan payable	29,289	17,274	133	46,696
Contractual interest rate per annum	6M Euribor+3.75%-8%; 5.5%	0-12%	3%-12%
2022
Loan balance as of 31 December 2021	10,951	15,581	1,831	28,363
Received	18,639	3,728	0	22,367
Repaid	-2,811	-2,152	0	-4,828
Total loan balance as of 30 September 2022	26,779	17,157	1,831	45,767
- current loan payable	1,220	1,225	0	2,445
- non-current loan payable	25,559	15,932	1,831	43,322
Total loan balance as of 01 October 2022	26,779	17,157	1,831	45,767
Received	9,016	45	464	9,525
Repaid	-5,476	-1,164	-69	-6,709
Effective interest rate impact	-190	-247	75	-362
Compound interest rate	0	354	5	359
Total loan balance as of 31 December 2022	30,129	16,145	2,306	48,580
- current loan payable	17,040	3,352	2,173	22,565
- non-current loan payable	13,089	12,793	133	26,015
Contractual interest rate per annum	6M Euribor +3.75% -8%; 5.5%	0-12%	12%
Effective interest rate per annum	7.6%-12.3%	5.3%-12.2%	12.2%

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%,

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)

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.

As of 30 September 2023, 88% (31 December 2022: 89%; 30 September 2022: 88%) 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 30 September 2023
Loans for development projects	23,770	17,894	1,383	43,047
Loans to headquarters to finance development projects	5,919	0	0	5,919
Total	29,689	17,894	1,383	48,966
Balance as of 31 December 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 30 September 2022
Loans for development projects	21,178	17,157	1,831	40,166
Loans to headquarters to finance development projects	5,601	0	0	5,601
Total	26,779	17,157	1,831	45,767

As of 30 September 2023, 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	4,794	2024	4,900	6M Euribor+3.75%	Mortgage - Meistri 14, Tallinn	7,637	-
LHV Pank AS	Estonia	1,254	2025	1,300	6M Euribor+8%	Mortgage - Lembitu 4, Tallinn	3,056	-
LHV Pank AS	Estonia	6,360	2025	13,900	6M Euribor+5.9%	Mortgage - Paldiski mnt 227c, Tallinn	12,309	-
LHV Pank AS	Estonia	2,612	2026	3,006	6M Euribor+6.5%	Mortgage- Nõmme tee 57, Tallinn	4,594	-
LHV Pank AS	Estonia	3,462	2026	17,500	6M Euribor+8%	Mortgage- Manufaktuuri 7 and Manufaktuuri 12, Tallinn	11,988	-
Coop Pank	Estonia	1,285	2025	1,504	6M Euribor+6%	Mortgage- Paevälja 11, Tallinn	1,897	150
Bigbank AS	Latvia	362	2024	1,225	6M Euribor+4.5%	Commetcial pledge; Mortgage Strēlnieku 4b, Riga	884	-
Bigbank AS	Latvia	1,961	2025	2,000	6M Euribor+4.5%	Mortgage - Ganību dambis 17A Riga; Commetcial pledge	4,047	-
Bigbank AS	Latvia	1,680	2026	4,000	6M Euribor+5,2%	Mortgage- Ranka Dambis 5, Riga	2,827	1,200

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	Guaran tee given
LHV Pank	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	1254	2025	1,300	6M Euribor + 8%	Mortgage - Lembitu 4, Tallinn	2,953	-
LHV Pank AS	Estonia	0	2025	13,900	6M Eurobor+5.9%	Mortgage-Paldiski mnt 227C, Tallinn	3,477	-
Bigbank AS	Latvia	5,687	2025	7,000	5.5%	Mortgage – Liela 45, Mārupe, Riga	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	5,957	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 – Ganibu Dambis 17a, Riga, Commercial pledge	3,918	-

Commercial pledge 3,854

Lender	Country	Loan balance	Contract term	Loan limit	Interest per annum	Collateral	Cost value of the collateral	Guaran tee given
LHV Pank	Estonia	6,120	2023	8,605	6M Euribor + 4.5%	Mortgage - Paevälja pst 11, Lageloo 3//5, Lageloo 7, Tallinn	8,877	-
LHV Pank AS	Estonia	3,167	2024	4,900	6M Euribor + 4.75%	Mortgage - Meistri 14. Tallinn	7,181	-
LHV Pank AS	Estonia	1,225	2022	1,300	6M Euribor + 8%	Mortgage - Lembitu tn. 4, Tallinn	2,890	-
LHV Pank AS	Estonia	0	2025	13,900	6M Euribor+5.9%	Mortgage - Paldiski mnt 227c, Tallinn	2,984	-
Bigbank AS	Latvia	1,141	2024	1,225	6M Euribor + 4.5%	Commercial pledge; Mortgage - Strelnieku tn. 4b, Riga	1,634	-
Bigbank AS	Latvia	2,206	2025	7,000	5.5%	Mortgage - Liela 45, Marupe	5,539	-
Bigbank AS	Latvia	2,598	2024	2,650	5.5%	Mortgage - Ulbrokas 30, Riga, Commercial pledge	4,068	500
Bigbank AS	Latvia	4,721	2025	7,500	5.5%	Mortgage - Gregora 2a, Riga	8,183	423
Bigbank AS	Latvia	0	2025	2,000	6M Euribor+4.5%	Mortgage - Ganību dambis 17A, Riga,

