KEY PERFORMANCE INDICATORS
- In Q4 2017, the group’s revenue was 8.0 million euros, which is 5.7 times higher compared to the revenue of 1.2 million euros in Q4 2016. In 2017, the group’s revenue was 18.3 million euros, which is 88.7% higher compared to the revenue of 9.7 million euros in 2016. The revenue of the Development Division amounted to 7.4 million euros in Q4 2017 and 15.9 million euros in 2017, and the revenue of the Service Division amounted to 0.8 million euros in Q4 and 2.9 million euros in 2017.
- In Q4 2017, the group’s operating profit (=EBIT) was 0.8 million euros and net profit 0.7 million euros. In 2017, operating profit was 1.3 million euros and net profit 0.8 million euros. The operating profit of the Development Division amounted to 1.1 million euros in Q4 2017 and 2.0 million euros in 2017. The Service Division earned a small operating loss in Q4 2017 and operating loss of 0.2 million euros in 2017 as a whole.
- In Q4 2017, 57 apartments were sold in projects developed by the group (in 2017: 117 apartments, 2 commercial spaces and 6 land plots). In 2016, 77 apartments, 9 commercial spaces and 8 land plots were sold. In the first half of 2016, active sales were made in Manastirski project in Bulgaria; in the second half of 2017, Kodulahe I stage apartments got ready for final sale.
- In 2017, the group’s debt burden (net loans) decreased by 3.4 million euros down to the level of 10.0 million euros as of 31 December 2017. As of 31 December 2017, the weighted average annual interest rate of interest bearing liabilities was 5.4%, which is 0.1% higher than on 31 December 2016.
Main financial figures
| 12 months 2017 | 12 months 2016 | Q4 2017 | Q4 2016 | ||
| In millions of euros | |||||
| Revenue | |||||
| Development | 15.9 | 7.0 | 7.4 | 0.6 | |
| Services | 2.9 | 3.2 | 0.8 | 0.8 | |
| Eliminations | -0.5 | -0.5 | -0.2 | -0.2 | |
| Total revenue | 18.3 | 9.7 | 8.0 | 1.2 | |
| Operating profit (EBIT) | |||||
| Development | 2.0 | 0.6 | 1.1 | -0.9 | |
| Services | -0.2 | -0.2 | -0.1 | 0.0 | |
| Unallocated income and expenses | -0.5 | -0.4 | -0.2 | 0.0 | |
| Eliminations | 0.0 | -0.1 | 0.0 | -0.2 | |
| Total operating profit/loss (EBIT) | 1.3 | -0.1 | 0.8 | -1.1 | |
| Financial income and expenses | -0.5 | -0.6 | -0.1 | -0.1 | |
| Income tax | 0.0 | -0.1 | 0.0 | -0.1 | |
| Net profit/loss | 0.8 | -0.8 | 0.7 | -1.3 | |
| Cash flows of operating activities | -2.0 | 1.7 | 0.3 | -1.3 | |
| Cash flows of investing activities | -0.5 | -2.4 | -0.1 | 0.0 | |
| Cash flows of financing activities | 3.9 | 0.8 | 0.9 | 1.7 | |
| Net cash flows | 1.4 | 0.1 | 1.1 | 0.4 | |
| Cash and cash equivalents at beginning of period | 0.8 | 0.7 | 1.1 | 0.4 | |
| Cash and cash equivalents at end of period | 2.2 | 0.8 | 2.2 | 0.8 | |
| Total assets, at period end | 24.3 | 27.7 | |||
| Invested capital, at period end | 22.1 | 23.2 | |||
| Net loans, at period end | 10.0 | 13.4 | |||
| Equity, at period end | 9.8 | 9.0 | |||
| Key ratios | |||||
| 12 months 2017 | 12 months 2016 | Q4 2017 | Q4 2016 | ||
| EPS (in euros) | 0.12 | -0.13 | 0.11 | -0.21 | |
| Diluted EPS (in euros) | 0.11 | -0.13 | 0.10 | -0.20 | |
| ROIC (rolling, four quarters) | 3.2% | -3.7% | |||
| ROE (rolling, four quarters) | 8.8% | -8.4% | |||
| ROA (rolling, four quarters) | 2.8% | -3.2% | |||
| Current ratio | 2.72 | 1.15 | |||
| Quick ratio | 0.69 | 0.09 | |||
| Financial leverage | 2.49 | 3.09 | |||
| Average loan term (in years) | 1.7 | 1.2 | |||
| Average annual interest rate of loans | 5.4% | 5.3% | |||
| Number of staff, at period end | 140 | 110 |
GROUP CEO’S REVIEW
For Arco Vara, year 2017 ended with healthy sales revenue of 18 mln euros, which, among other things, is a sustainable level. Compared to the end of 2016, we had created a much stronger foundation by the end of 2017.
