KEY PERFORMANCE INDICATORS
· In Q2 2017, the group’s revenue was 1.0 million euros, which is 52% less compared to the revenue of 2.1 million euros in Q2 2016. In 6 months 2017, the group’s revenue was 2.6 million euros, which is 63.5% less compared to the revenue of 7.2 million euros in 6 months 2016. The revenue of the Development Division amounted to 0.4 million euros in Q2 2017 and 1.5 million euros in 6 months 2017 (2016: 1.4 million euros in Q2 and 5.8 million euros in 6 months) and revenue of the Service Division amounted to 0.7 million euros in Q2 and 1.4 million euros in 6 months (in 2016: 0.8 million euros in Q2 and 1.6 million euros in 6 months).
· In Q2 2017, the group’s operating loss (=EBIT) was 0.2 million euros and net loss 0.4 million euros (in 6 months 2017: operating loss of 0.4 million euros and net loss of 0.6 million euros). In Q2 2016, the group had operating loss of 0.1 million euros and net loss of 0.2 million euros. In 6 month 2016, the group earned operating profit of 1.2 million euros and net profit of 0.9 million euros. In Q2 and 6 months 2017, both the Development Division and the Service Division had a small loss (below 0.1 million euros). In Q2 and 6 months 2016, the Development Division earned operating profit of 0.1 million euros and 1.5 million euros, respectively. The Service Division had operating loss of 0.1 million euros in 6 months 2016.
· In Q2 2017, 1 apartment and 3 land plots were sold in projects developed by the group (in 6 months 2017: 2 apartments and 6 land plots). In 2016, 5 apartments, 3 commercial spaces and 4 land plots in Q2 (73 apartments, 5 commercial spaces and 4 land plots in 6 months) were sold. The number of sold properties explains the large differences in revenue and operating profit figures of the Development Division. In the first half of 2016, active sale was ongoing in Manastirski project in Bulgaria, but no development projects have been completed yet in 2017.
· In the first 6 months of 2017, the group’s debt burden (net loans) increased by 5.1 million euros up to the level of 18.5 million euros as of 30 June 2017. As of 30 June 2017, the weighted average annual interest rate of interest bearing liabilities was 5.0%. This is a decrease of 0.3 percentage points compared to 31 December 2016.
Main financial figures
| 6 months 2017 | 6 months 2017 | Q2 2017 | Q2 2016 | ||
| In millions of euros | |||||
| Revenue | |||||
| Development | 1.5 | 5.8 | 0.4 | 1.4 | |
| Service | 1.4 | 1.6 | 0.7 | 0.9 | |
| Eliminations | -0.3 | -0.2 | -0.1 | -0.2 | |
| Total revenue | 2.6 | 7.2 | 1.0 | 2.1 | |
| Operating profit (EBIT) | |||||
| Development | 0.0 | 1.5 | 0.0 | 0.1 | |
| Service | -0.1 | -0.1 | 0.0 | 0.0 | |
| Unallocated income and expenses | -0.3 | -0.3 | -0.2 | -0.2 | |
| Eliminations | 0.0 | 0.1 | 0.0 | 0.0 | |
| Total operating profit/loss (EBIT) | -0.4 | 1.2 | -0.2 | -0.1 | |
| Finance income and expense | -0.2 | -0.3 | -0.2 | -0.1 | |
| Net profit/loss | -0.6 | 0.9 | -0.4 | -0.2 | |
| Cash flows from/used in operating activities | -3.0 | 3.6 | -2.3 | 0.7 | |
| Cash flows used in investing activities | -0.4 | -0.9 | -0.1 | -0.9 | |
| Cash flows from/used in financing activities | 3.3 | -2.5 | 2.0 | -0.8 | |
| Net cash flows | -0.1 | 0.2 | -0.4 | -1.0 | |
| Cash and cash equivalents at beginning of period | 0.8 | 0.7 | 1.1 | 1.9 | |
| Cash and cash equivalents at end of period | 0.7 | 0.9 | 0.7 | 0.9 | |
| Total assets, at period end | 31.7 | 25.6 | |||
