1. MAIN DEVELOPMENTS IN THE FIRST 3 MONTHS OF 2008
1.1. Construction and sale of the Trophy project
At the beginning of the year, the city government of Vilnius issued the
construction permit which was followed by the organisation of construction
tender and the analysis of tenders. By the end of the first quarter of 2008,
the first project of Q Vara in Lithuania reached the construction phase. The
planned duration of construction is 12 months and the cost is 10,561 thousand
Lithuanian litas (47,841 thousand Estonian kroons). To finance the
construction, UAB Q Vara has signed a supplementary loan agreemnt in the amount
of 38 111 thousand Estonian kroons with SEB Vilniaus Banka. The expected sales
turnover of the project is 101,482 thousand Estonian kroons and after taking
into account all project related direct expenses the gross margin is
approximately 30%.
At the beginning of 2008, the pre-sale was launched. Sale success turned out to
be excellent, as from the beginning of January to the end of February
reservation contracts were signed with six clients. The average sale price of
apartments sold by the end of April of 2008 is 43,185 Estonian kroons per
square metre.
1.2. Sale of the Jonathan project
After the potential buyers finalized the due diligence process with positive
results the Latvian company SIA Quality Nami belonging to the Group signed on
March 28, 2008 a sale-purchase agreement with SIA Jonathan, according to which
SIA Quality Nami sells the property (28,443 square metres) located on Maskavas
Street in Riga together with the development project of Jonathan. SIA Jonathan
represents real estate investors of Dutch origin. The agreed sale price is
186,976 thousand Estonian kroons.
The transaction will finally take effect after a positive audit of technical
project and a positive court judgement regarding the property's detailed plan
dispute (hereinafter referred to as „Prerequisites“) are received. The court
case was initiated by the Latvian Seim who sued the city government of Riga for
approving the detailed plan of the property on Maskavas street 264. The
mentioned court action takes place among third party persons. When applying for
the detailed plan, SIA Quality Nami has followed all the laws valid in the
Republic of Latvia and received all the approvals necessary for the detailed
plan to take effect. On the basis of the information known by today and the
assessments given by lawyers, the management of Q Vara estimates that the court
case to last for about six months, after which the final closing of the sale
contract of the property takes place.
The seller will receive the sales price amount in four parts. The first part in
the amount of 140,819 thousand Estonian kroons will be paid by the buyer
within five days after the Prerequisites have been fulfilled. The second part
in the amount of 30,511 thousand Estonian kroons will be paid two months after
the Prerequisites have been fulfilled. The third part in the amount of 15,665
thousand Estonian kroons will be paid within five days after the construction
licence of the project has been presented to the purchaser.
In addition, the sale contract was accompanied by an agreement with the
minority shareholder of SIA Quality Nami. The agreement states the
supplementary bonus for the minority shareholder for bringing in the investor
contact and leading successfully the sale negotiation process. The additional
bonus lies in the sale of 10% of SIA Quality Nami's shares with the nominal
price by SIA Q Estate. As a result the shareholding amount of Q Estate will be
65% of the shares of SIA Quality Nami. If the sale transaction does not fully
take effect because the Prerequisites are unfulfilled, the described bonus
scheme will not be applied and Q Estate will own continually 75% of shares.
1.3. Q Ehitus began the construction of Soosepa kindergarten
On January 31, 2008 OÜ Q Ehitus, the subsidiary company of AS Q Vara, signed a
construction agreement with OÜ Soosepa Lasteaed for building a kindergarten
with 90 places in Viimsi rural municipality next to Soosepa residential
development that was developed by AS Q Vara. The total value of the
construction agreement is approximately 36 000 thousand Estonian kroons and the
completion deadline will be in the autumn of 2008. The kindergarten is the
last stage of the Soosepa residental development and the construction was
decided already at the moment of initiating the Soosepa residental area, as the
purpose of Q Vara is always to create a complete and unified environment. When
planning the kindergarten the goal was to suit the building to kids needs,
which is expressed, for example in small classrooms that allow paying maximum
attention to each child.
