ARCO VARA GROUP
Arco Vara AS and other entities of Arco Vara group (together referred to as ‘the group’) are involved in real estate development and provision of real estate services. The group has three business lines and its operations are carried out by three divisions – Service, Development and Construction.
The core business of the Service division consists of real estate brokerage and valuation, real estate management and consulting, and short-term investment in residential real estate.
The core business of the Development division is development of complete living environments and commercial real estate. Fully developed housing solutions are sold to the end-consumer. In the development of commercial real estate, the purpose is to create an asset generating cash flow that can either be held for consolidating the group’s own cash flows or sold. The group is currently holding some completed commercial properties that generate rental income.
The core business of the Construction division was provision of general construction and environmental engineering services as a general contractor or a subcontractor. We are planning to discontinue provision of construction services to external customers by the end of 2013 and do not intend to start any new projects funded by the public sector or the EU.
The performance of all divisions is subject to seasonal fluctuations. The transaction volumes of the Service division usually increase in autumn and spring and the Construction division’s turnover and the Development division’s investment volumes decline in winter.
At the end of the IV quarter of 2013, the group comprised of 23 companies (31 December 2012: 23). In addition, at 31 December 2013 the group had one joint venture (31 December 2012: 2) and one associate (31 December 2012: 1).
The group’s active markets are Estonia, Latvia and Bulgaria.
Mission, vision and shared values
The mission of Arco Vara is to be a comprehensive and valued provider of real estate solutions.
The vision of Arco Vara is to become a symbol of real estate.
Our core values include:
Partnership – our client is our partner
Reliability – we are reliable, open and honest
Professionalism – we deliver quality
Consideration – we value our clients as individuals
Responsibility – we keep our promises
KEY PERFORMANCE INDICATORS
· Revenue for 12 months 2013 was 14.2 million euros, which was 31% lower compared to previous year. Most significant reduction in revenues is related to construction services, decreased by 6.3 million euros in 2013. Revenue of development division decreased by 0.6 million euros or 7% and revenue of service division increased by 0.3 million euros or 13%. Revenue decreased in Q4 2013 by 59% compared to the same period of last year.
· Operating proft for 2013 was 4.4 million euros, significant part of which was gain from reversals of provisions and revalutions of assets and liabilities by 3.1 million euros in total. In 2012, operating loss was 16.1 million euros, of which loss from recognition of provisons and revaluation of assets and liabilities totalled 15.8 million euros.
· The group ended up year 2013 with net profit of 3.4 million euros. Last year, net loss was 18 million euros.
· In 2013, equity to assets ratio showed significant improvement. As at 31 December 2013, it was 27%, compared to 11% at 31 December 2012.
· The group net loans have decreased to 14 million euros as at the end of 2013 (17.1 million euros as at 31 December 2012). Average annual interest rate of loans decreased to 6.0%, annual decrease by 0.5 percentage point.
· In 2013, was sold 73 apartments, plots and commercial areas developed in the group (81 in 2012), of which 14 in Q4 2013 (24 in Q4 2012).
| 12 month 2013 | 12 month 2012 | Q4 2013 | Q4 2012 | |||
| In millions of euros | ||||||
| Revenue | 14.2 | 20.7 | 1.9 | 4.7 | ||
| Operating profit/loss | 4.4 | -16.1 | 1.6 | -16.1 | ||
| Net profit/loss | 3.4 | -18.0 | 1.4 | -17.0 | ||
| EPS (in euros) | 0.72 | -3.79 | 0.30 | -3.58 | ||
| Total assets at period-end | 25.1 | 31.2 | ||||
| Invested capital at period-end | 21.7 | 21.4 | ||||
| Net loans at period-end | 14.0 | 17.1 | ||||
| Equity at period-end | 6.8 | 3.4 | ||||
| Average loan term (in years) | 0.3 | 2.0 | ||||
| Average interest rate of loans (per year) | 6.0% | 6.5% | ||||
| ROIC (rolling, four quarters) | neg | neg | ||||
| ROE (rolling, four quarters) | neg | neg | ||||
| Number of staff at periood-end | 178 | - |
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)
Equity to assets ratio = equity at end of period / total assets at period end
Average equity = past four quarters’ equity at end of period / four
Return on equity (ROE) = past four quarters’ net profit / average equity
Average invested capital = past four quarters’ current interest-bearing liabilities, non-current liabilities and equity / four
Return on invested capital (ROIC) = past four quarters’ profit before tax and interest expense / average invested capital
Number of staff at period-end = number of people working under employment and service contracts
GROUP STRUCTURE
As at 31 December 2013
CHANGES IN GROUP STRUCTURE DURING 2013
On 1 March 2013, Arco Investeeringute AS divested its 100% interest in the subsidiary Pärnu Turg OÜ to Bellvory Turg OÜ. The group’s sales gain on the transaction amounted to 98 thousand euros. As a result of the divestment, the group’s assets decreased by 2,067 thousand euros and its loan liabilities declined by 772 thousand euros. The group’s annual revenue will decrease by around 300 thousand euros.
