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Published: 2012-08-17 16:05:00 CEST
Arco Vara
Half Year financial report

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

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 2012 HY1 2011   Q2 2012 Q2 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 parent 9   -1,294 -1,932   -430 -598
   Profit attributable to non-controlling interests     6 13   4 0
               
Total comprehensive expense for the period     -1,288 -1,919   -426 -598
               
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 2012 31 December 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 interests     -3 155
Equity attributable to equity holders of the parent     22,698 23,828
         
TOTAL LIABILITIES AND EQUITY     56,328 60,013

 

Consolidated statement of cash flows

  Note   HY1 2012 HY1 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 ventures 8   0 -284
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 property,
plant and equipment and intangible assets
4, 6   43 49
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 intangible assets     -19 -9
Proceeds from sale of property, plant and equipment and intangible assets     6 0
Paid on development of investment property     0 -729
Proceeds from sale of investment property     1,149 177
Acquisition of investments in subsidiaries and joint ventures     0 1
Proceeds from sale of investments in subsidiaries and joint ventures     0 891
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
egert.paulberg@arcovara.ee
http://www.arcorealestate.com


Arco Vara 2012 Q2 interim report.pdf