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2011


The council of Arco Vara AS approved on April 15th 2011 the annual report and profit allocation proposal for the year 2010 of Arco Vara AS. The council decided to present the annual report and profit allocation proposal as prepared by the management for the approval of the general meeting of shareholders.

The audited annual report for 2010 is made available on NASDAQ OMX Tallinn Stock Exchange's and issuer's web page http://www.arcorealestate.com/  The report can also be read in issuer's location on Jõe 2B, Tallinn.

Arco Vara is a leading real estate developer in the Baltic's, established in 1992. The operations involve real estate development, brokerage, valuation,construction and property maintenance arm. The company is located in 17 cities in Estonia, Latvia, Ukraine and Bulgaria and employs approx. 170 people. Arco Vara AS is listed on Tallinn Stock Exchange.

Arco Vara AS

Attachments:
AVG annual report 2010 ENG.pdf


INVITATION AND AGENDA OF THE GENERAL MEETING OF SHAREHOLDERS AND PROPOSALS MADE AT THE MEETING

Dear Shareholder of Arco Vara AS,

Arco Vara AS (registry code 10261718; located at Tallinn, Jõe 2B) shareholders ordinary general meeting will take place on May 12th 2011 at 9:00AM in Tallinn, Viru väljak 4, Sokos Hotel Viru Conference Center.

The agenda of the general meeting:

1. Approval of the year 2010 annual report
The supervisory board of Arco Vara proposes the annual report for 2010 be approved.

2. Profit allocation
The supervisory board of Arco Vara proposes that the net loss for the year ended 31 December 2010 of 4,591 thousand kroons (293 thousand euros) to retained earnings

3. Appointment of auditor
3.1. The supervisory board of Arco Vara proposes the shareholders appoint one auditor for one year (until the next ordinary shareholders general meeting) and appoint Eero Kaup such auditor. 
3.2. The supervisory board of Arco Vara proposes the auditor be paid for auditing the 2011 annual report according to an agreement to be signed between the company and KPMG Baltics OÜ.
3.3. The supervisory board has identified that the auditor has carried out the consolidated auditing in time, wherefore it is advisable that KPMG Baltics OÜ should carry out the auditing in the following period.

4. Amendments of the articles of association
4.1. The supervisory board proposes to the shareholders to amend clauses 2.1. and 2.3. in the articles of association of Arco Vara AS as follows:
„2.1. The minimum amount of the Company’s share capital shall be 2,500,000 Euros and the maximum amount of the share capital shall be 10,000,000 Euros.” And
“2.3. The Company only owns registered shares of one type with a nominal value of 70 (seventy) Eurocents. Each share provides 1 (one) vote in the general meeting. No share certificate is issued for the shares.  A share grants the shareholder the right to participate in the general meeting of shareholders and in the distribution of the profit and the remaining assets of the Company upon its termination, as well as other legal and statutory rights.”
4.2. The par value of existing shares of Arco Vara AS shall be rounded off to 0.7 euro, i.e. to the closest possible value, to which purpose the share capital of Arco Vara AS shall be increased by 288,631.79 euro through a bonus issue on account of retained earnings, so that the size of the share capital will be 3,319,194.90 euro. The recalculation of the par value of shares as a result of rounding off shall not have any legal consequences. The basis for the bonus issue is the Arco Vara AS annual report 2010 that was approved by the general meeting of the shareholders. The list of shareholders entitled to take part in the bonus issue shall be the list as of 23.05.2011 at 23:59.   The par value of shares shall be increased by an entry in the commercial register, which will presumably take place before 01.06.2011.

Materials of shareholders ordinary meeting of Arco Vara AS are available through internet website of Arco Vara http://www.arcorealestate.com/en/investor-info or at the office of Arco Vara AS in Tallinn, at Jõe street 2B, on workdays from 9:00AM till 5:00PM.