On 30 May 2013, Arco Investeeringute AS divested its 100% interest in the subsidiary T53 Maja OÜ to the group’s parent Arco Vara AS. The purpose of the divestment was to streamline the group’s structure and loan relations and achieve administrative cost efficiencies. The transaction had no impact on the group’s financial position or financial performance.
On 31 May 2013, Arco Investeeringute AS divested its 100% interest in the subsidiary Kolde AS to the group’s parent Arco Vara AS. The purpose of the divestment was to streamline the group’s structure and achieve administrative cost efficiencies. The transaction had no impact on the group’s financial position or financial performance.
On 20 June 2013, Arco Investeeringute AS divested its 100% interest in the subsidiary Kerberon OÜ to the group’s parent Arco Vara AS. The purpose of the divestment was to streamline the group’s structure and loan relations and achieve administrative cost efficiencies. The transaction had no impact on the group’s financial position or financial performance.
On 1 July 2013, Arco Investeeringute AS divested its 100% interest in the subsidiary Arco Development SIA to the group’s parent Arco Vara AS. The purpose of the divestment was to streamline the group’s structure and loan relations and achieve administrative cost efficiencies. The transaction had no impact on the group’s financial position or financial performance.
On 8 July 2013, Arco Investeeringute AS divested its 100% interest in the subsidiary Arco Invest UAB to the group’s parent Arco Vara AS. The purpose of the divestment was to streamline the group’s structure and loan relations and achieve administrative cost efficiencies. The transaction had no impact on the group’s financial position or financial performance.
On 17 July 2013, Arco Investeeringute AS divested its 100% interest in the subsidiary Marsili II SIA to the group’s parent Arco Vara AS. The purpose of the divestment was to streamline the group’s structure and loan relations and achieve administrative cost efficiencies. The transaction had no impact on the group’s financial position or financial performance.
On 9 August 2013, the group’s Bulgarian subsidiary Arco Invest EOOD established subsidiary Arco Manastirski EOOD with 100% ownership and share capital amounted to 2,676 thousand euros. On 4 September 2013, Arco Invest EOOD divested its shares in Arco Manastirski EOOD to Arco Vara AS. The transaction had final registrations in October 2013. The aim of transaction was separate different assets into separate legal entities (Madrid Blvd development and Manastirski Livadi development). The transaction had no impact on the group’s financial position or financial performance.
On 30 September 2013, the group’s subsidiary T53 Maja OÜ was renamed to Arco Vara Haldus OÜ.
On 29 November 2013, Arco Investeeringute AS sold its 50% share in the joint venture Arco HCE OÜ to Ahtrimaa OÜ, the other 50% shareholder of the joint venture. In the framework of the transaction the credit relations related to Ahtri 3 were restructured and all court disputes between Danske bank on the one hand and Arco HCE OÜ, Arco Investeeringute AS and Ahtrimaa OÜ on the other hand became settled. The group has no more rights or obligations related to Arco HCE OÜ or Ahtri 3 land plot. As a result of the transaction the group reversed provision in amount of 1.9 million euros that was created in previous years to cover the possible obligations arising from the surety to Danske bank.
Group continues restructuring and simplification of group structure. The goal is to have two-tier group structure. Resturcturing must meet two criterias:
i) Direct control of all relevant business entities by parent company;
ii) Separating all development projects into separate companies- i.e. one project, one entity.
As a result all risks, revenues and liabilities of separate projects are kept in individual companies. Due to changes parent company will have direct control of all development projects (as owner and creditor) and other relevant subsidiaries which offer products and services to clients.
Group Chief Executive’s review
Q4 and the whole year ended successfully for the group. The management’s objective in general terms was to restructure of the group’s balance sheet to such extent that it would contain only actively productive assets and related liabilities. We had to remove from the balance sheet non-productive assets and liabilities related to them. All objectives that were set in the beginning of year became fulfilled, especially the re-launch of profitable development activities in Riga and in Sofia, as well as acquisition of landbank at Paldiski road in Tallinn that is suitable for future profitable development. The group cleaned its balance sheet: exited from Tivoli and Ahtri projects and was released from related liabilities. The group completed the sale and delivery of blocked apartments in Sofia and reduced its outstanding loan liability. Arco construction company performed duly its pending contracts and is, ast at the date of the present report, sold out of the group. The operations volume of service division grew.
Development division: mass developments:
a) We proceeded according to timetable with the project in Tallinn, Paldiski road 70c, which is currently in detail planning stage. Presumed volume is 300 apartment units, presumed gross sellable area (GSA) above grade 24 000 sq.m.
b) On 15.11.2013 we started the construction of the project in Sofia, Manastirski Livadi Stage II with presumed volume of 132 apartment units and gross sellable area above grade of 12 500 sq.m. As of the date of the present report, construction is ahead of schedule by two weeks and more than 30% of gross sellable area is already booked by means of presale agreements.
c) We will also proceed with Manastirski Livadi Stage III where the group is the owner of the immovable, construction rights and partly completed under grade construction. Presumed project volume is exceeding 70 apartments and GSA above ground is in excess of 6,000 sq.m. The project will be launched in accordance with fulfilment of the internal sales targets of Stage II, presumably by end of 2015;
d) The group continues selling Bisumuiša-1 apartments in Riga. As at the end of Q4, 2 apartments from the finished 14 apartment block remained unsold and as at the date of the present report, the construction of the last 14-apartment block is pending. The pre-sale will commence in March 2014.
