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Title

Arco Vara AS Interim Report (unaudited) for III quarter and 9 months 2014

Message

Director's Report

ARCO VARA GROUP

Arco Vara AS (hereafter also ‘the parent company’ or ‘the Company’) and other
entities of Arco Vara group (hereafter together ‘the group’) are engaged in
real estate development and services related to real estate. Until the end of
year 2013, the group’s three business lines – services, development and
construction had been organised into corresponding divisions. Since year 2014,
the group has two continuing business lines: Service division and Development
division. The group has no plans on independent construction activities in next
few years. 

The Service division is engaged in real estate brokerage, valuation, management
and consulting as well as in short-term investment in residential real estate.
The Service division offers to the group additional value by generating
analytical data on market demand and supply, also behaviour of potential
clients. Analytical data allows to make better decisions on purchase of land
plots, planning and designing, also on timing the start of construction. 

The Development division develops complete living environments and commercial
real estate. Fully developed housing solutions are sold to the end-consumer. In
some cases the group is developing also commercial properties until they start
generating cash flow for two possible purposes: for the support of the groups’
cash flows or for resale. The group is currently holding completed commercial
properties that generate rental income. 

The Construction division provided general construction and environmental
engineering services, operating as a general contractor and construction
manager as well as a subcontractor. In 2013, the provision of construction
services was finished and in February 2014, the group sold its construction
company Arco Ehitus OÜ. Arco Vara is still responsible for completing possible
warranty works, together with Arco Ehitus. The last warranty period will end in
October 2015. 

At 30 September 2014, the group comprises of 22 companies (31 December 2013:
23). At 31 December 2013, the group had interests also in one joint venture and
one associate. In Q3 2014, was sold 40% ownership in associate Arco Property
Management SIA and was acuired all shares of joint venture Tivoli Arendus OÜ,
after which Tivoli Arendus OÜ became a subsidiary of the group. 

The group regards Estonia, Latvia and Bulgaria as its home markets.



The goal and core values

Common goal for all Arco Vara companies is:

1) to provide clients with trustworthy real estate services which are based on
quality information and 

integrated real estate products of high value in use, being innovative in the
same time; 

2) to gain stable and high return on equity for the shareholders, which beats
the competiton in real estate 

business and justifies investing and holding Arco Vara shares;

3) to create the best conditions for self-realization in real estate industry
for the people working for the group. 



Arco Vara’s core values include:

Partnership – our client is our partner

Reliability – we are reliable, open and honest

Professionalism – we deliver quality

Consideration – we value our clients as individuals

Responsibility – we keep our promises



CHANGES IN GROUP STRUCTURE DURING 9 MONTHS 2014

On 14 February 2014, Arco Vara AS divested its 100% share in Arco Ehitus OÜ to
the company Stratcorp OÜ. The sale price of the share included two parts: 

1) 10 thousand euros paid on transfer of the share;

2) 30% out of the amount, that Arco Ehitus OÜ will gain from actions brought by
Arco Ehitus OÜ through Ministry of Education and Research and OÜ Loksa
Haljastus. Income tax is deducted from proceeds. 

The group’s gain on the transaction amounted to 652 thousand euros not
considering the impact of sale price. As a result of the divestment, the
group’s liabilities decreased by 1,020 thousand euros and its assets declined
by 368 thousand euros. 

On 19 March 2014, the chariman of the management board of Arco Real Estate SIA
realised his option to gain additional ownership share in the company. As a
result, the group’s ownership interest in Arco Real Estate SIA declined from
78.5% to 70.6% and non-controlling interest in the group’s equity increased by
5 thousand euros. 

On 24 April 2014, Arco Real Estate AS divested its 100% share in Bulgarian
subsidiary Arco Imoti EOOD to the group’s parent company Arco Vara AS. 

On 25 April 2014, Arco Investeeringute AS divested its 100% share in Bulgarian
subsidiary Arco Projects EOOD to the group’s parent company Arco Vara AS. 

On 25 April 2014, Arco Invest EOOD divested its 100% share in Bulgarian
subsidiary Arco Projects EOOD to the group’s parent company Arco Vara AS. 

In May 2014, the group’s management adopted a decision to start liquidation of
the group’s subsidiary Fineprojekti OÜ. 

On 15 August 2014, the group’s Latvian subsidary Arco Real Estate SIA divested
it’s 40% share in associate Arco Property Management SIA. The sale price was
the share’s nominal value of 1 thousand euros. The transaction has no impact on
the group’s financial position and income statement. 

On 30 September 2014, the group’s Estonian subsidary Arco Investeeringute AS
acquired for the purchase price of 1 euro additional 50% ownership in the
group’s joint venture Tivoli Arendus OÜ. As a result of the transaction, Arco
Investeeringute AS has 100% ownership of Tivoli Arendus OÜ and Tivoli Arenuds
OÜ became a subsidiary for the group. The transaction has no direct impact on
the group’s financial position and income statement. But there could be
long-term impact depending on the results of ongoing court disputes between
Tivoli Arendus OÜ and Nordecon AS, where Tivoli Arendus claims Nordecon for 1.2
million euros and Nordecon claims Tivoli Arendus for 0.2 million euros. 



KEY PERFORMANCE INDICATORS



·                     In 9 months 2014, the group’s revenue from continuing
operations was 3.3 million euros, which was 5.4 million euros less compared to
the same period of previous year. Revenue of Service division has increased by
10% up to 2.4 million euros. Revenue of Development division amounted to 1.3
million euros in 9 months 2014 (9 months 2013: 6.8 million euros). The main
reason for such a big drop in revenue in Development division is because the
group’s development projects are in such stage, where revenue is not accrued
yet. More than 60% of Development division revenue in 2014 has been generated
from letting out commercial and office space in Madrid Blvd building in Sofia.
Substantial increase of revenue from Development division is expected in Q4 of
2014. 

·                     Operating profit for Q3 2014 from continuing operations
was 0.6 million euros (in Q3 2013: 0.3 million euros). The group’s net profit
amounted to 0.4 million euros in Q3 2014 (in Q3 2013: 0.1 million euros). In 9
months 2014, the group’s operating profit amounted to 1.1 million euros and net
profit amounted to 0.4 million euros. In previous year the corresponding profit
figures were 2.3 million euros and 1.6 million euros. Profit figures are worse
mainly due to the temporary drop in revenue from development division. 

·                     Equity to assets ratio has increased compared to the year
end 2013. At 30 September 2014, it was 29.1% (at 31 December 2013: 27.2%). The
main reason is share issue conducted in Q3 2014, 1.3 million euros was raised
in equity. The group’s activities have been profitable too. 

·                     The balance of the group’s total assets is increased by
4.1 million euros in 9 month 2014. Main reason is increase of inventory in
apartment development projects of Manastirski Livadi II stage in Sofia and
Bisumuiza-1 in Riga. Invested capital is increased in parallel with the
increase of assets, because construction of Manastriski Ii stage is financed
with bank loan. 

·                     The group’s net loans have increased by 2.3 million euros
in 9 months 2014. As at 30 September 2014, the average annual interest rate of
loans is 5.8%, a decrease by 0.2 procentage point since the end of year 2013. 

·                     During first 9 months 2014, were sold 4 apartments and 4
plots in projects developed in the group (in 9 months 2013 was sold 55
apartments or commercial areas and 4 plots), that includes one apartment and 4
plots in Q3 2014 (19 apartments or commercial areas and 2 plots in Q3 2013). 

                                    9 months 2014  9 months 2013      Q3      Q3
                                                                    2014    2013
--------------------------------------------------------------------------------
In millions of euros                                                            
--------------------------------------------------------------------------------
Revenue from continuing                       3.3            8.7     1.2     3.5
 operations                                                                     
--------------------------------------------------------------------------------
Operating profit from continuing              1.1            2.3     0.6     0.3
 operations                                                                     
--------------------------------------------------------------------------------
Net profit from continuing                    0.4            1.6     0.4     0.1
 operations                                                                     
--------------------------------------------------------------------------------
Net profit from discontinued                  0.0            0.4     0.0     0.4
 operations                                                                     
--------------------------------------------------------------------------------
Net profit for the period                     0.0            2.0     0.4     0.5
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
EPS (in euros)                               0.08           0.42    0.07    0.09
--------------------------------------------------------------------------------
ROIC (rolling, four quarters)                7.7%            neg                
-----------------------------------------------------------------               
ROE (rolling, four quarters)                24.7%            neg                
                                                                                
ROA (rolling, four quarters)                 6.9%            neg                
-----------------------------------------------------------------               
                                                                                
-----------------------------------------------------------------               
                                     30 September    31 December                
                                             2014           2013                
-----------------------------------------------------------------               
In millions of euros                                                            
-----------------------------------------------------------------               
Total assets at period-end                   29.3           25.2                
-----------------------------------------------------------------               
Invested capital at period-end               26.3           21.7                
-----------------------------------------------------------------               
Net loans at period-end                      16.4           14.1                
-----------------------------------------------------------------               
Eguity at period-end                          8.5            6.9                
-----------------------------------------------------------------               
                                                                                