Questions about the items on the agenda can be sent by e-mail to This email address is being protected from spambots. You need JavaScript enabled to view it.. All questions and answers will be made public on the Internet website of Arco Vara AS.
The list of shareholders entitled to participate at the annual general meeting shall be determined at 7 days prior to the meeting.

Registering to participate in the meeting will convene at 8:45AM on May 12th 2011.

To register, we kindly ask shareholders to present an ID document and the representative of the shareholder additionally to present also a signed Power of Attorney or documents validating representation.
 

Kind regards,
Management Board of Arco Vara AS


Dear Shareholder of Arco Vara AS

The annual general meeting of shareholders (hereinafter the “AGM”) of Arco Vara AS (hereinafter the “Company”) will be held on 12 May 2011 at 9 am in the conference centre of Sokos Hotel Viru in Tallinn, at Viru väljak 4.

The shareholder of the Company, whose shares represent more than 5% of the Company’s share capital, Baltplast OÜ (hereinafter the “Shareholder”), would like to include the following additional items on the agenda of the AGM based on § 293 (2) of the Commercial Code:

a) A resolution on the conduct of a special audit;

b) A resolution on the legitimacy of Baltplast OÜ’s request for information and requiring the management board to provide information (if the general meeting decides not to conduct a special audit).

Resolution proposals submitted by the Shareholder under § 2931 (3) of the Commercial Code and draft resolutions prepared by the Company’s management board in respect of the additional items on the agenda under § 2931 (6) of the Commercial Code are available for inspection on the Company’s website at http://www.arcorealestate.com/en/investor-info and at the office of Arco Vara AS in Tallinn, at Jõe 2B, on business days from 9 am to 5 pm.

Questions concerning the items on the agenda can be asked by an email to This email address is being protected from spambots. You need JavaScript enabled to view it..  The questions and answers will be posted on the website of Arco Vara AS.

Yours sincerely
The management board of Arco Vara AS

Additional information:

Shareholders proposald for including additional items and management board opinion


The Annual General Meeting of Shareholders of Arco Vara AS was held on May 12, 2011 at Sokos Hotel Viru, Viru square 4, in Tallinn. 

The Annual General Meeting of Shareholders of Arco Vara AS started at 9.10 a.m. and ended at 11.00 a.m. and it was competent to pass decisions regarding the items on the agenda. The agenda of the Annual General Meeting of Shareholders of Arco Vara AS was published in April 20, 2011 and supplement of agenda was published in May 4, 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 Annual General Meeting of  Shareholders of Arco Vara AS:

1.      To approve the year 2010 Annual Report of Arco Vara AS.

2.      To cover the net loss for the year ended 31 December 2010 of 4,591 thousand kroons (293 thousand euros) to retained earnings.

3.      To appoint 1 auditor for one year (until the next Annual General Meeting of   Shareholders) and to appoint KPMG Baltics AS as auditor, to appoint Eero Kaup as auditor in charge and to pay to the auditor the fee for the auditing of 2010 financial results according to the agreement to be signed between Arco Vara AS and KPMG Baltics AS.

4.      To amend clauses 2.1. and 2.3. in the articles of association of Arco Vara AS as follows:
„2.1. The minimum amount of the Company’s share capital shall be 2,500,000 Euros and the maximum amount of the share capital shall be 10,000,000 Euros.” And
“2.3. The Company only owns registered shares of one type with a nominal value of 70 (seventy) Eurocents. Each share provides 1 (one) vote in the general meeting. No share certificate is issued for the shares.  A share grants the shareholder the right to participate in the general meeting of shareholders and in the distribution of the profit and the remaining assets of the Company upon its termination, as well as other legal and statutory rights.”

