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2013


 The extraordinary general meeting of shareholders of Arco Vara AS was held on 5 August, 2013 at Hotel Euroopa, room Lääne-Euroopa, Paadi 5, Tallinn.

The extraordinary general meeting of shareholders of Arco Vara AS started at 11.03 a.m. and ended at 11.07 a.m. and it was competent to pass decisions regarding the item on the agenda.

The agenda of the extraordinary general meeting of shareholders of Arco Vara AS was published on 10 July, 2013 in the information system of the Tallinn Stock Exchange and on 11 July, 2013 in the newspaper Postimees. The agenda was also available on the website of Arco Vara AS http://www.arcorealestate.com/.

The following decision was passed at the extraordinary general meeting of shareholders of Arco Vara AS:

1. To elect Mr Allar Niinepuu to the supervisory board of Arco Vara AS.

The extraordinary general meeting of the shareholders of Arco Vara AS was held according to law and statute of Arco Vara AS. The minutes of the general meeting will be accessible on the website of Arco Vara AS http://www.arcorealestate.com/ not later than 9 August, 2013.


Egert Paulberg
Financial Controller
Arco Vara AS
Tel: +372 614 4503
This email address is being protected from spambots. You need JavaScript enabled to view it.


At the extraordinary general meeting of shareholders of Arco Vara AS on 5th of August, 2013 Allar Niinepuu was elected to the Supervisory Board.

Allar Niinepuu is:

  • sole shareholder and manager of OÜ Kavass since 1994
  • shareholder and the chairman of the Supervisory Board of AS Iutecredit since 2008
  • shareholder and member of the Management Board of OÜ Alarmo Kapital since 2009
  • member of the Management Board of GEST Invest Grupp OÜ since 2008

As the shareholder of OÜ Alarmo Kapital, Allar Niinepuu has 309542 voting shares of Arco Vara AS.

Additional information about the new member of the Supervisory Board can be found in the CV of Allar Niinepuu on the website of Arco Vara AS http://www.arcorealestate.com/?content=592.

Egert Paulberg
Financial Controller
Arco Vara AS
Tel: +372 614 4503
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com/


Arco Vara AS Interim report for II quarter and 6 months 2013

Group Chief Executive’s review

General comments

In the second quarter we continued to change the group’s course in line with the goals and targets set. Our focus is increasingly shifting from cleaning up the statement of financial position and resolving our key issues, which stem from the past, to the future, i.e. re-launching major development operations and enhancing our organisation and work processes. This entails the following:

A. Cleaning up the statement of financial position

  • We realised the Tivoli project at a public auction. We exited the project without monetary loss even though the revenue raised from the Tivoli properties was smaller than the venture partner’s loan receivable from Tivoli Arendus OÜ for which Arco Vara had provided a surety guarantee.
  • We continued to seek solutions for restructuring the Ahtri 3 project. Regrettably, in the second quarter a satisfactory solution could not be found. The parties will sustain their efforts. Until an in-court or out-of-court settlement is reached, we have to be prudent and maintain a provision of 1.9 million euros recognised for the surety guarantee Arco Investeeringute AS has provided to Danske bank to secure the loan liabilities of the group’s associate Arco HCE OÜ.
  • We continued to perform the construction contracts signed by Arco Ehitus OÜ and to date we have completed the Paide project. Only the Kuusalu project still needs to be completed. When construction operations have been discontinued, Arco Ehitus OÜ will probably remain a group entity because it is involved in a number of pending litigations. None of the lawsuits connected with Arco Ehitus OÜ is likely to have a significant effect on the group’s operations or profitability.

B. Restructuring

  • All companies that sell products or services to the end-consumer will belong directly to the parent and will receive the financial resources they need for developing their business straight from the parent. There will be no intra-group holding companies, mixed or unclear managerial accountability or chains of command consisting of more than two links.
  • We are going to implement integrated production whereby Arco Vara will incorporate into the end-product that is delivered to the consumer all the know-how of its analysts, brokers, appraisers, product designers, project managers and marketing staff. In order to achieve maximum synergies from the new approach, many internal processes will have to be reviewed and changed. Implementation of an integrated production process is time consuming and requires additional investments in data processing.