-----------------------------------------------------------------               
Average loan term (in years, at               2.4            0.3                
 period-end)                                                                    
-----------------------------------------------------------------               
Average interest rate of loans               5.8%           6.0%                
 (per year,                                                                     
at period-end)                                                                  
-----------------------------------------------------------------               
                                                                                
-----------------------------------------------------------------               
Number of staff at period-end                 189            178                
-----------------------------------------------------------------               







FORMULAS USED

Earnings per share (EPS) = net profit attributable to owners of the parent /
(weighted average number of ordinary shares outstanding during the period – own
shares) 

Invested capital = current interest-bearing liabilities + non-current
liabilities + equity (at end of period) 

Net loans = current interest-bearing liabilities + non-current liabilities –
cash and cash equivalents – short-term investments in securities (at end of
period) 

Return on invested capital (ROIC) = past four quarters’ net profit / average
invested capital 

Return on equity (ROE) = past four quarters’ net profit / average equity

Return on assets (ROA) = past four quarters’ net profit / average total assets

Number of staff at period-end = number of people working for the group under
employment or authorization (service) contracts 





CONTINUING OPERATIONS

Statement of comprehensive                                                      
 income                                                                         
                                 ------------------------------                 
                                  9 months 2014  9 months 2013  Q3 2014  Q3 2013
--------------------------------------------------------------------------------
In millions of euros                                                            
--------------------------------------------------------------------------------
Revenue                                                                         
--------------------------------------------------------------------------------
Development                                 1.3            6.8      0.5      2.8
--------------------------------------------------------------------------------
Service                                     2.4            2.2      0.8      0.8
--------------------------------------------------------------------------------
Eliminations                               -0.3           -0.2     -0.1     -0.1
--------------------------------------------------------------------------------
Total revenue                               3.4            8.8      1.2      3.5
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Operating profit                                                                
--------------------------------------------------------------------------------
Development                                 0.7            2.7      0.6      0.4
--------------------------------------------------------------------------------
Service                                     0.2            0.2      0.1      0.1
--------------------------------------------------------------------------------
Eliminations                                0.2           -0.3     -0.2     -0.1
--------------------------------------------------------------------------------
Unallocated items                           0.0           -0.3      0.1     -0.1
--------------------------------------------------------------------------------
Total operating profit                      1.1            2.3      0.6      0.3
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Finance income and expenses, net           -0.7           -0.7     -0.2     -0.2
--------------------------------------------------------------------------------
Net profit                                  0.4            1.6      0.4      0.1
--------------------------------------------------------------------------------





Cash flows

                                          9 months      9 months      Q3      Q3
                                              2014          2013    2014    2013
--------------------------------------------------------------------------------
In millions of euros                                                            
--------------------------------------------------------------------------------
Cash flows from/used in operating             -3.3          -0.1    -1.4     0.2
 activities                                                                     
--------------------------------------------------------------------------------
Cash flows from/used in investing              0.2           1.3     0.1     0.0
 activities                                                                     
--------------------------------------------------------------------------------
Cash flows from/used in financing              3.7          -2.4     2.1    -0.4
 activities                                                                     
--------------------------------------------------------------------------------
Net cash flows                                 0.6          -1.2     0.8    -0.2
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Cash and cash equivalents at                   0.8           1.8     0.6     0.8
 beginning of period                                                            
--------------------------------------------------------------------------------
Cash and cash equivalents at end of            1.4           0.6     1.4     0.6
 period                                                                         
--------------------------------------------------------------------------------







Group Chief Executive’s review



Introduction

For the first 9 months of this year, the group has been earning income only
from the rent of the Madrid Blvd building in Sofia in addition to activities of
the service division. Therefore, the sales result of Q3 2014 and net profit of
0.4 million euros meet our expectations as a whole and have been a crucial
middle step in restarting the development division. Restarting the development
activities in 2013 is only now bearing fruit, which are evident in the balance
sheet and the income statement. In Q4, the sale of completed apartments will
begin in Riga and Sofia. 

The service division and developments in Arco Vara home markets

The service division has positive cash flow and is a profitable division which
consists of three companies in Estonia, Latvia and Bulgaria, which are
primarily involved in real estate brokerage and appraisal (Arco Real Estate AS,
Arco Real Estate SIA, Arco Imoti EOOD), two companies in Estonia and Bulgaria
which are involved in real estate management (Arco Vara Haldus OÜ and Arco
Facility Management EOOD) and a company which is involved in operating the
rental apartments in Madrid Blvd (Arco Projects EOOD). The owner of the Madrid
Blvd building Arco Invest EOOD is not part of the service division. The revenue
of service division has increased by 10% compared to 9 months of the last year.
The revenue from brokering units in Latvia and Bulgaria has increased and the
revenue from the brokering unit in Estonia has decreased. 

In all of Sofia, 5,063 transactions were made with real estate in Q3, which
continues the high transaction activity achieved in the Q2. This is the most
active Q3 after the year 2008. Real estate prices have remained stable or on a
slight increase depending on the location. The average market price range of
middle class apartments is 706-840 euros per square metre depending on the type
of apartment (it must be taken into consideration that in Bulgaria, a legal
share of the public premises of the building is also considered part of the
area of the apartment and that apartments sold on the secondary market
predominantly include interior finishing, whereas new apartments have no
interior finishing). An even higher transaction activity has probably been
hindered by the fall of the Bulgarian government and appointing a new so-called
interim government which was in power until the parliament elections on 5
October, which slowed the work of public institutions and banks among other
things, as well as by the collapse of the fourth largest bank in Bulgaria. 

The transaction activity of the Riga market has also an increasing trend, there
were a total of 3,116 transactions in Q3, which is 15% more than the 2,713
transactions of the Q2 and nearly 5% more than in Q3 2013. The range of real
estate prices for new middle class apartments is enormous, ranging between 800
and 1,800 euros per square metre. There were also more transactions with 1,500
euros per m2 than there were transactions below this price. At the same time,
the local population does not buy apartments with a higher than average square
metre price. The market volume of so-called residence permit apartments is
declining and is also unpredictable. The further activity of the Riga real
estate market will be influenced by a law amendment which will enter into force
on 1 January 2015, providing that in the case of bankruptcy proceedings of a
private person, the mortgage loan granted to him or her is paid also when the
realizable value of the mortgage is less than the outstanding loan (so-called
non-recourse loans). In simple terms, people will have the right to give the
keys to the bank and not worry about reimbursing the loan. We can predict that
the self-financing requirements of banks will increase up to approx. 40% and it
will hinder transaction activity and prices, especially for newer real estate. 

In Tallinn, 2,682 transactions of purchase and sale of real estate have been
completed in Q3, so there has been essentially no change in transaction
activity compared to Q2 with its 2,680 transactions. At the same time, there
were 3.6% fewer transactions in Q3 than in the same period of 2013, when 2,782
transactions for purchase and sale of real estate were concluded in the city.
1,850 transactions for purchase and sale of apartment ownerships were carried
out in Q3 in Tallinn, which is 0.7% more than in the last quarter and 9.1% less
than in Q3 2013. The average sales price for apartment ownerships was 1,459
euros per m2 in Q3, which is 14.4% more than in Q3 2013. In view of the ratio
of number of transactions to the number of residents in a city, the relative
activity of the real estate market continues being highest in Tallinn (in
comparison with Riga and Sofia). Despite the slight decline of transaction
activity in past months, there are no dramatic changes predicted for the
Tallinn real estate market. Terms and conditions of banks for granting loans
have not changed over the year. If anything, buyers have more choices thanks to
increased supply. More research is done before finalizing a purchase than in
the past few years when there was a deficit of new developments in particular
on the market and the buyer had less time to make a choice. 

The Development division

The triggering plan of the development division is keep at least 60 apartments
in development and for sale in Sofia and the annual sales volume on the level
of at least 60 apartments as well. The equity capital held in middle class
apartment developments in Sofia is approximately 3 million euros and its net
productivity for shareholders should exceed 600 thousand euros per year. In
Tallinn, we will also be keeping at least 50 apartments per year in development
and for sale and the equity capital being held in Tallinn apartment development
is approximately 3.5 million euros starting from the end of year 2015. Net
productivity for shareholders should be at least 700 thousand euros per year.
The difference between Sofia and Tallinn is that the whole cycle of development
is already in operation in Sofia and we have products concurrently in planning,
under construction and for sale. In Tallinn, the cycle is still being started
and we will see first sales figures as late as in 2016, on the condition that
the construction of stage I of Paldiski mnt 70C will begin in the second half
of 2015. In Riga, existing developments must be sold, but the group does not
plan to start new ones before we can see the demand of the Riga market in the
conditions of the new credit legislation (see the comment by the Latvian
service division) and will appear promising conditions for purchasing land. In
Riga, different from Tallinn and Sofia, the group’s land bank is depleted. 

Sofia

The construction works of Manastirski II stage (block AB) in Sofia went
according to the plan in Q3. The works have been completed as at the interim
report date and obtaining the permit for use of the apartment building is in
progress. The speed of pre-sales is exceeding expectations, by the end of the
Q3 over 65% of total volume for sale was covered with preliminary sales
contracts (over 8,200 m2) and if the entire project is realized (GSA 12,500
m2), sales revenue will exceed 9 million euros and profit will exceed 2 million
euros. Apartments which are not sold yet should be realized by the end of 2015. 