e) In Estonia, the next consumer residence products will be ready for delivery in 2015 as planned.
f) The biggest risk of upcoming quarters is related to consequences of nonperformance of the Piraseus Bank loan agreement by Arco Invest EOOD, fully owned subsidiary of the group. The loan was received for construction of the Madrid blvd building in Sofia. The liabilities relates to Madrid Blvd building are a little smaller, than the value of the said building in the balance sheet and neither the group’s parent nor any of its significant subsidiaries is guaranteeing these liabilities. According to the loan agreement, Arco Invest EOOD is obliged to repay during 2014 1.8 million euros and by June 30, 2015 the rest of remaining principal in amount of 10.4 million euros. Although the lettable area in the building is 99% occupied and is producing positive cashflow, which among others is sufficient to cover all loan interest costs, the sales pace of existing apartments stock in the building is not sufficient to catch up the principal repayment schedule of 1.8 million euros during 2014. The deadline of full principal repayment by June 2015 presumes the sale of lettable area by that time. As of the date of present report, Arco Invest EOOD has failed to repay principal in amount of ca 250.000 euros in due time. The negotiations with Piraeus bank to terminate the constrcution loan agreement and refinance it with a long term investment loan that is served from the rent revenues of Arco Invest EOOD are pending. It is also possible that the group will complete the interior works of unsold apartments and puts them to the short-term rental market, a business concept that the group started already in 2013.
Comment on sale revenues
As a minimum it takes more than 4 years to complete one full production cycle of the group’s main product – residential or office property, if one counts the time from the moment of acquisition of the land without building rights, followed by design, construction and selling or letting out.
The sale revenues of Q4 met the expectations.
The groups own projection for 2014 revenues is 9 million euros, of which 50% is made by sale of development products, 11% is made by rent of development products and 39% is made by service division.
The sale revenue of development products remains minimal until Q4 2014 and consists until Q4 mainly of the revenue from sale of Riga apartments. We will complete construction and start the delivery of Manastriski Livadi II apartments in Q4. The revenue from rents is stable throughout the year, as well as the revenue from service division.
Comment on profit
The groups target for 2013 was to achieve operating profit. After 12 months, we are making operating profit as well as net profit in service and development division, and the group makes net profit. Partly the profit was made because the group solved the problems underlying the provisions that were created previously. At foremost it is pleasing that the group made money for its shareholders and created added value for its customers with its dvelopment products and services.
The group expects to make in 2014 an operating profit of not less than 1.5 million and net profit of not less than 500 thousand euros.
Development division is the most profitable part of the group and remains so in the foreseenable future, depending on its sale volumes, of course. Sale volumes and especially their future increase depend, in case of Arco Vara, at foremost on success of creating its own landbank, professional design, optimal construction and group finance. We are engaged in all these directions simultaneously, as reported also previously.
As regards the service division, it should be continuously noted that we have increased expenditure and investments into main assets and work processes improvement (software, team trainings etc), which have been postponed in previous years. This reduces the profitability of service division in 2014. In the long run the expenditure and investments should result in further increase of service division’s revenue and also increase of profit. It should also bring along the further improvements in the quantity and quality of the input data for development division.
Construction division completed the year and fulfillment of existing contracts with a minimal loss, that is an optimal result, all circumstances considered. We have no plans to continue constrution activities in the same line.
REVENUE AND PROFIT
| 12month 2013 | 12 month 2012 | Q4 2013 | Q4 2012 | ||
| In millions of euros | |||||
| Revenue | |||||
| Development | 8.1 | 8.6 | 1.2 | 2.9 | |
| Service | 2.8 | 2.6 | 0.8 | 0.7 | |
| Construction | 3.5 | 9.8 | 0.0 | 1.2 | |
| Eliminations | -0.2 | -0.3 | -0.1 | -0.1 | |
| Total revenue | 14.2 | 20.7 | 1.9 | 4.7 | |
| Operating profit | |||||
| Development | 5.1 | -14.9 | 2.4 | -14.8 | |
| Service | 0.2 | 0.3 | 0.0 | -0.3 | |
| Construction | -0.1 | -0.3 | -0.6 | -0.5 | |
| Elimination | -0.3 | 0.2 | 0.0 | 0.2 | |
| Unallocated income and expenses | -0.5 | -1.4 | -0.2 | -0.8 | |
| Total operating profit | 4.4 | -16.1 | 1.6 | -16.2 | |
| Finance income and expenses (net) | -1.0 | -1.7 | -0.2 | -0.6 | |
| Income tax | 0.0 | -0.2 | 0.0 | -0.2 | |
| Net profit | 3.4 | -18.0 | 1.4 | -17.0 |
CASH FLOWS
| 12 month 2013 | 12 month 2012 | Q4 2013 | Q4 2012 | ||||
| In millions of euros | |||||||
| Cash flows from operating activities | 0.3 | 2.3 | 0.5 | 2.2 | |||
| Cash flows from/used in investing activities | 1.7 | 0.8 | 0.3 | -0.1 | |||
| Cash flows used in financing activities | -2.9 | -3.5 | -0.5 | -1.5 | |||
| Net cash flows | -0.9 | -0.4 | 0.3 | 0.6 | |||
| Cash and cash equivalents at beginning of period | 1.8 | 2.2 | 0.6 | 1.2 | |||
| Cash and cash equivalents at end of period | 0.9 | 1.8 | 0.9 | 1.8 |
During next 12 months the group must pay back 1.45 million euros of loans in Boulevard Residence Madrid in Sofia.
