Börsiteade

Pealkiri

17.08.2012: Arco Vara AS Interim report for II quarter and 6 months 2012

Teade

Group Chief Executive’s review

The most important events of the second quarter and the first half-year are
related to the supervisory board. In the previous quarterly report, we informed
you of three resignations and the election of three new members of the
supervisory board - Toomas Tool, Stephan David Balkin and Aivar Pilv. An
extraordinary general meeting that convened after the reporting date, on 30
July 2012, also elected to the supervisory board Arvo Nõges and Rain Lõhmus. 

A significant transaction was conducted in April when we divested our 49.9%
stake in the joint venture Bišumuižas Nami SIA to the co-venturer SIA Linstow
Baltic. Arco Vara sought possibilities for exiting the project for over a year.
Through the transaction, we disposed of the obligation to support the joint
venture in the development of apartment buildings and in servicing loan
liabilities. In 2011 we financed the joint venture to the extent of 0.3 million
euros and Bišumuižas Nami SIA’s loan liabilities alone totalled 14 million
euros. 

Out of the six-month net loss of 1.3 million euros, 0.7 million euros resulted
from the sale of an investment property in Tallinn, where we disposed of the
right of superficies on the property at Kadaka tee 131. The remaining loss of
0.6 million euros is mainly attributable to the fact that the conclusion of
real right contracts in the Manastirski project in Sofia was postponed from the
second quarter to the third one. 

In the first half of 2012, a total of 35 apartments and plots were sold in the
projects of Arco Vara: 29 in Estonia and 6 in Latvia. The figure does not yet
include the apartments sold in the Manastirski apartment block, which was
completed at the end of spring, because currently only contracts under the law
of obligations (presale contracts) have been concluded there. The sales of
those apartments will be included in revenue from the third quarter. 

As regards major ongoing work, in Tallinn we are developing a large-scale
apartment buildings project called Tivoli. A construction contract of 13
million euros was signed in May. Construction of phase VI in the Kodukolde
project (48 apartments) at Helme 16 in Tallinn was completed in June 2012. In
the second quarter, 28 of the apartments were sold under real right contracts.
In June, we signed a contract for the construction of a residential and
commercial building of energy class B called Kastanimaja (Chestnut House) at
Tehnika 53 in Tallinn. Pre-sale of the apartments has been successful: by the
reporting date 8 of the 14 apartments were covered with contracts under the law
of obligations. 

In Bulgaria, the construction of phase I of the Manastirski project (7,000
square metres) has been completed. At the reporting date, 76% of its 74
apartments were reserved. In addition, we continue to lease out commercial
premises and to sell the remaining free apartments in the commercial and
residential building Boulevard Residence Madrid in Sofia. 

In the Bišumuiža 1 apartment buildings project in Latvia, the fourth building
of phase II (14 apartments) will be completed in the second half of 2012. In
addition to selling the apartments of Bišumuiža 1, we continue to sell plots in
the Mazais Baltezers project. Completion of development projects has a strong
impact on the Group’s revenue, because sales are recognised as revenue when
construction has been completed, not when it is in progress. 

In the first half of 2012, our Service division performed better than a year
ago, generating revenue of 1,291 thousand euros, 13% up on the first half of
2011. In the first six months of 2012, the division earned an operating profit
of 59 thousand euros compared with an operating profit of 44 thousand euros for
the comparative period. The number of brokerage transactions increased by 15%
and the number of valuation reports issued grew by 14% year over year. At the
same time, the number of brokers decreased by 3% and the number of appraisers
increased by 18%. 

In the first half of 2012, we secured new construction contracts of 3.2 million
euros. At the reporting date, the order backlog stood at 10.3 million euros
against 13.5 million euros at the end of the second quarter of 2011. The
Construction division ended the first half-year with an operating profit of 0.2
million euros compared with an operating loss of 0.8 million euros incurred in
the first half of 2011. 

