GROUP CEO'S REVIEW
The results in the second quarter did not bring any positive surprises. Due to
the continuing outbreak of Covid-19 at the beginning of the quarter, the pace of
sales in the real estate sector was clearly slower compared to the previous few
years. Nevertheless, all developments have been kept on schedule and work has
never been stopped.
Approximately 50% of the apartments in the third building of the Kodulahe
project have been pre-sold by the time the report is completed, the sales
revenue of which is expected in the first quarter of 2021. The construction of
the building is going according to the schedule. The preparation of the
construction procurement for the IV and V buildings of the Kodulahe project is
commencing - the starting time of construction depends on the achievement of the
desired construction price.
In Tartu, Kodukalda 30 apartment development is under construction pursuant to
the schedule and pre-sale contracts have been concluded for the sale of 13
apartments. Sales revenue is expected by the fourth quarter of 2020.
Iztok Parkside apartment buildings in Bulgaria have not received a permit for
use, but the interest of clients is persistent, which is also confirmed by the
fact that 85% of the apartments have been awarded pre-sale contracts. On the
issues of the access roads that continue to be a problem, we consider it
positive news that these streets have been entered into the ownership of the
city of Sofia, making it possible this year to submit an application for
authorisation to the necessary authorities. However, we must take into account
that growing Covid-19 cases in Bulgaria may slow down the authorisation process.
In the Madrid BLVD building, leases with some companies were terminated as a
result of the economic difficulties brought about by Covid-19, but the
Bulgarian-based team again achieved occupancy with tenants by around 95%.
The main issues for the current year are: which development to channel capital
into, to take advantage of fluctuating construction prices, to increase the
return on equity and the desire to find ways to increment the funds of the land
bank for future developments in Estonia.
The management board of Arco Vara has received confirmation during Q2 that
today's situation is very different from the previous crisis, as confirmed by
the increase in market activity in June and exceptionally active July.
Therefore, the board's view on the developments in Estonia is optimistic, but
given the state of health care, in Bulgaria it is conservative.
KEY PERFORMANCE INDICATORS
In Q2 2020, the group's revenue was 951 thousand euros, which is 37% more than
the revenue of 695 thousand euros in Q2 2019. In 6 months 2020, the group's
revenue was 3,189 thousand euros, which is 83% more than the revenue of 1,746
thousand euros in 6 months 2019.
In Q2 2020, the group's operating profit (=EBIT) was 42 thousand euros and net
loss 69 thousand euros (in 6 months 2020: operating profit 175 thousand euros
and net loss of 49 thousand euros). In Q2 2019, the group had operating loss of
59 thousand euros and net loss of 174 thousand euros. In 6 months 2019, the
group made operating loss of 54 thousand euros and net loss of 286 thousand
euros.
In Q2 2020, 5 apartments were sold in projects developed by the group (in 6
months 2020 15 apartments). In Q2 2019, 3 apartments were sold (10 apartments in
6 months).
In the 6 months of 2020, the group's debt burden (net loans) increased by 2,420
thousand euros up to the level of 13,870 thousand euros as of 30 June 2020. As
of 30 June 2020, the weighted average annual interest rate of interest-bearing
liabilities was 4.7%. This is an increase of 0.5 percentage points compared to
31 December 2019.
OPERATING REPORT
The revenue of the group totalled 951 thousand euros in Q2 2020 (in Q2
2019: 695 thousand euros,) and 3,189 thousand euros in 6 months 2020 (in 6
months 2019: 1,746 thousand euros), including revenue from the sale of
properties in the group's own development projects in the amount of 782 thousand
euros in Q2 and 2,777 thousand euros in 6 months 2020 (2019: 440 thousand euros
in Q2 and 1,263 thousand euros in 6 months).