During 12 monts of 2013 the group has made loan repayments in Madrid and Manastirski projects in Sofia and completely paid back loans of Pärnu Turg, Kodukolde and Kastanimaja projects in Estonia.
Also sale-related debt reduction has been occurred in Marsili II SIA and loan payment schedule has been set for loan of Arco Real Estate AS.
SERVICE DIVISION
Service division Estonia
Arco Real Estate Ltd and Arco Vara Haldus Ltd make up the Estonian service division. The most important part of Arco Real Estate Ltd’s turnover in 2013 IV quarter was made up by brokerage activities and valuations. There were 211 brokerage transactions and 640 valuation reports. The turnover of both activities together in IV quarter vas 366,6 thousand euros which is 25,3% of the sales of the entire year. Compared to 2012 last quarter the turnover has decreased 4,8%. During the last quarter of 2013 were sold the last remaining apartments of the Lutheri Quarter (Vana-Lõuna 39) the sales of which had given largest part of revenue in 2012. During the year the brokerage fees and exclusive sale mandates in the brokerage activities have decreased which consequently have led to the decrease in brokerage sales revenue. In the appraisal activity the unit price has however increased and this has affected the revenue of the appraisal activity. The 12 month turnover of the company was 1 444.1 thousand euros which is 6% less than the 12 months results in 2012 (1 538.9 thousand euros).
The brokerage activities are in many ways affected by the real estate developers’ desire to sell their own products and hire a sale manager instead of giving the exclusive sale mandate to real estate agencies. On the other hand the appraisal activity is with each year more and more being transferred to the certificated valuators.
In the VI quarter Arco Real Estate Ltd continued increasing the volume of activity and recruiting additional employees. At the end of the year 62 people worked at the company. The company has decided to put more emphasize to providing better service to Russian-speaking clients. In order to reach that goal a representative of Arco Real Estate Ltd has been hired to cover the region of St. Petersburg.
As a result of the reformation of T53 Maja Ltd Arco Vara Haldus Ltd was established and started providing property management services. The goal of the company is to develop a sufficient clientele primarily in magaging the commercial real estate. Company started operating in IV Quarter of 2013 and there is no revenue from maintenance activities. Company had one employee by year-end.
Service division activities in Latvia
In Latvia the service division consists only of brokerage and appraisal activity. Arco Real Estate Ltd the minority shareholding, i.e 40%, in Arco Facility Management Ltd. Due to the fact that we have minority participation and Arco Vara group does not control the activity of the mentioned related company the results of it have not been disclosed in the quarterly report.
The turnover of the brokerage and appraisal activity increased in IV quarter abruptly. The growth in the brokerage activity compared to the same period last year was up to 101%, i.e 137 thousand euros (68,3 thousand euros in 2012 IV quarter) and in the appraisal activity the growth was 10%, i.e up to 135,1 thousand euros (122,9 thousand euros in 2012 IV quarter). The reason fro the extremely large growth of the turnover was the fear that the Republic of Latvia will stop or limit the issuance of residence permits to those foreigners who acquire real estate in Latvia. Today it is known that the government will prolong the residence permit program until 2014 April. By that time the new criteria for issuing residence permits will be worked out. Undoubtedly such a growth in the turnover is temporary and the company does not expect that achieved turnover in brokerage activity will remain the same. The turnover of Arco Real Estate Ltd during 12 months in 2013 was 1005 thousand euros (770 thousand euros for 12 months in 2012 ) increasing 13%.
At the end of the year 78 people worked at Arco Real Estate Ltd
Service division activities in Bulgaria
Bulgarian service division includes/consist of the following activities:
· real estate brokerage and appraisals (Arco Imoti)
· property management services (Arco Facility Management);
· providing accommodation service (Arco Projects)
· real estate rental service (Arco Invest)
The turnover of the brokerage activity of Arco Imoti Ltd grew in 2013 IV quarter 18%, i.e up to 122 deals per month. Despite the very weak sale results in November and December the turnover of the brokerage activity grew 24%, i.e up to 98,9 thousand euros, compared to the IV quarter of last year. Compared to the IV quarter of last year the turnover of the appraisal activity decreased marginally – from 14,0 thousand euros to 13,5 thousand euros.