In the first half-year, the Group’s loans and borrowings decreased by 0.3
million euros while equity to assets ratio remained more or less stable at
around 40%. The weighted average interest rate of loans and borrowings
decreased by 0.5 percentage points compared with a year ago, mainly thanks to a
decline in EURIBOR. The weighted average duration of loans and borrowings
extended slightly, from 2.0 years to 2.1 years. 



KEY PERFORMANCE INDICATORS

  -- The Group ended the first six months of 2012 with revenue of 11.1 million
     euros. Revenue for the first half of 2011 was 23.5 million euros (including
     8.3 million euros earned on the sale of the Tivoli properties). Excluding
     the effect of the Tivoli transaction, revenue for the first six months of
     2012 was 27% smaller than a year ago.
  -- Operating loss for the period was 0.6 million euros. Compared with the
     first half of 2011 when the figure was 1.4 million euros, operating loss
     has decreased by 59%.
  -- Net loss for the first half-year was 1.3 million euros, a 33% decrease from
     the net loss of 1.9 million euros incurred in the first half of 2011.
  -- Equity to assets ratio at period-end was 40.3% (30 June 2011: 39.1%).
     Return on equity (12 months rolling) was negative.
  -- At the end of the second quarter, the Group’s order backlog stood at 10.3
     million euros compared with 13.5 million euros at the end of the second
     quarter of 2011.
  -- During the first six months, the Group sold 35 apartments and plots (HY1
     2011: 56 apartments and plots) in its self-developed projects.

                                           HY1 2012  HY1 2011  Q2 2012  Q2 2011
-------------------------------------------------------------------------------
In millions of euros                                                           
-------------------------------------------------------------------------------
Revenue                                        11.1      23.5      7.4     10.2
-------------------------------------------------------------------------------
Operating loss                                 -0.6      -1.4     -0.1     -0.5
-------------------------------------------------------------------------------
Net loss                                       -1.3      -1.9     -0.4     -0.6
-------------------------------------------------------------------------------
                                                                               
-------------------------------------------------------------------------------
EPS (in euros)                                -0.27     -0.41    -0.09    -0.13
-------------------------------------------------------------------------------
                                                                               
-------------------------------------------------------------------------------
Total assets at period-end                     56.3      64.9                  
-------------------------------------------------------------------------------
Invested capital at period-end                 45.9      51.1                  
-------------------------------------------------------------------------------
Net loans at period-end                        20.9      23.5                  
-------------------------------------------------------------------------------
Equity at period-end                           22.7      25.4                  
-------------------------------------------------------------------------------
                                                                               
-------------------------------------------------------------------------------
Average loan term (in years)                    2.1       2.0                  
-------------------------------------------------------------------------------
Average interest rate of loans (per year)      6.9%      7.4%                  
-------------------------------------------------------------------------------
ROIC (rolling, 4 quarters)                      neg      1.3%                  
-------------------------------------------------------------------------------
ROE (rolling, 4 quarters)                       neg       neg                  
-------------------------------------------------------------------------------
                                                                               
-------------------------------------------------------------------------------
Number of staff at period-end                   126       142                  
-------------------------------------------------------------------------------



REVENUE AND PROFIT

                                   HY1 2012  HY1 2011  Q2 2012  Q2 2011
-----------------------------------------------------------------------
In millions of euros                                                   
-----------------------------------------------------------------------
Revenue                                                                
-----------------------------------------------------------------------
Development                             3.8      14.0      3.1      4.1
-----------------------------------------------------------------------
Service                                 1.3       1.1      0.7      0.6
-----------------------------------------------------------------------
Construction                            6.1       8.5      3.7      5.6
-----------------------------------------------------------------------
Eliminations                           -0.1      -0.1     -0.1     -0.1
-----------------------------------------------------------------------
Total revenue                          11.1      23.5      7.4     10.2
-----------------------------------------------------------------------
                                                                       