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
148 thousand euros in Q2 2020 and 310 thousand euros in 6 months (2019: 178
thousand euros in Q2 and 350 thousand euros in 6 months). The Q2 of 2020 and
Covid-19 brought changes in the economic situation of tenants. Several tenants
have been replaced during the last months, but surprisingly in a more favourable
direction for Arco Vara, that is why we see the opportunity that starting from
the autumn 2020 all retail and office spaces with the accompanying parking
spaces will be rented out.
In the II Stage of the Kodulahe project, which was completed at the end of
2019, commercial space remains unsold - the last apartment was sold in Q2 2020.
In 2020, Lahepea 9 house received building permit.
In Q2 2020, construction works continued in Stage III of Kodulahe project, where
a building with 50 apartments will be located at Soodi 4 Merimetsa. The project
is expected to be finalized by the Q1 2021. By the publishing date of the
interim report, 26 apartments have been presold.
Stages IV-V of Kodulahe have construction permits, design works are finished.
The joint construction of Stages IV and V is scheduled to start latest in 2021.
The apartment buildings will become ready for final sale in about 1,5 years
after the construction begins.
In Q2 2020, construction works of Oa street plots in Tartu continued, where of
4 smaller apartment buildings are constructed under Kodukalda project name. The
construction is scheduled to end in Q4 2020. By the publishing time of the
interim report, 13 out of 30 apartments have been presold.
In Iztok Parkside project in Sofia, the final sale of apartments started at the
end of Q4 2019, but the main sales are planned to take place during 2020 after
receiving an occupancy permit. By the publishing date of the interim report,
presale agreements for 10 apartments have not been concluded. Iztok project
consists of three apartment buildings with a total of 67 apartments.
In the Lozen project near Sofia in Bulgaria, design works have been completed
and construction tender is in process. As the development was designed as a
premium class product, it has been decided to temporarily freeze the project and
wait for the market to recover from Covid-19. Under favourable market
conditions, construction may start in 2021, divided into smaller sub-stages. The
project foresees construction of 179 homes (apartments and houses), commercial
spaces and a kindergarten. Minimum construction period is 2 years.
As of 30 June 2020 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 6m 2020 6m 2019 Q2 2020 Q2 2019
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Revenue from sale of own real estate 2,777 1,263 782 440
Revenue from rendering of services 412 483 169 255
Total revenue 3,189 1,746 951 695
Cost of sales -2,541 -1,329 -714 -514
Gross profit 648 417 237 181
Other income 0 91 0 0
Marketing and distribution expenses -57 -153 -15 -68
Administrative expenses -415 -382 -179 -149
Other expenses -1 -27 -1 -23
Operating profit (loss) 175 -54 42 -59
Financial income and costs -224 -232 -111 -115
Net loss for the period -49 -286 -69 -174
Total comprehensive expense for the period -49 -286 -69 -174
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Earnings per share (in euros)
- basic -0.01 -0.03 -0.01 -0.02
- diluted -0.01 -0.03 -0.01 -0.02
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION
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In thousands of euros 30 June 2020 31 December 2019
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Cash and cash equivalents 781 870
Receivables and prepayments 545 544
Inventories 18,476 15,807
Total current assets 19,802 17,221
Investment property 10,696 11,051
Property, plant and equipment 257 265
Intangible assets 184 217
Total non-current assets 11,137 11,533
TOTAL ASSETS 30,939 28,754
Loans and borrowings 7,800 6,416
Payables and deferred income 3,303 3,135
Total current liabilities 11,103 9,551
Loans and borrowings 6,673 5,904
Total non-current liabilities 6,673 5,904
TOTAL LIABILITIES 17,776 15,455
Share capital 6,299 6,299
Unregistered share capital 273 0
Share premium 2,285 2,285
Statutory capital reserve 2,011 2,011
Other reserves 0 245
Retained earnings 2,295 2,459
TOTAL EQUITY 13,163 13,299
TOTAL LIABILITIES AND EQUITY 30,939 28,754
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Tiina Malm
CFO
Arco Vara AS
Phone: +372 614 4630
www.arcovara.com
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