The demand for brokerage services in the IV quarter was lower compared to the previous months of the year which is different than the market development in 2012. At the moment the recovery of the demand is detectable and primarily the demand on the market for bigger, 3-bedroom, apartments is increasing. The lack of existing high-quality apartments and new developments has brought along an increase in the market prices of the apartments – approximately 2...3 per cent compared to the same period last year. Regarding the evaluation activities the market has stayed active and in that part the IV quarter of 2013 did not differ significantly from the last year. The main part of the evaluation services is connected to the appraisal of the private residences and apartments or the evaluation of the real estate of the companies (primarily in order to find out the value of the real estate investments).
In IV quarter of 2013 3 new brokers joined the team of Arco Imoti Ltd which makes the total number of people in the broker’s team 14. All together 22 people worked at the company at the end of the year.
The turnover of Arco Facility Management Ltd in the IV quarter was 28,2 thousand euros which is 72% more than it was in last year during the same period (16,4 thousand euros). The services are mainly provided in the Madrid commercial building in Sofia. At the end of the IV quarter of 2013 2 peoples worked at the company.
Arco Projects Ltd rents the apartments in the Madrid commercial building. At the end of the IV quarter of 2013 4 apartments were being used by the company. The 2013 IV quarter turnover of the company was 9,9 thousand euros. The company starting providing the rental service only in 2013 and the turnover of the whole year was 23,7 thousand euros. At the end of year 2013 2 empoyees worked at the company.
Arco Invest Ltd rents out commercial premises in the Madrid complex. The rental turnover of the company at the end of the IV quarter of 2013 was 249,7 thousand euros which is somewhat more than in the last quarter of year 2012 when the rental revenue was 234,8 thousand euros. The revenue of property management and other sale revenue remained basically the same compared to the last quarter of year 2012.
The most important change was the 55% decrease in the real estate sales turnover compared to the IV quarter of 2012. A significant part of the sales, 125 thousand euros, was made up by the sales inside the group (3 apartments were sold to Arco Manastirski Ltd) in order to better manage the risks of the company. This turnover is excluded from consolidated turnover.
DEVELOPMENT DIVISION
Development division activities in Estonia
At the end of the IV quarter of 2013 the development division in Estonia consisted of the following companies:
· Arco Investeeringute Ltd;
· Kolde Ltd;
· Kerberon Ltd;
· T53 maja Ltd.
The turnover of the development division in Estonia in the IV quarter of 2013 was 139.6 thousand euros which was the sale of the last apartment of Tehnika 53. In the last quarter of 2012 the development division in Estonia did not have turnover as well. All together the turnover of the development division in year 2013 was 1 864.0 thousand euros which was made up by the sales of the Tehnika 53 apartments.
The development division in Estonia continued dealing with the proceedings of the detailed plans of Paldiski road 70 and Lehiku street. At the end of year 2013 in Estonia the development division did not have a store with completed products which could be sold.
2 people work in the development division in Estonia.
Development division activities in Latvia
At the end of the IV quarter of 2013 the development division in Latvia consisted of the following companies:
· Arco Development Ltd;
· Marsili II Ltd;
· Ulmana gatves nami Ltd.
The Latvian (including Riga) real estate market has greatly been influenced by the real estate companies of the credit institutions and therefore by the relatively low priced offers that puts pressure on the sales of the new apartments in Riga. On the other hand it is expected that active sales by the real estate companies of the banks will stop in 2014.
Arco Development Ltd continued selling the apartments of Kometas iel 2. In the IV quarter of 2013 5 apartments were sold and the turnover was 294.8 thousand euros (1059 thousand euros in the IV quarter of 2012). All together the sales revenue of 12 months in 2013 was 642.9 euros (the revenue of 12 months in year 2012 was 387.3 thousand euros). 2 apartments were left in the store of the company.
Marsili II Ltd did not have any sales in the last quarter of 2013. In the IV quarter of 2012 2 registered immovables were sold for 69.2 thousand euros. The turnover of the company in 2013 was 134.9 thousand euros (in 2013 212.9 thousand euros). 17 immovables were left in the store of the company.
Development division activities in Bulgaria
The development division in Bulgaria consists of the following two companies:
· Arco Invest Ltd;
· Arco Manastirski Ltd.
The first on develops the Madrid commercial-residential building in the centre of Sofia and sells the immovables of the building. The other one deals with the construction and the sales of the blocks A and B of Manastirski. In 2013 the construction of block A and B of Manastrirski was started. The apartmenthouse consists of 132 apartments and 13 commercial areas. The whole development area is 12.5 thousand square metres. By the end of the IV quarter of 2013 the presale contracts for selling 22 apartments and 5 commercial areas were concluded. By the time of submitting the current quarterly report the presale contracts for selling 43 apartments and 8 commercial areas have been concluded. The construction will be finished in the IV quarter of 2014. The turnover of the whole year 2013 as in the IV quarter of 2013 was 85.0 thousand euros.
In the IV quarter of 2013 no immovables were sold in the Madrid building.
At the end of the year 110 apartments and 8 commercial areas were left in the store of the company.
CONSTRUCTION DIVISION
The Construction division included Arco Ehitus Ltd. During the 4th Quarter company did not had any turnover( in 4th quarter 2012 the turnover was 1 187 thouand euros. Arco Ehitus had Annal turnover 9 801 thousand euros) . There is one empoyee at the end of year.