The group has begun preparations for designing, financing and marketing the III
stage of Manastirski (block D) in order to keep a minimum of 60 apartments (GSA
approx. 5,000 m2) under construction or for sale in Sofia. Construction should
begin in Q1 2015. The expected gross saleable area (GSA) of Manastirski block D
is 6,900 m2 and at least 80 apartments and smaller commercial areas. 

It is also planned to obtain the next plot of land to construct apartments
analogous to the Manastirski apartment type in 2016, in order to maintain
consistent development activities if the market situation remains favourable
also after the year 2016. 

In Sofia, the building at Madrid Blvd continues earning rent income to the
group, which formed 23.5% of the sales revenue of 9 months of the year 2014 for
the group. Revenue fro rent was sufficient to cover the interest for the bank
loan on the building and earn free cash for the group. As the share capital of
the group could be increased nearly 60% less than planned, the management faced
a dilemma – whether to place involved cash for reimbursing the Piraeus bank
loan in amount of 1.2 million euros, or direct it to the development activities
of other projects. At present, the management has decided to primarily direct
the cash involved with the issue to the development of other projects, mainly
Paldiski mnt 70C in Tallinn. The principal amount of the loan from Piraeus bank
to the amount of 0.25 million euros has been reimbursed and it has been
proposed to reimburse the remaining 0.95 million euros in the case of the sale
of apartments in the building. As at the interim report date, the amendment to
the loan contract concluded with Piraeus bank has entered into force and the
loan contract for the Madrid Blvd building has extended to the end of 2017, but
depending on the activities of the bank, the situation may again arise with the
reimbursement of the remaining 0.95 million euros where the owner of the Madrid
Blvd building Arco Invest EOOD is in violation of the contract and the loan
contract could be canceled. 

The long-term action plan of the group is realizing the apartments, commercial
and office premises in the Madrid Blvd building by the end of 2017. The
prerequisite for successful realization is smooth cooperation with the bank and
renewing or replacing long-term rental contracts, which cover over 50% of the
leasable area of the building, in the second half of 2015. 

Riga

In Riga, the construction works of Bisumuisa apartments ended in Q3 and we
received the permit of use for the building at the end of the quarter.
Delivering apartments to clients and entering into sales contracts has begun as
at the interim report date and there are 3 more apartments left without
preliminary sales contracts (i.e. unsold). The goal is to sell all products of
the project by the end of 2015 at the latest. The sales revenue of the entire
project exceeds 1.1 million euros and the profit exceeds 0.2 million euros. 

In Q3, we also sold four plots in the Marsili residential area. The transaction
activity of the area is low and people’s low purchasing power in planning and
constructing their houses is noticeable. The balance sheet of the group still
includes the other residential development area in Marsili, which has not been
fully developed (there are no roads and utilities). The sale of Marsili plots
is not profitable, but enables the group to release equity from assets with low
liquidity and to carry it over to productive projects. 

Tallinn

The detailed plan of the project for Paldiski mnt 70c was adopted in early
September. The value of this immovable also increased with obtaining the
construction permit and the group reversed the write-down made on the same
property in 2012 to the amount of 572 thousand euros. As of the quarterly
report date, the preparation works for designing have begun. The plan is to
complete designing and enter into the construction contract for the first stage
in Q3 2015 at the latest. 

The detailed plans of Liimi 1b and Lehiku tee 21-23 continue, the group hopes
to reach the approval of detail plans by the end of 2015 at the latest. 

The group has suspended the development in Harku for designing and constructing
a product with approximately 30 apartments at Instituudi tee 7 and 9 due to the
need to consolidate and focus its free finances on realizing projects with best
productivity (Paldiski mnt 70c). The sale of the development project could be
also an option. 

Summary and prognosis

The management maintains the group’s revenue forecast for the year 2014 on the
level of 9 million euros and increases the profit forecast to 0.9 million
euros. 

The establishment of the detailed plan for Paldiski mnt 70c in Tallinn was
achieved in the third quarter. The sale of apartments in Sofia and Riga and the
designing works for Paldiski mnt 70c will begin in the fourth quarter. 

As only 1.3 million euros were involved with the share issue in Q3, the
majority of the involved cash has been allocated to the development of the
Paldiski mnt 70c project and 0.25 million euros will be directed to the
reimbursement of the principal part of loan for the Madrid Blvd building. 



SERVICE DIVISION

In Q3 2014, revenue of service division was 791 thousand euros, that included
intra-group revenue of 93 thousand euros (Q3 2013: 812 thousand and 58 thousand
euros, respectively). In 9 months, revenue is increased by 10% compared to the
same period of previous year and amounted to 2,401 thousand euros (includes
intra-group revenue of 321 thousand euros). Sales growth came from Latvia and
Bulgaria, where 9 months revenue from main activities of real estate agencies,
brokerage and valuation of real estate, increased by 20% and 65%, respectively.
9 months revenue of Estonian real estate agency is decreased by 12% compared to
the same period of previous year. If we compare second quarters of 2013 and
2014, then the decline is even 23%. 

Revenue of real estate agencies from brokerage activities

                     9 months     9 months  Change %  Q3 2014  Q3 2013  Change %
                         2014         2013                                      
--------------------------------------------------------------------------------
In thousands of                                                                 
 euros                                                                          
--------------------------------------------------------------------------------
Estonia                   927        1,050      -12%      293      383      -23%
-----------------             -----------------------         ------------------
                 -------------                       ---------                  
Latvia                    879          732       20%      312      272       15%
-----------------             -----------------------         ------------------
Bulgaria                  382          232       65%      118       93       27%
--------------------------------------------------------------------------------
Total                   2,188        2,014        9%      723      748       -3%
--------------------------------------------------------------------------------

The revenue growth of Latvian and Bulgarian agencies was caused both by general
increased activity on the market and strongly seizing the market by increasing
the number of employees. Brokerage of the group’s own assets has significant
part of Bulgarian agency’s revenue. In 9 months 2014, intermediation of presale
of apartments and commercial areas in Manastirski project II stage made 43% out
of total revenue of Bulgarian agency. The main reason behind the decline in
revenue of Estonian real estate agency is rapid price rise in real estate
market during last two years, and this has led to the decline in the number of
transactions during last few months. Also, the number of mandates intermediated
by Estonian agency is decreased. 



All three real estate agencies ended up 9 months 2014 with a net profit:
Estonian agency’s net profit was 2 thousand euros (9 months 2013: 127 thousand
euros), Latvian agency’s net profit was 61 thousand euros (9 months 2013: 66
thousand euros) and Bulgarian agency’s net profit was 81 thousand euros (9
months 2013: 20 thousand euros). 

In addition to brokerage and valuation services, the service division also
provides real estate management service in Estonia and Bulgaria, as well as
accommodation service in Bulgaria. The revenue from real estate management was
124 thousand euros in 9 months 2014, 86 thousand of which was external revenue
(9 months 2013: 101 thousand and 78 thousand, repectively). Revenue from
accommodation services amounted to 55 thousand euros in 9 months 2014 (9 months
2013: 14 thousand euros). The accommodation services have been provided since
July 2013. 

The number of staff in service division has been increased to 175 employees as
at 30 September 2014, growing by 14 people during 9 months. 



DEVELOPMENT DIVISION

In Q3 2014, revenue of Development division totalled 487 thousand euros (Q3
2013: 2,764 thousand euros) and 1,289 thousand euros in 9 months (9 months
2013: 6,783 thousand euros). Revenue of Development division has dropped over
recent months because the group’s own development projects are in construction
or planning stage. In Q3 2014, was sold one apartment in Manastirski project I
stage in Bulgaria and four Marsili residential plots in Latvia. Revenue from
sale of own real estate property amounted to 222 thousand euros in Q3 2014.
Comparable results of Q3 2013 were 16 sold apartments, 3 smaller commercial
areas and 2 plots with corresponding revenue of 2,503 thousand euros. Operating
profit of Development division was 696 thousand euros in 9 months 2014 (9
months 2013: 2,655 thousand euros). Profit figures are affected positively by
reversal on inventory write-down in amount of 572 thousand euros in 2014 and by
reversal of provision in amount of 1,000 thousand euros in 2013. 

Most of other revenue of Development division consisted of rental income from
commercial and office space of Madrid Blvd building in Sofia in amount of 718
thousand euros in 9 months 2014 (9 months 2013: 711 thousand euros). 

In Q3 2014, was continued construction on II stage of Manastirski Livadi
project. By the date of publishing interim report, the apartment building has
been accepted and has been taken over from constructor and use of permit is
expected to be received at the end of November. At the same time with the start
of construction, in Novemebr 2013, was started presale of apartments. And it is
turned out to be successful, because more than 70% of apartments are covered
with pre-agreements by the date of publishing interim report. 

At the end of Q3 2014, were accepted permit of use for the last apartment
building (14 apartments, 960 m2 of saleable area) in Bisumuiza-1 project. In
October, were started concluding sale agreements and delivering presold
apartments to clients. At the date of publishing interim report, the buyer was
not found yet for the last 2 apartments out of 14. The last apartment of
previous stage in the same project are unsold yet. 

