Börsiteade

Pealkiri

Arco Vara AS Interim Report (unaudited) for second quarter and six months 2015

Teade

Directors’ report for second quarter and six months 2015



General information

During the first six months 2015, there were no changes in the group structure.
At 30 June 2015, the group comprises of 24 companies. 



Significant subsidiaries

Company name    Locati  Segment   Share capital       Equity       The group's  
                on                 (nominal value)     balance      interest    
                                                      at 30 June                
                                                       2015                     
In thousands                                                                    
 of euros                                                                       
Arco            Bulgar  developm               2,676        3,513           100%
 Manastirski    ia      ent                                                     
 EOOD                                                                           
Arco Invest     Bulgar  developm              25,976         -766           100%
 EOOD           ia      ent                                                     
Kolde AS        Estoni  developm                  28         -266           100%
                a       ent                                                     
Kerberon OÜ     Estoni  developm                   5        1,189           100%
                a       ent                                                     
Marsili II SIA  Latvia  developm               1,524          936           100%
                        ent                                                     
Arco            Latvia  developm               6,473       -1,987           100%
 Development            ent                                                     
 SIA                                                                            
Arco Real       Estoni  service                   42         -686           100%
 Estate AS      a                                                               
Arco Real       Latvia  service                1,905           74          70.6%
 Estate SIA¹                                                                    
Arco Imoti      Bulgar  service                  444          189           100%
 EOOD           ia                                                              

¹ - Non-controlling interest in Arco Real Estate SIA equals to the group’s
total non-controlling interest 



Key Performance Indicators



In first six months 2015, the group’s revenue was 6.5 million euros, exceeding
almost three times the revenue of first half of 2014, when revenue amounted to
2.2 million euros. In Q2, revenue was 2.1 million euros (in Q2 2014: 1.1
million euros). The increase of the group’s revenue comes from Development
division, where revenue amounted to 5.2 million euros in six months 2015 (in 6
months 2014: 0.8 million euros), of which 4.6 million euros from the sale of
apartments in the group’s development projects in Bulgaria. The revenue of
service division has remained basically in the same level decreased by 1%
compared to six months of previous year. Q2 2015 revenue of services division
increased by 6% compared to Q2 of previous year. 

In six months 2015, operating profit (=EBIT) was 1.1 million euros and net
profit 0.7 million euros, a year ago the same figures were 0.4 million euros
and 29 thousand euros respectively. Moreover, the result of 2014 was impacted
by gain from the sale of a subsidiary in amount of more than 0.6 million euros.
In Q2 this year, operating profit was 0.2 million euros and net loss amounted
to 12 thousand euros. In Q2 2014, the group had operating loss of 0.1 million
euros and net loss of 0.4 million euros. 

Equity to assets ratio arose up to 40.9% at 30 June 2015. At 31 December 2014,
the figure was 33.5%. 

The group’s net loans have decreased by 2.4 million euros in six months 2015.
As at 30 June 2015, the weighted average annual interest rate of loans was
5.1%. This is a decrease by 0.4 percentage points compared to 31 December 2014. 

In six months 2015, were sold 61 apartments (of which 13 were sold in Q2) and 5
commercial spaces in projects developed in the group. In six months 2014, were
sold only 3 apartments (of which one in Q2). 



                                   6 months 2015  6 months      Q2 2015  Q2 2014
                                                   2014                         
In millions of euros                                                            
Revenue                                                                         
Development                                  5.2           0.8      1.4      0.4
Service                                      1.6           1.6      0.8      0.8
Eliminations                                -0.3          -0.2     -0.1     -0.1
Total revenue                                6.5           2.2      2.1      1.1
                                                                                
Operating profit (EBIT)                                                         
Development                                  1.2           0.1      0.3      0.0
Service                                      0.1           0.1      0.0      0.1
Unallocated income and expenses              0.0           0.4     -0.2     -0.1
Eliminations                                -0.2          -0.2      0.1     -0.1
Total operating profit (EBIT)                1.1           0.4      0.2     -0.1
                                                                                
