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2011


The Special General Meeting of Shareholders of Arco Vara AS was held on June 17, 2011 at Park Inn Central Hotel, Narva road 7c,  in Tallinn.

The Special General Meeting of Shareholders of Arco Vara AS started at 9.00 a.m. and ended at 09.25 a.m. and it was competent to pass decisions regarding the items on the agenda. The agenda of the Special General Meeting of Shareholders of Arco Vara AS was published in May 26, 2011 in the newspaper Eesti Päevaleht and in the information system of the Tallinn Stock Exchange and on the website of Arco Vara AS http://www.arcorealestate.com.

The following decisions were passed at the Special General Meeting of Shareholders of Arco Vara AS: 

To amend clauses 1 under decision point 5 in agenda adopted on 12.05.2011 by ordinary general meeting as follows: “1. To appoint as the person to carry out the special audit (as the auditor for a special audit) AS Deloitte Audit Eesti, Roosikrantsi 2, Tallinn 10119,   ph + 372 640 6500, fax + 372 640 6503, e-mail This email address is being protected from spambots. You need JavaScript enabled to view it..

The Special General Meeting of Shareholders of Arco Vara AS was held according to law and Statute of Arco Vara AS.

 

Lembit Tampere
CEO
Arco Vara AS
phone: +372 614 4630
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com


Arco Investeeringute AS, a subsidiary, which is 100% owned by Arco Vara AS, sold its 100% participation in Alasniidu LA OÜ.  Alasniidu LA OÜ owns a kindergarten in Harku rural municipality, Tiskre village, which will be rented by Harku rural municipality for the next 11 years to come.

100% participation in Alasniidu LA OÜ was acquired by VM Investments OÜ, which specialises in real estate investments.

The 1,680 square metre, 144 place kindergarten building for 6 groups was designed and built, in 12 months, by YIT Eesti; the architect of the building is Mr. Jüri Kliimask. The building was transferred to Harku rural municipality for utilisation on 1 June 2011.

The sales price of the share was 360,778 EUR. The sales of participation will result in decrease in long-term liabilities of the company by 1,041,937 EUR while balance sheet value will drop by 766,908 EUR. The transaction gives a 275,029 EUR net profit.

Arco Vara is a leading property development company in the Baltic areas, established in 1992.  Main activity of the company is real estate development, supported by brokerage, valuation construction and facility management.  Company is represented in 17 cities in Estonia, Latvia, Ukraine and Bulgaria.

Lembit Tampere
CEO
Arco Vara AS
phone: +372 614 4630
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com


Arco Investeeringute AS, 100% a subsidiary of Arco Vara AS, has signed a framework agreement with Haddox Enterprises Ltd for leading the real estate development project in the area of Chornaja Rechka in the western part of the town of Sertolovo in the Vsevalotchny district near Saint Petersburg in the Russian Federation.
 
The initial decision is to create 250-300 single-family estates and 10 terraced houses with the total of approximately 150 apartments, as well as a commercial centre with the total area of 3500m2, and a kindergarten. The planned duration of the project is 48 months. The project is funded by Haddox Enterprises Ltd.
 
Arco Investeeringute AS will be responsible for carrying out the planning of the development project, managing of the construction project, managing facility management and sales process.
Arco Vara is a leading property development company in the Baltic areas, established in 1992.  Main activity of the company is real estate development, supported by brokerage, valuation construction and facility management. 
Company is represented in 17 cities in Estonia, Latvia, Ukraine and Bulgaria.

Lembit Tampere
CEO
Arco Vara AS
phone: +372 614 4630
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com


SIA Prime Capital, a 70% subsidiary of Arco Investeeringute AS (a 100% subsidiary of Arco Vara AS) privatised at an auction two properties with an area of 5.22 and 80.97 ha in the Baltezers elite residential area in the Garklane district near Riga, Republic of Latvia.

According to the auction conditions, 70% of the 1,604,000 euro purchase price will be paid within a month and the rest by the 31st December of this year.

The shareholders of the recently established SIA Prime Capital are Arco Investeeringute AS (70%) and SIA Dreilini-Ulbroka-1 (30%).

In the same area, the Arco Group has built the Mazais Baltezers residential area with 62 plots on an area of 13.1 ha. Arco Development SIA, a 70% subsidiary of Arco Investeeringute AS held the right of superficies on the privatised properties.

Arco Vara is a leading property development company in the Baltic areas, established in 1992.  Main activity of the company is real estate development, supported by brokerage, valuation construction and facility management.
Company is represented in 17 cities in Estonia, Latvia, Ukraine and Bulgaria.