Firstly, we now have two active ongoing developments, Iztok Parkside and Kodulahe, in addition to which we gained opportunities to increase our development volumes. We have used these opportunities by now by acquiring Lozen project in Sofia and Paldiski mnt 74 plot in Tallinn. Figuratively speaking, at any point in time, we have at least two cranes up and working, and 1000+ apartments lined up in the Group’s development portfolio.
Secondly, our cash position has improved and our loan burden has decreased by over 20%. In addition, the loan burden has been restructured from mostly short-term to mostly long-term.
Thirdly, the Group made a profit and the profit reached our bank account. As a director and as a shareholder, this is the kind of profit I value the most.
The only thing where we remained below our expectations was the size of the profit, which amounted to 0.8 mln euros. Return on equity of 8.8% p.a. is not enough. Here we have to take a look in the mirror and find opportunities to increase equity turnover. In Madrid Blvd building in Sofia, the rental income was below expectations because we did not achieve full occupancy, and the lost profits were in the same ballpark. In Kodulahe project Estonia, about 10% of the project remained unsold by year-end, to be sold during 2018. We saw no good reason to accelerate sales in the situation where construction prices are on the rise and where we will not have new sellable apartments in Kodulahe before 2019. In our real estate services business, we did not yet reach profit in 2017, despite increased revenues.
In 2018, we will mostly be laying foundation for the results of 2019-2020, which will mostly come from Lozen, Kodulahe and smaller developments. We will continue providing real estate services with the aim of becoming the most people-focused real estate company. Towards the end of the year, we will start selling Iztok Parkside apartments and thus the fourth quarter will have the largest bearing on our annual results. The results of Iztok Parkside project will also have the largest impact on our net profit. In terms of distributing the net profit of 2017, dividend payments should remain at previous levels and earned cash should be reinvested into growth.
In summary, Arco Vara will continue accelerating. As the pace of real estate development is comparable to that of a road roller, the acceleration may be less visible, but will have a longer-lasting impact.
SERVICE DIVISION
In Q4 2017, revenue of the Service Division amounted to 793 thousand euros (Q4 2016: 827 thousand euros), which included intra-group revenue of 155 thousand euros (Q4 2016: 136 thousand euros). In 2017, the revenue decreased by 9.2% to 2,935 thousand euros, compared to the revenue of 3,231 thousand euros in 2016.
In 2017, revenue of the Service Division from main services (real estate brokerage and valuation services) decreased by 9% compared to 2016. The main reason is that the revenue in the amount of 771 thousand euros from the Latvian agency (which was sold in Q4 2016) was included in the group revenue in 2016. As the table below demonstrates, sales revenues of both Estonian and Bulgarian real estate agencies have actually increased significantly.