C. Re-launch of development operations

  • We completed and put on sale 14 apartments in the Bišumuiža-1 development project in Riga. Our inventory includes another 14 apartments that are awaiting completion.
  • We started preparations for completing sections A and B in the Manastirski project in Sofia (approx. 130 apartments).
  • We acquired the entire Paldiski mnt 70c property in Tallinn and initiated a detailed plan process for the construction of at least 300 apartments.
  • We started preparations for initiating the detailed plan processes for the Liimi 1b and Lehiku street properties in Tallinn.
  • We made additional investments in the Madrid project in Sofia so as to increase its rental and sales revenues. We are planning to continue relevant investments.

Comments on sales volumes

I am pleased to report that in contrast to the first half of 2012 when over half of the group’s revenue was generated by construction operations, in the first half of 2013 over half of our revenue resulted from development operations. Arco Vara’s business focus has again shifted to real estate development and real estate services.

Shrinkage in sales volumes was a negative inevitability. We expect the downward trend to continue for at least four quarters because we are selling off finished goods (self-developed real estate) more quickly than our stocks can be replenished. This is the effect of previous years’ production gap in our development operations.

As anticipated, we succeeded in increasing our development revenues compared with the first half of 2012. Having refinanced our Bulgarian loans in the first quarter, we could complete sales of the Manastirski and Madrid apartments, which had previously been suspended. As a result, Sofia was the main source of our second-quarter development revenues. However, according to current projections in third and fourth quarter development revenues will decline. Current development operations cannot compensate for the decrease in existing stocks and, thus, also in sales volumes that is going to emerge in the next four quarters.

Construction revenues were also in line with expectations as both Arco Ehitus OÜ and the customers fulfilled their obligations. At the end of the second quarter, our order backlog in the construction business amounted to approx. 1 million euros, which will translate into revenue in the third or fourth quarter.

An encouraging development was slight sales growth at the Service division, particularly in light of fierce competition in the real estate service sectors in Estonia, Latvia and Bulgaria and the sentiment of the consumers and the financial sector, who are still displaying uncertainty rather than confidence. In Sofia, total second-quarter transaction activity in the real estate market grew by 41% (compared with the first quarter) and Arco Imoti EOOD’s brokerage and valuation revenue increased by 20%. It should be noted that the market is mostly based on local customers. In Riga, revenue growth resulted from valuation services and brokerage fees earned on transactions conducted by non-residents. Local demand for real estate is still weak and local demand for brokerage services is even weaker. Sales volumes in Tallinn and the rest of Estonia remained stable. All units of the Service division are profitable.


Comments on profit

The first half-year proved that the people who make up the organisation of Arco Vara are able to create added value in the real estate sector and to conduct business so that it generates cash.

The group’s target for 2013 was to start earning operating profit. We ended the first quarter with an operating profit as well as a small net profit. In the second quarter we achieved a net profit of half a million euros even without the reversal of the provision set up for the surety guarantee provided to the Tivoli project (1 million euros). Together with the reversal of the provision, our actual net profit was 1.5 million euros.

Despite this, I would still like to underline that in order to change our course for the long term and maintain profitability, we need to increase sales. Growth will be supported by units of the Service division but the main opportunities for growth have to be sought in continuing and expanding development operations. Unfortunately, in recent years there has been a major gap in Arco Vara’s production process, which is now separating our current inventory of completed apartments and plots from the inventory of products that will be completed in the future. Our future inventory is currently in the stage of work in progress and its completion requires capital.

Accordingly, our biggest challenges include raising interim financing for development operations in 2013-2014 and speeding up ongoing development projects so as to fill the gap between our current and future inventory more quickly.