1.4. Capital raising for the Terminal No. 11 project
In the last quarter of 2007, AS Q Vara started negotiations with a German
company HIH Global Invest GmbH (hereinafter referred to as “HIH”) to raise
additional capital for the Terminal No. 11 project (Q Vara and HIH are both
hereinafter referred to as ”Parties”). HIH Global Invest GmbH belongs to the M.
M. Warburg & CO KGaA group, which is the second largest privately owned bank
in Germany. HIH establishes closed end investment funds and raises capital for
them from German investors.
As a result of negotiations, the Parties signed on March 3, 2008, the Letter of
Intentions, the purpose of which is to regulate the intention of the Parties to
jointly develop Terminal No. 11 project and to confirm that the Parties are
ready to make their best efforts for the final formalisation of co-operation by
April 7, 2008 (the Letter of Intentions is valid until May 7, 2008). At the
beginning of April, the Parties agreed upon the extension of the negotiation
period until the end of validity of the Letter of Intentions. By the end of
April, the audit of the project was finished by HIH and the negotiations of the
shareholders' agreement continued. The shareholders' agreement shall expectedly
be signed in May, 2008.
The Parties' goal is to jointly develop the 18 properties on Koplipere tee, in
Rae rural municipality, Harjumaa, into a logistics park including warehouse and
office premises. The development's total volume is between 45, 000 - 50, 000
square metres of warehouse and office space and the project's forecasted
turnover will be between 50 - 55 million euros. The project period is
2008-2010.
The Parties will establish a separate project company for the joint development
of the project, the owners of which will be Q Vara and HIH. The Parties' shares
in the new company will be distributed according to the investments of each
Party (the investments can be made either through investing equity capital or
subordinated loans). Q Vara transfers the Project to the Company. HIH invests
cash in the amount that is needed for covering own financing part until the end
of the development, the estimated amount of which is estimated to be 4,690,000
euros. HIH pays up equity capital in tranches according to the pace of the
Development.
2. ORGANISATION AND EMPLOYEES
2.1. GROUP STRUCTURE
According to the decision of AS Q Vara's shareholders that was made on January
23, 2008 a new Q Vara's subsidiary OÜ Q Design, was established and registered
in the Estonian Commercial Register on January 31, 2008. The sole shareholder
of OÜ Q Design is Q Vara AS and the company's main activity is offering
planning services and managing planning process. The purpose of the company is
to centralize all planning resources of Q Vara Group into one entity and sell
the service transparently also to clients outside the group. The management of
OÜ Q Design includes one member and it consists of Ivo Lillepea, the
supervisory board member of Q Vara AS. After the company was established, the
four designers who had so far been working in Q Vara moved to OÜ Q Design.
2.2. PERSONNEL
Q Vara Group's actions to increase its operating efficiency that were launched
in the fourth quarter of 2007, continued in the beginning of 2008. In the first
quarter, the number of employees of the group was decreased altogether by 9
people after which the total number of employees in Q Vara Group was 78. The
number of employees by companies and markets is presented in the following
table (the number of people at the end of 2007 is presented in brackets).
--------------------------------------------------------------------------------
Q Vara Q Design Q Estate Q Vara Q Ehitus Q Buve Q Haldus Total
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Estonia 10 (11) 4 (4) 33 (36) 5 (4) 52(55)
Latvia 8 (11) 14 (16) 22(27)
Lithuania 4 (5) 4(5)
Total 78(87)
--------------------------------------------------------------------------------
2.3. CHANGES IN GROUP'S MANAGEMENT
Several important changes were made in Q Vara Group companies' managementsp
within the first four months of 2008. According to the decisions made by the
shareholders of SIA Q Estate and SIA Zebru on April 2, 2008, Sarmite Sazoncika
was withdrawn from the managements of both companies. Alo Lillepea was elected
as a new member of the management board in both companies.