| Revenue of real estate agencies from brokerage and valuation | |||||||||||
| 12 months 2017 | 12 months 2016 | Change, % | Q4 2017 | Q4 2016 | Change, % | ||||||
| In thousands of euros | |||||||||||
| Estonia | 1,793 | 1,422 | 26% | 468 | 386 | 21% | |||||
| Bulgaria | 798 | 639 | 25% | 238 | 195 | 22% | |||||
| Latvia | - | 771 | - | - | 77 | - | |||||
| Total | 2,591 | 2,832 | -9% | 706 | 658 | 7% | |||||
In Q4 and 12 months 2017, Estonian agency had net loss of 123 thousand euros and 235 thousand euros, respectively (in 2016: 37 thousand euros and 188 thousand euros). Bulgarian agency earned net profit of 4 thousand euros in Q4 2017 and 50 thousand euros in 12 months 2017. (2016: net loss of 2 thousand euros in Q4 and 19 thousand euros in 12 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 124 thousand euros in 2017, of which 102 thousand euros was intra-group revenue (2016: 118 thousand and 100 thousand euros, respectively). Revenue from accommodation services amounted to 182 thousand euros in 2017, out of which 47 thousand euros was made in Q4 (2016: 144 thousand euros in 12 months and 40 thousand euros in Q4).
On 31 December 2017, the number of staff in the Service Division was 126 (on 31.12.2016: 97).
DEVELOPMENT DIVISION
The revenue of the Development Division totalled 7,349 thousand euros in Q4 2017 (in Q4 2016: 647 thousand euros) and 15,860 thousand euros in 2017 (in 2016: 7,048 thousand euros), including revenue from the sale of properties in the group’s own development projects in the amount of 7,515 thousand euros in Q4 and 14,390 thousand euros in 12 months (2016: 519 thousand euros in Q4 and 6,562 thousand euros in 12 months). In Q3, the construction of apartments of the first stage apartment building (with 125 apartments and 5 commercial spaces) in the group’s largest ongoing development project Kodulahe came close to an end, and active final sales went on in both Q3 and Q4. By the publishing date of the interim report, sale agreements for 115 apartments and 2 commercial spaces have been concluded.
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 133 thousand euros in Q4 2017 and 493 thousand euros in 2017 (2016: 117 thousand euros in Q4 and 369 thousand euros in 12 months). By the publishing date of the interim report, last two office spaces remain vacant.
In Q4 and 12 months 2017, the Development Division had operating profit of 1,149 thousand euros and 2 million euros, respectively. In 2016, the Development Division had operating loss of 913 thousand euros in Q4 and operating profit of 611 thousand euros in 12 months.
In Q4 2017, one apartment was sold in Madrid Blvd complex in Sofia. By the end of the quarter, 1 apartment remained unsold. Additional 15 apartments have been furnished and are being rented out as accommodation service. Unsold parking places are also being rented out.
In Q4 2017, preparatory works in the second stage of Kodulahe project continued, where a building with 68 apartments and commercial spaces is planned. Preparatory works also continued for Oa street properties in Tartu, where 4 smaller apartment buildings are planned. Both projects are expected to be finalised by mid-2019.
In Iztok Parkside project in Sofia, construction started in October 2017. By the publication date of this report, presale agreements for 26 apartments have been signed. Iztok project consists of three apartment buildings with 68 apartments (7,070 square meters of apartments’ sellable area).
As of 31 December 2017, 6 Marsili residential plots remained unsold in Latvia. During 2017, four plots were sold in the project. Additionally, the sale of Baltezers-3 project (68 undeveloped land plots as a whole) was finished.
As of 31 December 2017, 5 people were employed in the Development Division, the same number as at the end of 2016.