Finance income and expense                  -0.4          -0.4     -0.2     -0.2
Net profit                                   0.7           0.0      0.0     -0.3
                                                                                
Main ratios                                                                     
EPS (in euros)                              0.12          0.00     0.00    -0.08
ROIC (rolling, four quarters)               6.3%          8.5%                  
ROE (rolling, four quarters)               17.1%         29.0%                  
ROA (rolling, four quarters)                5.7%          7.4%                  
                                                                                
                                   30 June 2015   31 Dec 2014                   
In millions of euros                                                            
Total assets, at period end                 23.7          27.0                  
Invested capital, at period end             21.7          24.1                  
Net loans, at period end                    10.9          13.3                  
Equity, at period end                        9.7           9.1                  
                                                                                
Average loan term (in years)                 2.3           2.3                  
Average annual interest rate of             5.1%          5.8%                  
 loans                                                                          
Number of staff, at period end               173           189                  



Cash flows

                                        6 months     6 months     Q2      Q2    
                                         2015         2014         2015    2014 
In millions of euros                                                            
Cash flows from/used in operating               3.2         -1.9     0.2    -0.7
 activities                                                                     
Cash flows from/used in investing              -0.1          0.1     0.0     0.1
 activities                                                                     
Cash flows from/used in financing              -3.7          1.6    -0.9     0.5
 activities                                                                     
Net cash flows                                 -0.6         -0.2    -0.7    -0.1
                                                                                
Cash and cash equivalents at beginning          1.7          0.8     1.8     0.7
 of period                                                                      
Cash and cash equivalents at end of             1.1          0.6     1.1     0.6
 period                                                                         



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 



Revenue and net profit/loss from continuing operations 
        Q1      Q2      Q3      Q4      Total   Q1      Q2      Q3      Q4     
Total   Q1      Q2      Q3      Q4      Total   Q1      Q2 
         2012    2012    2012    2012    2012    2013    2013    2013    2013  
 2013    2014    2014    2014    2014    2014    2015    2015 
In 
 milli 
ons of 
 euros 
Revenu     1.3     3.7     2.4     3.5    10.9     1.7     3.5     3.5     2.0 
  10.7     1.1     1.1     1.2     5.8     9.2     4.4     2.1 
e 
Net       -1.2    -0.3     0.3   -16.5   -17.7     0.0     1.4     0.1     2.0 
   3.5     0.4    -0.3     0.4     0.6     1.1     0.7     0.0 
 profi 
t/loss 



In Q4 2012, financial results were negatively affected by recognition of
provisions and revaluation of assets and liabilities in total amount of 15.6
million euros. 



Group Chief Executive’s review

The second quarter and also the third quarter are the most modest quarters for
Arco Vara in 2015, as expected. Revenue of 2 million euros and net loss of 12
thousand for the second quarter mean that we are levelling out the income and
waiting for the next moment of growth and profit. Until the fourth quarter,
revenue is limited to: 

1) selling out existing apartments in Sofia and Riga, where the total remaining
number of apartments to be sold is less than 40 (in addition to business
premises and parking spaces to be sold), 

2) gaining maximum revenue from providing brokerage and valuation services in
Estonia, Latvia and Bulgaria, and 

3) continuing to earn rental income in Madrid Blvd building in Sofia.

However, the second and third quarter only look sleepy from the accounting
perspective, because the company is already involved in purchasing new
apartment developments, preparation, and construction and preliminary sales of
Manastirski block D. Therefore, I would like to use the chance to comment
mainly on the part of our activities and future which is not reflected in our
accounting reports. 

The ongoing construction of Manastirski block D is currently the only
development of the group where the cranes are up. Over 65% of sellable area is
covered with preliminary sales contracts by the reporting date. Manastirski
block D will increase revenue and profit of the group in the fourth quarter of
2015. The part which we cannot manage to hand over to clients in the fourth
quarter (sell in the accounting sense) remains on sale and will be reflected in
the income statement during 2016. 