According to the decision made by the supervisory board of AS Q Vara on April
23 , 2008 Andre Poopuu was withdrawn from the management of AS Q Vara. Andre
Poopuu is going to be withdrawn also from the managements of OÜ Q Haldus and AS
Maakri City.
According to the decision of Q Vara's shareholder meeting that was made on
April 25, 2008 Alo Lillepea was withdrawn from Q Vara's supervisory board and
Tanel Peeters was elected as the new member of the supervisory board. Tanel
Peeters is also OÜ Q Capital's management board member, member of AS Väätsa
Agro's supervisory board and AS Fotoluks' supervisory board. Between 2005-2006,
Tanel Peeters was AS Q Vara's management board member. At the meeting of Q
Vara's supervisory board that was held on the same day (April 25, 2008), Ivo
Lillepea was elected as the new chairman of the supervisory board and Alo
Lillepea was elected as a new member of Vara's management board. Thus, at the
end of April, the management board of Q Vara includes Meelis Šokman (chairman
of the management board) and Alo Lillepea. Q Vara's supervisory board includes
Ivo Lillepea (chairman of the supervisory board), Tanel Peeters and Jürgen
Järvik.
3. OVERVIEW OF Q VARA'S DEVELOPMENT PROJECTS
3.1. KIRSIAED TRIPLE HOUSES
Sale: In the first quarter of 2008, one row house unit was sold . By the end of
the first quarter of 2008 altogether 17 units (out of 30) were sold.
3.2. KIRSIAIA LOTS
Sale: In the first quarter of 2008, one Kirsiaia lot was sold. The higher lot
sale activity in the last quarter of 2007 and in the first quarter of 2008 is
related to the fact that clients want to start with construction in spring and
acquire land in advance. By the end of the first quarter, 10 lots were sold,
which means that 6 out of the 16 lots are to be sold.
3.3. TAEVASMAA
No significant developments took place in Taevasmaa project in the first
quarter of 2008.
3.4. TERMINAL NO. 11
Development: The construction of the first building in Terminal No. 11
warehouse park reached the final phase by the end of the first quarter of 2008
when the interior works begun. The completion deadline of the building is in
June and at the same time the construction of the next warehouse will begin. In
the second quarter, the last utility and infrastructure construction works were
almost finished. Paving the road and finishing the pump station, will be
finished in the second quarter.
Sale: In the first quarter of 2008, the sale transaction of the second
warehouse unit was signed. When selling the warehouse units, it must be taken
into account that as it is a large investment for small or medium sized
companies, the negotiation period with each client is quite long. By the end of
the first quarter of 2008 negotiations were being conducted about the four
remaining warehouse units of the first buidling. There are also first clients
who have expressed their interest in the third warehouse which will include
smaller units of about 300 square metres instead of 500 square meter units in
the first and second building.
Due to the launched negotiations with new investors the sale of lots was
stopped temporarily in the end of 2007, as the potential co-investors would
rather develop the whole area into unified logistics park. Thus, no new lot
sale transactions were made in the first quarter of 2008. The transaction of
raising additional capital from new investors is described on page 7 of the
present report.
3.5. MAAKRI
Development: In the first quarter 2008 the city government of Tallinn approved
the theme planning of the high-rise building areas, which determined the height
of buildings in the Maakri area to be 140 metres. As negative news, the
building density in the district was determined, which is somewhat lower than
expected. The plan of AS Maakri City for the following two quarters is to start
with the second stage of architectural contest and based on traffic analysis to
start a supplementary analysis of building density with the city of Tallinn.
The architectural contest will be conducted together with the Union of
Architects.
3.6. SILUKALNI
Development: As previously planned in the first quarter of 2008 the
construction of four houses was finished and handing over of the finished
double house units began. In March the construction of next houses continued,
out of which expectedly 6 units will be ready within the second quarter, which
means that the promise given to clients in the beginning of the project,
according to which the houses will be finished regardless of the raising
prices, is about to be fulfilled. In 2008 the Group will invest additional
capital into the company in the amount of 8 000 thousand Estonian kroons to
complete the next phases.