| Invested capital, at period end | 27.5 | 21.2 | |||
| Net loans, at period end | 18.5 | 9.9 | |||
| Equity, at period end | 8.3 | 10.4 | |||
| Key ratios | |||||
| EPS (in euros) | -0.10 | 0.14 | -0.05 | -0.03 | |
| Diluted EPS (in euros) | -0.09 | 0.13 | -0.05 | -0.03 | |
| ROIC (rolling, four quarters) | -9.9% | 6.3% | |||
| ROE (rolling, four quarters) | -25.3% | 17.1% | |||
| ROA (rolling, four quarters) | -8.3% | 5.7% | |||
| Current ratio | 0.87 | 3.49 | |||
| Quick ratio | 0.06 | 0.36 | |||
| Financial leverage | 3.83 | 2.47 | |||
| Average loan term (in years) | 0.7 | 1.5 | |||
| Average annual interest rate of loans | 5.0% | 5.7% | |||
| Number of staff, at period end | 131 | 185 |
| Revenue and net profit/loss from continuing operations | |||||||||||||||||||
| Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | Total 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | Total 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | Total 2016 | Q1 2017 | Q1 2017 | 6M 2017 | ||
| In millions of euros | |||||||||||||||||||
| Revenue | 1.1 | 1.1 | 1.2 | 5.8 | 9.2 | 4.4 | 2.1 | 2.1 | 2.1 | 10.7 | 5.1 | 2.1 | 1.2 | 1.3 | 9.7 | 1.6 | 1.0 | 2.6 | |
| Net profit/loss | 0.4 | -0.3 | 0.4 | 0.6 | 1.1 | 0.7 | 0.0 | 0.2 | -0.4 | 0.5 | 1.1 | -0.2 | -0.4 | -1.3 | -0.8 | -0.3 | -0.3 | -0.6 | |
GROUP CEO’S REVIEW
Q2 was the last quarter providing modest results. This was an end to our journey through a desert, which required a strong cash management. Unfortunately, we could not outperform ourselves and did not start the final sales of Kodulahe apartments in Q2, because the construction period was extended by more than four weeks due to circumstances not controlled by Arco Vara.
We made revenues only through brokerage, evaluations and renting out properties, in a total amount of 1 mln euros in 3 months. During this period, we helped nearly 2200 people, out of those 1500 in Estonia and the rest in Bulgaria. A good sign is that brokerage and appraisal revenues have increased both in Estonia and in Bulgaria in the last 24 months (2016 figures included the Latvian subsidiary, which was sold in the autumn of 2016), and the rental income from Madrid Blvd building has increased as well. Unfortunately, this growth has not been sufficient to cover the overhead and interest costs of the group.
In the ongoing 3rd quarter, we have started the transfer and final sales of Kodulahe 1. stage apartments. The expected revenue of the 1. stage exceeds 16 mln euros. We stick to our plan to complete the sale of the 1. stage by the end of this year, after which we can allocate the cash into new developments.
In the Iztok Parkside project, we are still applying for construction permit. We have made some progress in various aspects of this procedure, but have not achieved a breakthrough. Until the construction and presale of this project will start, Iztok Parkside will remain a cost item in our P/L statement.
In the Oa street development in Tartu, as well as in Kodulahe 2. stage, design works are in progress. Our aim is to start construction of both projects in this year.
We continue our efforts to find tenants for the remaining rental areas in the Madrid Blvd building, as well as to find new land plots suitable for development in Sofia.
To summarize, we can see from ongoing work that the second half of 2017 will provide both more news and profits.
The ambitions of Arco Vara as the most people-oriented real estate company still remain higher than its 2017 results.
