Group Chief Executive’s review
At the date of release of this report, the most important event of 2012 has been a change in the composition of the supervisory board of Arco Vara AS. Since the reporting date, three independent supervisory board members, Ragnar Meitern, Kalev Tanner and Aare Tark, have resigned and Toomas Tool, Stephan David Balkin and Aivar Pilv have been elected in their place. Now, three of the company’s largest shareholders who together hold over 62% of the votes represented by shares are represented on the supervisory board.
The first quarter net loss of 0.9 million euros results mainly from the sale of an investment property, i.e. a right of superficies at Kadaka tee 131 in Tallinn. Corresponding information has already been disclosed earlier. In other respects, the Group’s performance met expectations and was more profitable than in the second half of 2011.
In the first quarter of 2012, we sold four apartments in Arco Vara’s projects: one in Estonia and three in Latvia. The figure does not include the apartments sold in the recently completed Manastirski apartment block and the two Kodukolde apartment buildings that will be completed in June, because currently we have concluded only contracts under the law of obligations there (presale contracts). The sales of those apartments will be included in revenue from the second quarter.
As regards major ongoing work, the large-scale Tivoli apartment project is in the design phase and we have invited tenders from potential builders. The construction of phase VI in the Kodukolde project (48 apartments) at Helme 16 in Tallinn, which was started in the second quarter of 2011, will be completed in June 2012. By the end of the first quarter, 52% of the new Kodukolde apartments had been reserved. We have also started development of a residential building with 14 apartments in Tehnika street in Tallinn. Construction term is14 months, pre-sale began in May 2012.
We have completed the construction of 7,000 square metres in phase I of the Manastirski project in Bulgaria. By the reporting date, 65% of the apartments in phase I had been reserved. In the commercial and residential building Boulevard Residence Madrid in Sofia, we continue to lease out commercial premises, to deliver reserved apartments under real right contracts (final contracts by which title is transferred), and to sell the remaining free apartments.
In the Bišumuiža 1 apartment project in Latvia, we will complete the fourth building of stage II (14 apartments) in June 2012. In addition to selling the apartments of Bišumuiža 1, we continue realising 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.
To improve the Group’s liquidity and reduce its liabilities, the Group’s subsidiary OÜ Kerberon sold the right of superficies at Kadaka tee 131 in Tallinn. By divesting a business and warehouse complex on the property, the Group reduced its liabilities by 2.2 million euros and improved its liquidity although the transaction resulted in a loss of 0.7 million euros.
In the first quarter of 2012, the Service division performed better than a year ago, generating revenue of 573 thousand euros, 13% up on a year ago. The number of brokerage transactions increased by 11% and the number of valuation reports issued grew by 9% year over year. At the same time, the number of brokers increased by only 1% and the number of appraisers remained stable. During the period, the Service division began offering valuation services in Bulgaria.
In the first quarter of 2012, the Construction division secured new construction contracts of 2.9 million euros. At the reporting date, the order backlog stood at 12.9 million euros against 19.0 million euros at the end of the first quarter of 2011. The Construction division ended the first quarter with an operating profit of 0.4 million euros compared with an operating loss of 0.1 million euros incurred in the first quarter of 2011.
After the reporting date, in April 2012, the Group sold its stake in the joint venture Bišumuižas Nami SIA to the co-venturer SIA Linstow Baltic. The Group 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. 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.
In the first quarter, the Group’s loans and borrowings decreased by 1 million euros while equity to assets ratio remained more or less stable at around 40%. The weighted average interest rate of interest-bearing loans and borrowings has decreased by 0.1 percentage points compared with a year ago, mainly in connection with a decline in EURIBOR. The weighted average duration of loans and borrowings has extended slightly, from 2.1 years to 2.3 years.
KEY PERFORMANCE INDICATORS
- The Group ended the first quarter of 2012 with revenue of 3.6 million euros. Revenue for the first quarter of 2011 was 13.3 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 quarter of 2012 was 27% smaller than a year ago.
- Operating loss for the period was 0.5 million euros. Compared with the first quarter of 2011 when the figure was 0.9 million euros, operating loss has decreased by 48%.