Sale: In addition to that the units that were sold in the past and that are
being handed over, the finished houses raised new interest also among new
clients. In the end of April of 2008 two new sale contracts were signed. On the
current price of level, the project is expected to generate strong customer
interest in summer period as the construction and marketing activities will be
activated further. The management of Q Vara group does not find it probable
that the project's inventory will be revalued again in the future, as the
necessary corrections in the inventory value were made in the end of 2007.
3.7. 365
Development: The construction of the project proceeded as planned and the
construction will be expectedly completed by the end of the second quarter
2008. By the end of 2007, the construction works reached the roof and windows
and these works were finished in the first quarter of 2008. After finishing
the fascade the interior works continued.
Sale: In the first quarter 2008, marketing of the project was not active and no
new sales transactions were closed. As the house is about to be ready and in
the second part of May active marketing activities are launched, the sale's
activity is expected the grow in the second quarter. At the moment the price
level of the project is on average 2,600 euros per square metre, which is
acceptable in the given location and in the market situation of today.
3.8. JONATHAN
Short description: An apartment building in Riga on the bank of the river
Daugava, 15 minutes drive from the city centre. What makes the project special
is the pond with a boat bridge in the inner yard of the building, which is
connected through a canal straight to the river.
Development: Designing continued simultaneously with the Jonathan project sale
transaction negotiations described on page 6. Designing and planning is
expected to be finished within the second quarter of 2008.
3.9. TROPHY
Development: In the beginning of 2008, the city government of Vilnius issued
the construction permit which was followed by the organisation of construction
tender and the analysis of tenders. By the end of the first quarter of 2008,
the first project of Q Vara in Lithuania reached the construction phase. The
planned duration of construction is 12 months and the cost is 10,561 thousand
Lithuanian litas (47,841 thousand Estonian kroons). To finance the
construction, UAB Q Vara has signed a supplementary loan agreemnt of 38 111
thousand Estonian kroons with SEB Vilniaus Banka.
Sale: At the beginning of 2008, the pre-sale was launched. Sale success turned
out to be excellent, as from the beginning of January to the end of February
reservation contracts were signed with six clients. The average sale price of
apartments sold by the end of April of 2008 is 43,185 Estonian kroons per
square metre.
4. FINANCIAL RESULTS
4.1. OPERATING INCOME
Q Vara Group's consolidated operating income for the three months ended on
March 31, 2008 was 23,381 thousand Estonian kroons. In the comparable period of
2007 operating income amounted 16,081 thousand Estonian kroons. In the first
quarter of 2008 22,428 thousand Estonian kroons of total operating income was
made up of sales revenues (2007 I quarter: 14,507 thousand Estonian kroons) and
953 thousand Estonian kroons of other operating income (2007 I quarter: 1,574
thousand Estonian kroons). The sales revenues of three months ended on March
31, 2008 by different markets and activities is presented in the following
table:
-------------------------------------------------------------
(thousand EEK) Estonia Latvia Lithuania Total
-------------------------------------------------------------
Development 3 522 8 793 0 12 315
Construction 9 086 0 0 9 086
Maintenance 1 027 0 0 1 027
Total 13 635 8 793 0 22 428
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Altogether the operating income grew by 45.4% and sale revenues grew by 54.6%
when compared to 2007. The main growth of sale revenues was derived from
launching the sale of the Silukalni project in Latvia and the extra-group
turnover from Q Ehitus.
In the first quarter of 2008 the sale revenues of Estonian developments turned
out lower than expected. At the same time in Latvia the sale revenues met the
expectations (handing over the Silukalni project apartments was successful).
In Lithuania there was no accounting turnover, but the Trophy project's
pre-sale started in the first quarter and resulted in six new contracts, which
exceeded the aims set for the quarter.
