Overview of the Group's operations
The Group, whose parent company is SIA "Arsenal Industrial" (hereinafter – the “Company”, together with its subsidiaries – the “Group”), is primarily engaged in the rental and sale of construction equipment and tools.
The Group’s objective is to provide high-quality products and services. To be an efficient group of companies that listens to client needs and offers appropriate solutions. To improve its operations to meet current and future demands. To be reliable business partners by ensuring quality customer service, building relationships with local entrepreneurs, and continuing to invest in the Group’s infrastructure. The Group’s strategic goal is to become the market leader in construction equipment rental and sales in major cities of Latvia and the Baltics. No active operations are currently being pursued in Poland.
Operations in the reporting year
The Group’s total net turnover for 2024 amounted to EUR 10 798 807. Compared to 2023, this represents a decrease of 3.2%. The decline was mainly driven by changes in the strategy of Arsenal Industrial OU – in 2024, a decision was made to focus on the sales segment and reduce the volume of rentals. Additionally, extra resources were allocated to transfer rental equipment from Arsenal Industrial OU to Arsenal Industrial SIA and Arsenal Industrial UAB, which caused a temporary reduction in turnover during the transition. Nevertheless, rental turnover in Latvia and Lithuania combined grew by 9.2% in 2024 compared to 2023. Meanwhile, sales turnover within the Group increased by 9.5% in 2024 compared to 2023, confirming a successful strategic focus on this segment.
The Group ended the reporting year with a loss of EUR 399,887. Compared to 2023, this is a decrease of EUR 1,074,155. This result is mainly due to a refinancing transaction carried out in the previous year, which reduced liabilities related to loans and accrued interest, thereby increasing the profit in 2023. Additional negative impact also resulted from the aforementioned changes in Arsenal Industrial OU’s operational strategy.
As of 31 December 2024, the Group had a positive equity of EUR 985 thousand. At the end of the reporting period, the Group’s current liabilities exceeded current assets by EUR 315 thousand.
In October 2024, a bondholders’ meeting was convened during which amendments to the general terms of the bonds (covenants) were presented and approved. Bondholders representing 76% of the total bond volume participated in the vote, and all voted in favor of the amendments.
Prospects and further development
The Group’s main objective is to provide quality service and supply customers with the necessary equipment and tools. The Group plans its development in accordance with market trends and is constantly seeking innovative solutions to improve and grow its operations.
Group management has prepared the budget and cash flow forecast for 2025, anticipating a positive operating cash flow. Based on these forecasts, the Group will have sufficient funds to ensure its continued operations and growth in 2025. The Group plans to invest EUR 2 million in new rental equipment and inventory, strengthening its market position and expanding service capacity. It is projected that the Group’s EBITDA in 2025 will reach EUR 1.8 million.
Group management believes it will be able to secure sufficient cash resources to continue its operations, considering the following factors:
- Current business trends indicate that the liquidity of the Group’s consolidated entities will have improved compared to the previous year;
- The Group will evaluate the future operations or liquidation of the subsidiary Arsenal Industrial SP.z.o.o., whose results in 2023 were insignificant. As all significant claims against the subsidiary have been provisioned, no additional losses are expected in the event of liquidation;
- The Group will also evaluate the future operational prospects of its Estonian subsidiary, Arsenal Industrial OU. In 2024, to improve the Group's operational efficiency, the operations of the Estonian subsidiary were reduced, and all long-term assets were either sold or transferred to the parent company’s ownership.
- The Group complies with the financial covenants set out in the bond issuance terms. As of 31 December 2024 and after the reporting period, all contractual financial covenants have been met;
- Successful and supportive cooperation with long-term suppliers.
Considering the above, Group management believes that the 2024 financial statements have been justifiably prepared on a going concern basis. See also the “Going Concern” section in Appendix 2 of the financial statements. The Group will continue to invest in new equipment and tools, expanding its client base and market share while continuously monitoring the situation in Latvia and globally, as well as the demand for the Group’s services. With inflation gradually decreasing and the launch of new EU funding programs, the construction sector is expected to return to positive growth trends, increasing demand for the Group’s services.
Exposure to risks
The Group’s most significant financial instrument is the issue of registered bonds and a loan from a shareholder. The primary purpose of this financial instrument is to provide funding for the Group’s business activities, specifically the acquisition of rental construction equipment, to offer clients modern and high-quality equipment, tools, rental, and sales services. The Group is also exposed to several other financial instruments such as trade receivables, other debtors, liabilities to suppliers and contractors, and other creditors, which arise directly from its business activities. The Group regularly monitors financial risks to minimize their adverse impact on the Group’s financial position.
Market risk
Market risk arises when assets include instruments affected by market price fluctuations (fixed assets: construction rental equipment). To reduce market risk, the Group continuously studies the market, monitors market trends and competitor activities (price fluctuations, changes in demand and supply), and reviews sales prices.
Credit risk
The Group is exposed to credit risk in relation to trade receivables and cash and cash equivalents. The Group manages its credit risk by continuously assessing customer repayment history and setting payment terms individually. Additionally, the Group continuously monitors debtor balances to reduce the likelihood of bad debts.
Liquidity and cash flow risks
The Group is exposed to liquidity and cash flow risks. The Group ensures careful and deliberate planning of its cash flows to meet current obligations and monitors financial covenant requirements, forecasting compliance in a timely manner and/or taking corrective actions when necessary.
Interest rate risk
The Group is exposed to interest rate risk. To minimize this risk, the Group’s management issued bonds with a fixed interest rate. Based on the current agreement with the investment fund, management considers the risk of interest rate changes to be insignificant. However, since the existing financing is raised from non-bank financiers, interest rate stability is ensured through a high fixed interest rate.
Foreign currency risk
Based on the current structure of financial assets and liabilities held in foreign currencies, currency risk is not considered significant.
Events after the end of the reporting year
After the end of the reporting period, the company has acquired additional fixed assets amounting to EUR 1 million, which will contribute to additional turnover and improve the company’s financial indicators. In addition, refinancing of fixed assets has been carried out in the total amount of EUR 732 thousand. Further investments in fixed assets of approximately EUR 1 million are planned for 2025. A cooperation agreement has been signed with a new client in Germany, who will be using the company’s equipment throughout 2025, generating additional turnover of approximately EUR 200 thousand.
Except for the above, there have been no additional events that would have affected the financial position of the Concern on December 31, 2024 and would have been reflected in the financial report.
Gints Vanags
SIA Arsenal Industrial, CEO
Mobile: + 371 26 303 848
E-mail: gints.vanags@arsenalrent.com
www.arsenalnoma.lv