5.      The par value of existing shares of Arco Vara AS shall be rounded off to 0.7 euro, i.e. to the closest possible value, to which purpose the share capital of Arco Vara AS shall be increased by 288,631.79 euro through a bonus issue on account of retained earnings, so that the size of the share capital will be 3,319,194.90 euro. The recalculation of the par value of shares as a result of rounding off shall not have any legal consequences. The basis for the bonus issue is the Arco Vara AS annual report 2010 that was approved by the general meeting of the shareholders. The list of shareholders entitled to take part in the bonus issue shall be the list as of 23.05.2011 at 23:59.   The par value of shares shall be increased by an entry in the commercial register, which will presumably take place before 01.06.2011

6. To perform a special audit in relation to Arco Vara AS participation in sales transactions as follows:

6.1. To appoint the persons conducting a special audit (special auditors) Ernst&Young Batics AS, Rävala str 4, Tallinn 10143, ph + 372 611 4610, fax + 372 611 4611, e-mail This email address is being protected from spambots. You need JavaScript enabled to view it.   leading consultant and manager of the area of internal control and risks Taavi Saat   and Ernst & Young´s partner in charge and member of management board, sworn auditor Ivar Kiigemägi.

6.2. To charge the auditor for a special audit with the task of investigating the circumstances per each sales transaction and to present the auditor for a special audit with the following questions for each sales transactions (except in cases where the question itself is limited to the specific transaction):

6.2.1.      To whom did Arco Vara sell its share in S.C.L-Base Project S.R.L (Romania), Tallinna Olümpiapurjespordikeskuse AS, Floriston Grupp OÜ, Arco Ärikeskuse OÜ and Saare Kinnistute OÜ and Wilson Kinnisvara OÜ?

6.2.2.      On October 21, 2009, according to a publicly disclosed stock notice Arco Vara sold its shares in Tallinna Olümpiapurjespordikeskuse AS, Floriston Grupp OÜ and Arco Ärikeskuse OÜ to companies related to Marcel Vichmann and Olav Miil. To whom specifically where the aforementioned shares sold?

6.2.3.      What was the sales price for the shares in UAB IKAS Projekt (Lithuania) and S.C.L-Base Project S.R.L (Romania)?

6.2.4.      For what reasons were the shares in the daughter companies transferred?

6.2.5.      Was the sale of shares more profitable for Arco Vara and/or shareholders than declining to sell the shares?

6.2.6.      Did Arco Vara also offer the shares for sale to other potential buyers and what were the competing offers? On which grounds were the specific buyers chosen?

6.2.7.      Have the conditions for the transfer of shares been fulfilled completely by this time? If the conditions for the transfer transactions have not been fulfilled then:

6.2.7.1.   what kind of claims does Arco Vara have against the share buyers?

6.2.7.2.   what kind of methods has Arco Vara implemented to satisfy or ensure the claims?

6.2.8.      Was the sale of shares planned in Arco Vara financial year action plan, budget or other such document? If yes, then what kind of management body has approved or coordinated the budget or other such document?

6.2.9.      Was the sale of shares approved by the supervisory board and, if yes, when?

6.2.10.    How was the proposal and economic usefulness of the sale of shares justified to the supervisory board?

6.2.11.    Did the supervisory board members present any dissenting opinions concerning the transfer of shares and, if yes, which?

6.2.12.    Who among the Arco Vara management body members participated in the valuation of the share values and in the sales negotiations?

6.2.13.    As of what date was the price of share determined?

6.2.14.    What kinds of valuation methods were used to valuate the share prices and who carried out this valuation?

6.2.15.    What was the share price per used valuation methods?

6.2.16.    Was the right of pre-emption valid in the sale of shares? If yes, did other shareholders use the right of pre-emption?

6.2.17.    Was the repurchase of shares by Arco Vara also stipulated in the contracts?

6.2.18.    Can the Arco Vara management board confirm that the transactions did not damage the interests of the shareholders?

6.2.19.    Was the approval of a person of a credit institution or other such body required to make a transaction and were the transactions coordinated with such a person?