As at the end Q3 2014, 2 apartments and 31 parking spaces have not been sold in
the apartment building of Manastirski Livadi C-block (also named as Manastirski
I stage) in Bulgaria. Madrid complex contains 34 unsold apartments and 120
parking spaces. 11 apartments and all parking spaces, out of all unsold Madrid
properties, are rented out. 

The group has started preparations for the design project of Manastirski Livadi
D-block (also named as Manastirski III stage) in Bulgaria. Construction should
start in Q1 2015. The building will have at least 80 apartments and commercial
ares with saleable area of nearly 6,900 m2 and construction will be finished by
the end of 2015. 

In February 2014, the group acquired as an additon to the land bank, two land
plots with building right for 2 apartment buildings (30 apartments with
estimated GSA of 2,100 m2) near Tallinn, at Instituudi tee 7 and 9 in Harku. In
Q3 2014, the development of the project was suspended due to the need to use
the group’s finances for carrying out best yielded projects (Paldiski road 70c
for example). The sale of the development project could also be an option. 

As at 30 Septmeber 2014, 5 people were employed in the development division.

Find out more about the projects at: www.arcorealestate.com/arendus.



SUMMARY TABLE OF ARCO VARA’S PROJECTS AS AT 30 SEPTEMBER 2014



Project    Address    Product  Stage  Area of        GSA / GLA       No of units
 name                  main           plot(s)    (above grade)     (above grade)
                       type              (m2)     available or      available or
                                               <future target>   <future target>
--------------------------------------------------------------------------------
Manastirs  Manastirs  Apartme  S5       4,445           12,524               135
ki A/B     ki, Sofia  nts                                                       
--------------------------------------------------------------------------------
Manastirs  Manastirs  Apartme  S5/S6        -              204                 2
ki C       ki, Sofia  nts                                                       
--------------------------------------------------------------------------------
Manastirs  Manastirs  Apartme  S3       2,223          <6,869>              <87>
ki D       ki, Sofia  nts                                                       
--------------------------------------------------------------------------------
Madrid     Madrid     Lease:   S5/S6        -            7,350                16
 Blvd       Blvd,      Retail                                                   
            Sofia     /Office                                                   
--------------------------------------------------------------------------------
Madrid     Madrid     Apartme  S5/S6        -            3,800                34
 Blvd       Blvd,     nts                                                       
            Sofia                                                               
--------------------------------------------------------------------------------
Bisumuiza  Kometas    Apartme  S5           -              105                 1
-1          2, Riga   nts                                                       
--------------------------------------------------------------------------------
Bisumuiza  Kometas    Apartme  S5       2,118              960                14
-1          4, Riga   nts                                                       
--------------------------------------------------------------------------------
Marsili    Marsili,   Residen  S5           -           28,573                15
 resident   near      tial                                                      
ial plots   Riga       plots                                                    
--------------------------------------------------------------------------------
Marsili    Marsili,   Residen  S2     120,220        <120,220>              <68>
 resident   near      tial                                                      
ial plots   Riga       plots                                                    
--------------------------------------------------------------------------------
Instituud  Instituud  Apartme  S3       5,003          <2,035>              <32>
i 7, 9     i tee 7,9  nts                                                       
            Harku                                                               
--------------------------------------------------------------------------------
PM 70C     Paldiski   Apartme  S3      28,498         <21,420>             <334>
            mnt 70C,  nts                                                       
            Tallinn                                                             
--------------------------------------------------------------------------------
Lehiku     Lehiku     Apartme  S2       5,915          <1,100>               <5>
 carpet     21,23     nts                                                       
 building   Tallinn                                                             
--------------------------------------------------------------------------------
Liimi      Liimi 1b,  Lease:   S2       2,463          <6,500>               <1>
            Tallinn    Office                                                   
--------------------------------------------------------------------------------
Viimsiran  Haabneeme  Office/  S3/S5   14,174              500                 1
na         , Viimsi   Mix                                                       
            vald                                                                
--------------------------------------------------------------------------------

Note: Value presented inbetween < > means future target value as the project is
in early (S1, S2) development stage and the building rights or the design have
not been finished yet. The table does not reflect sellable or letteble volumes
below grade including parking spaces and storages. 



Description of stages

S1: Landplot acquired

S2: Building Rights Procedure

S3: Design and Preparation Works

S4: Construction

S5: Marketing and Sale

S6: Facility Management and/or Lease




PEOPLE

As at 30 September 2014, 189 people worked for the group (178 at the end of
2013). Employee remuneration expenses for 9 months 2014 amounted to 1.8 million
euros (in 9 months 2013: 1.8 million euros). 

The remuneration of the member of the management board/chief executive and the
members of the supervisory board of the group’s parent company including social
security charges for the first 9 months of 2014 amounted to 76 thousand euros
compared with 148 thousand euros for 9 months 2013. 

The management board of Arco Vara AS has one member. Since 22 October 2012, the
member of the management board and chief executive of Arco Vara AS has been
Tarmo Sild. 





SHARE AND SHAREHOLDERS

Arco Vara AS has issued a total of 6,117,012 shares. In September 2014, share
capital was raised by issuing 1,375,305 new shares. As at 30 September 2014,
the company had 1,679 shareholders and the share price closed at 0,951 euros, a
32.07% decrease within nine months. 

The following charts reflect movements in the price and daily turnover of Arco
Vara share in the first 9 months of 2014. 


In euros (EUR)



Changes in share price compared with the benchmark index OMX Tallinn in first 9
months of 2014. 



Indeks/equity
1 Jan 2014
30 Sept 2014
+/-%

             
OMX Tallinn    817.72     765.22   -6.42
----------------------------------------
ARC1T        1.40 EUR  0.951 EUR  -32.07
----------------------------------------





Major shareholders at 30 September 2014  No of shares  Interest %
AS Baltplast                                  862,820       14.1%
AS Lõhmus Holdings                            587,378        9.6%
Gamma Holding Investment OÜ                   506,615        8.3%
HM Investeeringud OÜ                          500,000        8.2%
Alarmo Kapital OÜ                             474,188        7.8%
LHV PENSIONIFOND L                            378,765        6.2%
FIREBIRD REPUBLICS FUND LTD                   356,428        5.8%
OÜ Rimonne Baltic                             207,300        3.4%
FIREBIRD AVRORA FUND, LTD.                    185,800        3.0%
LHV PENSIONIFOND XL                           169,583        2.8%
Other shareholders                          1,888,135       30.9%
-----------------------------------------------------------------
Total                                       6,117,012      100.0%





Holdings of members of the       Position                          No of  Intere
 management                                                       shares    st %
and supervisory boards at 30                                                    
 September 2014                                                                 
Toomas Tool (AS Baltplast)       member of supervisory board     862,820   14.1%
Rain Lõhmus (AS Lõhmus           member of supervisory board     587,378    9.6%
 Holdings)                                                                      
Hillar-Peeter Luitsalu (HM       chairman of supervisory         528,884    8.6%
 Investeeringud OÜ, connected     board                                         
 persons)                                                                       
Arvo Nõges (Gamma Holding        member of supervisory board     506,615    8.3%
 Investment OÜ)                                                                 
Tarmo Sild ja Allar Niinepuu     member of management board/     474,188    7.8%
 (Alarmo Kapital OÜ)              member of supervisory board                   
Stephan David Balkin             member of supervisory board           -       -
Aivar Pilv                       member of supervisory board           -       -
--------------------------------------------------------------------------------
Total                                                          2,959,885   48.4%





DESCRIPTION OF THE MAIN RISKS



Liquidity risk

The group’s free funds are placed on current accounts or short-term deposits
with the banks operating in Estonia, Latvia and Bulgaria. Owing to high
refinancing risk, cash flow management is critical. The group’s cash and cash
equivalents balance is constantly smaller than the balance of loans that
require refinancing in the next 12 months. At 30 June 2014, the weighted
average duration of interest-bearing liabilities was 2.4 years. At the end of
Q3 2014, the group’s cash and cash equivalents totalled 1.4 million euros. Out
of the cash and cash equivalents balance 0.3 million euros was in accounts with
restricted withdrawal opportunities (mostly accounts of designated purpose
where withdrawals require the banks’ consent). Liquidity and refinancing risks
continue to be the most significant risks for the group. 

Interest rate risk

The base currency of most of the group’s loan agreements is the euro and the
base interest rate is 3 or 6 months EURIBOR. As a result, the group is exposed
to developments in international capital markets. The group does not use
hedging instruments to mitigate its long-term interest rate risk. In 9 months
2014, the group’s interest-bearing liabilities has increased by 2.9 million
euros and amounted to 17.8 million euros at 30 September 2014. In first 9
months 2014, interest payments on interest-bearing liabilities totalled 0.5
million euros. The group’s weighted average loan interest rate is 5.8%. This is
a decrease by 0.2 percentage point in 9 months 2014 mainly due to decreased
Euribor rates. 

Currency risk

Purchase and sales contracts are mostly signed in local currencies: euros
(EUR), and Bulgarian levs (BGN). Real estate sales are mostly nominated in
euros, as a result of which the group’s assets and liabilities structure does
not denote a significant currency risk. The group is not protected against
currency devaluations. Most liquid funds are held in short-term deposits
denominated in euros. Devalution risk decreased since the beginning of year
2014 because Republic of Latvia transferred to euro. 