Lembit Tampere
CEO
Arco Vara AS
phone: +372 614 4630
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com


Group Chief Executive’s review

Compared with the same period last year, the Group’s revenue has grown significantly across all divisions and profitability has started to improve. After an interval of several years, the Service division posted an operating profit while the operating loss of the Development division remained at the same level as last year. The biggest setback was the exceptional losses of the Construction division, which is operating in an industry ravaged by rapid inflation that began spiralling in 2010 and counterparty bankruptcies triggered by the economic crisis. Excluding the impact of exceptional losses, the Group ended the second quarter with a profit.

In the first six months of 2011, 56 apartments and plots were sold in the projects of Arco Vara: 38 in Estonia, 9 in Latvia and 9 in Bulgaria. Major ongoing development projects include the Tivoli apartment building in Tallinn, which is in the design phase, and the Manastirski apartment building in Sofia, which is in the construction phase. The Group continues to sell apartments in the Kodukolde community being developed in Tallinn and is completing the sale of plots at Merivälja. In the second quarter, the Development division successfully completed and delivered to the investor the Alasniidu nursery school and commenced the Lille tee nursery school design and build project. Since the reporting date, the Group’s Latvian associate has won an auction for the purchase of 86 hectares of residential land in the Mazais Baltezers project that previously could only be used under a lease. The success at the land auction is an important step in securing the Group’s position in the Latvian market. The Group continued developing the Bišumuiža 1 apartment project and selling plots in Riga as well as delivering apartments under real right contracts and letting the last vacant rental premises in the Madrid project in Sofia, Bulgaria.

For the Service division, the first half of 2011 was better than the same period in several previous years. Revenue grew and the division ended the half-year with an operating profit of 44 thousand euros compared with an operating loss of 161 thousand euros for the first half of 2010. The number of brokerage transactions increased by 23% and the number of valuation reports issued grew by 39% year over year. At the same time, the number of brokers decreased and the number of appraisers grew by only 11%.

In the first six months of 2011, the Group secured new construction contracts of 4.3 million euros. Our order backlog as at 30 June 2011 was 13.5 million euros against 6.0 million euros at the end of the second quarter of 2010. After the reporting date, the Construction division has completed the Estonian Aviation Academy building in Tartu, the largest project for which Arco Ehitus was the sole general contractor in 2011. The operating loss of the division is attributable to the bankruptcies of two major business partners. Owing to the bankruptcy of construction company K&H the Construction division did not receive payment for work done in Tartu (the receivables are secured with mortgages), and because of the bankruptcy of construction company Kristiine Ehitus in Tallinn the division as the remaining consortium partner had to complete under unfavourable terms construction work started but not completed on account of the bankruptcy.

Within the past 12 months, the Group’s loans and borrowings have decreased by 8.8 million euros and equity to assets ratio has risen from 37% to 39%. The weighted average interest rate of loans and borrowings has increased because of a rise in EURIBOR. The Group has responded by lengthening the weighted average duration of loans and borrowings through current refinancing.

KEY PERFORMANCE INDICATORS

  • The Group ended the first six months of 2011 with revenue of 23.5 million euros. The figure includes 8.3 million euros earned on the sale of the Tivoli properties to the Group’s joint venture Tivoli Arendus OÜ. Excluding the latter transaction, the Group’s revenue was 15.2 million euros, a 43% improvement on the first half of 2010.
  • Operating loss for the first half-year was 1.4 million euros, a 40% increase year over year.
  • Net loss for the first half-year was 1.9 million euros, 69% up on the first half of 2010.
  • Equity to assets ratio at period-end was 39.1% (30 June 2010: 37.1%). Return on equity (12 months rolling) was negative (Q2 2010: negative). Return on invested capital (12 months rolling) was 1.3% (Q2 2010: negative).
  • At the end of the second quarter, the Group’s order backlog stood at 13.5 million euros compared with 6.0 million euros at the end of the second quarter of 2010.
  • During the first six months of 2011, the Group sold 56 apartments and plots (HY1 2010: 53 apartments and plots).
    HY1  2011 HY1 2010 Q2 2011 Q2 2010
In millions of euros          
Revenue and other income   23.5 8.9 10.3 4.5
Operating loss   -1.4 -1.0 -0.5 -0.4
Of which net loss on changes in the values of investment properties and inventories   0.0 -0.4 0.0 -0.1
Loss before tax   -1.9 -1.1 -0.6 -0.4
Of which net gain/ loss on the disposal of financial assets   0.3 -0.2 0.3 0.1
Net loss   -1.9 -1.1 -0.6 -0.4
           