6.3. According to Arco Vara AS stock notices, the largest sale of shares is the transaction disclosed on October 21, 2009 within the framework of which Arco Vara sold its shares in (1) Tallinna Olümpiapurjespordikeskuse AS, (2) Floriston Grupp OÜ and (3) Arco Ärikeskuse OÜ (henceforth all 3 units to be referred to as the joint entrepreneurs) to undisclosed companies for a total of 172 MEEK (11 MEUR), of which 55 MEEK (3,5 MEUR) is the amount paid for the sale of the joint entrepreneurs’ shares and stock (henceforth the shares) and 117 MEEK (7,5 MEUR) is the amount for which claims against the joint entrepreneurs were transferred.

On the basis of the above and in addition to the questions listed in item 2 of this special audit questionnaire, the auditor for the special audit is charged with answering the following questions about the sale of the shares and stock of the aforementioned joint entrepreneurs:

6.3.1.      Who presented the management board with the proposal for the sale of specific shares and what was the reasoning behind this?

6.3.2.      For what reason where the shares in the three joint entrepreneurs under question transferred in 2009?

6.3.3.      On what grounds was the share of 12,5% in   Floriston Grupp OÜ left unsold?

6.3.4.      Why was the sales price of a 37,5% share in Floriston 5 500 000 kroons, if the Arco Vara prospectus and the May 26, 2010 Arco Vara stock notice valued the consolidated Floriston Grupp OÜ retained profits in the amount of a 12% share to be 37 943 987 kroons? According to the 2009 annual report of Floriston Grupp OÜ, Floriston had – as of December 31, 2009 – retained profits of 151 489 722 kroons, shareholder’s equity of 151533 722 kroons and maximum net dividends of 119 676 880 kroons, of which 37,7% was 44 878 830 kroons. Please to explain the principles of price formation in this transaction by Arco Vara.

6.3.5.      How does the total loss of 150 MEEK (9,6 MEUR) from the sale of the shares listed in the October 21, 2010 stock notice come about and what are the reasons?

6.3.6.      How does the total loss of 150 MEEK (9,6 EUR) described in the October 21, 2010 stock notice divide by shares sold? What is the transaction result when broken down by the sales of Tallinna Olümpiapurjespordikeskuse AS stock, Floriston Grupp OÜ share and Arco Ärikeskuse OÜ share?

6.3.7.      What kind of claims have been relinquished along with the sale of shares and on which grounds was this considered to be necessary in the sales transactions?

6.3.8.      Has the fulfillment of claims relinquished to Arco Vara been guaranteed and how?

6.3.9.      Does the acquisition of claims by Arco Vara against the joint entrepreneurs improve Arco Vara’s liquidity position and does the acquisition of claim enable getting financial instruments to finance the construction of new residential building projects in Tallinn?

6.3.10.    Did Arco Vara finance any residential building projects – and, if yes, which – from the money gained from the sale of stock/shares in Tallinna Olümpiapurjespordikeskuse AS, Floriston Grupp OÜ and Arco Ärikeskuse OÜ?

6.3.11.    Are the residential building projects described in the October 21, 2010 stock notice more profitable from the position of Arco Vara, compared to the projects by the joint entrepreneur Tallinna Olümpiapurjespordikeskuse AS, Floriston Grupp OÜ and/or Arco Ärikeskuse OÜ?

6.3.12.    Is the October 21, 2010 stock notice claim that during the next 10 years Arco Vara may receive additional income from the realization of the construction rights on estates that belong to Tallinna Olümpiapurjespordikeskuse AS, Floriston Grupp OÜ or Arco Ärikeskuse OÜ true and justified?

6.3.12.1.        What kind of additional income would Arco Vara receive from the realization of construction rights on estates that belong to the joint entrepreneurs?

6.3.12.2.        What is the size of the additional income Arco Vara may receive from the realization of construction rights on the aforementioned estates that belong to the joint entrepreneurs?

6.3.12.3.        Is the alleged (additional) income gained by Arco Vara from the realization of construction rights of the joint entrepreneurs larger than the income that Arco Vara would have received in the situation where Arco Vara had not transferred its shares in the joint entrepreneurs?

6.3.13.    What was the dynamic of the joint entrepreneurs’ stock and shares during the three years prior to the sale of the shares?