- Net loss for the first quarter was 0.9 million euros, a 35% decrease from the net loss of 1.3 million euros incurred in the first quarter of 2011.
- Equity to assets ratio at period-end was 40.1% (31 December 2011: 39.7%). Return on equity (12 months rolling) was negative.
- At the end of the first quarter, the Group’s order backlog stood at 12.9 million euros compared with 19.0 million euros at the end of the first quarter of 2011.
- During the first quarter, the Group sold 4 apartments and plots (Q1 2011: 13 apartments and plots) in its self-developed projects.
| Q1 2012 | Q1 2011 | ||
| In millions of euros | |||
| Revenue | 3.6 | 13.3 | |
| Operating loss | -0.5 | -0.9 | |
| Net loss | -0.9 | -1.3 | |
| EPS (in euros) | -0.18 | -0.28 | |
| Total assets at period-end | 57.7 | 65.5 | |
| Invested capital at period-end | 47.1 | 53.2 | |
| Net loans at period-end | 22.3 | 24.4 | |
| Equity at period-end | 23.1 | 26.5 | |
| Average loan term (in years) | 2.3 | 2.1 | |
| Average interest rate of loans (per year) | 6.9% | 7.0% | |
| ROIC (rolling, 4 quarters) | neg | 1.2% | |
| ROE (rolling, 4 quarters) | neg | neg | |
| Number of staff at period-end | 140 | 150 |
REVENUE AND PROFIT
| Q1 2012 | Q1 2011 | ||
| In millions of euros | |||
| Revenue | |||
| Service | 0.6 | 0.5 | |
| Development | 0.7 | 9.9 | |
| Construction | 2.4 | 2.9 | |
| Eliminations | -0.1 | 0.0 | |
| Total revenue | 3.6 | 13.3 | |
| Operating profit/loss | |||
| Service | 0.0 | 0.0 | |
| Development | -0.6 | -0.6 | |
| Construction | 0.4 | -0.1 | |
| Eliminations | 0.0 | 0.1 | |
| Unallocated income and expenses, net | -0.3 | -0.3 | |
| Total operating loss | -0.5 | -0.9 | |
| Interest income and expense, net | -0.4 | -0.4 | |
| Net loss | -0.9 | -1.3 |
The Development division’s revenue for the first quarter of 2011 was significantly impacted by the sale of inventory of 8.3 million euros to joint venture Tivoli Arendus OÜ.
CASH FLOWS
| Q1 2012 | Q1 2011 | |||
| In millions of euros | ||||
| Cash flows from operating activities | -1.2 | -0.7 | ||
| Cash flows from investing activities | 1.0 | -0.4 | ||
| Cash flows from financing activities | -0.3 | -0.9 | ||
| Net cash flow | -0.4 | -2.0 | ||
| Cash and cash equivalents at beginning of period | 2.2 | 4.2 | ||
| Cash and cash equivalents at end of period | 1.8 | 2.2 |
At 31 March 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 taken for 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 2.4 million euros;
- repayments of the loan taken for the Bišumuiža 1 project of 0.5 million euros.
In the first quarter of 2012, the Group made repayments of the loan taken for the Bišumuiža-1 project in Riga and repaid the Kerberon loan in full. The Group also 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 quarter of 2012, the Service division performed better than a year ago, ending the period with an operating loss of 5 thousand euros compared with an operating loss of 32 thousand euros for the first quarter of 2011. Revenue for the first quarter of 2012 was 573 thousand euros, 13% up on the first quarter of 2011. The number of brokerage transactions increased by 11% and the number of valuation reports issued grew by 9% year over year. At the same time, the number of brokers increased by only 1% and the number of appraisers remained stable.
| Q1 2012 | Q1 2011 | Change, % | ||
| Number of completed brokerage transactions | 313 | 281 | 11% | |
| Number of projects on sale at end of period | 162 | 158 | 3% | |
| Number of valuation reports issued | 1,382 | 1,270 | 9% | |
| Number of appraisers at end of period¹ | 39 | 39 | 0% | |
| Number of brokers at end of period¹ | 75 | 69 | 1% | |
| Number of staff at end of period | 45 | 49 | -8% | |
| ¹ Includes people working under service contracts |
DEVELOPMENT DIVISION
In the first quarter of 2012, four apartments were sold in Arco Vara’s projects: three apartments in the Bišumuiža project in Latvia and one apartment in the Kodukolde project in Estonia. It should be noted that the figure does not yet include the apartments sold in the recently completed apartment block in the Manastirski project and the two apartment buildings, which will be completed in the Kodukolde project in June. In those projects 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 the division’s revenue from the second quarter.