SUMMARY TABLE OF ARCO VARA’S PROJECTS AS AT 31 DECEMBER 2013
| Country | Passive m2 | In preparation m2 | Under Construction m2 | In stock m2 | Cash flow m2 | Total m2 |
| Estonia | 446 555 | 79 498 | 0 | 70 446 | 0 | 596 499 |
| building | 0 | 40 331 | 0 | 0 | 0 | 40 331 |
| land | 446 555 | 39 167 | 0 | 70 446 | 0 | 556 168 |
| Latvia | 2 450 | 110 951 | 960 | 39 888 | 0 | 154 999 |
| building | 0 | 0 | 960 | 210 | 0 | 1170 |
| land | 2 450 | 110 951 | 0 | 39 678 | 0 | 153079 |
| Bulgaria | 6 651 | 15 842 | 0 | 5 674 | 7 349 | 35 516 |
| building | 6 651 | 0 | 15 842 | 3829 | 7349 | 33 671 |
| land | 0 | 0 | 0 | 0 | 0 | 0 |
| Arco Vara Total | 455 656 | 206 291 | 960 | 116 008 | 7 349 | 787 014 |
The results are in sq.meter ś.
Note: The development and success of the group’s development projects depend largely on external factors, particularly on the adoption of plans and the issue of construction permits by the local governments and the planning authorities. Expectations of the projects’ realisation may also change over time in connection with changes in the market situation and the competitive environment. Management estimates the value of the projects portfolio on an ongoing basis and is prepared to sell any project or part of a project at any time, depending on the results of the cost-benefit analysis.
Passive – development projects that have not reached the preparation or construction phase.
In preparation – development projects in the phase of market research, marketing, detailed plan process or design work. In the case of apartment development, the area presented is the gross above-ground building right.
Under construction – development projects for which financing has been obtained and which are under construction.
In stock – completed development projects, apartments or plots on sale.
Cash flow – completed development projects that generate regular cash flow.
PEOPLE
At the end of 2013, the group employed 178 people.
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 for 12 months of 2013 amounted to 174 thousand euros compared with 230 thousand euros for 12 month of 2012.
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.
SHARE AND SHAREHOLDERS
Arco Vara AS has issued a total of 4,741,707 shares. At 31 December 2013, the company had 1,778 shareholders and the share price closed at 1.39 euros, a 11.39% decrease within twelve months.
The following charts reflect movements in the price and daily turnover of the Arco Vara share in the 12 month of 2013
In euros (EUR)
Changes in share price compared with the benchmark index OMX Tallinn in 12 month of 2013
Index/equity
01.01.2013
31.12.2013
+/-%
| OMX Tallinn | 734,20 | 817,72 | 11,38 |
| ARC1T | 1,58 EUR | 1,40 EUR | -11,39 |
| Major shareholders as of 31st of December 2013 | Number of shares | Interest % |
| AS Baltplast | 920 000 | 19% |
| Gamma Holding OÜ | 470 080 | 10% |
| Alarmo Kapital OÜ | 374 188 | 8% |
| Osaühing HM Investeeringud | 324 495 | 7% |
| Lõhmus Holdings AS | 312 378 | 7% |
| LHV Pensionifond L | 310 000 | 7% |
| OÜ Rimonne Baltic | 234 000 | 5% |
| Firebird Republics Fund LTd | 205 064 | 4% |
| Central Securities Depository of Lithuania | 140 171 | 3% |
| Other shareholders | 1 574 886 | 33% |
| Total | 4 741 707 | 100% |
| Holdings of members of the management and supervisory boards at 30 September 2013 | Position | Number of shares held | Interest % |
| Toomas Tool (OÜ Baltplast) | Memeber of Supervisoy Board | 920 000 | 19% |
| Arvo Nõges (Gamma Holding OÜ) | Memeber of Supervisoy Board | 470 080 | 10% |
| Tarmo Sild ja Allar Niinepuu (Alarmo Kapital OÜ) | Member of ManageeMemeber of Supervisoy Board | 374 188 | 8% |
| Hillar-Peeter Luitsalu (HM Investeeringud OÜ, lähikondsed) | Memeber of Supervisoy Board | 334 002 | 7% |
| Rain Lõhmus (Lõhmus Holdings AS) | Memeber of Supervisoy Board | 312 378 | 7% |
| Stephan David Balkin | Memeber of Supervisoy Board | - | 0% |
| Aivar Pilv | Memeber of Supervisoy Board | - | 0% |
| Total | 3,224,288 | 68% |
DESCRIPTION OF THE MAIN RISKS
Credit risk
Credit risk exposure is the greatest at the Construction and Development division. Accordingly, counterparties’ settlement behaviour is monitored on on going basis quarantines and collaterials are also used.