6.3.14.    How big were the retained profits of Floriston Grupp OÜ at the moment the shares were valuated?

6.3.15.    Was/is there a shareholder contract that applies to the shares?

6.4. To charge the management board with signing a contract for performing a special audit between Arco Vara AS and the auditor for a special audit or a respective company of auditors under the following conditions:

6.4.1.      the deadline for preparing a special audit report is 3 months;

6.4.2.      the maximum size for performing a special audit is 18 000 euros.

6.5. Every shareholder is entitled to review the special audit report and to make copies of it at the expense of Arco Vara AS. The special audit report shall not include information which damages the rights or business interests of Arco Vara AS.                                                

The Annual 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


Group Chief Executive’s review

In the first quarter of 2011, we sold 13 apartments in the projects of Arco Vara - two in Estonia, five in Latvia and six in Bulgaria. The most important project of the period was the work started on the Tivoli project in Tallinn. In addition, we acquired a lease with the commitment to build a nursery school in Lille tee in Viimsi. We have also started developing an apartment building comprising up to 12 apartment units in Tehnika street in Tallinn. For financing the construction of the 160 apartments in phase I of the Tivoli project we involved a partner but the Viimsi nursery school and the apartment building at Tehnika 53 are projects we are building without partners. We did not start any other new projects but continued the construction and sale of the Kodukolde apartment buildings project in Tallinn and the sale of plots at Merivälja. After the reporting date, we completed a nursery school at Alasniidu. We will also continue the development of apartments in the Bisumuiza 1 project in Riga and realisation of the plots at Mazais Baltezers. In Bulgaria, we continued signing real right contracts on the sale of apartments and letting the last vacant rental premises in the Madrid project and the construction of the Manastirski project in Sofia.

A significant proportion of real right contracts (i.e. contracts on the transfer of title) will be signed in the second quarter when the first 50 apartments will be completed in the Kodukolde community in Tallinn. The majority of those apartments will be delivered to customers in May and June. It is important to note that the completion of development projects has a significant impact on the Group’s revenue because most sales are recognised as revenue in the period following the completion of construction work. Although the revenue of the Development division fluctuates steeply, administrative costs are incurred regardless of the stage of sale (signature of contracts on the transfer of title).

For the Service division, 2011 started better than 2010. The division ended the first quarter of 2011 with an operating loss of 32 thousand euros compared with an operating loss of 87 thousand euros for the first quarter of 2010. The improvement is all the more significant because the first quarter is low season for the division. The number of brokerage transactions increased by 22% and the number of valuation reports issued grew by 40% year-over-year. At the same time, the number of brokers decreased and the number of appraisers grew by only 8%.

In the first quarter of 2011, we secured new construction contracts of 4.3 million euros. At 31 March 2011, the Group’s order backlog was 19.0 million euros against 8.0 million euros at the end of the first quarter of 2010.

Within the past 12 months, the Group has reduced its loans and borrowings by 9.4 million euros and the equity to assets ratio has risen from 37% to 41%. Although the weighted average interest rate of loans and borrowings has risen compared with a year ago, interest payments for the first quarter of 2011 totalled 0.5 million euros, remaining at the same level as in the first quarter of 2010. Compared with the end of 2010, the weighted average duration of the Group’s loans and borrowings has increased significantly because at 31 March 2011 most of the Madrid loan, which at the year-end was classified as a current liability in conformity with IAS 1.74, was again classified by reference to its settlement schedule as a non-current liability.

KEY PERFORMANCE INDICATORS

  • The Group’s consolidated revenue for the first quarter of 2011 was 13.3 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 5.0 million euros, 17% up on the first quarter of 2010.
  • Operating loss for the period was 0.9 million euros, a 48% increase year-over-year.
  • Net loss for the first quarter was 1.3 million euros, 75% up on the first quarter of 2010.
  • Equity to assets ratio at period-end was 40.5% (31 March 2010: 37.1%). Return on equity (12 months rolling) was negative (Q1 2010: negative). Return on invested capital (12 months rolling) was 1.2% (Q1 2010: negative).
  • At the end of the first quarter, the Group’s order backlog stood at 19.0 million euros compared with 8.0 million euros at the end of the first quarter of 2010.
  • During the first quarter of 2011, the Group sold 13 apartments (Q1 2010: 30 apartments and plots).