The chief executive/member of the management board confirms that the directors’
report of Arco Vara AS for the third quarter and nine months ended 30 September
2014 provides a true and fair view of the development, financial performance
and financial position of the group as well as a description of the main risks
and uncertainties. 





Tarmo Sild
Chief Executive and Member of the Management Board of Arco Vara AS

On 6 November 2014







Condensed consolidated interim financial statementsConsolidated statement of
comprehensive income 


                                  Note     9 months     9 months      Q3      Q3
                                               2014         2013    2014    2013
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
Continuing operations                                                           
--------------------------------------------------------------------------------
Revenue from rendering of                     2,861        2,821     953   1,016
 services                                                                       
--------------------------------------------------------------------------------
Revenue from sale of own real                   485        5,925     222   2,503
 estate                                                                         
--------------------------------------------------------------------------------
Total revenue                     2, 3        3,346        8,746   1,175   3,519
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Cost of sales                      4         -1,898       -6,309    -649  -2,715
--------------------------------------------------------------------------------
Gross profit                                  1,448        2,437     526     804
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Other income                       7            593          198     574      13
--------------------------------------------------------------------------------
Marketing and distribution         5           -240         -192     -66     -66
 expenses                                                                       
--------------------------------------------------------------------------------
Administrative expenses            6         -1,222       -1,175    -307    -383
--------------------------------------------------------------------------------
Other expenses                     7           -137          -62    -100     -34
--------------------------------------------------------------------------------
Gain on transactions involving                    0        1,000       0       0
 joint ventures                                                                 
--------------------------------------------------------------------------------
Gain on sale of subsidiaries       16           662           98       0       0
                                 -----------------------------------------------
Operating profit                              1,104        2,304     627     334
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Finance income and costs           8           -694         -738    -259    -257
--------------------------------------------------------------------------------
Net profit from continuing                      410        1,566     368      77
 operations                                                                     
---------------------------------                   -------------        -------
                                 -------------------             --------       
                                                                                
---------------------------------                                               
                                 -----------------------------------------------
Discontinued operations                                                         
---------------------------------                                               
                                 --------------------------------               
Profit/loss from discontinued      16           -13          435       0     377
 operations                                                                     
                                                                 ---------------
                                 --------------------------------               
                                                                                
---------------------------------                                               
Net profit for the period                       397        2,001     368     454
--------------------------------------------------------------------------------
---------------------------------------                                         
attributable to owners of the                   379        1,984     357     443
 parent                                                                         
                                       -----------------------------------------
attributable to non-controlling                  18           17      11      11
 interests                                                                      
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Total comprehensive income for                  397        2,001     368     454
 the period                                                                     
--------------------------------------------------------------------------------
---------------------------------------                                         
attributable to owners of the                   379        1,984     357     443
 parent                                                                         
                                       -----------------------------------------
attributable to non-controlling                  18           17      11      11
 interests                                                                      
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Earnings per share (in euros)      9                                            
--------------------------------------------------------------------------------
- basic                                        0.08         0.42    0.07    0.09
--------------------------------------------------------------------------------
- diluted                                      0.07         0.39    0.06    0.09
--------------------------------------------------------------------------------





Consolidated statement of financial position



                                           Note     30 September     31 December
                                                            2014            2013
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
Cash and cash equivalents                                  1,415             818
--------------------------------------------------------------------------------
Receivables and prepayments                 10               622             656
--------------------------------------------------------------------------------
Inventories                                 11            15,371          10,780
--------------------------------------------------------------------------------
Assets belonging to sales group             16                 0             847
--------------------------------------------------------------------------------
Total current assets                                      17,408          13,101
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Investments in equity-accounted investees                      0               1
                                          --------------------------------------
Receivables and prepayments                 10                 6             252
--------------------------------------------------------------------------------
Investment property                         12            11,336          11,331
                                          --------------------------------------
Property, plant and equipment                                443             459
--------------------------------------------------------------------------------
Intangible assets                                             60              13
--------------------------------------------------------------------------------
Total non-current assets                                  11,845          12,056
--------------------------------------------------------------------------------
TOTAL ASSETS                                              29,253          25,157
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Loans and borrowings                        13             5,996          12,589
--------------------------------------------------------------------------------
Payables and deferred income                14             2,719           1,746
--------------------------------------------------------------------------------
Provisions                                                   229             172
--------------------------------------------------------------------------------
Liabilities belonging to sales group        16                 0           1,488
--------------------------------------------------------------------------------
Total current liabilities                                  8,944          15,995
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Loans and borrowings                        13            11,803           2,308
--------------------------------------------------------------------------------
Total non-current liabilities                             11,803           2,308
--------------------------------------------------------------------------------
TOTAL LIABILITIES                                         20,747          18,303
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Share capital                               15             4,282           3,319
--------------------------------------------------------------------------------
Share premium                               15               292               0
--------------------------------------------------------------------------------
Statutory capital reserve                                  2,011           2,011
                                          --------------------------------------
Other reserves                                                60              60
--------------------------------------------------------------------------------
Retained earnings                                          1,826           1,452
--------------------------------------------------------------------------------
Total equity attributable to owners of                     8,471           6,842
 the parent                                                                     
--------------------------------------------------------------------------------
Equity attributable to non-controlling                        35              12
 interests                                                                      
--------------------------------------------------------------------------------
TOTAL EQUITY                                               8,506           6,854
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY                              29,253          25,157
--------------------------------------------------------------------------------





Consolidated statement of cash flows



                                      Note   9 months   9 months      Q3      Q3
                                                 2014       2013    2014    2013
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
Cash receipts from customers                    5,068      8,274   1,809   2,748
--------------------------------------------------------------------------------
Cash paid to suppliers                         -7,244     -5,946  -2,761  -1,749
--------------------------------------------------------------------------------
Taxes paid                                       -844     -1,528    -308    -561
--------------------------------------------------------------------------------
Taxes recovered                                   531        183     182      48
--------------------------------------------------------------------------------
Cash paid to employees                           -622       -637    -195    -209
                                     -------------------------------------------
Other cash payments and receipts                 -204       -141    -158     -68
 related to operating activities                                                
--------------------------------------------------------------------------------
Net cash flow of discontinued                       0       -354       0      25
 operations                                                                     
--------------------------------------------------------------------------------
NET CASH FROM/USED IN OPERATING                -3,315       -149  -1,431     234
 ACTIVITIES                                                                     
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Purchase of property, plant and                   -32        -18     -17      -9
 equipment                                                                      
--------------------------------------------------------------------------------
Proceeds from sale of property,                     0         18       0      16
 plant and equipment                                                            
--------------------------------------------------------------------------------
Proceeds from sale of investment                    0         20       0       0
 property                                                                       
--------------------------------------------------------------------------------
Proceeds from sale of a subsidiary     16          10      1,610       0       0
--------------------------------------------------------------------------------
Proceeds from sale of an associate                  1          0       1       0
--------------------------------------------------------------------------------
Loans provided                                     -3        -37       0     -29
--------------------------------------------------------------------------------
Placement of security deposits                   -416       -263     -89       0
--------------------------------------------------------------------------------
Release of security deposits                      679          0     227       0
--------------------------------------------------------------------------------
Interest received                                   3          5       1       1
--------------------------------------------------------------------------------
NET CASH FROM/USED IN INVESTING                   242      1,335     123     -21
 ACTIVITIES                                                                     
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Proceeds from loans received           13       4,053      2,881   1,472   1,461
--------------------------------------------------------------------------------
Settlement of loans and finance        13      -1,192     -4,484    -647  -1,558
 lease liabilities                                                              
--------------------------------------------------------------------------------
Interest paid                                    -515       -742     -89    -285
--------------------------------------------------------------------------------
Proceeds from share capital issue      15       1,375          0   1,375       0
--------------------------------------------------------------------------------
Other payments related to financing               -51         -9     -28       0
 activities                                                                     
--------------------------------------------------------------------------------
NET CASH FROM/USED IN FINANCING                 3,670     -2,354   2,083    -382
 ACTIVITIES                                                                     
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
NET CASH FLOW                                     597     -1,168     775    -169
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Cash and cash equivalents at                      818      1,775     640     739
 beginning of period                                                            
--------------------------------------------------------------------------------
Change in cash and cash equivalents               597     -1,168     775    -169
--------------------------------------------------------------------------------
Decrease in cash and cash equivalents               0        -37       0       0
 through sale of a subsidiary                                                   
--------------------------------------------------------------------------------
Cash and cash equivalents at end of             1,415        570   1,415     570
 period                                                                         
--------------------------------------------------------------------------------





Consolidated statement of changes in equity


-------------                                                                   
                 Equity attributable to owners of the parent    Non-cont   Total
                                                                 rolling  equity
                                                                interest        
                                                                       s        
             -------------------------------------------------------------------
               Share   Share  Statutory   Other  Retain  Total            
              capita  premiu    capital  reserv      ed                   
                   l       m    reserve      es  earnin                   
                                                     gs                   
---------------------------------------------------------------          
In thousands                                                                    
 of euros                                                                       
--------------------------------------------------------------------------------
Balance as     3,319       0      2,011       0  -1,958  3,372        -5   3,367
 at 31                                                                          
 December                                                                       
 2012                                                                           
--------------------------------------------------------------------------------
Total              0       0          0       0   1,984  1,984        17   2,001
 comprehensi                                                                    
ve income                                                                       
 for the                                                                        
 period                                                                         
             -------------------------------------------------------------------
Balance as     3,319       0      2,011       0      26  5,356        12   5,368
 at 30                                                                          
 September                                                                      
 2013                                                                           
--------------------------------------------------------------------------------
                                                                                