As of 30 September 2022, the Group had the following bank loans under the following conditions:

Note 6. Trade and other payables

in thousands of euros	30 September 2023	31 December 2022	30 September 2022
Trade payables	3,443	1,906	1,800
Taxes payable
Value added tax	2,155	910	59
Personal income tax	19	28	18
Social security tax	34	51	32
Other taxes	29	5	26
Total taxes payable	2,237	994	135
Accrued expenses
Payables to employees	83	109	69
Interest payable (Note 16)	677	552	191
Other accrued expenses	37	35	34
Total accrued expenses	797	696	294
Other current payables
Embedded derivatives (Note 8)	2,165	8	0
Other payables	41	403	984
Total other current payables	2,206	411	984
Total trade and other payables	8,683	4,007	3,213

Note 7. Other non-current liabilities

in thousands of euros	30 September 2023	31 December 2022	30 September 2022
Non-current interest payables (Note 16)	1,995	1,652	2,031
Other non-current payables	638	638	661
Total other non-current liabilities	2,633	2,290	2,692

Note 8. 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.

in thousands of euros	30 September 2023	31 December 2022
Liabilities arising from embedded derivatives (Note 6)
Commercial development project in Tooma 2/Tooma 4, Tallinn	311	0
Residential development project in Gregora iela 2a, Riga	1,190	0
Residential development project inLiela 45, Marupe	664	0
Commercial development project in Meistri 14, Tallinn	0	8
Total	2,165	8

As of 30.09.2023, the Group had liabilities on the following development projects:

In 2023, the liability was reduced by 8 thousand euros through the other comprehensive income.

Note 9. Contingent liabilities

9.1 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 30 September 2023 to pay 13,667 thousand euros (31 December 2022: 12,904 thousand euros; 30 September 2022: 13,246 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 30 September 2023, the realization time of contingent liabilities remains between 2023 and 2027.

9.2 Based on the investor agreement signed in December 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.

9.3 Group guarantees given

Additional information on the guarantees is provided in Note 5.

Note 10. Revenue

in thousands of euros	9M 2023	9M 2022	Q3 2023	Q3 2022
Revenue from sale of real estate	34,773	4,899	15,066	1,351
Revenue from project management services	73	137	17	42
Revenue from rent	981	448	295	211
Revenue from other services	221	138	80	64
Total	36,048	5,622	15,458	1,668

Additional information on sales revenue is provided in Note 19.

Note 11. Cost of sales

in thousands of euros	9M 2023	9M 2022	Q3 2023	Q3 2022
Cost of real estate sold	-27,141	-4,265	-12,685	-1,003
Personnel expenses (Note 14)	-760	-551	-256	-199
Interest expenses (Note 15.2)	-459	-16	-242	0
Depreciation	-24	-24	-8	-8
Other costs	-840	-244	-234	-138
Total	-29,224	-5,100	-13,425	-1,348

Note 12. Marketing expenses

in thousands of euros	9M 2023	9M 2022	Q3 2023	Q3 2022
Personnel expenses (Note 14)	-89	-82	-31	-29
Depreciation	-35	0	-12	0
Other marketing expenses	-275	-197	-88	-77
Total	-399	-279	-131	-106

Note 13. Administrative expenses

in thousands of euros	9M 2023	9M 2022	Q3 2023	Q3 2022
Personnel expenses	-609	-456	-196	-150
Depreciation	-83	-81	-28	-27
Traveling and transport expenses	-66	-35	-19	-6
Purchased service expenses	-283	-166	-41	-44
Office expenses	-9	-24	-2	0
Other expenses	-60	-2	-37	0
Total	-1,110	-764	-323	-227

Note 14. Personnel expenses

in thousands of euros	9M 2023	9M 2022	Q3 2023	Q3 2022
Salaries	-1,050	-804	-333	-272
Social security and other payroll taxes	-408	-285	-150	-106
Total (Notes 11, 12, 13)	-1,458	-1,089	-483	-378

As of 30 September 2023, the Group employed 27 (30 September 2022: 26) people, including the members of Management and Supervisory Boards. 13 of these people worked in Estonia (30 September 2022: 13) and 14 in Latvia (30 September 2022: 13).