Q1 2011

Q1 2010

In millions of euros




Revenue


13.3

4.2

Operating loss


-0.9

-0.6

Of which net loss on changes in the values of investment properties and inventories


0.0

-0.2

Loss before tax


-1.3

-0.7

Of which net loss on the disposal of financial assets


0.0

-0.2

Net loss


-1.3

-0.7





EPS (in euros)


-0.28

-0.16





Total assets at period-end


65.5

75.4

Invested capital at period-end


53.2

63.8

Net loans at period-end


24.4

32.5

Equity at period-end


26.5

27.3





Average loan term (in years)


2.1

1.6

Average interest rate of loans (per year)


7.0%

6.0%

ROIC (rolling, 4 quarters)


1.2%

neg

ROE (rolling, 4 quarters)


neg

neg





Number of staff at period-end


150

160

REVENUE AND PROFIT



Q1 2011

Q1 2010

In millions of euros




Revenue




Service


0.5

0.4

Development


9.9

2.4

Construction


2.9

1.5

Eliminations


0.0

-0.1

Total revenue


13.3

4.2





Operating loss




Service


0.0

-0.1

Development


-0.6

-0.2

Construction


-0.1

-0.1

Eliminations


0.1

0.3

Unallocated revenues and expenses


-0.3

-0.5

Total operating loss


-0.9

-0.6





Interest income and expense


-0.4

-0.1

Net loss


-1.3

-0.7

The Service and Construction divisions’ revenues have grown and operating losses have decreased year-over-year. Although the number of properties sold by the Development division was smaller than a year ago, in the first quarter of 2011 the division signed 13 preliminary apartment sales contracts (contracts under the law of obligations) in a new phase of the Kodukolde project, which are not yet included in revenue.

Finance income and expenses were influenced the most by growth in interest expense. This is related to the completion of the Madrid project and discontinuance of capitalisation of associated borrowing costs. In the first quarter 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




Q1 2011

Q1 2010

In millions of euros





Cash flows from operating activities



-0.7

-0.1

Cash flows from investing activities



-0.4

0.0

Cash flows from financing activities



-0.9

-0.8

Net cash flow



-2.0

-0.9






Cash and cash equivalents at beginning of period



4.2

4.1

Cash and cash equivalents at end of period



2.2

3.2

In March 2011, Arco Investeeringute AS repaid before maturity 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 were no other exceptional loan settlements in the first quarter of 2011.

Interest payments accounted for 0.5 million euros of the net cash outflow from financing activities. Scheduled and inventory sales-related settlements of loan principal totalled 0.7 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 nursery school that accounted for 1.2 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 factual 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 1.5 million euros;
  • repayments of the loan taken for the Bisumuiza project of 1.4 million euros;
  • repayments of the loan taken for the Laeva 2 development project of 1.1 million euros.

In the first quarter, the Group made regular repayments of the loans taken for the Kodukolde project in Tallinn, the Bishumuiza-1 project in Riga and the Madrid project in Sofia and also scheduled settlements of the loans taken for its cash flow generating projects.

SERVICE DIVISION

For the Service division, the first quarter of 2011 was better than that of 2010: operating loss for the first quarter of 2011 was 32 thousand euros compared with 87 euros a year ago. The number of the Group’s brokerage transactions increased by 22% and the number of valuation reports issued grew by 40% year-over-year. At the same time, the number of brokers decreased and the number of appraisers grew by only 8%.