Comments on loan burden

As stated in our previous reports, our loan burden is not going to continue decreasing at the same pace as in the first quarter. In the second quarter the total loan burden decreased somewhat but net loans (loan balance less cash and cash equivalents) grew by 1 million euros to 15.2 million euros. Net loans increased because we took a loan to purchase a property at Paldiski mnt 70c in Tallinn in order to re-launch large-scale development operations. By the date of release of this report, we have initiated a detailed plan process for the property.

Over 80% of our loans are related to the Bulgarian development projects.

We expect an increase in the group’s loan burden in the second half of the year because we are planning to expand our development operations concurrently with the sale of existing stocks but free cash flow from the sale of goods will not be sufficient for this.

Comments on human resources

In the second quarter the number of people working for the group did not change considerably compared with the end of 2012 and we are not planning to make any major changes to personnel or personnel expenses except for those resulting from shrinkage of operations at the Construction division and reinforcement of our marketing, financial management and information processing teams.

KEY PERFORMANCE INDICATORS

  • Arco Vara group ended the first six months of 2013 with revenue of 7.7 million euros compared with 11.1 million euros for the first half of 2012. Revenue proved 31% smaller than in the comparative period, principally because construction volumes decreased significantly. The Service and Development divisions posted revenue growth, 7% and 5% up on the first six months of the previous year respectively.
  • The group’s operating profit for the first half-year amounted to 2.0 million euros including 1 million euros from the reversal of a provision. The same period in 2012 ended in an operating loss of 0.6 million euros.
  • Net profit for the first half-year was 1.5 million euros compared with a net loss of 1.3 million euros incurred in the first half of 2012.
  • Equity to assets ratio improved notably, being 17.1% at the reporting date (31 December 2012: 10.8%).
  • The loan burden (net loans) decreased to 15.2 million euros (30 June 2012: 20.9 million euros) and the average interest rate of loans dropped to 5.1% per year.
  • At the end of the second quarter, the group’s order backlog in the construction business stood at 1.0 million euros compared with 10.3 million euros at the end of the second quarter of 2012. In 2013, the group will duly complete all environmental engineering projects which are in progress. After that, provision of environmental engineering services will be discontinued.
  • In the first half-year, the group sold 52 apartments and plots in its self-developed projects (2012 HY1: 35).
6 months 2013 6 months 2012 Q2 2013 Q2 2012
In millions of euros
Revenue 7.7 11.1 4.8 7.4
Operating profit/loss 2.0 -0.6 1.7 -0.1
Net profit/loss 1.5 -1.3 1.5 -0.4
EPS (in euros) 0.32 -0.18 0.32 -0.09
Total assets at period-end 28.7 53.5
Invested capital at period-end 20.8 43.1
Net loans at period-end 15.2 20.9
Equity at period-end 4.9 19.9
Average loan term (in years) 1.7 2.1
Average interest rate of loans (per year) 5.1% 6.9%
ROIC (rolling, four quarters) neg neg
ROE (rolling, four quarters) neg neg
Number of staff at period-end 76 126

REVENUE AND PROFIT

6 months 2013 6 months 2012 Q2 2013 Q2 2012
In millions of euros
Revenue
Service 1.3 1.3 0.7 0.7
Development 4.0 3.8 2.8 3.1
Construction 2.4 6.1 1.4 3.7
Eliminations -0.1 -0.1 -0.1 -0.1
Total revenue 7.6 11.1 4.8 7.4
Operating profit/loss
Service 0.1 0.1 0.0 0.1
Development 2.2 -0.4 1.9 0.2
Construction 0.1 0.2 0.0 -0.2
Unallocated income and expenses -0.1 -0.7 0.0 -0.3
Eliminations -0.3 0.2 -0.2 0.1
Total operating profit/loss 2.0 -0.6 1.7 -0.1
Finance income and costs (net) -0.5 -0.7 -0.2 -0.3
Net profit/loss 1.5 -1.3 1.5 -0.4

