Market announcement

Title

2019 Annual Report of Arco Vara

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KEY PERFORMANCE INDICATORS

In  2019, the Group's revenue was  13.1 million euros, increasing 3.6 times from
2018's revenue from continuing operations of 3.6 million euros.

In  2019, the Group's  operating profit  (=EBIT) was  950 thousand euros and net
profit  388 thousand  euros.  In  2018, the  Group  made  operating  profit from
continuing  operations  of  101 thousand  and  net  loss  of 382 thousand euros.
Discontinued  operations brought  an additional  operating loss  of 161 thousand
euros in 2018.

In  2019, 82 apartments were sold  in the development  projects of the Group (in
2018: 12 apartments, 3 commercial spaces and 2 land plots). Lahepea 9 apartments
constituted the largest part of the sales.

In 2019, the Group's debt burden (net loans) decreased by 2.8 million euros down
to  the level  of 11.5 million  euros as  of 31 December 2019. As of 31 December
2019, the  weighted average annual interest rate of interest-bearing liabilities
was 4.2%, which is 0.8% lower than on 31 December 2018.


GROUP CEO'S REVIEW

In 2019, Arco Vara Group made 13 million euros in revenue and 400 thousand euros
in  net profit  on its  equity of  13 million euros.  This reflects  the Group's
sensitivity  to the development and selling  pace of its real estate development
projects.  Had we achieved the planned  result in the Iztok Parkside development
project  in Bulgaria, the  revenue would have  exceeded 22 million euros and net
profit  2,2 million euros. The Group certainly has plenty of room for increasing
return on equity and this was also reflected in the share price.

The  Group's equity is  invested into assets  that have been  stabilized and are
manageable.  Manageability  means  that  Arco  Vara  has a freedom of choice for
commencing, timing and pricing development projects in Estonia and Bulgaria, and
that  the rental property on Madrid Blvd in Sofia is backed with a new long-term
bank  loan, which requires  partial occupancy by  tenants in order  to serve the
loan. In reality, the occupancy rate was close to 100% at the end of the year.

In terms of internal processes, organizational structure, as well as the balance
sheet  and expected cash flows,  the Group has achieved  a level of quality that
allows  to firmly continue with  its growth plans. The  main assets of the Group
are  its  seasoned  and  motivated  development  teams  in Estonia and Bulgaria,
together  with  its  well-known  trademark  and  trust earned in the real estate
sector.  This trust and reputation can be transformed into measurable success in
financing,  constructing, marketing and selling real  estate projects. On top of
that,  the  Group  is  earning  additional  income through license agreements in
Estonia, Latvia and Bulgaria.

The  Company's  equity  to  debt  ratio  of  46/54 as of 31.12.2019 is too high,
considering existing cash position, expected increase in equity upon realization
of  Iztok Parkside  project and  the weighted  average term of loan liabilities.
Therefore, the Company must either increase investments, or start share buybacks
or  cash distributions to shareholders.  Of course, the Company's capitalization
and  cash usage may  be revised in  the middle of  April, as the global economic
environment is very dynamic and may offer new opportunities.

In  2020, the Group continues with  two Estonian developments projects, Kodulahe
in  Tallinn and  Kodukalda in  Tartu, with  a total  of 80 apartments  under the
cranes. Bank financing for finalising the construction has been secured and does
not depend on new presales. Depending on the market situation, primarily the yet
unclear consequences of the Covid-19 crisis, new constructions are theoretically
possible  in Botanica Lozen project in Sofia with a potential of over 600 units,
as  well as  in Kodulahe  project in  Tallinn, where  the detail  plan allows to
construct  further 200+ apartments.  In the  first half  of 2020, Iztok Parkside
project  with 68 apartments (GSA  of 6,553 m(2)) should  be realised - a project
where two thirds of the time to date has been spent on bureaucracy and one third
on  construction and sale.  By the end  of the year,  Kodukalda project in Tartu
with  30 apartments (GSA of 1,967 m(2)) should be realised and a decision should
be  made about acquiring  second stage land  plots in Botanica  Lozen project in
Sofia.  Further, we  will continue  close cooperation  with real estate agencies
using  Arco  Vara  brand  name  and  offering valuation and brokerage services -
businesses that received mostly positive feedback from clients in 2019. Thus, on
one  hand,  Arco  Vara  will  continue  with  targeted  residential  real estate
developments  in  Estonia  and  Bulgaria,  but  on other hand, will keep seeking
information-based  synergies with brokers and evaluators working under Arco Vara
brand name.


OPERATING REPORT

The revenue of the Group totalled 13,109 thousand euros in 2019 (in 2018: 6,632
thousand  euros, out of which  3,635 thousand euros from continuing operations),
including  revenue from  the sale  of properties  in the Group's own development
projects in the amount of 12,152 thousand euros (in 2018: 2,778 thousand euros).