EPS (in euros)   -0.41 -0.24 -0.13 -0.08
           
Total assets at period-end   64.9 74.5    
Invested capital at period-end   51.1 62.3    
Net loans at period-end   23.5 32.3    
Equity at period-end   25.4 27.6    
           
Average loan term (in years)   2.0 1.5    
Average interest rate of loans (per year)   7.4% 6.1%    
ROIC (rolling, 4 quarters)   1.3% neg    
ROE (rolling, 4 quarters)   neg neg    
           
Number of staff at period-end   142 153    

 

REVENUE AND PROFIT

    HY1 2011 HY1 2010 Q2 2011 Q2 2010
In millions of euros          
Revenue          
Service   1.1 0.9 0.6 0.4
Development   14.0 4.6 4.1 2.3
Construction   8.5 3.4 5.6 1.8
Eliminations   -0.1 -0.2 -0.1 0.0
Total revenue   23.5 8.7 10.2 4.5
           
Operating profit/loss          
Service   0.1 -0.2 0.1 -0.1
Development   -0.2 -0.2 0.4 0.0
Construction   -0.8 0.0 -0.7 0.1
Eliminations   0.2 0.4 0.1 0.1
Unallocated expenses   -0.7 -1.0 -0.4 -0.5
Total operating loss   -1.4 -1.0 -0.5 -0.4
           
Interest income and expense   -0.7 -0.3 -0.4 -0.1
Other finance income and expenses   0.2 0.2 0.3 0.1
Income tax expense   0.0 0.0 0.0 0.0
Net loss   -1.9 -1.1 -0.6 -0.4

 
Finance income and expenses was influenced the most by growth in interest expense, which resulted from the completion of the Madrid project and discontinuance of capitalisation of associated borrowing costs. In the first half of 2011, the Group did not earn any exceptional finance income or incur any exceptional finance expenses but the result for the first quarter of 2010 was influenced by foreign exchange gain of 0.15 million euros earned on a receivable from AS Ühendatud Kapital that was denominated in US dollars and a loss of 0.23 million euros incurred on the disposal of Arco Vara Saare Kinnistute OÜ. 


CASH FLOWS

      HY1 2011 HY1 2010
In millions of euros        
Cash flows from operating activities     -1.1 0.1
Cash flows from investing activities     0.1 0.8
Cash flows from financing activities     -1.0 -2.6
Net cash flow     -2.0 -1.7
         
Cash and cash equivalents at beginning of period     4.2 4.1
Effect of movements in exchange rates     0.0 -0.2
Cash and cash equivalents at end of period     2.2 2.3

 

In March 2011, Arco Investeeringute AS repaid ahead of schedule the remaining 5.27 million euros of the loan taken from SEB Pank for acquiring the land under the Tivoli project and 0.12 million euros of the loan taken for acquiring the land under the Laeva project. Repayment of the Tivoli loan and partial repayment of the Laeva 2 loan are not reflected in the Group’s cash flows because the buyer of Tivoli Arendus OÜ paid the cash directly to SEB. There have been no other exceptional loan settlements in 2011.

Interest payments accounted for 0.6 million euros of the net cash outflow from financing activities. Scheduled and inventory sales-related settlements of loan principal totalled 1.2 million euros. The largest proportion of credit limits utilised during the period was related to the construction of the last but one phase in the Kodukolde project and the Alasniidu and Lille tee nursery schools that accounted for 2.5 million euros of the total. Use of the Kodukolde credit limit is not reflected in the cash flows because invoices received from Merko Ehitus are booked as a loan and there are no cash movements.

The largest current liabilities to be settled in the next 12 months comprise:

  • estimated principal repayments to be made on the sale of reserved premises and payments under the settlement schedule of the loan taken for the Boulevard Residence Madrid project in Sofia of 4.7 million euros;
  • repayments of the loan taken for the Manastirski project of 2.2 million euros;
  • repayments of an investment loan taken for a cash flow project at Kadaka tee 131 of 1.4 million euros;
  • repayments of the loan taken for the Bišumuiža project of 1.3 million euros;
  • repayments of the loan taken for the Laeva 2 development project of 1.1 million euros.

In the first six months of 2011, the Group made regular repayments under the loans taken for the Kodukolde project in Tallinn, the Bišumuiža 1 project in Riga and the Madrid project in Sofia and scheduled settlements under the loans taken for its cash flow generating projects. The Group is also following the principal repayment schedules set for the loans taken for the Laeva 2 project and Koduküla OÜ.