Liquidity risk
The group’s free funds are placed on current accounts or short-term deposits with the banks operating in Estonia, Latvia and Bulgaria. Owing to high refinancing risk, cash flow management is critical. The group’s cash and cash equivalents balance is constantly smaller than the balance of loans that require refinancing in the next 12 months. At 31 December 2013, the weighted average duration of interest-bearing liabilities was only 0.3 years mainly due to stopping by the group scheduled loan principal repayments to Piraeus bank. As a result whole loan amount could become redeemable prematurely. At the end of 2013, the group’s cash and cash equivalents totalled 0.9 million euros and term deposits with maturities from 3 month to 2 years totalled 0.3 million euros. Out of the above balance 0.7 million euros was under the group’s own control and the rest was in accounts with restricted withdrawal opportunities (mostly accounts of designated purpose where withdrawals require the banks’ consent). Liquidity and refinancing risks continue to be the most significant risks for the group.
Interest rate risk
The base currency of most of the group’s loan agreements is the euro and the base interest rate is 3 or 6 month EURIBOR. As a result, the group is exposed to developments in international capital markets. At the moment, the group does not use hedging instruments to mitigate its long-term interest rate risk.
In 2013, the group’s interest-bearing liabilities decreased by 3.9 million euros to 14.9 million euros at 31 December 2013. In 2013, interest payments on interest-bearing liabilities totalled 1.0 million euros. Compared with 31 December 2012, the weighted average interest rate as at 31 December 2013 decreased from 6.5% to 6.0%, mainly thanks to a decrease in the interest rates negotiated on refinancing the bank loans of the group’s Bulgarian development company.
Currency risk
Purchase and sales contracts are mostly signed in local currencies: euros (EUR), Latvian lats (LVL) and Bulgarian levs (BGN). Real estate sales are nominated in euros due to that company has low currency risk asset- liability structure. The group is not protected against currency devaluations. Most liquid funds are held in short-term deposits denominated in euros. Devalution risk will decrease since 2014 because Republic of Latvia transferred to euro on 1 January 2014.
The chief executive/member of the management board confirms that the directors’ report of Arco Vara AS for the fourth quarter and twelve months ended 31 December 2013 provides a true and fair view of the development, financial performance and financial position of the group as well as a description of the main risks and uncertainties.
Tarmo Sild
Chief Executive and Member of the Management Board of Arco Vara AS
28 February 2014
Consolidated statement of comprehensive income
| Note | 12 month 2013 | 12 month 2012 | Q4 2013 | Q4 2012 | |||
| In thousands of euros | |||||||
| Revenue from rendering of services | 7,288 | 13,700 | 984 | 2,136 | |||
| Revenue from sale of own real estate | 6,880 | 7,032 | 955 | 2,577 | |||
| Total revenue | 2.3 | 14,168 | 20,732 | 1,939 | 4,713 | ||
| Cost of sales | 4 | -10,702 | -23,560 | -1,592 | -9,773 | ||
| Gross profit | 3,466 | -2,828 | 347 | -5,060 | |||
| Other income | 7 | 543 | 1,092 | 313 | 208 | ||
| Marketing and distribution expenses | 5 | -278 | -267 | -87 | -64 | ||
| Administrative expenses | 6 | -1,979 | -3,409 | -559 | -1,399 | ||
| Other expenses | 7 | -359 | -5,445 | -262 | -4,691 | ||
| Gain/loss on transactions involving subsidiaries and joint ventures | 8 | 2,995 | -5,272 | 1,897 | -5,096 | ||
| Operating profit/loss | 4,388 | -16,129 | 1,649 | -16,102 | |||
| Finance income | 9 | 23 | 84 | 3 | 13 | ||
| Finance costs | 9 | -994 | -1,738 | -236 | -618 | ||
| Profit/loss before tax | 3,417 | -17,783 | 1,416 | -16,707 | |||
| Income tax | 0 | -251 | 0 | -251 | |||
| Profit/loss for the period | 3,417 | -18,034 | 1,416 | -16,958 | |||
| attributable to owners of the parent | 3,400 | -17,964 | 1,416 | -16,956 | |||
| attributable to non-controlling interests | 17 | -70 | 0 | -2 | |||
| Total comprehensive income/expense for the period | 3,417 | -18,034 | 1,416 | -16,958 | |||
| attributable to owners of the parent | 3,400 | -17,964 | 1,416 | -16,956 | |||
| attributable to non-controlling interests | 17 | -70 | 0 | -2 | |||
| Earnings per share (in euros) | 10 | ||||||
| - basic | 0.72 | -3.79 | 0.30 | -3.58 | |||
| - diluted | 0.66 | -3.79 | 0.28 | -3.58 |