-----------------------------------------------------------------------
Operating profit/loss                                                  
-----------------------------------------------------------------------
Development                            -0.4      -0.2      0.2      0.4
-----------------------------------------------------------------------
Service                                 0.1       0.0      0.1      0.1
-----------------------------------------------------------------------
Construction                            0.2      -0.8     -0.1     -0.7
-----------------------------------------------------------------------
Eliminations                            0.2       0.2      0.0      0.1
-----------------------------------------------------------------------
Unallocated income and expenses        -0.7      -0.6     -0.3     -0.4
-----------------------------------------------------------------------
Total operating loss                   -0.6      -1.4     -0.1     -0.5
-----------------------------------------------------------------------
                                                                       
-----------------------------------------------------------------------
Interest income and expense            -0.6      -0.7     -0.3     -0.4
-----------------------------------------------------------------------
Other finance income and expenses      -0.1       0.2      0.0      0.3
-----------------------------------------------------------------------
Net loss                               -1.3      -1.9     -0.4     -0.6
-----------------------------------------------------------------------

The Development division’s revenue for the first half of 2011 was significantly
impacted by the sale of inventory of 8.3 million euros to the joint venture
Tivoli Arendus OÜ. 



CASH FLOWS

                                                  HY1 2012  HY1 2011
--------------------------------------------------------------------
In millions of euros                                                
--------------------------------------------------------------------
Cash flows from operating activities                  -0.3      -1.1
--------------------------------------------------------------------
Cash flows from investing activities                   0.9       0.1
--------------------------------------------------------------------
Cash flows from financing activities                  -0.5      -1.0
--------------------------------------------------------------------
Net cash flow                                          0.1      -2.0
--------------------------------------------------------------------
                                                                    
--------------------------------------------------------------------
Cash and cash equivalents at beginning of period       2.2       4.2
--------------------------------------------------------------------
Cash and cash equivalents at end of period             2.3       2.2
--------------------------------------------------------------------

At 30 June 2012, the largest current liabilities to be settled in the next 12
months comprised: 

  -- estimated principal repayments to be made on the sale of reserved premises
     and payments under the settlement schedule of the loan of the Boulevard
     Residence Madrid project in Sofia of 2.5 million euros;
  -- repayments of the loan taken for the Manastirski project of 1.9 million
     euros;
  -- repayments of the construction loan taken by AS Kolde of 1.2 million euros;
  -- repayments of the loan taken for the Bišumuiža 1 project of 0.6 million
     euros.

In the first half of 2012, the Group made repayments of the loan taken for the
Bišumuiža 1 project in Riga and repaid the Kerberon loan in full. 

In addition, the Group made scheduled repayments of loans taken for its cash
flow generating projects and followed the principal repayments schedule agreed
for the bank loan taken by Koduküla OÜ. 



SERVICE DIVISION

In the first half of 2012, the Service division performed better than a year
ago, ending the period with an operating profit of 59 thousand euros compared
with an operating profit of 44 thousand euros for the first half of 2011.
Revenue for the first half of 2012 was 1,291 thousand euros, 13% up on the
first half of 2011. The number of brokerage transactions increased by 15% and
the number of valuation reports issued grew by 14% year over year. At the same
time, the number of brokers decreased by 3% and the number of appraisers
increased by 18%. 

                                                   HY1 2012  HY1 2011  Change, %
--------------------------------------------------------------------------------
Number of completed brokerage transactions              718       626        15%
--------------------------------------------------------------------------------
Number of projects on sale at end of period             233       173        35%
--------------------------------------------------------------------------------
Number of valuation reports issued                    3,160     2,778        14%
--------------------------------------------------------------------------------
Number of appraisers at end of period¹                   46        39        18%
--------------------------------------------------------------------------------
Number of brokers at end of period¹                      69        71        -3%
--------------------------------------------------------------------------------
Number of staff at end of period                         40        46       -13%
--------------------------------------------------------------------------------
¹ Includes people working under service contracts                               