SERVICE DIVISION

In 2011, the performance of the Service division has been in every respect better than in 2010. The division ended the first half-year with an operating profit of 44 thousand euros compared with an operating loss of 161 thousand euros for the first half of 2010. The number of the Group’s brokerage transactions increased by 23% and the number of valuation reports issued grew by 39% year over year. At the same time, the number of brokers decreased and the number of appraisers grew by only 11%.  

         
    HY1 2011 HY1 2010 Change, %
Number of brokerage transactions   626 507 23%
Number of projects on sale   173 177 -2%
Number of valuation reports   2,778 1,993 39%
Number of appraisers*   39 35 11%
Number of brokers*   71 74 -4%
Number of staff at end of period   46 59 -22%
* Includes people working under service contracts.        

 

DEVELOPMENT DIVISION

In the first six months of 2011, 56 apartments and plots were sold in the projects of Arco Vara. The Development division sold seven apartments in the Bišumuiža project and two plots in the Baltezers project in Latvia, 36 apartments in the Kodukolde project and two plots in the Merivälja project in Estonia, and nine apartments in the Madrid project in Sofia, Bulgaria.

The Group succeeded in finding a partner, International Invest Project OÜ, for the Tivoli project and raised financing for the construction of phase I. Design work is under way and construction should to start in 2011.

The last but one phase of the Kodukolde development project (50 apartments) was completed in June. Revenue for the first half-year includes the sale of 29 apartments of this phase. Construction of the last phase (48 apartments) commenced in the second quarter. Construction work is performed and financed by AS Merko Ehitus. The buildings are expected to be completed in the first half of 2012.

The building of the Alasniidu nursery school was granted a use permit at the end of May and was delivered to Harku local government with whom a rental agreement had been signed. The company that owns the nursery school was sold in the second quarter of 2011 and with this the project was successfully completed.

At the end of the first quarter, a wholly-held subsidiary of Arco Investeeringute AS bought the right of superficies to a property in Lille tee in Viimsi with a view to building a nursery school for six groups of children. The Group has already signed a long-term rental agreement with the local government. According to plan, the nursery school should be completed in the first quarter of 2012. Construction work is performed by YIT.

In Bulgaria, the construction of phase I of the Manastirski project is under way: 42% of the apartments have already been reserved. In the commercial and residential building Boulevard Residence Madrid in Sofia the division continues delivering reserved apartments under real right contracts and selling the remaining free apartments.

For further information on our projects, please refer to: www.arcorealestate.com/development. 
 

CONSTRUCTION DIVISION
 

The Construction division is typically actively involved in environmental, infrastructure and civil engineering (mostly educational establishments-related) projects.

As at the end of the second quarter of 2011, the largest active construction contracts comprised the construction of the Tallinn-Muuga water and wastewater networks and facilities with the remaining balance of 5.1 million euros, the design and build of the water and wastewater networks of the Jõgeva and Puurmani rural municipalities with the remaining balance of 2.3 million euros  and the water management project for the wastewater collection area of Tamsalu with the remaining balance of 1.4 million euros.  

In the first half of 2011, the division secured new construction contracts of 4.3 million euros. As at the reporting date, the order backlog stood at 13.5 million euros compared with 6.0 million euros at the end of the second quarter of 2010.

At the end of June 2011, the Construction division employed 55 people (30 June 2010: 47).


Consolidated statement of comprehensive income

For the period ended 30 June Note   HY1 2011 HY1 2010   Q2 2011 Q2 2010
In thousands of euros              
Revenue from rendering of services     10,340 4,200   6,603 2,365
Revenue from sale of goods     13,167 4,507   3,645 2,113
Total revenue 2   23,507 8,707   10,248 4,478
               
Cost of sales 3   -22,434 -7,637   -9,742 -3,892
Gross profit     1,073 1,070   506 586
               
Other income     12 183   7 66
Distribution expenses 4   -214 -159   -112 -97
Administrative expenses 5   -2,240 -1,942   -879 -842
Other expenses     -59 -172   -16 -104
Operating loss     -1,428 -1,020   -494 -391
               
Finance income 6   417 580   383 354
Finance expenses 6   -908 -668   -487 -320
Loss before tax     -1,919 -1,108   -598 -357
               
Income tax expense     0 -28   0 -27
Loss for the period     -1,919 -1,136   -598 -384
 Loss attributable to owners of the parent     -1,932 -1,136   -598 -384
 Profit attributable to non-controlling interests     13 0   0 0
Other comprehensive income              
Exchange differences on translating foreign operations   0 12   0 1
Total comprehensive expense for the period     -1,919 -1,124   -598 -383
 Total comprehensive expense
 attributable to owners of the parent
    -1,919 -1,124   -598 -383
Total comprehensive income/expense attributable  to non-controlling interests     0 0   0 0
Earnings per share (in euros) 7            
- Basic     -0.41 -0.24   -0.13 -0.08
- Diluted     -0.41 -0.24   -0.13 -0.08