Most  of the other revenue consists of  rental income from commercial and office
premises  in Madrid Blvd  building in Sofia,  amounting to 696 thousand euros in
2019 (in  2018: 586 thousand euros).  As of  the publishing  date of  the annual
report, all office and commercial spaces together with parking places were being
rented out.
In  2019, the  Group  had  operating  profit  of  388 thousand  euros. In 2018,
operating profit from continuing operations was 101 thousand euros.

In  2019, construction works finished  in Stage II  of Kodulahe project and keys
were handed over to 65 apartment owners out of the total of 68 apartments during
2019. By  the publishing date of the annual report, 1 apartment and a commercial
space remained unsold.

In  2019, construction of Kodulahe Stage III  began. In Stage III, a residential
building  with  50 apartments  is  being  constructed  at  Soodi  4 in Merimetsa
district  in Tallinn. Under favourable market conditions, the joint construction
of  Stages IV-V  will be  started in  2020. The apartment  buildings will become
ready  for final sale in about 1,5 years after the start of construction. By the
publishing  date of the interim report,  presale agreements for 19 apartments in
the Stage III building have been concluded.

In  2019, construction  of  4 smaller  apartment  buildings  with a total of 30
apartments  began  on  Oa  street  plots  in  Tartu  under  the  project name of
Kodukalda.  The construction is  scheduled to end  in Q4 2020. By the publishing
time of the interim report, 12 apartments have been presold.

In  Iztok Parkside project in Sofia, the final sale of apartments started at the
end  of Q4 2019, but the main sales  are planned to take place during 2020 after
receiving  an occupancy  permit. By  the publishing  date of the interim report,
presale  agreements  for  10 apartments  have  not been concluded. Iztok project
consists of three apartment buildings with a total of 67 apartments.

In   Madrid   Blvd   building,  the  apartments  previously  used  for  offering
accommodation service are all sold as of the date of this report.

In  Lozen  Botanica  project  near  Sofia  in  Bulgaria,  design works have been
completed  and main contractor has been  chosen for Stage 1. Construction permit
is   expected  in  Q3  2020. The  project  foresees  construction  of  179 homes
(apartments  and houses), commercial spaces and a kindergarten. Under favourable
market  conditions,  construction  may  start  in  Q3 2020, divided into smaller
stages.  Considering  the  nature  of  terrain  on  a  mountain  slope,  minimum
construction period is 2 years.

As of 31 December 2019, 4 Marsili residential plots remained unsold in Latvia.


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

------------------------------------------------------------------------------
  In thousands of euros                                         2019     2018
------------------------------------------------------------------------------


  Continuing operations

  Revenue from sale of own real estate                        12,152    2,778

  Revenue from rendering of services                             957      857

  Total revenue                                               13,109    3,635



  Cost of sales                                              -11,295   -2,446

  Gross profit                                                 1,814    1,189



  Other income                                                   137      135

  Marketing and distribution expenses                            -96     -133

  Administrative expenses                                       -777   -1,224

  Other expenses                                                -121     -108

  Gain/loss on revaluation of investment property                 -7       14

  Gain on sale of subsidiaries                                     0      228

  Operating profit                                               950      101



  Financial income and costs                                    -562     -482

  Profit/loss before tax                                         388     -381

  Income tax                                                       0       -1

  Net profit/loss from continuing operations                     388     -382



  Net loss from discontinued operations                            0     -162

  Net profit/loss for the period                                 388     -544



  Total comprehensive income/expense for the period              388     -544
------------------------------------------------------------------------------


------------------------------------------------------------------------------
  Earnings per share from continuing operations (in euros)

  - basic                                                       0.04    -0.04

  - diluted                                                     0.04    -0.04
------------------------------------------------------------------------------
  Earnings per share (in euros)

  - basic                                                       0.04    -0.06

  - diluted                                                     0.04    -0.06
------------------------------------------------------------------------------


CONSOLIDATED STATEMENT OF FINANCIAL POSITION

----------------------------------------------------------------------
   In thousands of euros          31 December 2019   31 December 2018
----------------------------------------------------------------------


  Cash and cash equivalents                    870              2,327

  Investments                                    0                 69

  Receivables and prepayments                  544                739

  Inventories                               15,807             17,482

  Total current assets                      17,221             20,617



  Receivables and prepayments                    0                 25

  Investment property                       11,051             12,344

  Property, plant and equipment                265                267

  Intangible assets                            217                262

  Total non-current assets                  11,533             12,898

  TOTAL ASSETS                              28,754             33,515



  Loans and borrowings                       6,416             12,547

  Payables and deferred income               3,135              3,982

  Total current liabilities                  9,551             16,529



  Loans and borrowings                       5,904              3,985

  Total non-current liabilities              5,904              3,985

  TOTAL LIABILITIES                         15,455             20,514



  Share capital                              6,299              6,299

  Share premium                              2,285              2,285

  Statutory capital reserve                  2,011              2,011

  Other reserves                               245                245

  Retained earnings                          2,459              2,161

  TOTAL EQUITY                              13,299             13,001

  TOTAL LIABILITIES AND EQUITY              28,754             33,515
----------------------------------------------------------------------


Tiina Malm
CFO
Arco Vara AS
E-mail: [email protected]
www.arcovara.com