DEVELOPMENT DIVISION

In the first half of 2012, Arco Vara sold 33 apartments and two plots in its
own projects: four apartments in the Bišumuiža project and two plots in Latvia
and 29 apartments in the Kodukolde project in Estonia. It should be noted that
the figures do not yet include the apartments sold in the recently completed
apartment block in the Manastirski project where currently only contracts under
the law of obligations have been signed (under Estonian legislation, in a real
estate transaction a contract under the law of obligations is signed when the
buyer makes a prepayment and the parties agree the terms and conditions of
sale, thus it is essentially a presale contract; title to the property
transfers under a real right contract, which is usually signed when the real
estate is complete). The sales of those apartments will be included in revenue
from the third quarter. 

In June, the division completed phase VI of the Kodukolde development project
at Helme 16 in Tallinn, which consists of two apartment buildings with a total
of 48 apartments. Out of the latter 28 were sold during the second quarter 
under real right contracts. At the reporting date, the inventory of the project
included 22 unsold apartments, 4 of which were reserved (covered with contracts
under the law of obligations). 

In the fourth quarter of 2011, Tivoli Arendus OÜ obtained a permit for the
construction of six residential buildings. The design and build contract with
Nordecon AS was signed in May 2012. Because of the time required for making
changes to the design and obtaining approvals, commencement of construction
operations has been scheduled for autumn 2012. 

In January 2012, the division obtained a permit for the construction of a
residential and commercial building of energy class B called Kastanimaja
(Chestnut House), designed to be located at Tehnika 53 in Tallinn. The work was
put out to tender in the first quarter and the construction contract with AS
Parmeron was signed in June. According to plan, construction work will be
completed in 11 months. Pre-sale of apartments, which began in May 2012, has
been successful: by the end of the second quarter 8 of the 14 apartments were
covered with contracts under the law of obligations. 

In Bulgaria, the construction of phase I in the Manastirski project has been
completed. At 30 June 2012, 76% of the apartments were reserved. In the
commercial and residential building Boulevard Residence Madrid in Sofia the
division continues to lease out commercial premises, to deliver reserved
apartments under real right contracts, and to sell the remaining free
apartments. 

In the Bišumuiža 1 project in Latvia further development and construction has
been suspended. There are three buildings of 14 apartments each in different
stages of completion. The completed phases include 4 unsold apartments. 

In April 2012 we divested our stake in the joint venture Bišumuižas Nami SIA to
the co-venturer SIA Linstow Baltic. Arco Vara sought possibilities for exiting
the project for over a year. Through the transaction, the Group disposed of the
obligation to support the joint venture in the development of apartment
buildings and in servicing loan liabilities. Bišumuižas Nami SIA’s loan
liabilities totalled 14 million euros. 

In June, the division started carrying out a restructuring plan, which foresees
merging and dissolving small project companies. As the first step, by July 2012
Arco Vara Ärikinnistute OÜ, OÜ Waldrop Investments and  AIP Projekti OÜ were
merged with Fineprojekti OÜ. 

At the end of June 2012, the Development division employed 20 people (30 June
2011: 21). 

For further information on our projects, please refer to:
www.arcorealestate.com/development. 



CONSTRUCTION DIVISION

The Construction division specialises in environmental and civil engineering.

At the end of the second quarter of 2012, the largest contracts in progress
were the design and build of the reconstruction and extension of the public
water and wastewater systems of the Suure-Jaani rural municipality (two phases
with a total remaining balance of 3.1 million euros), the construction of the
Paide wastewater treatment plant (remaining balance 2.6 million euros), the
design and build of water and wastewater pipelines for the city of Loksa
(remaining balance 1.4 million euros) and the construction of the Kuusalu
public water and wastewater network (remaining balance 2 million euros). 

In the second quarter of 2012, the division secured new construction contracts
of 0.3 million euros. At the reporting date, the order backlog stood at 10.3
million euros compared with 13.5 million euros at the end of the second quarter
of 2011. 