Gross fees paid to the members of Management and Supervisory Boards during the nine months of 2023 amounted to 271 thousand euros (9M 2022: 241 thousand euros).

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 the members of the Management Board and the Supervisory Board are also considered to be labour costs.

Note 15. Financial income and expenses

15.1 Financial income

in thousands of euros	9M 2023	9M 2022	Q3 2023	Q3 2022
Interest incomes	120	148	33	41
Incomes from the sale of subsidiaries	980	0	21	0
Profit from associates of equity method	0	209	0	209
Profit from exchange rate changes	29	0	29	0
Other financial incomes	0	460	0	0
Financial income from discounting	0	32	0	32
Total	1,129	849	83	282

In 2023, the Group earned 980 thousand euros from the sale of the subsidiary Hepsor U30 SIA to the East Capital Real Estate IV real estate fund, of which 595 thousand euros from this sale of shares and the realized profit was 385 thousand euros.

In first quarter 2022, the Group earned non-recurring financial income from waiver of minority shareholder's loan liability in the amount of 437 thousand euros.

15.2 Financial expenses

in thousands of euros	9M 2023	9M 2022	Q3 2023	Q3 2022
Interest expenses	-1,428	-413	-469	-136
Loss from associates of equity method (Note 18)	-183	0	-9	0
Loss from exchange rate changes	-36	0	0	0
Other financial expenses	-15	-41	0	-6
Total	-1,662	-454	-478	-142

In 2023 borrowing costs in the amount of 1,779 thousand euros (9M 2022: 1,478 thousand euros) have been capitalized as the cost of inventories. Interest expenses of 459 thousand euros have been recognized in the cost of sales in 2023 (9M 2022: 16 thousand euros). (Note 11).

Note 16. Information about line item in the consolidated statement of cash flows

in thousands of euros	30 September 2023	30 September 2022
Inventories
Reclassification of cash flows from operating activities to financing activities (Note 2)	1,779	1,478
Decrease (-)/ increase (+) of change inventories balances (Note 2)	953	-29,881
Realized profit from the sale of the subsidiary	385	0
Change in inventories	3,117	-28,403
Interest paid
Interest expense in statement of profit or loss and other comprehensive income	-1,428	-413
Reclassification of cash flows from operating activities to financing activities (Note 2)	-1,779	-1,478
Decrease (-)/ increase (+) of interest payables (Notes 6,7)	468	1,067
Compound interest rate impact (Note 5)	272	0
Interest paid total	-2,467	-824

Note 17. Subsidiaries

In January 2023 the Group acquired a minority stake in Hepsor Bal 9 OÜ, as a result of the transaction, Hepsor Latvia OÜ became the 100% owner of the company.

In May 10, 2023, Hepsor Latvia OÜ signed a sales agreement for shares of Hepsor U30 SIA with the real estate fund East Capital Real Estate IV. The debt-free value of the company agreed upon in the transaction is 5.2 million euros, from which the company's debt obligations, including bank loans and owner loans, are to be deducted.

In August 2023, Hepsor AS acquired a minority stake in Hepsor N170 OÜ, as a result of the transaction, Hepsor Latvia OÜ became the 100% owner of the company.

In August, Hepsor Latvia OÜ paid a share capital contribution to the share capital of Riga Properties 4 SIA, receiving a 50% stake in the company.

Changes in Group structure in 2023 and impact on comprehensive income and cash flow are following:

in thousands of euros		Other comprehensive income	Cash flow
	Comprehensive income attributable to owners of the parent	Comprehensive income attributable to non-controlling interest	Net cash flow from sale of subsidiary	Cashflow in from acquisitions of subsidiaries
Hepsor Bal 9 OÜ	-11	11	0	0
Hepsor Bal 9 SIA	-3	3	0	0
Hepsor U30 SIA	54	14	595	0
Riga 4 Properties SIA	-35	210	0	190
Hepsor N170 OÜ	7	0	0	36
Total	12	238	595	226

Note 18. Shares of associates

In August 2023, Hepsor AS acquired the majority stake in Hepsor N170 OÜ, becoming 100% owner of the company. The entry in the Commercial register was made on 21.08.2023.