             -------------------------------------------------------------------
Balance as     3,319       0      2,011      60   1,452  6,842        12   6,854
 at 31                                                                          
 December                                                                       
 2013                                                                           
--------------------------------------------------------------------------------
Total              0       0          0       0     379    379        18     397
 comprehensi                                                                    
ve income                                                                       
 for the                                                                        
 period                                                                         
--------------------------------------------------------------------------------
Increase of      963     292          0       0       0  1,255         0   1,255
 share                                                                          
 kapital                                                                        
 (note 15)                                                                      
--------------------------------------------------------------------------------
Change in          0       0          0       0      -5     -5         5       0
 non-control                                                                    
ling                                                                            
 interests                                                                      
--------------------------------------------------------------------------------
Balance as     4,282     292      2,011      60   1,826  8,471        35   8,506
 at 30                                                                          
 September                                                                      
 2014                                                                           
--------------------------------------------------------------------------------





Notes to the condensed consolidated interim financial statements1. Significant
accounting policies 



The unaudited condensed consolidated interim financial statements of Arco Vara
AS for the third quarter and nine months ended 30 September 2014 have been
prepared in accordance with IAS 34 Interim Financial Reporting. The condensed
consolidated interim financial statements should be read in conjunction with
the consolidated annual financial statements for the year ended 31 December
2013, which have been prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union. 

All amounts in the financial statements are presented in thousands of euros
unless indicated otherwise. 




2. Segment information


The group has the following reportable operating segments:

Development - development of residential and commercial real estate
environments and long-term investment in real estate; 

Service - real estate services: real estate brokerage, valuation, management
and short-term investment in real estate; 


Revenue and operating profit by operating segment


Segmen   Development       Service       Unallocated     Eliminations   
Consolidated 
t                                            items 
--------------------------------------------------------------------------------
------ 
          9m      9m      9m      9m      9m      9m      9m      9m      9m   
  9m 
         2014    2013    2014    2013    2014    2013    2014    2013    2014  
 2013 
--------------------------------------------------------------------------------
------ 
In 
 thous 
ands 
 of 
 euros 
Extern   1,263   6,770   2,080   1,974       3       2                   3,346 
 8,746 
al 
 reven 
ue 
--------------------------------------------------------------------------------
------ 
Annual    -81%     20%      5%     13%                                    -62% 
   18% 
 chang 
e 
--------------------------------------------------------------------------------
------ 
Inter-      26      13     321     195                    -347    -208       0 
     0 
segmen 
t 
 reven 
ues 
--------------------------------------------------------------------------------
------ 
Total    1,289   6,783   2,401   2,169       3       2    -347    -208   3,346 
 8,746 
 reven 
ue 
--------------------------------------------------------------------------------
------ 
--------------------------------------------------------------------------------
------ 
Operat     696   2,655     188     158     189    -231      31    -278   1,104 
 2,304 
ing 
 profi 
t/loss 
--------------------------------------------------------------------------------
------ 
Of         572       0       0       0       0       0                     572 
     0 
 which 
 rever 
sal of 
 inven 
tory 
 write 
-down 
--------------------------------------------------------------------------------
------ 
gain         0      98       0       0     662       0                     662 
    98 
 on 
 sale 
 of 
 subid 
iaries 
--------------------------------------------------------------------------------
------ 
gain         0   1,000       0       0       0       0                       0 
 1,000 
 on 
 rever 
sal of 
 provi 
sons 
--------------------------------------------------------------------------------
------ 





Segmen   Development       Service       Unallocated     Eliminations   
Consolidated 
t                                            items 
--------------------------------------------------------------------------------
------ 
          Q3      Q3      Q3      Q3      Q3      Q3      Q3      Q3      Q3   
  Q3 
         2014    2013    2014    2013    2014    2013    2014    2013    2014  
 2013 
--------------------------------------------------------------------------------
------ 
In 
 thous 
ands 
 of 
 euros 
Extern     476   2,764     698     754       1       1                   1,175 
 3,519 
al 
 reven 
ue 
--------------------------------------------------------------------------------
------ 
Annual    -83%     49%     -7%     27%                                    -67% 
   44% 
 chang 
e 
--------------------------------------------------------------------------------
------ 
Inter-      11       3      93      58                    -104     -61       0 
     0 
segmen 
t 
 reven 
ues 
--------------------------------------------------------------------------------
------ 
Total      487   2,767     791     812       1       1    -104     -61   1,175 
 3,519 
 reven 
ue 
--------------------------------------------------------------------------------
------ 
--------------------------------------------------------------------------------
------ 
Operat     632     396      56      90    -170    -105     109     -47     627 
   334 
ing 
 profi 
t/loss 
--------------------------------------------------------------------------------
------ 
Of         572       0       0       0       0       0                     572 
     0 
 which 
 rever 
sal of 
 inven 
tory 
 write 
-down 
--------------------------------------------------------------------------------
------ 





Assets and liabilities by operating segment


Segmen   Development       Service      Construction ¹   Unallocated    
Consolidated 
t                                                            items 
--------------------------------------------------------------------------------
------ 
          30    31 Dec    30    31 Dec    30    31 Dec    30    31 Dec    30   
31 Dec 
         Sept    2013    Sept    2013    Sept    2013    Sept    2013    Sept  
 2013 
         2014            2014            2014            2014            2014 
--------------------------------------------------------------------------------
------ 
--------------- 
In thousands 
 of euros 
Assets  27,830  23,456     667     557       0     847     756     297  29,253 
25,157 
--------------------------------------------------------------------------------
------ 
Liabil  19,177  15,324     530     557       0   1,488   1,040     934  20,747 
18,303 
ities 
--------------------------------------------------------------------------------
------ 

¹ - As at 31 December 2013, presented in statement of financial position as
sales group assets and liabilities 





3. Revenue

                                   9 months 2014      9 months  Q3 2014  Q3 2013
                                                          2013                  
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
                                  ---------------                               
Sale of own real estate                      485         5,925      222    2,503
----------------------------------               --------------         --------
                                  ---------------              ---------        
Real estate brokerage and                  1,932         1,895      647      714
 valuation                                                                      
----------------------------------               --------------         --------
Rental of real estate                        719           756      234      237
--------------------------------------------------------------------------------
Property management services                  98            80       32       27
----------------------------------               --------------         --------
Other revenue                                112            90       40       38
--------------------------------------------------------------------------------
Total revenue                              3,346         8,746    1,175    3,519
--------------------------------------------------------------------------------




4. Cost of sales



                                           9 months     9 months      Q3      Q3
                                               2014         2013    2014    2013
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
Cost of real estate sold                       -443       -4,827    -206  -2,202
                                                    -------------        -------
                                                                 --------       
Personnel expenses                           -1,171       -1,160    -376    -426
-----------------------------------------------------------------        -------
                                                                 --------       
Property management costs                      -189         -244     -40     -57
-----------------------------------------------------------------        -------
                                                                 --------       
Vehicle expenses                                -13          -16      -4      -5
-----------------------------------------------------------------        -------
                                                                 --------       
Depreciation, amortisation and                   -9           -8      -3      -3
 impairment losses                                                              
-----------------------------------------------------------------        -------
Other costs                                     -73          -54     -20     -22
--------------------------------------------------------------------------------
Total cost of sales                          -1,898       -6,309    -649  -2,715
--------------------------------------------------------------------------------




5. Marketing and distribution expenses



                                         9 months     9 months  Q3 2014  Q3 2013
                                             2014         2013                  
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
Advertising expenses                         -129         -113      -36      -33
--------------------------------------------------------------------------------
Personnel expenses                            -45          -31      -11      -15
------------------------------------              -------------         --------
                                    --------------             ---------        
Market research                                -6           -7        0       -4
------------------------------------              -------------         --------
Brokerage fees                                 -1           -6        0       -2
--------------------------------------------------------------------------------
Other marketing and distribution              -59          -35      -19      -12
 expenses                                                                       
--------------------------------------------------------------------------------
Total marketing and distribution             -240         -192      -66      -66
 expenses                                                                       
--------------------------------------------------------------------------------





6. Administrative expenses



                                           9 months     9 months      Q3      Q3
                                               2014         2013    2014    2013
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
                                       -------------             --------       
Personnel expenses                             -558         -583    -189    -181
---------------------------------------             -------------        -------
                                       -------------             --------       
Office expenses                                -261         -262     -84     -81
---------------------------------------             -------------        -------
                                       -------------             --------       
Services purchased                             -163         -121      19     -42
---------------------------------------             -------------        -------
                                       -------------             --------       
IT expenses                                    -109          -70     -30     -30
---------------------------------------             -------------        -------
                                       -------------             --------       
Legal service fees                              -60          -62       2     -23
---------------------------------------             -------------        -------
                                       -------------             --------       
Vehicle expenses                                -29          -27      -9      -9
---------------------------------------             -------------        -------
                                       -------------             --------       
Depreciation, amortisation and                  -27          -18     -11      -6
 impairment losses                                                              
---------------------------------------             -------------        -------
Other expenses                                  -15          -32      -5     -11
--------------------------------------------------------------------------------
Total administrative expenses                -1,222       -1,175    -307    -383
--------------------------------------------------------------------------------