CASH FLOWS

6 months 2013 6 months 2012 Q2 2013 Q2 2012
In millions of euros
Cash flows from operating activities -0.4 -0.3 -0.5 0.9
Cash flows from investing activities 1.4 0.9 0.0 -0.2
Cash flows from financing activities -2.0 -0.5 -0.1 -0.2
Net cash flow -1.0 0.1 -0.6 0.5
Cash and cash equivalents at beginning of period 1.8 2.2 1.4 1.8
Cash and cash equivalents at end of period 0.8 2.4 0.8 2.3

At 30 June 2013, the largest current liabilities to be settled in the next 12 months comprised:

  • repayments to be made under the settlement schedule of the loan of the Boulevard Residence Madrid project in Sofia of 0.9 million euros;
  • repayments of the loan taken for the Manastirski project of 0.7 million euros;
  • repayments of the loan taken for the Bišumuiža-1 project of 0.5 million euros.

In the first half of 2013, we made repayments under the loans taken for the Madrid and Manastirski projects in Sofia and repaid in full the loans taken by Pärnu Turg OÜ and Kolde AS.

In addition, Marsili II SIA made sales-linked loan repayments and we followed the settlement schedule agreed for the bank loan taken by Arco Real Estate AS.

SERVICE DIVISION

In 2013, the Service division’s semi-annual results were somewhat better than in the previous year. Operating profit for the first half of 2013 was 92 thousand euros compared with 59 thousand euros for the first half of 2012. Revenue amounted to 1,305 thousand euros compared with 1,291 thousand euros generated in the first half of 2012. The number of brokerage transactions decreased by 4% while the number of valuation reports issued grew by 6% year over year. The number of brokers increased by 12% and the number of appraisers remained stable.

6 months 2013 6 months 2012 Change, %
Number of completed brokerage transactions 692 718 -4%
Number of projects on sale at end of period 170 233 -27%
Number of valuation reports issued during the period 3,342 3,160 6%
Number of appraisers at end of period¹ 46 46 0%
Number of brokers at end if period¹ 77 69 12%
Number of staff at end of period 39 40 -3%
¹ Includes people working under service contracts

DEVELOPMENT DIVISION

In the second quarter of 2013, Arco Vara sold 35 apartments and 2 plots in its own development projects: 2 Baltezers plots and 1 Bišumuiža-1 apartment in Latvia, 4 Kodukolde apartments and 1 Kastanimaja apartment in Estonia and 23 Manastirski and 6 Residence Madrid apartments in Bulgaria.

Phase VI of the Kodukolde development project at Helme 16 in Tallinn, which consists of two apartment buildings with a total of 48 apartments, was completed in June 2012. The last apartment in the project was sold in June 2013.

The permit for the construction of a mixed-use residential/commercial building of energy class B called Kastanimaja (Chestnut House) at Tehnika 53 in Tallinn was obtained in January 2012. By the date of release of this report, construction work has been completed and the building has been issued a permit of use. Sales have been successful: to date 13 out of the 14 apartments have been sold (final sales under contracts on the transfer of real property rights).

In Bulgaria, we continue to sell phase I of the Manastirski project. To date, 95% of the 74 apartments have either been reserved or sold and we have started planning phase II of the Manastirski project. In the commercial/residential building Boulevard Residence Madrid in Sofia we continue to lease out commercial and office premises and to sell and rent out the remaining free apartments.

Although the third quarter of 2012 we suspended development and construction operations in the Bišumuiža-1 apartment buildings project in Latvia, in February 2013 we extended the construction permit to continue development of the project. By the date of release of this report, a building with 14 apartments and a sellable area of 1,149 square metres has been completed. 3 of the apartments have been reserved and 5 are covered with pre-sale contracts. The last building of the project, also with 14 apartments, is awaiting its turn. The outer shell has already been erected. All apartments in the project’s previously completed 7 buildings have been sold.