At the end of reporting periods, the Group has ownership in the following associates:

		Ownership and voting rights %
	30 September 2023	31 December 2022	30 September 2022
Hepsor P113 OÜ	45	45	45
Hepsor N170 OÜ	-	25	25

Financial information about associates:

in thousands of euros	30 September 2023	31 December 2022		30 September 2022
	Hepsor P113 OÜ	Hepsor P113 OÜ	Hepsor N170 OÜ	Hepsor P113 OÜ	Hepsor N170 OÜ
Current assets
Cash and cash equivalents	475	919	2	635	345
Trade and other receivables	4	94	103	23	3
Current loan receivables	0	0	1,536	0	0
Inventories	0	0	160	11,875	1,512
Total current assets	479	1,013	1,801	12,533	1,860
Non-current assets
Investment property	13,100	13,100	0	0	0
Trade and other receivables	0	297	0	0	0
Total non-current assets	13,100	13,397	0	0	0
Total assets	13,579	14,410	1,801	12,533	1,860
Current liabilities
Loans and borrowings	51	158	0	3,924	650
Trade and other payables	5	286	2	1,417	387
Total current liabilities	56	444	2	5,341	1,037
Non-current liabilities
Loans and borrowings	12,165	12,165	0	7,120	0
Other non-current liabilities	293	228	0	151	0
Total non-current liabilities	12,458	12,393	0	7,271	0
Total liabilities	12,514	12,837	2	12,612	1,037
Total equity	1,065	1,573	1,799	-79	823
Total liabilities and equity	13,579	14,410	1,801	12,533	1,860

The construction of commercial property development project by Hepsor P113 OÜ in Tallinn, Pärnu road 113 was completed in the fourth quarter of 2022. As of 31 December 2022, the building was reclassified as an investment property. The investment property is recorded at fair value.

During the reporting period, the Group received loss from associate company, Hepsor P113 OÜ, by the equity method in the amount of 183 thousand euros (Note 15.2). In the statement of financial position as of 30 September, investment in associates is 384 thousand euros.

Note 19. 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.

Headquarters are generating revenue from 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, Latvia and Canada.

Revenue by geographical area:

in thousands of euros	9M 2023	9M 2022	Q3 2023	Q3 2022
Estonia	10,548	576	558	231
Latvia	25,500	5,046	14,900	1,437
Total	36,048	5,622	15,458	1,668

Additional information on sales revenue is provided in Note 10.

Segment reporting is presented on the basis of consolidated indicators, where all transactions between the Group companies have been eliminated.

in thousands of euros	Residential development			Commercial development				Headquarters		Total
9M 2023	Estonia	Latvia	Canada	Estonia	Latvia	Estonia	Latvia
Revenue	7,866	25,044	0	2,610	455	72	1	36,048
incl. revenue from rent	82	64	0	400	435	0	0	981
Operating profit/-loss	1,548	4,700	-8	1,199	262	-1,551	-839	5,311
Assets	44,613	12,322	2,241	14,150	7,602	4,710	159	85,797
Liabilities	34,167	7,712	2	10,224	3,302	6,167	1,029	62,603

in thousands of euros	Residential development		Commercial development	Headquarters		Total
9M 2022	Estonia	Latvia	Estonia	Latvia	Estonia	Latvia
Revenue	80	4,297	355	748	141	1	5,622
incl. revenue from rent	0	108	252	88	0	0	448
Operating profit/-loss	-19	837	49	206	-1,011	-581	-519
Assets	30,311	19,080	11,398	9,709	3,347	455	74,300
Liabilities	21,924	13,179	7,727	3,127	6,508	2,803	55,268

in thousands of euros		Residential development		Commercial development		Headquarters		Total
Q3 2023	Estonia	Latvia	Canada	Estonia	Latvia	Estonia	Latvia
Revenue	366	14,803	0	176	96	16	1	15,458
incl. revenue from rent	29	20	0	150	96	0	0	295
Operating profit/-loss	-55	2,165	-1	160	60	-464	-280	1,585
Assets	44,613	12,322	2,241	14,150	7,602	4,710	159	85,797
Liabilities	34,167	7,712	2	10,224	3,302	6,167	1,029	62,603

in thousands of euros	Residential development		Commercial development		Headquarters		Total
Q3 2022	Estonia	Latvia	Estonia	Latvia	Estonia	Latvia
Revenue	21	852	164	584	46	1	1,668
incl. revenue from rent	0	31	106	74	0	0	211
Operating profit/-loss	18	227	16	251	-325	-206	-19
Assets	30,311	19,080	11,398	9,709	3,347	455	74,300
Liabilities	21,924	13,179	7,727	3,127	6,508	2,803	55,268

Note 20. 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 related parties.