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| Note | 12 months 2017 | 12 months 2016 | Q4 2017 | Q4 2016 | |||
| In thousands of euros | |||||||
| Revenue from sale of own real estate | 15,245 | 6,620 | 7,182 | 577 | |||
| Revenue from rendering of services | 3,008 | 3,127 | 780 | 732 | |||
| Total revenue | 2, 3 | 18,253 | 9,747 | 7,962 | 1,309 | ||
| Cost of sales | 4 | -14,687 | -6,745 | -6,414 | -1,191 | ||
| Gross profit | 3,566 | 3,002 | 1,548 | 118 | |||
| Other income | 346 | 182 | 292 | 147 | |||
| Marketing and distribution expenses | 5 | -487 | -556 | -140 | -138 | ||
| Administrative expenses | 6 | -1,875 | -2,064 | -650 | -545 | ||
| Other expenses | -350 | -99 | -307 | -70 | |||
| Gain/loss on revaluation of investment property | 88 | -584 | 88 | -584 | |||
| Gain on sale of subsidiaries | 0 | 4 | 0 | 3 | |||
| Operating profit/loss | 1,288 | -115 | 831 | -1,069 | |||
| Finance income and costs | 7 | -489 | -590 | -105 | -131 | ||
| Profit/loss before tax | 799 | -705 | 726 | -1,200 | |||
| Income tax | -14 | -127 | -14 | -127 | |||
| Net profit/loss | 785 | -832 | 712 | -1,327 | |||
| Net profit/loss for the period | 785 | -832 | 712 | -1,327 | |||
| attributable to owners of the parent | 8 | 785 | -832 | 712 | -1,327 | ||
| attributable to non-controlling interests | 0 | 0 | 0 | 0 | |||
| Total comprehensive income/expense for the period | 785 | -832 | 712 | -1,327 | |||
| attributable to owners of the parent | 8 | 785 | -832 | 712 | -1,327 | ||
| attributable to non-controlling interests | 0 | 0 | 0 | 0 | |||
| Earnings per share (in euros) | 8 | ||||||
| - basic | 0.12 | -0.13 | 0.11 | -0.21 | |||
| - diluted | 0.11 | -0.13 | 0.10 | -0.20 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| Note | 31 December 2017 | 31 December 2016 | ||
| In thousands of euros | ||||
| Cash and cash equivalents | 2,284 | 845 | ||
| Receivables and prepayments | 9 | 747 | 470 | |
| Inventories | 10 | 8,974 | 14,593 | |
| Total current assets | 12,005 | 15,908 | ||
| Receivables and prepayments | 9 | 18 | 11 | |
| Investments | 34 | 0 | ||
| Investment property | 11 | 11,299 | 10,835 | |
| Property, plant and equipment | 704 | 718 | ||
| Intangible assets | 275 | 248 | ||
| Total non-current assets | 12,330 | 11,812 | ||
| TOTAL ASSETS | 24,335 | 27,720 | ||
| Loans and borrowings | 12 | 1,871 | 9,372 | |
| Payables and deferred income | 13 | 2,486 | 4,369 | |
| Provisions | 59 | 108 | ||
| Total current liabilities | 4,416 | 13,849 | ||
| Loans and borrowings | 12 | 10,132 | 4,886 | |
| Total non-current liabilities | 10,132 | 4,886 | ||
| TOTAL LIABILITIES | 14,548 | 18,735 | ||
| Share capital | 4,555 | 4,555 | ||
| Additional paid-in capital | 292 | 292 | ||
| Statutory capital reserve | 2,011 | 2,011 | ||
| Other reserves | 8 | 134 | 52 | |
| Retained earnings | 2,795 | 2,075 | ||
| Total equity attributable to owners of the parent | 9,787 | 8,985 | ||
| TOTAL EQUITY | 9,787 | 8,985 | ||
| TOTAL LIABILITIES AND EQUITY | 24,335 | 27,720 |
CONSOLIDATED STATEMENT OF CASH FLOWS
| 12 months 2017 | 12 months 2016 | Q4 2017 | Q4 2016 | ||||
| In thousands of euros | |||||||
| Cash receipts from customers | 12,613 | 14,290 | 5,177 | 2,008 | |||