In order to avoid the stoppage of development processes in Sofia in 2016, the
group has concluded a contract for the purchase of the next potential real
estate property for development in the Iztok district, on which we published a
notice on 9 July 2015. The construction volume of the project is approximately
the same as Manastirski block D, but the expected sales revenue is higher due
to the advantages of the region. At present, the detailed plan of the land
plots is being amended to better suit the needs of the clients of Arco Vara.
Amending the detailed plan is also a prerequisite for completing the purchase
transaction of the property. If everything goes according to plans, we will
acquire the property at the end of this year and begin construction in the
second half of 2016. 

In parallel, we continue searching for other properties suitable for
development and preliminary negotiations. However, it should be noted that in
order to increase development volumes in Sofia, in addition to the Iztok
development project mentioned above, we must also find additional funding and
we are also working towards that. The balance sheet of the group and the
structure of its assets and liabilities are suitable for conducting two larger
development projects simultaneously (e.g. in Tallinn and Sofia) but they may
not be sufficient for a third or fourth large development. 

There are fairly extensive renovation and reconstruction works going on in
Madrid Blvd building in Sofia, which will get ready by the end of the year in
various stages. The objective of the works is to make office and business
premises more attractive, add a currently absent restaurant area to the
shopping street, increase the number of apartments to be rented out to 16 in
total and add the opportunity of using solar power to the penthouse apartments
on sale. In the fourth quarter, one challenge is renting out office spaces (GLA
over 5,000 m2) after the rental contract of the existing key tenant expires.
The annual rental income generated in the Madrid Blvd building is planned to
keep at the level of over 1 million euros. The loan balance of Piraeus Bank on
the building has decreased to 10.4 million euros and for this, the group owns
115 underground parking spaces, 28 apartments (3,216 m2), 14 of which have been
let out, and a total of over 7,000 m2 of business and office premises. 

In Tallinn, the technical project of the first stage of Kodulahe development
project has been completed and the subsidiary of the group Kodulahe OÜ is
applying for a building permit to the local municipality. In the third quarter,
we are hoping to obtain the building permit as well as conduct a construction
tender, which will also finalize the prices of products to be sold and allow us
to begin marketing the products. The sales volume of apartments to be sold in
the first stage exceeds 8,000 m2. The group also decreased the loan liability
on the Kodulahe development project land plots by 900 thousand euros. 

We also continued the proceedings on detailed plans for various real estate
properties we own in Tallinn (Lehiku tee 21-23, Liimi 1B, etc.) and hope to
obtain building rights by 2016 at the latest. The group also acquired a land
plot suitable for development in the Pärnu city centre next to the central
market on Suur-Sepa Street. 

The sale of development products in Riga (apartments at Bisumuisa-1 and
residential plots in Marsili) is still dwindling. In July, after the reporting
date, one apartment and one plot were sold. The only good aspect there is still
that the number of development products in stock in Riga is small and there is
little money attached to it. The group does not plan any new developments in
2015 there. 

To sum up, it can be said that the group has achieved the goals set by the
management earlier and we continue preparations for the next big leaps in sales
revenue as well as profit. The annual forecast of the group’s profit is still 1
million euros and revenue is predicted to be 11 million euros. 



SERVICE DIVISION

In Q2 2015, revenue of service division was 802 thousand euros (in Q2 2014: 765
thousand euros), that included intra-group revenue of 117 thousand euros (in Q2
2014: 101 thousand euros). Revenue of service division from main services (real
estate brokerage and valuation services) was 1,409 thousand euros decreased by
4% compared to the same period of previous year. At the same time, second
quarter revenue from main services increased by 2% compared to Q2 2014. Revenue
increased substantially in Bulgaria, seeing a 43% increase if compared 6 months
of both years and even 68% increase if compared second quarters. In Q2, second
quarter result of previous year was exceeded also in Estonia. In Latvian real
estate agency, the revenue from main services has strongly decreased: by 23% if
compared 6 months periods and by 30% if compared second quarters. Revenue
trends of real estate agencies are good indicators to estimate the market
activity. For example, in the first half of 2015 the number of real estate
transactions in Sofia has increased more than a third, compared to the same
period of previous year. As we have predicted in our recent interim reports,
Latvian real estate market activity has fallen this year. This is the main
reason for the drop in sales figures of our Latvian agency. 