Balances and loan transactions with related parties:

In thousands of euros	30 September 2023	31 December 2022	30 September 2022
Receivables
Loans granted (Note 4)
Associated companies
Opening balance 01. January	1,766	2,587	2,587
Loans granted	0	0	0
Loans repaid	0	-821	-721
Balance at the end of period	1,766	1,766	1,866
Management and all companies directly or indirectly owned by
them Loans granted	0	176	176
Loan collected	0	-176	-176
Trade and other receivables
Management and all companies directly or indirectly owned by	176	208	31
them Associated companies	2	0	0
Interest receivables
Associated companies	128	36	5
Management and all companies directly or indirectly owned by	0	0	0
Payables
Prepayments from customers
Management and all companies directly or indirectly owned by	560	0	0
Loans and borrowings (Note 5)
Associated companies
Opening balance as at 01. January	423	0	0
Loans received	89	464	0
Loans repaid	0	-41	0
Reclassified as a Group loan	-512
Balance at the end of period	0	423	0
Management and all companies directly or indirectly owned by
them Opening balance as at 01. January	1,883	1,831	1,831
Loans received	1,000	80	0
Loans repaid	-1,500	-28	0
Balance at the end of period	1,383	1,883	1,831
Trade payables
Management and all companies directly or indirectly owned by	3,372	1,762	759
them Interest payables
Associated companies	0	2	0
Management and all companies directly or indirectly owned by	58	167	154

Purchases and sales of goods and services:

in thousands of euros	9M 2023	9M 2022	Q3 2023	Q3 2022
Sales of goods and services
Associated companies	47	114	9	34
Management and all companies directly or indirectly owned by them	161	58	62	24
Total sales of goods and services	208	172	71	58
Purchases of goods and services
Management and all companies directly or indirectly owned by them	26,034	19,027	10,449	6,650
incl. construction service	25,441	18,899	9,966	6,607
Interest income earned
Associated companies
Interest earned	92	134	31	44
Interest received	0	311	0	311
Management and all companies directly or indirectly owned by them
Interest earned	0	3	0	0
Interest received	0	3	0	3
Total interest income earned	92	137	31	44
Interest expenses incurred
Associated companies
Accrued interest	9	0	2	0
Management and all companies directly or indirectly owned by them
Accrued interest	141	171	44	58
Interest paid	250	87	19	26

Note 21. Events after the reporting period

In October 2023, Hepsor AS established a subsidiary company Hepsor VT49 OÜ with a 50% stake.

Note 22. 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

The Group is exposed to price risk resulting from decline in the market values of the Group's real estate development projects or increase 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. At present it is not possible to assess the extent of any such potential changes.

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 or investor loan from minority interest holders denominated in Euro.

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. The management constantly monitors the Group's exposure to interest rate risk which arises from upward movement in Euribor for loans with floating interest rates.

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 minimize credit risk, the Group is only dealing with creditworthy counterparties and deposits cash in banks wellrecognized 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.

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.

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 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 management considers the Group's capital structure optimal.

Currency risk

The Group's activities are mainly carried out in the currency of the economic environment of the companies - in Estonia and Latvia in euros (EUR) and in Canada, in Canadian dollars (CAD). The Group's currency risk arises from the translation of the functional currency of the Canadian subsidiary into the Group's functional and presentation currency. In order to mitigate currency risks, the Group concludes as many contracts as possible in euros. The majority of intra-group transactions are carried out in euros. The growth of business in Canada leads to the Group's exposure to currency risks. The net loss from exchange rate changes for the nine months of 2023 was 7 thousand euros. As of 30.09.2023, the Group is not significantly exposed to currency risks, and therefore the Group has not used instruments to hedge currency risks.

Geopolitical risk

Russia's military invasion and attack on Ukraine's independence, which began on 24 February 2022, is affecting businesses around the world and the length, impact and outcome of the ongoing military conflict remain unclear. The initial effects of the war have partially subsided – commodity prices have stabilized as a result of the development of new supply chains, energy prices and inflation are also returning to previous levels however, as a negative effect, economic growth has slowed down, and we expect the monetary policy tightened by central banks to continue for a longer period. Although the economic environment is stabilizing, there is still the risk of an escalation of a military conflict, which can have a wide impact on the Group daily activities if the risk materializes.

Management Board's Confirmation

The Management Board confirms that the unaudited interim report for III quarter and nine months of 2023, which is comprised of the management report and the interim financial statements, provides a true and fair view of the Group's operations, financial position and results of operations, and describes the significant risks and uncertainties the Group faces.

Henri Laks Member of Management Board Tallinn, 31 October 2023