SERVICE DIVISION
In Q2 2017, revenue of the Service Division amounted to 682 thousand euros (Q2 2016: 850 thousand euros), which included intra-group revenue of 56 thousand euros (Q2 2016: 126 thousand euros). In 6 months 2017, the revenue of 1,362 thousand euros decreased by 14.8% compared to the revenue of 1,598 thousand euros in 6 months 2016. In 6 months 2017, revenue of the Service Division from main services (real estate brokerage and valuation services) decreased by 18% compared to 6 months 2016. The main reason is the fact that the revenue in the amount of 468 thousand euros from the Latvian agency (which was sold in Q4 2016) was included in the group revenue in 6 months 2016. It is good to see from the table below that the revenue from main services increased significantly in the Estonian agency (compared to the Q2 and 6 months 2016, respective increases were 28% and 23%).
| Revenue of real estate agencies from brokerage and valuation | ||||||||
| 6 months 2017 | 6 months 2016 | Change, % | Q2 2017 | Q2 2016 | Change, % | |||
| In thousands of euros | ||||||||
| Estonia | 841 | 655 | 28% | 435 | 355 | 23% | ||
| Bulgaria | 354 | 329 | 8% | 157 | 186 | -16% | ||
| Latvia | - | 468 | - | - | 233 | - | ||
| Total | 1,195 | 1,452 | -18% | 592 | 774 | -24% | ||
In Q2 and 6 months 2017, Estonian agency had net loss of 46 thousand euros and 108 thousand euros, respectively (in 2016: net loss of 46 thousand euros in Q2 and 119 thousand euros in 6 months). Bulgarian agency earned net profit of 6 thousand euros in Q2 2017 and 41 thousand euros in 6 months 2017. (2016: net profit of 7 thousand euros in Q2 and net loss of 2 thousand euros in 6 months).
In addition to brokerage and valuation services, the Service Division also provides real estate management and accommodation services in Bulgaria. The revenue from real estate management was 63 thousand euros in 6 months 2017, 52 thousand euros of which was intra-group revenue (6 months 2016: 56 thousand and 47 thousand euros, respectively). Revenue from accommodation services amounted to 86 thousand euros in 6 months 2017, of which 47 thousand euros was made in Q2 (2016: 64 thousand euros in 6 months and 34 thousand euros in Q2).
The numbers of brokerage deals and valuation reports of the Service Division, together with the number of staff are shown in the following graphs. For better comparability, only Bulgarian and Estonian figures are shown.
On 30 June 2017, the number of staff in the Service Division was 118 (on 31.12.2016: 97).
DEVELOPMENT DIVISION
The revenue of the Development Division totalled 406 thousand euros in Q2 2017 (in Q2 2016: 1,403 thousand euros) and 1,469 thousand euros in 6 months 2017 (in 6 months 2016: 5,815 thousand euros), including revenue from the sale of properties in the group’s own development projects in the amount of 248 thousand euros in Q2 and 1,186 thousand euros in 6 months (2016: 1,277 thousand euros in Q2 and 5,582 thousand euros in 6 months).
Most of the other revenue of the Development Division consists of rental income from commercial and office premises in Madrid Blvd building in Sofia, amounting to 120 thousand euros in Q2 2017 and 212 thousand euros in 6 months 2017 (2016: 88 thousand euros in Q2 and 163 thousand euros in 6 months). By the publishing date of the interim report, last two office spaces remained vacant. The group expects to rent out all vacant spaces during Q3 2017.
In Q2 and 6 months 2017, the Development Division had operating loss of 29 thousand euros and 43 thousand euros, respectively. In 2016, the Development Division earned operating profit of 105 thousand euros in Q2 and 1,491 thousand euros in 6 months. Revenue and profitability figures were significantly higher in first half 2016 due to the conclusion of most of sale agreements in the last stage of Manastirski project in Sofia in that period (the construction of apartment building was finished in December 2015).
The construction and presale of apartments of the first stage apartment building (with 125 apartments and 5 commercial spaces) in the group’s largest development project Kodulahe continued in Tallinn. By the publishing date of the interim report, presale agreements for 100 apartments and two commercial spaces have been concluded. The construction of the apartment building will be finished in Q3 2017.
In Q2 2017, preparatory works in the second stage of Kodulahe project continued, where a building with ca 70 apartments and commercial spaces is planned. Preparatory works also continued for Oa street properties in Tartu, where 4 smaller apartment buildings are planned. Both of these projects are expected to be finalised by mid-2019.
In Q2 2017, one apartment was sold in Madrid Blvd complex in Sofia. As of 30 June 2017, 3 apartments remained unsold. Additional 15 apartments are furnished and are being rented out as accommodation service. Unsold parking places are also being rented out.