Revenue of real estate agencies from brokerage and valuation

                  6 months     6 months     Change,   Q2 2015  Q2 2014  Change, 
                   2015         2014         %                           %      
In thousands of                                                                 
 euros                                                                          
Estonia                   595          634       -6%      317      300        6%
Latvia                    436          567      -23%      193      274      -30%
Bulgaria                  378          264       43%      198      118       68%
Total                   1,409        1,465       -4%      708      692        2%



In six months 2015, the Estonian and Latvian agencies have operated on a loss:
40 thousand and 48 thousand euros, respectively. In first half of 2014,
Estonian and Latvian agencies had net profit of 14 thousand euros and 26
thousand euros, respectively. Bulgarian agency’s net profit was 111 thousand
euros in first six months 2015 (in 6 months 2014: 67 thousand euros) and 59
thousand euros in Q2 2015 (in Q2 2014: 25 thousand euros). 

In addition to brokerage and valuation services, the service division also
provides real estate management services as well as accommodation service in
Bulgaria. The revenue from real estate management was 82 thousand euros in 6
months 2015, 57 thousand euros of which was intra-group revenue (in 6 months
2014: 90 thousand and 63 thousand euros, respectively). Revenue from
accommodation services amounted to 55 thousand euros in first six months of
2015 (in 6 months 2014: 35 thousand euros). 

Service division numbers for brokerage deals and valuation reports, and number
of staff are shown in following graphs. 

The number of staff in service division has been decreased to 160 employees as
at 30 June 2015, which is 16 people less compared to year end 2014. 



DEVELOPMENT DIVISION

In 6 months 2015, revenue of development division totalled 5,170 thousand euros
(in 6 months 2014: 802 thousand euros), of which 1,388 thousand euros in Q2
2015 (in Q2 2014: 405 thousand euros). The big leap in revenues comes from the
sale of properties in the group’s own development projects, amounting to 4,616
thousand euros in first half of 2015 (compared to only 263 thousand euros in 6
months 2014). In Q2 2015, were sold 10 apartments in Manastirski Livadi project
II stage and three apartments in Madrid Blvd project in Bulgaria. In six
months, has been sold total of 61 apartments and 5 commercial spaces in
Bulgaria. In first six months 2014, were sold only three apartments in
Bisumuiza-1 project in Riga. 

Most of the remaining revenue of development division consist of rental income
from commercial and office premises in Madrid Blvd building in Sofia, amounted
to 237 thousand euros in Q2 2015 and 474 thousand euros in 6 months (in Q2
2014: 257 thousand euros and 6 months 2014: 520 thousand euros). 

In six months 2015, operating profit of development division was 1,221 thousand
euros, of which 255 thousand euros in Q2.  In six months 2014, was earned 64
thousand euros of operating profit, of which 20 thousand euros in Q2. 

In Q2 2015, has been continued the apartment sales on second stage of
Manastirski Livadi project. As at 30 June 2015, 6 apartments and 3 commercial
spaces remained in stock, out of 135 in total. Also, 4 presold apartments
waited for the finalisation of sale transaction. In Bulgaria, final sale of two
last apartments in Manastirski Livadi I stage (block C) apartment building were
not concluded yet, revenue will be accrued in third quarter. 

As at 30 June 2015, 60 apartments out of 80 have been presold in third stage of
Manastirski Livadi project, construction of the building is ongoing. In
addition to the 20 apartments, there remained unsold yet 8 smaller commercial
spaces and part of parking spaces. 

28 apartments remained unsold in Madrid Blvd complex. 14 apartments and all
parking places, out of all Madrid Blvd unsold assets, are rented out. As at
reporting date, two more apartments are prepared for letting out. Current key
tenant on office space in Madrid building is moving out in August. Therefore,
the commercial and offices spaces will be renovated and new tenants will be
searched for in second half of the year. 