At the end of June 2012, the Construction division employed 52 people (30 June
2011: 55). 



Consolidated statement of comprehensive income

                                          Note      HY1      HY1      Q2      Q2
                                                   2012     2011    2012    2011
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
Revenue from rendering of services                8,116   10,340   4,748   6,603
--------------------------------------------------------------------------------
Revenue from sale of goods                        2,961   13,167   2,701   3,645
--------------------------------------------------------------------------------
Total revenue                             2, 3   11,077   23,507   7,449  10,248
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Cost of sales                              4     -9,612  -22,434  -6,797  -9,742
--------------------------------------------------------------------------------
Gross profit                                      1,465    1,073     652     506
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Other income                               7        209       12      17       7
--------------------------------------------------------------------------------
Marketing and distribution expenses        5       -143     -214     -61    -112
--------------------------------------------------------------------------------
Administrative expenses                    6     -1,384   -2,240    -687    -879
--------------------------------------------------------------------------------
Other expenses                             7       -736      -59     -20     -16
--------------------------------------------------------------------------------
Operating loss                                     -589   -1,428     -99    -494
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Finance income                             8         45      417      23     383
--------------------------------------------------------------------------------
Finance expenses                           8       -744     -908    -350    -487
--------------------------------------------------------------------------------
Loss before income tax                           -1,288   -1,919    -426    -598
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Loss for the period                              -1,288   -1,919    -426    -598
--------------------------------------------------------------------------------
Loss attributable to owners of the         9     -1,294   -1,932    -430    -598
 parent                                                                         
--------------------------------------------------------------------------------
Profit attributable to non-controlling                6       13       4       0
 interests                                                                      
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Total comprehensive expense for the              -1,288   -1,919    -426    -598
 period                                                                         
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Earnings per share (in euros)              9                                    
--------------------------------------------------------------------------------
                                 - Basic          -0.27    -0.41   -0.09   -0.13
--------------------------------------------------------------------------------
                               - Diluted          -0.27    -0.41   -0.09   -0.13
--------------------------------------------------------------------------------



Consolidated statement of financial position

                                              Note      30 June      31 December
                                                           2012             2011
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
Cash and cash equivalents                                 2,310            2,209
--------------------------------------------------------------------------------
Trade and other receivables                    10         7,271            7,012
--------------------------------------------------------------------------------
Prepayments                                                 377              433
--------------------------------------------------------------------------------
Inventories                                    11        21,596           21,564
--------------------------------------------------------------------------------
Non-current assets held for sale                              0              469
--------------------------------------------------------------------------------
Total current assets                                     31,554           31,687
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Investments in equity-accounted investees                     4                4
--------------------------------------------------------------------------------
Other investments                                             8                8
--------------------------------------------------------------------------------
Trade and other receivables                    10         3,137            3,058
--------------------------------------------------------------------------------
Deferred income tax asset                                   250              250
--------------------------------------------------------------------------------
Investment property                            12        20,444           24,046
--------------------------------------------------------------------------------
Property, plant and equipment                               907              934
--------------------------------------------------------------------------------
Intangible assets                                            24               26
--------------------------------------------------------------------------------
Total non-current assets                                 24,774           28,326
--------------------------------------------------------------------------------
TOTAL ASSETS                                             56,328           60,013
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Loans and borrowings                           13         8,608            9,662
--------------------------------------------------------------------------------
Trade and other payables                       14         6,105            7,735
--------------------------------------------------------------------------------
Deferred income                                           3,185            2,012
--------------------------------------------------------------------------------
Provisions                                                1,135            1,205
--------------------------------------------------------------------------------
Total current liabilities                                19,033           20,614
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Loans and borrowings                           13        13,844           14,675
--------------------------------------------------------------------------------
Other payables                                 14           756              741
--------------------------------------------------------------------------------
Total non-current liabilities                            14,600           15,416
--------------------------------------------------------------------------------
TOTAL LIABILITIES                                        33,633           36,030
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Share capital                                             3,319            3,319
--------------------------------------------------------------------------------
Statutory capital reserve                                 2,011            2,011
--------------------------------------------------------------------------------
Retained earnings                                        17,365           18,653
--------------------------------------------------------------------------------
Total equity                                             22,695           23,983
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Equity attributable to non-controlling                       -3              155
 interests                                                                      
--------------------------------------------------------------------------------
Equity attributable to equity holders of the             22,698           23,828
 parent                                                                         
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY                             56,328           60,013
--------------------------------------------------------------------------------



