UAB "ORKELA"
Company code: 304099538, Jogailos st. 4, Vilnius
The Company’s Financial Statements 31 December 2023
(all amounts presented in EUR unless otherwise indicated)
20
support to the extent economically justified to ensure the continuity of the Company’s operation and the fulfillment of financial and
legal obligations.
The main risks faced by the Company are:
• Construction costs and risks to Project success. At the outset of the Project, completion of construction works by the end
of 2023 was anticipated. However, a change in the Project development scenario (from a hotel/school complex to educational
institutions with integrated services and back to a hotel/school complex) resulted in a delay in construction works, necessitating
a revision of the construction schedule. The completion of the Project may be further delayed due to the termination of the lease
agreement. As a result of these events, the Company reviewed the Project's development scenario and construction schedule.
According to the revised Project development scenario, the Project premises will accommodate educational institutions (such
as kindergartens and/or primary and/or secondary schools), office and commercial spaces, a hotel including several restaurants
and cafes, and an underground car park. Based on the revised construction schedule, project completion is expected around
the end of 2024. However, additional delays in project completion can be expected due to additional design works that may
impact the Project's construction schedule. Furthermore, as the Company has transitioned to a multi-tenant strategy, the
Company's success in securing tenants and outfitting the Project premises for different tenants may also affect the final
completion date of the entire project.
Despite changes in the rental scenario of the Project multiple times, by the end of 2023 the Project’s completion ratio is more
than 70 percent. The Company expects to complete the construction of the Project without significant deviations from the
planned cost structure, considering that the major construction works have already been completed.
However, it is necessary to consider that the situation in global markets and the supply chain of construction materials is subject
to frequent changes due to Russia-Ukraine war and related economic and geopolitical situation in the region. Also, due to the
existing uncertainty about the Project’s completion by the end of 2024, these factors pose a risk of increased construction costs
or inability to procure construction materials necessary for the Project’s completion, which could reduce the overall profitability
of the Project, delay Project’s completion and consequently affect the Company’s operations and financial position.
Furthermore, the Company cannot guarantee the absence of any disputes with the suppliers or its ability to maintain business
relationships with existing suppliers. Any disruption in the Company’s supply chain due to issues with a supplier or any decrease
in the reliability of such supplier may require the Company considerable time and expense to rectify deficiencies and could affect
its reputation, thereby negatively impacting its reputation and profitability.
• Economic environment (domestic and international) and insolvency risk. The Company's activities and results depend on
economic processes within Lithuania and internationally. Currently, regional and global economies are unbalanced due to the
ongoing Ukraine-Russia conflict, significant increases in interest rates, volatility in energy prices, and the prolonged impact of
Covid-19 recovery. Lithuania is facing unprecedented inflation rates, which reduce overall attractiveness of the investment
market and constrain economic forecasting. These factors likely contribute to the current slowdown in Lithuania's real estate
market.
Even if there is currently no significant economic downturn in Lithuania, a downturn could lead to reduced demand for the
Company's services, and the risk of insolvency among tenants and/or contractors may increase. This could negatively impact
the Company's business strategy and results, affecting the potential positive returns from the Project. It is important to note that
the Company expects to start earning rental income upon project completion and handover of premises to tenants. Despite
having multiple tenants in the Project and the potential for higher revenue generation, ensuring full occupancy only upon
completion of the Project is low. Therefore, the income generated in the initial years may be lower than expected.
• Litigation risk. The Company's activities may expose it to litigation (either as an applicant or as a respondent), the outcome of
which cannot be predicted in advance. If a dispute were to be resolved against the Company, it may adversely affect its business,
financial position and reputation, as the Company may have to pay the damages awarded, including the opponent's legal costs
(the Company would also incur legal costs of its own). All of this may affect the Company's ability to properly meet its obligations
to Investors.
Development prospects
One of the Company's main objectives is to ensure the proper and timely development of real estate projects. The Company is
currently focused on the development of the ongoing Project, the construction works and the requirements of the existing tenant.