In Latvia, there remain 4 last apartments unsold in Bisumuisa-1 project in Riga
as well as 15 residental plots in Marsili near Riga. In first six months 2015,
there were no sales in Latvia. After the reporting date, one apartment in
Bisumuisa-1 project and one plot in Marsili have been sold. 

In Estonia, there was concluded design contract in February for the first stage
apartment building (more than 120 apartments) in Kodulahe project. At the
reporting date, the construction permit was proceeding in local municipality.
The construction of the apartment building should start in fourth quarter of
2015, after the construction and financing tenders will succeed. 

In June 2015, a smaller land plot in Suur-Sepa street, in centre town of Pärnu,
was acquired as an addition to the group’s land bank. The plot is suitable for
residential building. 

As at 30 June 2015, 5 people were employed in development division, the same as
at the end of year 2014. 



SUMMARY TABLE OF ARCO VARA’S PROJECTS AS AT 30 JUNE 2015

Project   Address   Product  Stage  Area of  GSA / GLA (above  No of units      
 name                main            plot(s   grade)            (above grade)   
                     type           ) (m2)    available or      available or    
                                              <future        <future      
                                              target>        target>      
Manastir  Manastir  Apartme  S5           -             1,300                 13
ski A/B   ski,      nts                                                         
           Sofia                                                                
Manastir  Manastir  Apartme  S5           -               204                  2
ski C     ski,      nts                                                         
           Sofia                                                                
Manastir  Manastir  Apartme  S4       2,223             6,672                 88
ski D     ski,      nts                                                         
           Sofia                                                                
Madrid    Madrid    Lease:   S5/S6        -             7,350                 16
 Blvd      Blvd,     Retail                                                     
           Sofia    /Office                                                     
Madrid    Madrid    Apartme  S5/S6        -             3,216                 28
 Blvd      Blvd,    nts                                                         
           Sofia                                                                
Bisumuiz  Kometas   Apartme  S5           -               105                  1
a-1        2, Riga  nts                                                         
Bisumuiz  Kometas   Apartme  S5           -               278                  3
a-1        4, Riga  nts                                                         
Marsili   Marsili,  Residen  S5           -            27,545                 15
 residen   near     tal                                                         
tal        Riga      plots                                                      
 plots                                                                          
Marsili   Marsili,  Residen  S2     120,220  <120,220>   <68>       
 residen   near     tal                                                         
tal        Riga      plots                                                      
 plots                                                                          
Instituu  Instituu  Apartme  S3/S5    5,003             2,035                 32
di 7, 9   di tee    nts                                                         
           7,9                                                                  
           Harku                                                                
PM 70C    Paldiski  Apartme  S3      28,498            21,420                334
           road     nts                                                         
           70C,                                                                 
           Tallinn                                                              
Lehiku    Lehiku    Apartme  S2       5,915  <1,100>     <5>        
 carpet    21,23    nts                                                         
 buildin   Tallinn                                                              
g                                                                               
Liimi     Liimi     Lease:   S2       2,463  <6,500>     <1>        
           1b,       Office                                                     
           Tallinn                                                              
Suur-Sep  Suur-Sep  Apartme  S1       1,711  <800>       <14>       
a 20      a 20,     nts                                                         
           Pärnu                                                                
Viimsira  Haabneem  Office/  S3/S5   14,174               500                  1
nna       e,        Mix                                                         
           Viimsi                                                               
           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 lettable volumes
below grade including parking spaces and storages. 



Description of stages

S1: Land plot 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 June 2015, 173 people worked for the group (189 at the end of 2014).
Employee remuneration expenses in six months 2015 amounted to 1.3 million euros
(in 6 months 2014: 1.2 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 in first six months 2015 amounted to 54 thousand euros, the
same 54 thousand euros in 6 months 2014. 



MANAGEMENT BOARD AND SUPERVISORY BOARD

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. 