On 11 April 2013 Kylemore International Invest Corp, a creditor of Tivoli Arendus OÜ, demanded settlement of debts and initiated enforcement proceedings for satisfying its claims through sale of real estate belonging to Tivoli Arendus OÜ. At the second auction held on 10 June 2013, the properties belonging to Tivoli Arendus OÜ were acquired for their opening price of 7.8 million euros by International Invest Project OÜ. Tivoli Arendus OÜ used the funds raised for settling its liabilities to Kylemore International Invest Corp. The sale of the properties and the release from the surety obligations also extinguished Arco Investeeringute AS’s receivable from Tivoli Arendus OÜ (the receivable had already been written down to nil value). Tivoli Arendus OÜ is Arco Investeeringute AS’s 50% joint venture with International Invest Project OÜ.

In order to recover a loan, Danske Bank A/S initiated enforcement proceedings against Arco HCE OÜ, which is a 50% joint venture of Arco Investeeringute AS. The object of the proceedings was to exercise a mortgage created for the benefit of Danske Bank A/S on a property located at Ahtri 3 in Tallinn. On 20 February 2013, the court suspended the enforcement proceedings against Arco HCE OÜ. Since Arco Investeeringute AS had provided a surety guarantee to Arco HCE OÜ’s bank loan, the creditor Danske Bank A/S sent Arco Investeeringute AS a claim for paying out the full amount of the guarantee, i.e. 1.9 million euros. Arco Investeeringute AS contested the claim. In response, Danske Bank A/S filed a petition for declaring Arco Investeeringute AS bankrupt. Arco Investeeringute AS has contested the petition. Concurrently with the legal proceedings, Arco Vara AS is seeking alternative solutions for resolving the situation.

At the end of June 2013, the division employed 7 people (30 June 2012: 20).

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

CONSTRUCTION DIVISION

The Construction division specialises in environmental engineering and the construction of infrastructure assets.

At the end of the second quarter of 2013, the largest projects in progress were the construction of the Paide wastewater treatment plant (remaining balance 0.7 million euros) and the construction of the Kuusalu public water and wastewater network (remaining balance 0.3 million euros).

In the second quarter of 2013, the group secured contracts of 93 thousand euros for additional work to be performed under its ongoing construction projects. At the end of the second quarter, the Construction division’s order backlog stood at 1.0 million euros compared with 10.3 million euros at the end of the second quarter of 2012.

At 30 June 2013, the division employed 17 people (30 June 2012: 52 people).

Consolidated statement of comprehensive income

Note 6 months 2013 6 months 2012 Q2 2013 Q2 2012
In thousands of euros
Revenue from rendering of services 4,241 8,116 2,301 4,748
Revenue from sale of own real estate 3,421 2,961 2,539 2,701
Total revenue 3 7,662 11,077 4,840 7,449
Cost of sales 4 -5,799 -9,612 -3,718 -6,797
Gross profit 1,863 1,465 1,122 652
Other income 213 209 194 17
Marketing and distribution expenses 5 -126 -143 -61 -61
Administrative expenses 6 -966 -1,384 -476 -687
Other expenses -54 -736 -36 -20
Gain on transactions involving subsidiaries and joint ventures 14 1,098 0 1,000 0
Operating profit/loss 2,028 -589 1,743 -99
Finance income 7 19 45 7 23
Finance costs 7 -500 -744 -242 -350
Profit/loss for the period 1,547 -1,288 1,508 -426
Profit/loss for the period attributable to 1,547 -1,288 1,508 -426
Owners of the parent 1,541 -1,294 1,503 -430
Non-controlling interests 6 6 5 4
Total comprehensive income/expense for the period attributable to 1,547 -1,288 1,508 -426
Owners of the parent 1,541 -1,294 1,503 -430
Non-controlling interests 6 6 5 4
Earnings per share (in euros) 8 0.32 -0.27 0.32 -0.09