 

 Consolidated statement of financial position

  Note   As at 30 June 2011 As at 31 December 2010
In thousands of euros        
Cash and cash equivalents     2,234 4,209
Trade and other receivables 8   9,494 5,760
Prepayments     392 192
Inventories 9   26,001 35,740
Total current assets     38,121 45,901
         
Investments     997 996
Trade and other receivables 8   2,950 76
Investment property 10   22,163 22,887
Property, plant and equipment     665 703
Intangible assets     20 20
Total non-current assets     26,795 24,682
TOTAL ASSETS     64,916 70,583
         
Loans and borrowings 11   13,726 27,126
Trade and other payables 12   8,240 4,813
Deferred income     4,379 4,859
Provisions     1,158 1,378
Total current liabilities     27,503 38,176
         
Loans and borrowings 11   11,323 3,855
Other payables 12   710 724
Total non-current liabilities     12,033 4,579
TOTAL LIABILITIES     39,536 42,755
         
Share capital     3,030 3,030
Statutory capital reserve     2,011 2,011
Retained earnings     20,339 22,787
Total equity     25,380 27,828
         
Equity attributable to n on-controlling interests     175 -70
Equity attributable to equity holders of the parent     25,205 27,898
         
TOTAL LIABILITIES AND EQUITY     64,916 70,583

 

Consolidated statement of cash flows 

For the period ended 30 June Note   HY1 2011 HY1 2010
In thousands of euros        
Loss for the period     -1,919 -1,135
Interest income and interest expense, net 6   720 268
Gain/loss on sale of subsidiaries and interests in joint ventures 6   -284 88
Gain/loss on other long-term investments 6   52 0
Impairment losses on financial assets 6   0 9
Depreciation, amortisation and impairment losses on property, plant and equipment and intangible assets 3, 5   49 58
Change in the fair value of investment property 10   0 1
Gain/loss on the sale of investment property 10   0 21
Gain/loss on inventory write-downs and reversals of inventory write-downs 3   0 355
Foreign exchange gains and losses 6   3 -370
Income tax expense     0 -1
Operating cash flow before working capital changes     -1,379 -706
Change in receivables and prepayments     3,216 813
Change in inventories     1,955 181
Change in payables and deferred income     -4,913 -178
NET CASH USED IN/FROM OPERATING ACTIVITIES     -1,121 110
         
Acquisition of property, plant and equipment and intangible assets     -9 -22
Paid on development of investment properties     -729 -11
Proceeds from sale of investment properties     177 1,520
Acquisition of subsidiaries and interests in joint ventures     1 0
Proceeds from disposal of subsidiaries and interests in joint ventures     891 7
Loans granted     -362 -668
Repayment of loans granted     50 0
Interest received     113 11
NET CASH FROM INVESTING ACTIVITIES     132 837
         
Proceeds from loans received     1,301 3,874
Settlement of loans and finance lease liabilities     -1,680 -5,412
Interest paid     -607 -1,067
NET CASH USED IN FINANCING ACTIVITIES     -986 -2,605
         
NET CASH FLOW     -1,975 -1,658
         
Cash and cash equivalents at beginning of period     4,209 4,137
Decrease in cash and cash equivalents     -1,975 -1,658
Effect of exchange rate fluctuations on cash held     0 -176
Cash and cash equivalents at end of period     2,234 2,303

Lembit Tampere
CEO
Arco Vara AS
phone: +372 614 4630
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com

Attachments:
ARCO VARA 2011 Q2 interim report.pdf


Management board of Arco Vara AS discloses the report on special procedures prepared by AS Deloitte Audit Eesti.

On 12.05.2011, ordinary general meeting of shareholders of Arco Vara AS decided to carry out special procedures (in Estonian: erikontroll) in relation to Arco Vara AS and approved the scope of the procedures. On 17.06.2011, extraordinary general meeting of shareholders of Arco Vara AS appointed AS Deloitte Audit Eesti to perform the special procedures.

In accordance with Section 2.4.8 of the Rules and Regulations, part "Requirements for Issuers", the translation into English of the report will be disclosed on 20.09.2011, at the latest.

Lembit Tampere
CEO
Arco Vara AS
phone: +372 614 4630
This email address is being protected from spambots. You need JavaScript enabled to view it.
www.arcorealestate.com