At 30 June 2015, the supervisory board of Arco Vara AS has 5 members. As at the
end of 2014, the supervisory board had 7 members. On 10 February 2015,
extraordinary shareholders meeting recalled previous supervisory board and
elected new supervisory board with 5 members: Hillar-Peeter Luitsalu, Allar
Niinepuu and Rain Lõhmus (re-elected from the previous board), and Steven
Yaroslav Gorelik and Kert Keskpaik (newly elected to the new board). The
members of previous supervisory board Toomas Tool, Arvo Nõges, Aivar Pilv and
Stephan David Balikn will not continue in new board. 

More information on key persons of Arco Vara you can find on company’s
corporate web page www.arcorealestate.com. 



DESCRIPTION OF THE MAIN RISKS



Credit risk

The group’s credit risk arises mainly from two sources: real estate development
activities and reliability of the banks where bank deposits are placed. As on
real estate transactions a lot of counterparty financing goes through banks,
co-operation with financing banks is common to mitigate counterparty risk. And
not all cash and cash equivalents are placed on the same banking group. As a
consequence, the group considers credit risk as substantially mitigated. 

Liquidity and interest rate risks

The base currency of all of the group’s loan agreements is euro and the base
interest rate is 3 or 6 months EURIBOR. As a result, the group is exposed to
developments on the international capital markets. The group does not use
hedging instruments to mitigate its long-term interest rate risk. In first six
months 2015, the group’s interest-bearing liabilities have decreased by 3.1
million euros and at 30 June 2015 amounted to 12.0 million euros, of which 1.3
million euros is due within next 12 months. At the same time, the group’s cash
and cash equivalents totalled 1.1 million euros as at 30 June 2015. In 6 months
2015, interest payments on interest-bearing liabilities totalled 0.5 million
euros. The group’s weighted average loan interest rate is 5.1% as at 30 June
2015. This is a decrease by 0.7 percentage points in six months 2015. The main
reason for the decrease of average interest rate is the premature redemption of
bonds in February 2015. The bonds bore higher than average interest rate.
Marginal effect had also continuing decrease of EURIBOR rates. 

Currency risk

Purchase and sales contracts of provided services are mostly signed in local
currencies: euros (EUR) or Bulgarian lev (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 demand
or short-term deposits denominated in euros. 



Share and shareholders

Arco Vara AS has issued a total of 6,117,012 ordinary shares with nominal value
of 0.7 euros per share. The shares are freely traded on NASDAQ OMX Tallinn
stock exchange. As at 30 June 2015, the company had 1,639 shareholders (at 31
December 2014: 1,668 shareholders) and the share price closed at 1.19 euros.
The price has increased by 43.7% within six months 2015 (closing price at the
end of 2014 was 0.828 euros). During the period, the highest price per share
was 1.29 euros and lowest price 0.83 euros. As at 30 June 2015, market
capitalization of shares amounted to 7,279 thousand euros and P/E ratio of the
share was 4.6 (at 31 December 2014: 5,065 thousand euros and 5.5,
respectively). 



Major shareholders at 30 June 2015  No of shares  Interest %
NORDEA BANK FINLAND PLC, CLIENTS         862,820       14.1%
AS Lõhmus Holdings                       602,378        9.8%
Gamma Holding Investment OÜ              549,000        9.0%
Alarmo Kapital OÜ                        489,188        8.0%
HM Investeeringud OÜ                     460,000        7.5%
LHV PENSIONIFOND L                       378,765        6.2%
FIREBIRD REPUBLICS FUND LTD              356,428        5.8%
FIREBIRD AVRORA FUND, LTD.               185,800        3.0%
LHV PENSIONIFOND XL                      169,583        2.8%
FIREBIRD FUND L.P.                       150,522        2.5%
Other shareholders                     1,912,528       31.3%
Total                                  6,117,012      100.0%