Consolidated statement of cash flows

                                                          Note      HY1      HY1
                                                                   2012     2011
--------------------------------------------------------------------------------
In thousands of euros                                                           
--------------------------------------------------------------------------------
Loss for the period                                              -1,288   -1,919
--------------------------------------------------------------------------------
Adjustments for non-cash transactions:                                          
--------------------------------------------------------------------------------
Interest income and expense                                8        626      720
--------------------------------------------------------------------------------
Gain/loss on sale of subsidiaries and interests in joint   8          0     -284
 ventures                                                                       
--------------------------------------------------------------------------------
Losses on other long-term investments                      8         68       52
--------------------------------------------------------------------------------
Gain/loss on sale of investment property                   7        710        0
--------------------------------------------------------------------------------
Depreciation, amortisation and impairment losses on       4, 6       43       49
 property,                                                                      
plant and equipment and intangible assets                                       
--------------------------------------------------------------------------------
Foreign exchange gains and losses                          6          5        3
--------------------------------------------------------------------------------
Operating cash flow before working capital changes                  164   -1,379
--------------------------------------------------------------------------------
Change in receivables and prepayments                            -1,328    3,216
--------------------------------------------------------------------------------
Change in inventories                                              -287    1,955
--------------------------------------------------------------------------------
Change in payables and deferred income                            1,163   -4,913
--------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES                              -288   -1,121
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Acquisition of property, plant and equipment and                    -19       -9
 intangible assets                                                              
--------------------------------------------------------------------------------
Proceeds from sale of property, plant and equipment and               6        0
 intangible assets                                                              
--------------------------------------------------------------------------------
Paid on development of investment property                            0     -729
--------------------------------------------------------------------------------
Proceeds from sale of investment property                         1,149      177
--------------------------------------------------------------------------------
Acquisition of investments in subsidiaries and joint                  0        1
 ventures                                                                       
--------------------------------------------------------------------------------
Proceeds from sale of investments in subsidiaries and                 0      891
 joint ventures                                                                 
--------------------------------------------------------------------------------
Loans granted                                                      -236     -362
--------------------------------------------------------------------------------
Repayment of loans granted                                            1       50
--------------------------------------------------------------------------------
Other payments related to investing activities                      -29        0
--------------------------------------------------------------------------------
Interest received                                                     6      113
--------------------------------------------------------------------------------
NET CASH FROM INVESTING ACTIVITIES                                  878      132
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Proceeds from loans received                                        745    1,301
--------------------------------------------------------------------------------
Settlement of loans and finance lease liabilities                  -484   -1,680
--------------------------------------------------------------------------------
Interest paid                                                      -738     -607
--------------------------------------------------------------------------------
Other payments related to financing activities                      -12        0
--------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES                              -489     -986
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
NET CASH FLOW                                                       101   -1,975
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period                  2,209    4,209
--------------------------------------------------------------------------------
Increase/decrease in cash and cash equivalents                      101   -1,975
--------------------------------------------------------------------------------
Effect of exchange rate fluctuations on cash held                     0        0
--------------------------------------------------------------------------------
Cash and cash equivalents at end of period                        2,310    2,234
--------------------------------------------------------------------------------



Egert Paulberg
Financial Controller
Arco Vara AS
Phone: +372 614 4503
[email protected]
http://www.arcorealestate.com