Q1 2011

Q1 2010

Change, %

Number of brokerage transactions


281

230

22%

Number of projects on sale


158

171

-8%

Number of valuation reports


1,270

910

40%

Number of appraisers*


39

36

8%

Number of brokers*


69

77

-10%

Number of staff at end of period


49

63

-22%

* Includes people working under service contracts.



DEVELOPMENT DIVISION

In the first quarter of 2011, the Group sold a total of 13 apartments in Arco Vara projects. Five apartments were sold in the Bisumuiza project in Latvia, two apartments were sold in the Kodukolde project in Estonia and six apartments were sold in the Madrid project in Sofia.

The Group found a partner, International Invest Project OÜ, for the Tivoli project and raised financing for the construction of its first phase. Design work is under way and construction is scheduled to start in 2011.

The construction of the last but one phase of the Kodukolde development project (50 apartments) is on schedule and the buildings will be completed by the end of May 2011. Construction of the last phase (50 apartments) should begin in the second quarter. Construction work is performed and financed by AS Merko Ehitus.

The construction of the Alasniidu nursery school reached its final stage. We expect to obtain a use permit for the building by the end of May after which we will deliver the building to Harku local government with whom we already have a rental agreement.

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. We have started preparing the preliminary design documentation that is required for obtaining a construction permit and negotiations with financing institutions and builders. According to current plans, the building should be completed in the first half 2012.

Most of the commercial rental premises in the Boulevard Residence Madrid commercial and residential building in Sofia that were covered with preliminary contracts have been transferred to customers and tenants have moved in. We continue to deliver reserved apartments under real right contracts and to sell off free apartments.

At the end of March 2011, the Development division employed 22 people (31 December 2010: 26). 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 first quarter of 2011, the largest active construction contracts comprised the Tallinn-Muuga water and wastewater networks and facilities with the remaining balance of 6.7 million euros, the design and construction of the water and wastewater networks of the Jõgeva and Puurmani rural municipalities with the remaining balance of 2.7 million euros and the building of the Estonian Aviation Academy with the remaining balance of 1.9 million euros.

In the first quarter of 2011, the division secured new construction contracts of 4.3 million euros. As at the reporting date, the order backlog stood at 19.0 million euros compared with 8.0 million euros at the end of the first quarter of 2010.

At the end of March 2011, the Construction division employed 58 people (31 December 2010: 49).


Consolidated statement of comprehensive income

For the period ended 31 March 2011

Note


Q1 2011

Q1 2010

In thousands of euros





Revenue from rendering of services



3,737

1,835

Revenue from sale of goods



9,522

2,394

Total revenue

2


13,259

4,229






Cost of sales

3


-12,692

-3,745

Gross profit



567

484






Other income



5

117

Distribution expenses

4


-102

-63

Administrative expenses

5


-1,361

-1,100

Other expenses



-43

-68

Operating loss



-934

-630






Finance income

6


34

324

Finance expenses

6


-421

-446

Loss before tax



-1,321

-752






Income tax expense



0

-1

Loss for the period



-1,321

-753

Loss attributable to owners of the parent



-1,334

-753

Profit attributable to non-controlling interests



13

0

Other comprehensive income





Exchange differences on translating foreign operations


0

11

Total comprehensive expense for the period



-1,321

-742

Total comprehensive expense
attributable to owners of the parent



-1,334

-742

Total comprehensive income attributable to
non-controlling interests



13

0






Earnings per share (in euros)