In 2011 the Development division found a partner, International Invest Project OÜ, for the Tivoli project and raised financing for the construction of phase I. Last year contaminated land was remediated and design work began. In the fourth quarter, Tivoli Arendus OÜ obtained a permit for the construction of six residential buildings. According to plan, construction work will begin in the summer of 2012.
Phase V of the Kodukolde development project (50 apartments) was completed in June 2011. By the end of the first quarter of 2012, all apartments in that phase had been sold. The construction of phase VI at Helme 16 in Tallinn (48 apartments) began in the second quarter of 2011. The work is performed and substantially financed by AS Merko Ehitus Eesti. The buildings are scheduled for completion in June 2012. By the end of the first quarter, half of the apartments in phase VI had been reserved on the basis of contracts under the law of obligations.
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. Construction of the building was put out to tender in the first quarter of 2012. To date, the best two bidders have been selected and negotiations on signing a construction contract are under way. According to plan, construction work should be completed within 14 months. Preliminary sale of apartments began in May 2012.
During the period, the division completed the construction of phase I in the Manastirski project in Bulgaria. As at 31 March 2012, 65% 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 June 2012, the fourth building (14 apartments) will be completed in phase II of the Bišumuiža 1 apartment buildings development project in Latvia. Altogether, phase II consists of five buildings.
At the end of March 2012, the Development division employed 25 people (31 December 2011: 24).
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 first quarter of 2012, the largest contracts in progress included 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 3.9 million euros), the construction of the Paide wastewater treatment plant (remaining balance 2.7 million euros), the design and build of water and wastewater pipelines for the city of Loksa (remaining balance 2.5 million euros) and the construction of the Kuusalu public water and wastewater network (remaining balance 2 million euros).
In the first quarter of 2012, the division secured new construction contracts of 2.9 million euros. At the reporting date, the order backlog stood at 12.9 million euros compared with 19.0 million euros at the end of the first quarter of 2011.
At the end of March 2012, the Construction division employed 53 people (31 December 2011: 58).
Consolidated statement of comprehensive income
| Note | Q1 2012 | Q1 2011 | ||
| In thousands of euros | ||||
| Revenue from rendering of services | 3,368 | 3,737 | ||
| Revenue from sale of goods | 260 | 9,522 | ||
| Total revenue | 2, 3 | 3,628 | 13,259 | |
| Cost of sales | 4 | -2,815 | -12,692 | |
| Gross profit | 813 | 567 | ||
| Other income | 7 | 192 | 5 | |
| Marketing and distribution expenses | 5 | -82 | -102 | |
| Administrative expenses | 6 | -697 | -1,361 | |
| Other expenses | 7 | -716 | -43 | |
| Operating loss | -490 | -934 | ||
| Finance income | 8 | 22 | 34 | |
| Finance expenses | 8 | -394 | -421 | |
| Loss before tax | -862 | -1,321 | ||
| Loss for the period | -862 | -1,321 | ||
| Loss attributable to owners of the parent | -847 | -1,334 | ||
| Profit/loss attributable to non-controlling interests | -15 | 13 | ||
| Total comprehensive expense for the period | -862 | -1,321 | ||