7. Other income and expenses



Other income                                                                    
                                            9 months    9 months      Q3      Q3
                                                2014        2013    2014    2013
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
Gain on reversal of inventory write-down         572           0     572       0
 (note 11)                                                                      
--------------------------------------------------------------------------------
                                         ------------            --------       
Gain on sale of property, plant and                0           4       0       4
 equipment                                                                      
-----------------------------------------            ------------        -------
Miscellaneous income                              21         194       2       9
--------------------------------------------------------------------------------
Total other income                               593         198     574      13
--------------------------------------------------------------------------------
                                                                                
Other expenses                                                                  
                                            9 months    9 months      Q3      Q3
                                                2014        2013    2014    2013
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
                                         ------------            --------       
Loss on realisation of construction             -101           0     -82       0
 guarantees                                                                     
-----------------------------------------            ------------        -------
                                         ------------            --------       
Late payment interest and penalty                 -6         -35      -4     -30
 charges                                                                        
-----------------------------------------            ------------        -------
Loss on sale and impairment of other              -1          -1      -1       0
 non-current assets                                                             
--------------------------------------------------------------------------------
Loss on changes in the fair value of               0          -3       0       0
 investment property                                                            
--------------------------------------------------------------------------------
Inventory write-down                               0          -3       0       0
-----------------------------------------            ------------        -------
                                         ------------            --------       
Write-down of receivables                          0         -10       0      -1
-----------------------------------------            ------------        -------
Miscellaneous expenses                           -29         -10     -13      -3
--------------------------------------------------------------------------------
Total other expenses                            -137         -62    -100     -34
--------------------------------------------------------------------------------



8. Finance income and costs



                                9 months 2014  9 months 2013  Q3 2014  Q3 2013
------------------------------------------------------------------------------
In thousands of euros                                                         
------------------------------------------------------------------------------
Interest expense                         -644           -659     -225     -230
------------------------------------------------------------------------------
Interest income                             3             20        1        1
------------------------------------------------------------------------------
Other finance income and costs            -53            -99      -35      -28
-------------------------------               ---------------         --------
Total finance income and costs           -694           -738     -259     -257
------------------------------------------------------------------------------





9. Earnings per share



Basic earnings per share are calculated by dividing profit or loss for the
period attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during the period. Diluted
earnings per share are calculated by taking into account the effects of all
dilutive potential ordinary shares. 

                                      9 months    9 months    Q3 2014    Q3 2013
                                          2014        2013                      
--------------------------------------------------------------------------------
Weighted average number of           4,872,688   4,741,707  5,130,380  4,741,707
 ordinary shares outstanding                                                    
during the period                                                               
--------------------------------------------------------------------------------
Number of ordinary shares              390,000     390,000    390,000    390,000
 potentially to be issued                                                       
--------------------------------------------------------------------------------
Net profit/loss attributable to            379       1,984        357        443
 owners of the parent                                                           
(in thousands of euros)                                                         
--------------------------------------------------------------------------------
Earnings per share (in euros)             0.08        0.42       0.07       0.09
--------------------------------------------------------------------------------
Diluted earnings per share (in            0.07        0.39       0.06       0.09
 euros)                                                                         
--------------------------------------------------------------------------------

According to the decision of the annual general shareholders’ meeting of Arco
Vara AS, held on 1 July 2013, one convertible bond was issued with the nominal
value of 1,000 euros. The convertible bond will give to the chief executive of
the group’s parent company the right to subscribe up to 390 thousand ordinary
shares of Arco Vara AS for 0.7 euros per share during the year 2016. As at 31
December 2013, an equity reserve was created in amount of 60 thousand euros for
the option associated with the bond. See also note 17. 

In September 2014, share capital of Arco Vara AS was increased by issuing
additional shares. The number of ordinary shares has been increased by
1,375,305 shares. See also note 15. 



10. Receivables and prepayments


Short-term receivables and prepayments                                          
                                                   30 September      31 December
                                                           2014             2013
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
Trade receivables                                                               
--------------------------------------------------------------------------------
Receivables from customers                                   96              164
--------------------------------------------------------------------------------
Allowance for doubtful trade receivables                    -22              -22
--------------------------------------------------------------------------------
Total trade receivables                                      74              142
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Other receivables                                                               
--------------------------------------------------------------------------------
Loans provided                                               36               33
--------------------------------------------------------------------------------
Term deposits (with maturities from 3 to 12                   0               23
 months)                                                                        
--------------------------------------------------------------------------------
Miscellaneous receivables                                   169              163
                                              ----------------------------------
Total other receivables                                     205              219
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Accrued income                                                                  
--------------------------------------------------------------------------------
Prepaid and recoverable taxes                               202              127
--------------------------------------------------------------------------------
Other accrued income                                         10                9
--------------------------------------------------------------------------------
Total accrued income                                        212              136
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Prepayments                                                 131              159
                                              ----------------------------------
Total short-term receivables and prepayments                622              656
--------------------------------------------------------------------------------
                                                                                
Long-term receivables                                                           
                                                   30 September      31 December
                                                           2014             2013
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
Term deposits (with maturities more than 1                    0              240
 year)                                                                          
--------------------------------------------------------------------------------
Prepayments                                                   6               12
--------------------------------------------------------------------------------
Total long-term receivables and prepayments                   6              252
--------------------------------------------------------------------------------



11. Inventories


                                                   30 September      31 December
                                                           2014             2013
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
Properties purchased and being developed for             15,350           10,762
 resale                                                                         
--------------------------------------------------------------------------------
Materials and finished goods                                  5                5
----------------------------------------------                  ----------------
Prepayments for inventories                                  16               13
--------------------------------------------------------------------------------
Total inventories                                        15,371           10,780
--------------------------------------------------------------------------------
                                                                                
Properties purchased and being developed for resale                             
In thousands of euros                                                           
----------------------------------------------------------------                
Balance at 31 December 2013                              10,762                 
----------------------------------------------------------------                
Properties purchased for development                        120                 
----------------------------------------------------------------                
Construction costs of apartment buildings                 3,899                 
----------------------------------------------------------------                
Capitalized borrowing costs                                 175                 
----------------------------------------------------------------                
Reversal of inventory write-down (note 11)                  572                 
----------------------------------------------------------------                
Other capitalized costs                                     250                 
----------------------------------------------------------------                
Cost of sold properties                                    -428                 
----------------------------------------------------------------                
Balance at 30 September 2014                             15,350                 
----------------------------------------------------------------                



12. Investment property


In thousands of euros                
-------------------------------------
Balance at 31 December 2013    11,331
-------------------------------------
Capitalised development costs       5
-------------------------------------
Balance at 30 September 2014   11,336
-------------------------------------



13. Loans and borrowings


                  As at 30 September 2014            As at 31 December 2013     
--------------------------------------------------------------------------------
              Total      of which     of which   Total     of which     of which
                          current  non-current              current  non-current
                          portion      portion              portion      portion
--------------------------------------------------------------------------------
In                                                                              
 thousands                                                                      
 of euros                                                                       
--------------------------------------------------------------------------------
Bank loans   16,844         5,799       11,045  14,121       12,576        1,545
--------------------------------------------------------------------------------
Bonds           911           160          751     751            0          751
--------------------------------------------------------------------------------
Finance          44            37            7      25           13           12
 lease                                                                          
 liabilitie                                                                     
s                                                                               
--------------------------------------------------------------------------------
Total        17,799         5,996       11,803  14,897       12,589        2,308
--------------------------------------------------------------------------------



In 9 months 2014, the group settled loans and borrowings of 1 192 thousand
euros (in 9 months 2013: 4,484 thousand euros) through cash transactions and
raised new loans of 4,053 thousand euros (in 9 months 2013: 2,881 thousand
euros). 

Balance of loans and borrowings is increased in first 9 months 2014 mainly due
to loan used for financing the construction of Manastirski Livadi project II
stage in Bulgaria. The open limit of the loan was used in amount of 3,178
thousand euros in 9 months 2014. There was also made repayments of the same
loan in total amount of 532 thousnad euros. 

On 21 March 2013, Arco Vara AS issued bonds as targeted issue in total amount
of 160 thousand euros. The bonds maturity date is 20 June 2015 and annual
interest rate is 9.8%. See also note 17. 



In June 2014, the group agreed with Piraeus bank the changes in terms of the
bank loan raised by the group’s Bulgarian subsidiary. As a result, 1,200
thousand euros will be payable in year 2014 and the repayment term of the
remaining loan amount of 10,954 thousand euros was prolonged up to December
2017. 





