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Creating homes in a
smart way

...directly tapping the market’s pulse

Revenue and other income for Q1 totalled 111.9 million kroons (7.1 million     
euros), 67% down year-over-year.  
Operating loss amounted to 29.7 million kroons (1.9 million euros), a 141%     
decrease from the operating profit of a year ago.        
Net loss was 16.7 million kroons (1.1 million euros), a 124% decrease from the 
net profit earned a year ago.    
Equity to assets ratio was 54.3% (Q1 2007: 37.2%), return on equity 7.8% (Q1   
2007: 38.6) and return on invested capital 6.2% (Q1 2007: 17.2%).  
At 31 March, the Group's order backlog stood at 358.3 million kroons (22.9     
million euros) compared to 331 million kroons (21.1 million euros) in 4th      
During the reporting period, 59 apartments and plots were sold or reserved     
compared to 15in the  4th quarter.  

Comments by CEO:     
The time of lavish profits and huge returns is over. The Baltic development    
market has stabilised even though less attractively located and lower quality  
properties may undergo further price adjustment.  Although approximately 75% of
Arco's real estate portfolio is located in Estonia, the Group's focus has      
shifted to Ukraine and the Balkans. 
We anticipated the decline in the profit of the Development division because a 
number of major projects (Tivoli, Ahtri 3, Laeva, Bishumuizhas 2, etc) are still
in the planning phase. The division's Q1 performance indicators (planning,     
construction, vacancies and apartment sales) were positive but the current     
stages of the projects allow recognising only liabilities for reservation fees 
received, not sales revenue. The results of the Development division are subject
to significant fluctuations and the figures for the following quarters may be  
radically different as the projects progress. Q1 highlights include rapid      
progress in the planning of the Tivoli project, investment in a project in     
Simferopol and an en-bloc apartment sale in Sofia. In 2008, plans should be    
adopted for the Laeva, Ahtri and MB-3 projects.   
The Service division performance was lower than expected.. The year will be    
testing and the Service division will end it with a loss despite continuing cost
cutting. Although the performance of the Service division began recovering at  
the end of the previous year the stagnation of the market in Riga and          
reorganization expenses have increased its operating loss.. Nevertheless, the  
Group's market position is strong and the division's performance indicators    
(number of transactions performed and valuation reports issued) have dropped   
substantially less than the market's average                                   

The Construction division continues turning a profit and has displayed strong  
capability for winning environmental engineering tenders in Estonia and Latvia.
Without the sale of major projects or properties and revaluation gain, the     
consolidated result of operations will be considerably weaker than a year ago. 
Winning of tenders in Estonia as well as in Latvia, has increased the proportion
of construction revenue in the Group's revenue structure. The decline in the   
contribution of civil engineering projects and internal sales confirms the     
strategy adopted.                                                              

Demand for centrally located category A commercial real estate has not         
diminished. In Tallinn, vacancies of category A office and commercial premises 
are almost down to zero. Moreover, a 20% fall in construction prices has created
excellent opportunities for executing major long-term development projects such
as Ahtri 3. In 2008, we shall continue developing our Kolde (Estonia) and Madrid
(Bulgaria) projects and intend to take advantage of opportunities provided by  
the slump in the Baltics and the opportunities opening up in Ukraine and the   
Balkans. Accordingly, in 2008 we expect to be a net investor not an achiever of
enhanced development revenue.     

     1. 2008 q1 vahearuanne eng f.pdf
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