Holdings of members of the management and   Position           No of      Intere
 supervisory boards at 30 June 2015                             shares    st %  
Rain Lõhmus (AS Lõhmus Holdings)            member of            602,378    9.8%
                                             supervisory                        
                                             board                              
Hillar-Peeter Luitsalu (HM Investeeringud   chairman of          498,884    8.2%
 OÜ, related persons)                        supervisory                        
                                             board                              
Tarmo Sild and Allar Niinepuu (Alarmo       member of            489,188    8.0%
 Kapital OÜ)                                 management                         
                                             board/                             
                                            member of                           
                                             supervisory                        
                                             board                              
Kert Keskpaik (privately and through K      member of            191,787    3.1%
 Vara OÜ)                                    supervisory                        
                                             board                              
Steven Yaroslav Gorelik ¹                   member of              3,150    0.1%
                                             supervisory                        
                                             board                              
Total                                                          1,785,387   29.2%

¹ -Steven Yaroslav Gorelik is active as fund manager in three investment funds
holding interest in Arco Vara (Firebird Republics Fund Ltd, Firebird Avrora
Fund Ltd and Firebird Fund L.P) of 692,750 shares (total of 11.3% interest). 



Condensed consolidated interim financial statements



Consolidated statement of comprehensive income

                                    Note  6 months    6 months    Q2      Q2    
                                           2015        2014        2015    2014 
In thousands of euros                                                           
Continuing operations                                                           
Revenue from sale of own real                  4,616         263   1,111     135
 estate                                                                         
Revenue from rendering of services             1,841       1,908     949     923
Total revenue                       2, 3       6,457       2,171   2,060   1,058
                                                                                
Cost of sales                          4      -4,169      -1,249  -1,269    -631
Gross profit                                   2,288         922     791     427
                                                                                
Other income                                      23          19       6       3
Marketing and distribution             5        -234        -174    -125     -74
 expenses                                                                       
Administrative expenses                6        -945        -915    -470    -462
Other expenses                                   -26         -37     -14     -29
Gain on sale of subsidiary                         0         662       0       0
Operating profit/loss                          1,106         477     188    -135
                                                                                
Finance income and costs               7        -388        -435    -198    -228
Net profit/loss from continuing                  718          42     -10    -363
 operations                                                                     
                                                                                
Discontinued operations                                                         
Profit/loss from discontinued                    -13         -13      -2       0
 operations                                                                     
                                                                                
Net profit/loss for the period                   705          29     -12    -363
attributable to owners of the                    719          22      -3    -365
 parent                                                                         
attributable to non-controlling                  -14           7      -9       2
 interests                                                                      
                                                                                
Total comprehensive income/expense               705          29     -12    -363
 for the period                                                                 
attributable to owners of the                    719          22      -3    -365
 parent                                                                         
attributable to non-controlling                  -14           7      -9       2
 interests                                                                      
                                                                                
Earnings per share (in euros)          8                                        
- basic                                         0.12        0.00    0.00   -0.08
- diluted                                       0.11        0.00    0.00   -0.07



Consolidated statement of financial position

                                              Note  30 June      31 December    
                                                     2015         2014          
In thousands of euros                                                           
Cash and cash equivalents                                 1,078            1,691
Receivables and prepayments                      9          545            1,205
Inventories                                     10        9,903           11,970
Total current assets                                     11,526           14,866
                                                                                
Receivables and prepayments                      9            8                5
Investment property                             11       11,529           11,585
Property, plant and equipment                               487              434
Intangible assets                                           145              113
Total non-current assets                                 12,169           12,137
TOTAL ASSETS                                             23,695           27,003
                                                                                
Loans and borrowings                            12        1,341            3,194
Payables and deferred income                    13        1,817            2,659
Provisions                                                  228              274
Total current liabilities                                 3,386            6,127
                                                                                
Loans and borrowings                            12       10,615           11,826
Total non-current liabilities                            10,615           11,826
TOTAL LIABILITIES                                        14,001           17,953
                                                                                