4.2. OPERATING EXPENSES
The reduction of operating expenses started by Q Vara in the second half of
2007 yielded the first results in the first quarter of 2008. Namely the sum of
development expenses and general expenses (in profit and loss statement: direct
development expenses, general development expenses, marketing expenses,
administrative expenses and other expenses) was 9,636 thousand Estonian kroons.
In 2007 the average quarterly sum of the same expenses was 12,551 thousand
Estonian kroons so by the end of the first quarter of 2008, these expenses had
decreased by 23.2%. The decrease of these expenses resulted from the reduced
number of employees and decreased various operating expenses both in Estonia
and in Latvia. At the same time in Lithuania the development expenses and
general expenses increased as when compared to the same period of 2007 the team
there has grown. So in Estonia and Latvia the cost reduction was even greater
than the Group's average stated above .
4.3. OPERATING PROFIT/LOSS
The operating loss of the first quarter of 2008 was 5,693 thousand Estonian
kroons. The amount of operating loss in the first quarter of 2007 was 11,681
thousand Estonian kroons so in 2008 the operating loss has decreased by 51.3%.
The decrease of operating loss resulted mainly from the undertaken cost
reduction. In order to achieve the positive operating result in the following
periods Q Vara continues additional cost reduction But even greater improvement
of the operating result result is expected to arise from the growth of sale
revenues and gross profit, because from the second quarter the warehouse spaces
of Terminal No. 11 and from the third quarter the apartments of 365 will add
up to the Kirsiaia and Silukalni projects' revenues.
4.4. FINANCIAL INCOME AND EXPENSES
In the first quarter of 2008 the net financial result was -6,713 thousand
Estonian kroons. Interest expenses made up 7,904 thousand Estonian kroons of
it. The average quarterly interest expense in 2007 was 10,167 thousand Estonian
kroons so compared to the average quarterly interest expense in 2007 the
interest expense was 22,3% lower in the first quarter of 2008. The decrease of
interest expenses resulted from the partial repayment of the high interest
loans in the last quarter of 2007. When comparing the interest expenses of the
first quarter of 2007 and the first quarter of 2008 the expense amount has
increased, as in the second half of 2007, the Group increased its construction
loan amounts and also the interest rates of loans increased. According to the
forecasts given in earlier reports the financial expenses of Q Vara Group will
decrease in 2008 and the first changes are expected to realise starting from
the third quarter.
4.5. NET RESULT
Q Vara Group's consolidated net loss for the first three months of 2008
amounted 12,472 thousand Estonian kroons, out of which the part attributable to
the owners of the parent company is 12,243 thousand Estonian kroons. In the
same period of 2007, the amount of the Group's net loss was 18,229 thousand
Estonian kroons which means that in 2008 the net loss decreased by 31.7%.
4.6. LOANS
At the end of the first quarter of 2008, the total amount of received short-
and long-term loans and issued debt securities was 500,401 thousand Estonian
kroons. In the end of the first quarter 2007, the sum of the same liabilities
was 428,885 thousand Estonian kroons and in the end of 2007, 477, 587 thousand
Estonian kroons. The increase of total loan amount was caused mainly by the
increase in outstanding amount of construction loans.
4.7. BALANCE SHEET STRUCTURE
At the end of the first quarter of 2008 Q Vara's equity amounted 157,505
thousand Estonian kroons. The total amount of assets was 786,071 thousand
Estonian kroons so the equity made up 20.0% of all assets. Q Vara continues its
activities that are focused on increasing the equity share of total assets as
disclosed in earlier reports and stock exchange releases. These activities
include additional equity investment by Q Vara's shareholders, raising
additional capital for the Terminal No. 11 project and reducing loans as a
result of the sale of the Jonathan project.