| Earnings per share (in euros) | 9 | |||
| - Basic | -0.18 | -0.28 | ||
| - Diluted | -0.18 | -0.28 |
Consolidated statement of financial position
| Note | 31 March 2012 | 31 December 2011 | ||
| In thousands of euros | ||||
| Cash and cash equivalents | 1,787 | 2,209 | ||
| Trade and other receivables | 10 | 7,648 | 7,012 | |
| Prepayments | 397 | 433 | ||
| Inventories | 11 | 23,178 | 21,564 | |
| Non-current assets held for sale | 0 | 469 | ||
| Total current assets | 33,010 | 31,687 | ||
| Investments in equity-accounted investees | 4 | 4 | ||
| Other investments | 8 | 8 | ||
| Trade and other receivables | 10 | 3,135 | 3,058 | |
| Deferred income tax asset | 250 | 250 | ||
| Investment property | 12 | 20,306 | 24,046 | |
| Property, plant and equipment | 920 | 934 | ||
| Intangible assets | 25 | 26 | ||
| Total non-current assets | 24,648 | 28,326 | ||
| TOTAL ASSETS | 57,658 | 60,013 | ||
| Loans and borrowings | 13 | 9,425 | 9,662 | |
| Trade and other payables | 14 | 6,930 | 7,735 | |
| Deferred income | 2,304 | 2,012 | ||
| Provisions | 1,201 | 1,205 | ||
| Total current liabilities | 19,860 | 20,614 | ||
| Loans and borrowings | 13 | 13 929 | 14 675 | |
| Other payables | 14 | 748 | 741 | |
| Total non-current liabilities | 14,677 | 15,416 | ||
| TOTAL LIABILITIES | 34,537 | 36,030 | ||
| Share capital | 3,319 | 3,319 | ||
| Statutory capital reserve | 2,011 | 2,011 | ||
| Retained earnings | 17,791 | 18,653 | ||
| Total equity | 23,121 | 23,983 | ||
| Equity attributable to non-controlling interests | 140 | 155 | ||
| Equity attributable to equity holders of the parent | 22,981 | 23,828 | ||
| TOTAL LIABILITIES AND EQUITY | 57,658 | 60,013 |
Consolidated statement of cash flows
| Note | Q1 2012 | Q1 2011 | ||
| In thousands of euros | ||||
| Loss for the period | -862 | -1,321 | ||
| Interest income and interest expense, net | 8 | 321 | 355 | |
| Loss on sale of investment property | 7 | 712 | 0 | |
| Depreciation, amortisation and impairment losses on property, plant and equipment and intangible assets | 4, 6 | 23 | 25 | |
| Foreign exchange gains and losses, net | 8 | 3 | 4 | |
| Operating cash flow before working capital changes | 197 | -937 | ||
| Change in receivables and prepayments | 169 | -1,866 | ||
| Change in inventories | -953 | 1,504 | ||
| Change in payables and deferred income | -575 | 591 | ||
| NET CASH USED IN OPERATING ACTIVITIES | -1,162 | -708 | ||
| Acquisition of property, plant and equipment and intangible assets | -12 | -2 | ||
| Paid on development of investment property | 0 | -557 | ||
| Proceeds from sale of investment property | 1,140 | 177 | ||
| Acquisition of investments in subsidiaries and joint ventures | 0 | 1 | ||
| Loans granted | 15 | -63 | -67 | |
| Repayment of loans granted | 0 | 29 | ||
| Other payments related to investing activities | -29 | 0 | ||
| Interest received | 3 | 24 | ||
| NET CASH FROM/USED IN INVESTING ACTIVITIES | 1,039 | -395 | ||
| Proceeds from loans received | 13 | 261 | 504 | |
| Settlement of loans and finance lease liabilities | 13 | -165 | -876 | |
| Interest paid | -393 | -537 | ||
| Other payments related to financing activities | -2 | 0 | ||
| NET CASH USED IN FINANCING ACTIVITIES | -299 | -909 | ||
| NET CASH FLOW | -422 | -2,012 | ||
| Cash and cash equivalents at beginning of period | 2,209 | 4,209 | ||
| Decrease in cash and cash equivalents | -422 | -2,012 | ||
| Cash and cash equivalents at end of period | 1,787 | 2,197 |
Egert Paulberg
Financial Controller
Arco Vara AS
Phone: +372 614 4503
egert.paulberg@arcovara.ee