In Q2 2017, the delay that had emerged during Q1 in the development of Iztok Parkside project in Sofia continued. The problem lies in obtaining construction permit for the construction of access road, which is located on state-owned land. By the publication date of interim report, presale agreements for 15 apartments remained in force, but further presale has been stopped by now until the construction permit issue will be cleared out. Iztok project consists of three apartment buildings with 68 apartments (7,070 square meters of apartments’ sellable area).
As of 30 June 2017, 6 Marsili residential plots remained unsold in Latvia. In Q2 2017, three plots were sold in the project.
As of 30 June 2017, 5 people were employed in the Development Division, the same number as at the end of 2016.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| Note | 6 months 2017 | 6 months 2016 | Q2 2017 | Q2 2016 | |||
| In thousands of euros | |||||||
| Revenue from sale of own real estate | 1,186 | 5,582 | 248 | 1,277 | |||
| Revenue from rendering of services | 1,422 | 1,569 | 760 | 817 | |||
| Total revenue | 2, 3 | 2,608 | 7,151 | 1,008 | 2,094 | ||
| Cost of sales | 4 | -1,933 | -4,692 | -682 | -1,513 | ||
| Gross profit | 675 | 2,459 | 326 | 581 | |||
| Other income | 19 | 28 | 9 | 27 | |||
| Marketing and distribution expenses | 5 | -214 | -280 | -105 | -138 | ||
| Administrative expenses | 6 | -824 | -1,021 | -412 | -522 | ||
| Other expenses | -26 | -18 | -18 | -12 | |||
| Gain on sale of subsidiaries | 0 | 1 | 0 | 1 | |||
| Operating profit/loss | -370 | 1,169 | -200 | -63 | |||
| Finance income and costs | 7 | -272 | -296 | -157 | -124 | ||
| Net profit/loss | -642 | 873 | -357 | -187 | |||
| Net profit/loss for the period | -642 | 873 | -357 | -187 | |||
| attributable to owners of the parent | -642 | 878 | -357 | -182 | |||
| attributable to non-controlling interests | 0 | -5 | 0 | -5 | |||
| Total comprehensive income/expense for the period | -642 | 873 | -357 | -187 | |||
| attributable to owners of the parent | -642 | 878 | -357 | -182 | |||
| attributable to non-controlling interests | 0 | -5 | 0 | -5 | |||
| Earnings per share (in euros) | 8 | ||||||
| - basic | -0.10 | 0.14 | -0.05 | -0.03 | |||
| - diluted | -0.09 | 0.13 | -0.05 | -0.03 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| Note | 30 June 2017 | 31 December 2016 | ||
| In thousands of euros | ||||
| Cash and cash equivalents | 752 | 845 | ||
| Receivables and prepayments | 9 | 501 | 470 | |
| Inventories | 10 | 18,296 | 14,593 | |
| Total current assets | 19,549 | 15,908 | ||
| Receivables and prepayments | 9 | 11 | 11 | |
| Investments | 8 | 0 | ||
| Investment property | 11 | 11,155 | 10,835 | |
| Property, plant and equipment | 707 | 718 | ||
| Intangible assets | 265 | 248 | ||
| Total non-current assets | 12,146 | 11,812 | ||
| TOTAL ASSETS | 31,695 | 27,720 | ||
| Loans and borrowings | 12 | 17,044 | 9,372 | |
| Payables and deferred income | 13 | 5,279 | 4,369 | |
| Provisions | 43 | 108 | ||
| Total current liabilities | 22,366 | 13,849 | ||
| Loans and borrowings | 12 | 1,051 | 4,886 | |
| Total non-current liabilities | 1,051 | 4,886 | ||
| TOTAL LIABILITIES | 23,417 | 18,735 | ||
| Share capital | 4,555 | 4,555 | ||
| Share premium | 292 | 292 | ||