Consolidated statement of financial position
| Note | 31 December 2013 | 31 December 2012 | ||
| EUR tuhandetes | ||||
| Cash and cash equivalents | 898 | 1,775 | ||
| Receivables and prepayments | 11 | 1,360 | 3,094 | |
| Inventories | 12 | 10,824 | 11,701 | |
| Total current assets | 13,082 | 16,570 | ||
| Investments in equity-accounted investees | 1 | 1 | ||
| Receivables and prepayments | 11 | 240 | 0 | |
| Deferred income tax assets | 4 | 0 | ||
| Investment property | 13 | 11,377 | 14,097 | |
| Property, plant and equipment | 413 | 540 | ||
| Intangible assets | 19 | 21 | ||
| Total non-current assets | 12,054 | 14,659 | ||
| TOTAL ASSETS | 25,136 | 31,229 | ||
| Loans and borrowings | 14 | 12,589 | 16,838 | |
| Payables and deferred income | 15 | 3,223 | 6,645 | |
| Provisions | 172 | 3,084 | ||
| Total current liabilities | 15,984 | 26,567 | ||
| Loans and borrowings | 14 | 2,308 | 1,231 | |
| Payables and deferred income | 15 | 0 | 64 | |
| Total non-current liabilities | 2,308 | 1,295 | ||
| TOTAL LIABILITIES | 18,292 | 27,862 | ||
| Share capital | 10 | 3,319 | 3,319 | |
| Statutory capital reserve | 2,011 | 2,011 | ||
| Other reserves | 10 | 60 | 0 | |
| Retained earnings | 1,442 | -1,958 | ||
| Total equity attributable to owners of the parent | 6,832 | 3,372 | ||
| Equity attributable to non-controlling interests | 12 | -5 | ||
| TOTAL EQUITY | 6,844 | 3,367 | ||
| TOTAL LIABILITIES AND EQUITY | 25,136 | 31,229 |
Consolidated statement of cash flows
| Note | 12 month 2013 | 12 month 2012 | Q4 2013 | Q4 2012 | |||
| In thousands of euros | |||||||
| Cash receipts from customers | 14,393 | 25,757 | 2,539 | 5,327 | |||
| Cash paid to suppliers | -10,514 | -19,725 | -1,351 | -2,249 | |||
| Taxes paid | -2,389 | -2,732 | -449 | -913 | |||
| Taxes recovered | 235 | 471 | 52 | 53 | |||
| Cash paid to employees | -1,158 | -1,577 | -248 | -317 | |||
|
Other cash payments and receipts related to operating activities |
-277 | 145 | -87 | 250 | |||
| NET CASH FROM OPERATING ACTIVITIES | 290 | 2,339 | 456 | 2,151 | |||
| Purchase of property, plant and equipment | -34 | -28 | -16 | -1 | |||
| Proceeds from sale of property, plant and equipment | 152 | 14 | 117 | 7 | |||
| Proceeds from sale of investment property | 80 | 1,160 | 60 | 0 | |||
| Proceeds from sale of a subsidiary | 13 | 1,610 | 0 | 0 | 0 | ||
| Aquisition of a subsidiary | 0 | -12 | 0 | -12 | |||
| Loans provided | -48 | -400 | -11 | -92 | |||
| Repayment of loans provided | 0 | 77 | 0 | 75 | |||
| Placement of security deposits | -353 | 0 | -90 | 0 | |||
| Release of security deposits | 258 | 0 | 258 | 0 | |||
| Interest received | 7 | 17 | 2 | 3 | |||
| Other payments related to investing activities | 0 | -90 | 0 | -42 | |||
| NET CASH FROM/USED IN INVESTING ACTIVITIES | 1,672 | 738 | 320 | -62 | |||
| Proceeds from loans received | 14 | 3,046 | 2,399 | 165 | 169 | ||
| Settlement of loans and finance lease liabilities | 14 | -4,809 | -4,392 | -325 | -1,569 | ||
| Interest paid | -964 | -1,487 | -222 | -98 | |||
| Other payments related to financing activities | -75 | -31 | -66 | -15 | |||
| NET CASH USED IN FINANCING ACTIVITIES | -2,802 | -3,511 | -448 | -1,513 | |||
| NET CASH FLOW | -840 | -434 | 328 | 576 | |||
| Cash and cash equivalents at beginning of period | 1,775 | 2,209 | 570 | 1,199 | |||
| Increase/decrease in cash and cash equivalents | -840 | -434 | 328 | 576 | |||
| Decrease in cash and cash equivalents through sale of a subsidiary | -37 | 0 | 0 | 0 | |||
| Cash and cash equivalents at end of period | 898 | 1,775 | 898 | 1,775 | |||
Consolidated statement of changes in equity
| Equity attributable to owners of the parent | Non-controlling interests | Total equity | ||||||||
| Share capital | Statutory capital reserve | Other reserves | Retained earnings | Total | ||||||
| In thousands of euros | ||||||||||
| Balance as at 31 December 2011 | 3,319 | 2,011 | 0 | 16,306 | 21,636 | -447 | 21,189 | |||
| Acquisition of non-controlling interests | 0 | 0 | 0 | -300 | -300 | 512 | 212 | |||
| Total comprehensive expense for the period | 0 | 0 | 0 | -17,964 | -17,964 | -70 | -18,034 | |||
| Balance as at 31 December 2012 | 3,319 | 2,011 | 0 | -1,958 | 3,372 | -5 | 3,367 | |||
| Total comprehensive income for the period | 0 | 0 | 0 | 3,400 | 3,400 | 17 | 3,417 | |||
| Formation of equity reserve | 0 | 0 | 60 | 0 | 60 | 0 | 60 | |||
| Balance as at 31 December 2013 | 3,319 | 2,011 | 60 | 1,442 | 6,832 | 12 | 6,844 | |||
Marko Err
Finantsjuht/CFO
marko.err@arcovara.ee
