GROUP CEO'S REVIEW
Arco Vara has exceeded expectations during the first half of the year. The sales
numbers of apartments indicate that all the completed homes have found an owner,
and the projects under construction have also been successful: the feared
construction material supply difficulties have been overcome and the
construction of all buildings is on schedule.
The main sources of sales revenue in the second quarter are the last apartments
in the Kodukalda and Iztok Parkside developments. Thus, all apartments in Tartu
as well as in Sofia have been sold. Pre-sales are underway in the Kodulahe
development in Tallinn, where only 4 apartments are available today; the project
sales revenue in the amount of 12.2 million euros is expected in Q2 2022.
Taking a brief look into the future, in Q2 2021 the development team in Estonia
has been designing Kodulahe Rannakalda phase. Beginning of public sales and
construction permit are expected in September and the start of construction in
Q4 this year. The Bulgarian team has made preparations for "melting" Botanica
Lozen project, assessing the possibilities of developing the area only as
private houses, for which there is significant growth of interest in the
vicinity of Sofia.
Looking at Arco Vara's financial results, we have achieved one of our goals: to
exceed 20% return on equity (ROE) per year. The rapid pre-sale provided an
opportunity to optimize interest costs and thereby increase the profit margin of
ongoing projects. The group has unused loan limits - a 60% equity to assets
ratio is a temporary phenomenon; in the second half of the year, the volume of
assets is expected to grow due to the expansion of Kodulahe constructions.
Arco Vara's desire to significantly increase its development volumes over the
next five years has got off to a strong start. This has not gone unnoticed by
the shareholders, the number of whom has almost doubled in 2021, which indicates
the interest of private individuals to invest in real estate without buying real
estate themselves. The issue of shares planned for September is also aimed at
these investors.
KEY PERFORMANCE INDICATORS
In Q2 2021, the group's revenue was 1,504 thousand euros, which is 58% more than
the revenue of 951 thousand euros in Q2 2020. In 6 months 2021, the group's
revenue was 10,670 thousand euros, which is 2.3 times more than the revenue of
3,189 thousand euros in 6 months 2020.
In Q2 2021, the group's operating profit (=EBIT) was 621 thousand euros and net
profit 523 thousand euros (in 6 months 2021: operating profit 2,430 thousand
euros and net profit of 2,223 thousand euros). In Q2 2020, the group had
operating profit of 42 thousand euros and net loss of 69 thousand euros. In 6
months 2020, the group made operating profit of 175 thousand euros and net loss
of 49 thousand euros.
In Q2 2021, 5 apartments and a commercial space were sold in projects developed
by the group (in 6 months 2021 63 apartments and a commercial space). In Q2
2020, 5 apartments were sold (15 apartments in 6 months).
In the 6 months of 2021, the group's debt burden (net loans) decreased by 765
thousand euros down to the level of 7,734 thousand euros as of 30 June 2021. As
of 30 June 2021, the weighted average annual interest rate of interest-bearing
liabilities was 5.1%. This is an increase of 0.3 percentage points compared to
31 December 2020.
OPERATING REPORT
The revenue of the group totalled 1,504 thousand euros in Q2 2021 (in Q2
2020: 951 thousand euros,) and 10,670 thousand euros in 6 months 2021 (in 6
months 2020: 3,189 thousand euros), including revenue from the sale of
properties in the group's own development projects in the amount of 1,234
thousand euros in Q2 and 10,136 thousand euros in 6 months 2021 (2020: 782
thousand euros in Q2 and 2,777 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
200 thousand euros in Q2 2021 and 394 thousand euros in 6 months (2020: 148
thousand euros in Q2 and 310 thousand euros in 6 months). By the time of
publishing the present report, all office and commercial spaces, together with
parking places, were rented out.
One commercial space remains unsold in Stage II of Kodulahe project in Merimetsa
district in Tallinn. The house received a usage permit in 2020.
In Q4 2020, construction finished in Stage III of Kodulahe project, a
residential building with 50 apartments at Soodi 4. By the publishing date of
the interim report, all apartments have been sold and the house has the usage
permit.
