Arco Vara AS' unaudited consolidated interim report for II quarter and 6 months of 2017

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| Source: Arco Vara
multilang-release


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