14. Payables and deferred income

                                                                                
                                             30 September 2014  31 December 2013
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
Trade payables                                             279               464
--------------------------------------------------------------------------------
Miscellaneous payables                                     443                15
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Taxes payable                                                                   
--------------------------------------------------------------------------------
Value added tax                                             55               172
--------------------------------------------------------------------------------
Corporate income tax                                        42                11
--------------------------------------------------------------------------------
Personal income tax                                         16                20
--------------------------------------------------------------------------------
Social security tax                                         31                41
--------------------------------------------------------------------------------
Other taxes                                                272               270
--------------------------------------------------------------------------------
Total taxes payable                                        416               514
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Accrued expenses                                                                
--------------------------------------------------------------------------------
Interest payable                                           289                 8
--------------------------------------------------------------------------------
Payables to employees                                      125               132
--------------------------------------------------------------------------------
Other accrued expenses                                      12                38
--------------------------------------------------------------------------------
Total accrued expenses                                     426               178
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Deferred income                                                                 
--------------------------------------------------------------------------------
Prepayments received on sale of real estate              1,155               575
--------------------------------------------------------------------------------
Total deferred income                                    1,155               575
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Total short-term payables and deferred                   2,719             1,746
 income                                                                         
--------------------------------------------------------------------------------




15. Share capital



The extraordinary general meeting of shareholders of Arco Vara AS held on 4
July 2014 adopted the decision to approve the issuance of 3.5 million new
shares with the nominal value of 0.7 euros per share and the issuance price of
1 euro per share, therefore the amount of share premium will be 0.3 euros per
share. The subscription period lasted from 8 August until 29 August 2014 and
pre-emptive right of subscription had shareholders who were in the list of Arco
Vara AS shareholders as at 7 August 2014. 1,375,305 shares were subscribed in
total, 39.3% out of targeted volume. The raise of share capital was registered
in trade register on 15 September 2014. As a result of share issue the equity
of Arco Vara AS has been increased by 963 thousand euros and new share capital
amounts to 4,282 thousand euros. The increased share capital consists of
6,117,012 shares with nominal value of 0.7 euros per share. 

The share issue was conducted with share premium in amount of 292 thousand
euros, of which 412 thousand euros was total premium paid by investors over
nominal value of shares and the amount is decreased by direct costs of share
issue amounted to 120 thousand euros. The group’s equity has been increased by
1,255 thousand euros as a result of share issue. 





16. Sale of a subsidiary



On 14 February 2014, Arco Vara AS divested its 100% share in Arco Ehitus OÜ to
the company Stratcorp OÜ. The sale price of the share included two parts: 

1) 10 thousand euros paid on transfer of the share;

2) 30% out of the amount, that Arco Ehitus OÜ will gain from actions brought by
Arco Ehitus OÜ through Ministry of Education and Research and OÜ Loksa
Haljastus. Income tax is deducted from proceeds. 

The group’s gain on the transaction amounted to 652 thousand euros not
considering the impact of sale price. As a result of the divestment, the
group’s liabilities decreased by 1,020 thousand euros and its assets declined
by 368 thousand euros. 

Effect of subsidiary’s sale on the group’s statement of financial position
---------------------------------------------------------------------------
In thousands of euros                                                     
--------------------------------------------------------------------------
Decrease in cash                                                       -18
--------------------------------------------------------------            
                                                              ------------
Decrease in receivables                                               -300
--------------------------------------------------------------            
                                                              ------------
Decrease in inventory and property, plant and equipment                -50
--------------------------------------------------------------            
Decrease in liabilities and prepayments collected                    1,020
--------------------------------------------------------------------------
Total effect on the group’s net assets                                 652
--------------------------------------------------------------------------

Through the sale of Arco Ehitus OÜ, the group completed the exit from
construction activities. That was one of the targets for the group during 2013.
Therefore, construction business line income and expenses are presented as
discontinued operations, and construction business line assets and liabilities
are presented as sales group assets and liabilities. 



Components of net profit/loss from discontinued                                 
 operations                                                                     
                                          9 months      9 months      Q3      Q3
                                              2014          2013    2014    2013
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
Revenue                                          0         3,657       0   1,222
--------------------------------------------------------------------------------
Cost of sales                                    0        -2,972       0    -770
-------------------------------------              --------------        -------
Aministrative expenses                         -13          -246       0     -72
--------------------------------------------------------------------------------
Other operating income and expenses              0            -4       0      -3
-------------------------------------              --------------        -------
Net profit/loss from discontinued              -13           435       0     377
 operations                                                                     
--------------------------------------------------------------------------------



Sales group assets and liabilities                                   
                                                     31 Decemebr 2013
---------------------------------------------------------------------
In thousands of euros                                                
---------------------------------------------------------------------
Cash and cash equivalents                                          80
---------------------------------------------------------------------
Receivables and prepayments                                       717
----------------------------------------------------                 
                                                    -----------------
Inventories                                                        44
----------------------------------------------------                 
                                                    -----------------
Property, plant and equipment and intangible assets                 6
----------------------------------------------------                 
Total sales group assets                                          847
---------------------------------------------------------------------
Liabilities and prepayments                                     1,488
---------------------------------------------------------------------
Total sales group liabilities                                   1,488
---------------------------------------------------------------------



17. Related party disclosures



The group has conducted transactions or has balances with the following related
parties: 

1)     the group’s joint ventures and associates;

2)     companies under the control of the chief executive and the members of
the supervisory board of Arco Vara AS that have a significant interest in the
group’s parent company; 

3)     other related parties – the chief executive and the members of the
supervisory board of Arco Vara AS and companies under their control (excluding
companies that have a significant interest in the group’s parent company). 



Transactions with related parties                                               
                                                     9 months 2014      9 months
                                                                            2013
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
Joint ventures and associate                                                    
--------------------------------------------------------------------------------
Revenue                                                          0             1
--------------------------------------------------------------------------------
Services purchased                                              26             0
--------------------------------------------------------------------------------
Provision of loans                                               3            37
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Companies that have a significant interest in the                               
 group’s parent company                                                         
                                                    ----------------------------
Services purchased                                             232            24
--------------------------------------------------------------------------------
Bonds issued                                                   150           500
--------------------------------------------------------------------------------
Paid interest                                                   60             8
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Other related parties                                                           
--------------------------------------------------------------------------------
Services sold                                                    3             0
--------------------------------------------------------------------------------
Services purchased                                               2            21
--------------------------------------------------------------------------------
Bonds issued                                                     0           251
--------------------------------------------------------------------------------
Paid interest                                                   26             4
--------------------------------------------------------------------------------
                                                                                
Balances with related parties                                                   
                                                      30 September   31 December
                                                              2014          2013
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
Joint ventures and associate                                                    
--------------------------------------------------------------------------------
Short-term loan receivables                                      0            33
--------------------------------------------------------------------------------
Short-term interest receivables                                  0             1
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Companies that have a significant interest in the                               
 group’s parent company                                                         
--------------------------------------------------------------------------------
Trade payables                                                   0             3
--------------------------------------------------------------------------------
Bonds issued                                                   650           500
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Other related parties                                                           
--------------------------------------------------------------------------------
Trade payables                                                   1             7
--------------------------------------------------------------------------------
Bonds issued                                                   251           251
--------------------------------------------------------------------------------



On 21 March 2014, Arco Vara AS issued bonds as targeted issue in total amount
of 160 thousand euros. 150 thousand euros out of the total issued bonds were
subscribed by the companies that have significant interest in the group’s
parent company. The bonds maturity date is 20 June 2015 and annual interest
rate is 9.8%. The issued bonds are guaranteed with mortgage on property that
belongs to the subsidiary of Arco Vara AS. See also note 13. 

In 9 months 2014, the remuneration provided to the group’s key management
personnel, i.e. the chief executive/member of the management board and the
members of the supervisory board of the group’s parent company, including
social security charges, amounted to 76 thousand euros (in 9 months 2013: 148
thousand euros). The remuneration provided to the chief executive/member of the
management board is based on his service contract. The termination benefits
agreed with Tarmo Sild, who was appointed chief executive officer/member of the
management board of Arco Vara AS in October 2012, amount to up to five months’
basic board member remuneration. The basis for the remuneration provided to the
members of the supervisory board was changed since July 2013. According to the
resolution of the general meeting of Arco Vara AS, the members of the
supervisory board will get paid 500 euros (net amount) for every participated
meeting but not more than 1,000 euros (net amount) per month. The payment of
the renumeration is made dependent on the signing of the minutes of the
meetings of the supervisory board. The group’s key management personnel was not
provided or paid any other remuneration or benefits (bonuses, termination
benefits, etc) in first 9 months 2014. 

In favor of chief executive/member of management board is issued convertible
bond, which gives him the right to subscribe up to 390,000 ordinary shares of
Arco Vara AS for 0.7 euros per share during the year 2016. See also note 9. 





Statement by the chief executive/member of the management board



The chief executive/member of the management board of Arco Vara AS has prepared
Arco Vara AS’s condensed consolidated interim financial statements for the
third quarter and nine months ended 30 September 2014. 

The condensed consolidated interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting and they give a true and
fair view of the financial position, financial performance and cash flows of
Arco Vara AS. Arco Vara AS is a going concern. 





Tarmo Sild
Chief Executive and Member of the Management Board of Arco Vara AS

On 6 November 2014