At the end of 2020, the joint construction of Stages IV and V of Kodulahe
started. Two 36-apartment residential buildings at Pagi 3 and Pagi 5 are under
construction. The apartment buildings will become ready for final sale in about
1,5 years. By the publishing date of the annual report, 68 apartments of total
72 have been presold.
Stages VI of Kodulahe project is waiting for construction permit, design works
are in process. The construction of the Stage VI is scheduled to start in year
2021. The plan is to build a pavilion, 4 commercial areas and 108 apartments,
out of which many have sea view. The apartment buildings will become ready in
about 2 years after the construction begins.
A subsidiary of Arco Vara, Aktsiaselts Kolde, signed an agreement for land
acquisition beside Lake Harku, address Paldiski road 124b, Tallinn. More than
35,000 m(2) of residential and commercial real estate (GBA) is planned for
development. The expected development period is 6 years with the start of
construction planned for 2023. The detailed plan sketch competition of the
project has ended, the detailed planning is in process.
In Q2 2021, sales on the apartments of Oa street in Tartu ended, where 4 smaller
apartment buildings with a total of 30 apartments were built under the Kodukalda
project name. In Q2 2021, Kodukalda houses also received a usage permit.
In Iztok Parkside project in Sofia, the majority of final sales of apartments
started in December 2020, after receiving a usage permit. By the publishing date
of the interim report, all apartments have been sold. Iztok project consisted of
three apartment buildings with a total of 67 apartments. As the apartments were
handed over a year later than promised due to bureaucratic obstacles, 2 clients
want compensation in the total amount of 40 thousand euros. As these apartment
owners want compensation for pain and suffering, but not to give up the
apartments, the obligation to pay compensation is not realistic and no reserve
has been formed for this purpose.
Botanica Lozen project was designed as a premium class product, it has been
decided to temporarily freeze the project until market will recover from Covid-
19. The last view of the project foresees construction of 65 homes (houses).
Minimum construction period is 2 years.
As of 30 June 2021, and the date of this report, 4 Marsili residential plots
remained unsold in Latvia.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
In thousands of euros 6m 2021 6m 2020 Q2 2021 Q2 2020
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Revenue from sale of own real estate 10,136 2,777 782 782
Revenue from rendering of services 534 412 169 169
Total revenue 10,670 3,189 951 951
Cost of sales -8,178 -2,541 -714 -714
Gross profit 2,492 648 237 237
Other income 22 0 12 0
Marketing and distribution expenses -65 -57 -30 -15
Administrative expenses -401 -415 -217 -179
Other expenses -40 -1 -11 -1
Gain on revaluation of investment property 422 0 422 0
Operating profit 2,430 175 621 42
Financial income and costs -224 -224 -111 -111
Profit/ loss before tax 2,223 -49 523 -69
Net loss for the period 2,223 -49 523 -69
Total comprehensive expense for the period 2,223 -49 523 -69
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Earnings per share (in euros)
- basic 0.24 -0.01 0.06 -0.01
- diluted 0.24 -0.01 0.06 -0.01
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION
In thousands of euros 30 June 2021 31 December 2020
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Cash and cash equivalents 624 2,200
Receivables and prepayments 506 1,344
Inventories 15,667 14,960
Total current assets 16,797 18,504
Receivables and prepayments 5 5
Investment property 9,972 9,564
Property, plant and equipment 15 22
Intangible assets 112 136
Total non-current assets 10,104 9,727
TOTAL ASSETS 26,901 28,231
Loans and borrowings 305 3,482
Payables and deferred income 2,378 3,308
Total current liabilities 2,683 6,790
Loans and borrowings 8,053 7,217
Total non-current liabilities 8,053 7,217
TOTAL LIABILITIES 10,736 14,007
Share capital 6,572 6,299
Unregistered share capital 0 273
Share premium 2,285 2,285
Statutory capital reserve 2,011 2,011
Retained earnings 5,297 3,356
Total equity attributable to owners of the
parent 16,165 14,224
TOTAL EQUITY 16,165 14,224
TOTAL LIABILITIES AND EQUITY 26,901 28,231
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Tiina Malm
CFO
Arco Vara AS
Phone: +372 614 4630
www.arcovara.com
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