5. PROFIT AND LOSS STATEMENT
-----------------------------------------------------------------
3Q 2008 3Q 2007 3Q 2008 3Q 2007
(in thousands) EEK EEK EUR EUR
-----------------------------------------------------------------
Operating revenue
Sales revenue 22 428 14 507 1 433 927
Other income 953 1 574 61 101
Total operating revenue 23 381 16 081 1 494 1 028
Operating expenses
Building expenses -19 438 -8 494 -1 242 -543
Direct development expenses -490 -4 087 -31 -261
General development expenses -5 999 -8 102 -383 -518
Marketing expenses -1 408 -1 897 -90 -121
Administrative expenses -1 539 -1 894 -98 -121
Other expenses -200 -3 288 -13 -210
Total operating expenses -29 074 -27 762 -1 858 -1 774
Operating profit -5 693 -11 681 -364 -747
Financial income and expenses
Interest incomes 1 235 556 79 36
Interest expenses -7 904 -7 124 -505 -456
Loss from the exchange rate -44 0 -3 0
Other financial incomes/expenses 0 20 0 1
Net financial result -6 713 -6 548 -429 -418
Profit before tax -12 406 -18 229 -793 -1 165
Real estate tax -38 0 -2 0
Net profit -12 444 -18 229 -795 -1 165
Attributable to the Parent -12 215 -18 328 -781 -1 171
Minority share -229 99 -15 6
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6. BALANCE SHEET
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31.03.2008 31.03.2007 31.03.2008 31.03.2007
(in thousands) EEK EEK EUR EUR
-------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 9 100 1 626 582 104
Subsidiaries' shares for sale 183 102 0 11 702 0
Accounts receivable 22 139 12 522 1 415 800
Short-term loan receivables 33 848 76 196 2 163 4 870
Other short-term receivables 23 236 63 430 1 485 4 054
Interest receivable 3 683 7 226 235 462
Prepayments made 2 549 33 389 163 2 134
Property for sale 461 911 241 753 29 521 15 451
Total currents assets 739 568 436 142 47 267 27 875
Non-current assets
Long-term loan receivables 186 6 264 12 400
Associated companies 31 339 32 618 2 003 2 085
Investment property 0 309 826 0 19 801
Fixed assets 9 397 12 485 601 798
Goodwill 5 581 0 357 0
Total non-current assets 46 503 361 193 2 972 23 084
Total assets 786 071 797 335 50 239 50 959
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31.03.2008 31.03.2007 31.03.2008 31.03.2007
(in thousands) EEK EEK EUR EUR
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Liabilities and shareholders' equity
Current liabilities
Short-term borrowings 396 382 188 900 25 333 12 073
Finance lease liabilities 565 7 488 36 479
Customers prepayments collected 8 617 877 551 56
Accounts payable 47 877 30 190 3 060 1 929
Employee related liabilities 3 032 2 505 194 160
Interest liabilities 8 168 12 414 522 793
Tax liabilities 4 423 1 693 283 108
Guarantee liabilities 119 0 8 0
Other contractual liability 22 413 0 1 432 0
Liability to Q Ehitus' client 10 782 0 689 0
Total current liabilities 502 378 244 067 32 108 15 599
Non-current liabilities
Long-term loans 25 786 163 122 1 648 10 425
Other long-term liabilities 0 287 0 18
Issued debt securities (bonds) 78 233 76 863 5 000 4 912
Financial lease liabilities 1 312 4 849 84 310
Deferred income tax liability 20 857 26 268 1 333 1 679
Total non-current liabilities 126 188 271 389 8 065 17 345
Total liabilities 628 566 515 456 40 173 32 944
Shareholders' equity
Equity attributable to the owners of the Parent
Share capital 181 511 73 511 11 601 4 698
Reserves 7 361 7 361 470 470
Unrealized exchange rate diff. 160 -1 154 10 -74
Retained earnings -80 546 154 017 -5 148 9 843
Total Parent owners' equity 108 486 233 735 6 934 14 938
Minority interests 49 019 48 144 3 133 3 077
Total equity 157 505 281 879 10 066 18 015
Total liabilities and equity 786 071 797 335 50 239 50 959
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Additional information:
Meelis Šokman
Chairman of the management board
AS Q Vara
Phone: 668 1600
AS Q Vara's 3 month financial results of 2008
| Source: Q Vara
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