KEY PERFORMANCE INDICATORS
In Q1 2019, the group's revenue was 1.1 million euros, which is 28% less than
the revenue of 1.5 million euros from continuing operations in Q1 2018. In Q1
2018, revenue together with the discontinued service segment was 2.1 million
euros.
In Q1 2019, the group's operating profit (=EBIT) was 5 thousand euros and net
loss 112 thousand euros. In Q1 2018, the group had operating profit of 91
thousand euros from continuing operations (63 thousands in overall) and net loss
of 51 thousand euros.
In Q1 2019, 7 apartments were sold in projects developed by the group (in Q1
2018: 7 apartments and 1 land plot).
In the Q1 of 2019, the group's debt burden (net loans) increased by 1.7 million
euros up to the level of 15.9 million euros as of 31 March 2019. As of 31 March
2019, the weighted average annual interest rate of interest-bearing liabilities
was 4.8%. This is a decrease of 0.2 percentage points compared to 31 December
2018.
GROUP CEO'S REVIEW
Q1 neither overperformed nor underperformed the expectations. Arco Vara earned
its living from rental and facility management fees of Madrid Blvd building,
from license fees of its former service division, and from the sale of some of
its apartments in Madrid Blvd building. During the quarter, the group's cost
base decreased after the partial repayment of the bank loan related to Madrid
Blvd building, and the subsequent decrease of loan interest rate and interest
cost.
The main challenge of the group continues to be the realization of Iztok
Parkside project, which is fully constructed and largely presold. The group must
be the only developer in Bulgaria who needs an approval from Government of
Bulgaria to transfer some land plots of few hundred square meters that are owned
by two public institutions to a third public institution, which does not change
the land's purpose. The use of the land plots has already been established by
planning documents and eternalized with an asphalt layer. In order to go through
the legal process, more than 50 signatures and stamps are needed, the majority
of which have been obtained by today. Unfortunately, forecasting the time needed
for completing such process is extremely difficult and the management has
previously made mistakes in its time estimates.
Other developments have progressed as planned and three important decisions must
be made during Q2:
a. Starting or not starting Stage III of Kodulahe project, depending on the
construction price versus forecasted sales revenue. Recently, Arco Vara has
raised the prices of the remaining apartments in Stage 2 of Kodulahe
project.
b. Starting or not starting Kodukalda project on Oa street in Tartu, depending
on the same considerations.
c. Receiving the construction permit and starting or not starting Botanica
Lozen project, depending on the same considerations.
Residential markets in both Tallinn and Sofia are characterised by certain
overheating, as demonstrated by rapid increases of land prices and construction
costs. Although banks continue to lend for real estate purchases, there are
signs of slowdown both in terms of the number of transactions and the number of
new constructions started. Also the consumers are delaying purchase decisions,
expecting the prices to fall. Considering the quality of our land reserves,
which do not have to be developed at any cost, and minimised overhead, which
allow us to remain patient before commencing any new projects, we are in no
hurry to start new development projects.
Thus, as a summary of Q1 and outlook for Q2: Arco Vara needs patience rather
than new capital or ideas or workforce.
OPERATING REPORT
The revenue of the group totalled 1,051 thousand euros in Q1 2019 (in Q1
2018: 2,147 thousand euros, of which 1,456 thousand euros from continuing
operations), including revenue from the sale of properties in the group's own
development projects in the amount of 823 thousand euros in Q1 2019 (in Q1
2018: 1,310 thousand euros).
Most of the other revenue of the group consisted of rental income from
commercial and office premises in Madrid Blvd building in Sofia, amounting to
172 thousand euros in Q1 2019 (in Q1 2018: 124 thousand euros). In Q1 2019, all
office and commercial spaces together with parking places were rented out.
In Q1 2019, the group had an operating profit of 5 thousand euros. In Q1 2018,
the group had an operating profit of 91 thousand euros.
In Q1 2019, construction works continued for Stage II of Kodulahe project, a
building with 68 apartments and 1 commercial space. The project is expected to
be finalized by the end of 2019. By the publishing date of the interim report,
58 apartments have been presold.
Design works for Stages III-V continued in Q2, scheduled to end in the summer of
2019. Under favourable market conditions, the construction of Stage III is
scheduled to start in the autumn of 2019 and the joint construction of Stages
IV-V in 2000. The apartment buildings will become ready for final sale in about
1,5 after the construction begins.
In Q1, design works of Oa street plots in Tartu were completed. The plan
foresees construction of 4 smaller apartment buildings under Kodukalda project
name. The construction is scheduled to start in the summer of 2019.
In Iztok Parkside project in Sofia, construction has been completed. By the
publishing date of the interim report, presale agreements for 53 apartments have
been concluded. Iztok project consists of three apartment buildings with 67
apartments (7,070 square meters of apartments' sellable area).
In Madrid Blvd building, out of the 15 apartments previously used for offering
accommodation service, 10 have been sold as of the date of this report.
By the date of this report, design works of Botanica Lozen project near Sofia in
Bulgaria have been essentially completed. The project foresees construction of
179 homes (apartments and houses), commercial spaces and a kindergarten. Under
favourable market conditions, construction may start in the second half of
2019, possibly divided into smaller sub-stages. Considering the nature of
terrain on a mountain slope, minimum construction period is 2 years.
As of 31 March 2019 and the date of this report, 4 Marsili residential plots
remained unsold in Latvia.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
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In thousands of euros 3m 2019 3m 2018
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Continuing operations
Revenue from sale of own real estate 823 1,310
Revenue from rendering of services 228 146
Total revenue 1,051 1,456
Cost of sales -815 -1,016
Gross profit 236 440
Other income 91 5
Marketing and distribution expenses -85 -43
Administrative expenses -233 -316
Other expenses -4 -10
Gain on sale of subsidiaries 0 15
Operating profit/loss 5 91
Finance income and costs -117 -114
Profit before tax -112 -23
Net profit/loss from continuing operatsions -112 -23
Net profit/loss from discontinued operations 0 -28
Net profit/loss for the period -112 -51
Total comprehensive income/expense for the period -112 -51
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Earnings per share from continuing operations (in euros)
- basic -0.01 0.00
- diluted -0.01 0.00
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Earnings per share (in euros)
- basic -0.01 -0.01
- diluted -0.01 -0.01
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION
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In thousands of euros 31 March 2019 31 December 2018
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Cash and cash equivalents 1,644 2,327
Investments 0 69
Receivables and prepayments 608 739
Inventories 19,145 17,482
Total current assets 21,397 20,617
Receivables and prepayments 20 25
Investment property 11,721 12,344
Property, plant and equipment 287 267
Intangible assets 256 262
Total non-current assets 12,284 12,898
TOTAL ASSETS 33,681 33,515
Loans and borrowings 12,792 12,547
Payables and deferred income 4,092 3,982
Total current liabilities 16,884 16,529
Loans and borrowings 3,908 3,985
Total non-current liabilities 3,908 3,985
TOTAL LIABILITIES 20,792 20,514
Share capital 6,299 6,299
Share premium 2,285 2,285
Statutory capital reserve 2,011 2,011
Other reserves 245 245
Retained earnings 2,049 2,161
TOTAL EQUITY 12,889 13,001
TOTAL LIABILITIES AND EQUITY 33,681 33,515
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Kristel Tumm
CFO
Arco Vara AS
Phone: +372 614 4662
www.arcovara.com
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