7




- Basic



-0.28

-0.16

- Diluted



-0.28

-0.16

Consolidated statement of financial position


Note


As at 31 March 2011


As at 31 December 2010

In thousands of euros






Cash and cash equivalents



2,197


4,209

Trade and other receivables

8


7,545


5,760

Prepayments



325


192

Inventories

9


27,388


35,740

Total current assets



37,455


45,901







Investments



997


996

Trade and other receivables

8


2,951


76

Investment property

10


23,348


22,887

Property, plant and equipment



680


703

Intangible assets



21


20

Total non-current assets



27,997


24,682

TOTAL ASSETS



65,452


70,583







Loans and borrowings

11


12,110


27,126

Trade and other payables

12


6,235


4,813

Deferred income



4,819


4,859

Provisions



1,247


1,378

Total current liabilities



24,411


38,176







Loans and borrowings

11


13,824


3,855

Other payables

12


710


724

Total non-current liabilities



14,534


4,579

TOTAL LIABILITIES



38,945


42,755







Share capital



3,030


3,030

Statutory capital reserve



2,011


2,011

Retained earnings



21,466


22,787

Total equity



26,507


27,828







Equity attributable to non-controlling interests



175


-70

Equity attributable to equity holders of the parent



26,332


27,898







TOTAL LIABILITIES AND EQUITY



65,452


70,583

Consolidated statement of cash flows

For the period ended 31 March 2011

Note


Q1 2011

Q1 2010

In thousands of euros





Loss for the period



-1,321

-753

Interest income and interest expense

6


355

126

Gain/loss on sale of subsidiaries and interests in joint ventures

6


0

229

Share of profits and losses of equity-accounted investees

6


0

-80

Gain/loss on other long-term investments

6


0

4

Depreciation, amortisation and impairment losses on property, plant and equipment and intangible assets

3, 5


25

24

Gain/loss on inventory write-downs and reversals of inventory write-downs

3


0

210

Foreign exchange gains and losses

6


4

-157

Income tax expense/income



0

1

Operating cash flow before working capital changes



-937

-396

Change in receivables and prepayments



-1,866

1,863

Change in inventories



1,504

937

Change in payables and deferred income


591

-2,456

NET CASH USED IN OPERATING ACTIVITIES



-708

-52






Acquisition of property, plant and equipment and intangible assets



-2

-10

Paid on development of investment properties



-557

0

Proceeds from sale of investment properties



177

-7

Acquisition of subsidiaries and interests in joint ventures



1

0

Loans granted



-67

-12

Repayment of loans granted



29

2

Interest received



24

23

NET CASH USED IN INVESTING ACTIVITIES



-395

-4






Proceeds from loans received

11


504

1,669

Settlement of loans and finance lease liabilities

11


-876

-2,020

Interest paid



-537

-512

NET CASH USED IN FINANCING ACTIVITIES



-909

-863






NET CASH FLOW



-2,012

-919






Cash and cash equivalents at beginning of period



4,209

4,137

Decrease in cash and cash equivalents



-2,012

-919

Effect of exchange rate fluctuations on cash held



0

10

Cash and cash equivalents at end of period



2,197

3,228



The whole report you can read here.


INVITATION AND AGENDA OF THE SPECIAL GENERAL MEETING OF SHAREHOLDERS AND PROPOSALS MADE AT THE MEETING

Dear Shareholder of Arco Vara AS,

Arco Vara AS (registry code 10261718; located at Tallinn, Jõe 2B) shareholders special general meeting will take place on June17th 2011 at 9:00AM in Narva road 7C, the Park Inn Central Tallinn conference centre .

The agenda of the special general meeting:

Amendments of the decisions of 12.05.2011 ordinary general meeting of Arco Vara AS

The supervisory board proposes to the shareholders 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. .“

Materials of shareholders special general meeting of Arco Vara AS are available through internet website of Arco Vara http://www.arcorealestate.com/en/investor-info or at the office of Arco Vara AS in Tallinn, at Jõe street 2B, on workdays from 9:00AM till 5:00PM.

Questions about the items on the agenda can be sent by e-mail to This email address is being protected from spambots. You need JavaScript enabled to view it. . All questions and answers will be made public on the Internet website of Arco Vara AS.
The list of shareholders entitled to participate at the special general meeting shall be determined at 7 days prior to the meeting on June 9th 2011 at 11:59PM.

Registering to participate in the meeting will convene at 8:45AM on June 17th 2011.

To register, we kindly ask shareholders to present an ID document and the representative of the shareholder additionally to present also a signed Power of Attorney or documents validating representation.

Kind regards,
Management Board of Arco Vara AS