Share capital                                             4,282            4,282
Share premium                                               292              292
Statutory capital reserve                                 2,011            2,011
Other reserves                                              179              179
Retained earnings                                         2,908            2,250
Total equity attributable to owners of the                9,672            9,014
 parent                                                                         
Equity attributable to non-controlling                       22               36
 interests                                                                      
TOTAL EQUITY                                              9,694            9,050
TOTAL LIABILITIES AND EQUITY                             23,695           27,003



Consolidated statement of cash flows

                                      Note  6 months   6 months   Q2      Q2    
                                             2015       2014       2015    2014 
In thousands of euros                                                           
Cash receipts from customers                    8,695      3,259   2,802   1,568
Cash paid to suppliers                         -2,958     -4,483  -1,673  -2,079
Taxes paid                                     -2,040       -536    -532    -251
Taxes recovered                                     5        349       0     227
Cash paid to employees                           -539       -427    -304    -203
Other cash payments and receipts                   33        -46     -94     -32
 related to operating activities                                                
NET CASH FROM/USED IN OPERATING                 3,196     -1,884     199    -770
 ACTIVITIES                                                                     
                                                                                
Purchase of property, plant and                   -99        -15     -43      -7
 equipment                                                                      
Proceeds from sale of property,                     0          0       0       0
 plant and equipment                                                            
Proceeds from sale of investment                    0          0       0       0
 property                                                                       
Proceeds from sale of a subsidiary                  0         10       0       0
Loans provided                                      0         -3       0       0
Placement of security deposits                      0       -327       0     -69
Release of security deposits                        0        452       0     189
Interest received                                   3          2       2       1
NET CASH FROM/USED IN INVESTING                   -96        119     -41     114
 ACTIVITIES                                                                     
                                                                                
Proceeds from loans received            12        870      2,581     870   1,236
Settlement of loans and finance         12     -3,965       -545  -1,432    -474
 lease liabilities                                                              
Interest paid                                    -475       -426    -172    -212
Dividends paid                                    -61          0     -61       0
Other payments related to financing               -82        -23     -82     -18
 activities                                                                     
NET CASH FROM/USED IN FINANCING                -3,713      1,587    -877     532
 ACTIVITIES                                                                     
                                                                                
NET CASH FLOW                                    -613       -178    -719    -124
                                                                                
Cash and cash equivalents at                    1,691        818   1,797     764
 beginning of period                                                            
Decrease in cash and cash                        -613       -178    -719    -124
 equivalents                                                                    
Cash and cash equivalents at end of             1,078        640   1,078     640
 period                                                                         



Consolidated statement of changes in equity

              Equity attributable to owners of the parent       Non-cont  Total 
                                                                rolling    equit
                                                                 interes  y     
                                                                ts              
              Share   Share   Statutory  Other   Retain  Total                  
               capit   premi   capital    reser  ed                             
              al      um       reserve   ves      earni                         
                                                 ngs                            
In thousands                                                                    
 of euros                                                                       
Balance as     3,319       0      2,011      60   1,452  6,842        12   6,854
 at 31                                                                          
 December                                                                       
 2013                                                                           
Change in          0       0          0       0      -5     -5         5       0
 non-control                                                                    
ling                                                                            
 interests                                                                      
Total              0       0          0       0      22     22         7      29
 comprehensi                                                                    
ve income                                                                       
 for the                                                                        
 period                                                                         
Balance as     3,319       0      2,011      60   1,469  6,859        24   6,883
 at 30 June                                                                     
 2014                                                                           
                                                                                
Balance as     4,282     292      2,011     179   2,250  9,014        36   9,050
 at 31                                                                          
 December                                                                       
 2014                                                                           
Total              0       0          0       0     719    719       -14     705
 comprehensi                                                                    
ve income                                                                       
 for the                                                                        
 period                                                                         
Profit             0       0          0       0     -61    -61         0     -61
 distributio                                                                    
n                                                                               
Balance as     4,282     292      2,011     179   2,908  9,672        22   9,694
 at 30 June                                                                     
 2015                                                                           




         Evelin Kanter
         Head of Legal Department
         Arco Vara AS
         Tel: +372 614 4594
         [email protected]
         http://www.arcorealestate.com