| Cash paid to suppliers | -10,498 | -9,608 | -2,367 | -2,858 | |||
| Other taxes paid and recovered (net) | -2,112 | -1,737 | -1,564 | -110 | |||
| Cash paid to employees | -964 | -1,151 | -261 | -257 | |||
| Other cash payments and receipts related to operating activities (net) | -1,001 | -96 | -723 | -23 | |||
| NET CASH FROM/USED IN OPERATING ACTIVITIES | -1,960 | 1,698 | 262 | -1,240 | |||
| Payments made on purchase of tangible and intangible assets | -74 | -99 | 0 | -18 | |||
| Proceeds from sale of property, plant and equipment | 0 | 1 | 0 | 1 | |||
| Payments made on purchase and development of investment property | -370 | -383 | -24 | 0 | |||
| Proceeds from sale of a subsidiary | 0 | 41 | 0 | 40 | |||
| Payments made on purchase of a subsidiary | 0 | -1,890 | 0 | 0 | |||
| Loans provided | -37 | 0 | -30 | 0 | |||
| Repayment of loans provided | 4 | 0 | 2 | 0 | |||
| Other receipts related to investing activities | 24 | 0 | 1 | 0 | |||
| Other payments related to investing activities | -34 | -3 | -11 | 0 | |||
| NET CASH USED IN INVESTING ACTIVITIES | -487 | -2,333 | -62 | 23 | |||
| Proceeds from loans received | 6,085 | 6,135 | 883 | 2,850 | |||
| Settlement of loans and borrowings | -1,809 | -4,637 | -353 | -1,259 | |||
| Interest paid | -879 | -797 | -263 | -176 | |||
| Dividends paid | -65 | -61 | 0 | 0 | |||
| Proceeds from share capital increase | 0 | 273 | 0 | 273 | |||
| Other receipts related to financing activities | 665 | 0 | 665 | 0 | |||
| Other payments related to financing activities | -110 | -138 | -6 | 0 | |||
| NET CASH FROM/USED IN FINANCING ACTIVITIES | 3,887 | 775 | 926 | 1,688 | |||
| NET CASH FLOW | 1,439 | 140 | 1,126 | 471 | |||
| Cash and cash equivalents at beginning of period | 845 | 745 | 1,158 | 414 | |||
| Increase in cash and cash equivalents | 1,439 | 140 | 1,126 | 471 | |||
| Decrease in cash and cash equivalents through sale of subsidiaries | 0 | -40 | 0 | -40 | |||
| Cash and cash equivalents at the end of period | 2.284 | 845 | 2.284 | 845 |
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 | |||
| Total comprehensive income for the period | 0 | 0 | 0 | 0 | -832 | -832 | 0 | -832 | |||
| Transactions with owners: | 273 | 0 | 0 | -246 | 251 | 278 | -91 | 187 | |||
| Increase of share capital | 273 | 0 | 0 | -298 | 298 | 273 | 0 | 273 | |||
| Dividends paid | 0 | 0 | 0 | 0 | -61 | -61 | 0 | -61 | |||
| Change in non-controlling interest | 0 | 0 | 0 | 0 | 14 | 14 | -91 | -77 | |||
| Formation of equity reserve | 0 | 0 | 0 | 52 | 0 | 52 | 0 | 52 | |||
| Balance as at 31 December 2016 | 4,555 | 292 | 2,011 | 52 | 2,075 | 8,985 | 0 | 8,985 | |||
| Balance as of 31 December 2016 | 4,555 | 292 | 2,011 | 52 | 2,075 | 8,985 | 0 | 8,985 | |||
| Total comprehensive income for the period | 0 | 0 | 0 | 0 | 785 | 785 | 0 | 785 | |||
| Transactions with owners: | 0 | 0 | 0 | 82 | -65 | 17 | 17 | ||||
| Dividends paid | 0 | 0 | 0 | 0 | -65 | -65 | 0 | -65 | |||
| Formation of equity reserve | 0 | 0 | 0 | 82 | 0 | 82 | 0 | 82 | |||
| Balance as of 31 Detsember 2017 | 4,555 | 292 | 2,011 | 134 | 2,795 | 9,787 | 0 | 9,787 | |||
Kristel Tumm
CFO
Arco Vara AS
Tel: +372 614 4662
www.arcorealestate.com