Consolidated statement of financial position

Note 30 June 2013 31 December 2012
In thousands of euros
Cash and cash equivalents 739 1,775
Receivables and prepayments 9 2,874 3,094
Inventories 10 13,056 11,701
Total current assets 16,669 16,570
Investments in equity-accounted investees 1 1
Investment property 11 11,482 14,097
Property, plant and equipment 516 540
Intangible assets 19 21
Total non-current assets 12,018 14,659
TOTAL ASSETS 28,687 31,229
Loans and borrowings 12 3,173 16,838
Payables and deferred income 13 5,780 6,645
Provisions 14 2,084 3,084
Total current liabilities 11,037 26,567
Loans and borrowings 12 12,736 1,231
Payables and deferred income 13 0 64
Total non-current liabilities 12,736 1,295
TOTAL LIABILITIES 23,773 27,862
Share capital 8 3,319 3,319
Statutory capital reserve 2,011 2,011
Retained earnings -417 -1,958
Total equity attributable to owners of the parent 4,913 3,372
Equity attributable to non-controlling interests 1 -5
Total equity 4,914 3,367
TOTAL LIABILITIES AND EQUITY 28,687 31,229

Consolidated statement of cash flows

Note 6 months 2013 6 months 2012 Q2 2013 Q2 2012
In thousands of euros
Cash receipts from customers 7,900 14,020 4,502 7,629
Cash paid to suppliers -6,341 -12,700 -3,929 -5,882
Taxes paid -1,332 -1,022 -789 -493
Taxes recovered 135 341 82 106
Cash paid to employees -634 -850 -340 -433
Other cash payments and receipts related to operating activities -115 -77 -58 -53
NET CASH USED IN/FROM OPERATING ACTIVITIES -387 -288 -532 874
Purchase of property, plant and equipment and intangible assets -9 -19 -9 -7
Proceeds from sale of property, plant and equipment 6 6 4 6
Proceeds from sale of investment property 20 1 149 0 9
Proceeds from sale of a subsidiary 1,610 0 0 0
Loans provided -8 -236 -8 -173
Repayment of loans provided 0 1 1
Placement of security deposits -263 0 0 0
Interest received 4 6 0 3
Other payments related to investing activities 0 -29 0 0
NET CASH FROM/USED IN INVESTING ACTIVITIES 1,360 878 -13 -161
Proceeds from loans received 12 1,420 745 1,327 484
Settlement of loans and finance lease liabilities 12 -2,926 -484 -1,260 -319
Interest paid -457 -738 -209 -345
Other payments related to financing activities -9 -12 -7 -10
NET CASH USED IN FINANCING ACTIVITIES -1,972 -489 -149 -190
NET CASH FLOW -999 101 -694 523
Cash and cash equivalents at beginning of period 1,775 2,209 1,433 1,787
Decrease/increase in cash and cash equivalents -999 101 -694 523
Decrease in cash and cash equivalents through sale of a subsidiary -37 0 0 0
Cash and cash equivalents at end of period 739 2,310 739 2,310

Egert Paulberg
Financial Controller
Arco Vara AS
Phone: +372 614 4503
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com/


AVG interim report 2013 Q2.pdf


Arco Vara AS issued bonds as targeted issue in the amount of 750000 euros. The issue date of the bonds was 21 August, 2013 and the maturity date is 21 August, 2016. 750 bonds were issued in the nominal value of 1000 euros with interest rate 14% per year. The issued bonds will be guaranteed with mortgage on property in Sofia that belongs to the subsidiary of Arco Vara AS.

Proceeds of the bond issue will be used for refinancing of the outstanding loan obligations and for proceeding with developments in Bulgaria that are already in progress.

Evelin Kanter
Lawyer
Arco Vara AS
Tel: +372 614 4594
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com/


Tivoli Arendus OÜ which belongs to the group of Arco Vara submitted on 10 September, 2013 a claim against Nordecon AS. The value of the main claim is 1898791, 24 EUR. The basis of the claim derives from the Design and Construction Contract which was concluded on 21. May, 2012 between Tivoli Arendus OÜ and Nordecon AS.

On 13 September, 2013 Nordecon AS submitted a claim against Tivoli Arendus OÜ to the court. The subject matter of the claim is inter alia the financial claim in the amount of 174552 EUR and stopping the realisation of the guarantee letter issued to Tivoli Arendus OÜ by Nordecon AS.

Marko Err
CFO
Arco Vara AS
Tel: +372 614 4503
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com