| Statutory capital reserve | 2,011 | 2,011 | ||
| Other reserves | 8 | 52 | 52 | |
| Retained earnings | 1,368 | 2,075 | ||
| Total equity attributable to owners of the parent | 8,278 | 8,985 | ||
| Equity attributable to non-controlling interests | 0 | 0 | ||
| TOTAL EQUITY | 8,278 | 8,985 | ||
| TOTAL LIABILITIES AND EQUITY | 31,695 | 27,720 |
CONSOLIDATED STATEMENT OF CASH FLOWS
| Note | 6 months 2017 | 6 months 2016 | Q2 2017 | Q2 2016 | |||
| In thousands of euros | |||||||
| Cash receipts from customers | 3,641 | 9,635 | 1,602 | 3,809 | |||
| Cash paid to suppliers | -6,272 | -4,156 | -3,909 | -2,392 | |||
| Other taxes paid and recovered (net) | 102 | -1,149 | 181 | -378 | |||
| Cash paid to employees | -460 | -636 | -248 | -312 | |||
| Other cash payments and receipts related to operating activities (net) | 12 | -62 | 22 | -15 | |||
| NET CASH FROM/USED IN OPERATING ACTIVITIES | -2,977 | 3,632 | -2,352 | 712 | |||
| Payments made on purchase of tangible and intangible assets | -48 | -74 | -33 | -35 | |||
| Payments made on purchase and development of investment property | 11 | -330 | -29 | -13 | -11 | ||
| Proceeds from sale of a subsidiary | 0 | 1 | 0 | 1 | |||
| Payments made on purchase of a subsidiary | 0 | -840 | 0 | -840 | |||
| Loans provided | -7 | 0 | -2 | 0 | |||
| Other payments related to investing activities | -8 | -3 | -8 | 0 | |||
| NET CASH USED IN INVESTING ACTIVITIES | -393 | -945 | -56 | -885 | |||
| Proceeds from loans received | 12 | 4,176 | 1,071 | 2,522 | 51 | ||
| Settlement of loans and borrowings | 12 | -339 | -2,998 | -168 | -580 | ||
| Interest paid | -451 | -391 | -218 | -189 | |||
| Dividends paid | -65 | -61 | -65 | -61 | |||
| Other payments related to financing activities | -44 | -128 | -44 | 0 | |||
| NET CASH FROM/USED IN FINANCING ACTIVITIES | 3,277 | -2,507 | 2,027 | -779 | |||
| NET CASH FLOW | -93 | 180 | -381 | -952 | |||
| Cash and cash equivalents at beginning of period | 845 | 745 | 1,133 | 1,877 | |||
| Increase in cash and cash equivalents | -93 | 180 | -381 | -952 | |||
| Cash and cash equivalents at the end of period | 752 | 925 | 752 | 925 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| Equity attributable to owners of the parent | Non-controlling interests | Total equity | |||||||||
| Share capital | Share premium | Statutory capital reserve | Other reserves | Retained earnings | Total | ||||||
| In thousands of euros | |||||||||||
| Balance as of 31 December 2015 | 4,282 | 292 | 2,011 | 298 | 2,656 | 9,539 | 91 | 9,630 | |||
| Dividends paid | 0 | 0 | 0 | 0 | -61 | -61 | 0 | -61 | |||
| Change in non-controlling interest | 0 | 0 | 0 | 0 | 0 | 0 | -77 | -77 | |||
| Total comprehensive income for the period | 0 | 0 | 0 | 0 | 878 | 878 | -5 | 873 | |||
| Balance as of 30 June 2016 | 4,282 | 292 | 2,011 | 298 | 3,473 | 10,356 | 9 | 10,365 | |||
| Balance as of 31 December 2016 | 4,555 | 292 | 2,011 | 52 | 2,075 | 8,985 | 0 | 8,985 | |||
| Dividends paid | 0 | 0 | 0 | 0 | -65 | -65 | 0 | -65 | |||
| Total comprehensive income for the period | 0 | 0 | 0 | 0 | -642 | -642 | 0 | -642 | |||
| Balance as of 30 June 2017 | 4,555 | 292 | 2,011 | 52 | 1,368 | 8,278 | 0 | 8,278 | |||
Kristel Tumm
CFO
Arco Vara AS
Tel: +372 614 4662
www.arcorealestate.com
