GROUP CHIEF EXECUTIVE'S REVIEW
General commentary
In the first quarter the group's operations in Bulgaria stabilised because we succeeded in changing the conditions of the loan agreements with Piraeus bank that financed the Manastirski and Madrid projects. In addition, we restarted completion of the Bisumuiza apartments in Latvia.
At the same time, the situation in Estonia became more strained due to circumstances surrounding the group's Ahtri 3 and Tivoli projects that are 50/50 joint ventures with external partners. Danske bank, which had financed the Ahtri 3 project, initiated enforcement proceedings against the group's joint venture Arco HCE and called in the surety guarantee provided by its shareholders, Arco Investeeringute AS and OÜ Ahtrimaa. There are currently three litigations in progress and enforcement proceedings have been suspended. Parallel to legal action, the parties are seeking constructive solutions. It is quite probable that in the near future a solution will be found, which will satisfy all parties.
In the Tivoli project, the venture partner, International Invest Project OÜ, and Kylemore International Invest Corp, which had financed the project, terminated the loan agreement of the group's joint venture Tivoli Arendus OÜ. Moreover, due to contractor's breach, Tivoli Arendus OÜ was forced to terminate the construction contract. Realisation of the Tivoli project in the manner and timeframe foreseen in the business plan, which was difficult already at the end of 2012, became impossible. The group and the partner have been seeking solutions for restructuring or ending the project in the least damaging manner, considering the surety guarantee provided by Arco Vara AS, the rankings of the mortgages created on the Tivoli properties and the balances and interest rates of the loans provided to Tivoli Arendus OÜ. By the date of release of this report, the Tivoli property has been put up for auction. It is also probable that in the second or third quarter a solution can be found that will satisfy all involved.
Commentary on sales volumes
The decrease in first quarter revenue compared with the same period in 2012 was expected because the group is discontinuing its environmental engineering operations. In 2011-2012, the Construction division contributed around 40% of the group's turnover. Hence, shrinkage in its operations has a strong impact on the group's sales. I would like to emphasize that all construction-related commitments have been duly met although during last month this has required significant efforts from other group companies as well as Arco Ehitus OÜ itself.
The Development division increased its first quarter sales by 71% and the Service division maintained stable performance. However, in absolute terms the revenue of the Development division is relatively small and our target is to increase it.
Commentary on profit
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 minimal net profit. However, to uphold the trend and increase profits, we will have to grow our sales volumes. Although growth is supported by the Service division, the main opportunities for growth lie in continuing and expanding development operations. It would be difficult to finance expansion of development operations with the group's current capital. Thus, in 2013 solutions will have to be found for raising additional capital.
Commentary on the loan burden
In the first quarter the group reduced its loan burden significantly. At 31 December 2012 interest-bearing loans and borrowings totalled 18.8 million euros and at 31 March 2013 16.6 million euros, a decrease of 2.2 million euros within three months. In addition, we lowered the average loan interest rate, which has had a positive impact on our performance, particularly in Bulgaria. The loan burden can be further reduced by selling finished goods. However, we will have to raise additional funds to continue and expand our development operations. Thus, we do not foresee a rapid decline in the group's loan burden.
Commentary on human resources
In the first quarter the number of people working for the group did not change considerably 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. The main focus is on streamlining our operations and creating intra-group synergies.
KEY PERFORMANCE INDICATORS
In the first quarter of 2013, the group generated revenue of 2.8 million euros compared with 3.6 million euros in the first quarter of 2012. Revenue was 22% smaller than in the comparative period mainly because construction volumes decreased significantly. At the same time, the revenue of the Service division remained stable and the Development division increased its revenue by 71% (year over year).
-- Operating profit for the first quarter amounted to 0.3 million. The same period in 2012 ended in an operating loss of 0.5 million euros. -- Net profit for the first quarter was 39 thousand euros compared with a net loss of 1.3 million euros incurred in the first quarter of 2012. -- Equity to assets ratio improved to 11.7% (31 December 2012: 10.8%). -- The loan burden (net loans) decreased to 14.2 million euros (31 March 2012: 22.3 million euros) and the average interest rate of loans dropped to 5.2% per year. -- At the end of the first quarter, the group's order backlog stood at 2.3 million euros compared with 12.9 million euros at the end of the first quarter of 2012. In 2013, the group will duly complete all environmental engineering projects, which are in progress. After that, the group is planning to discontinue provision of environmental engineering services. -- In the first quarter, the group sold 15 apartments and plots in its self-developed projects (2012 Q1: 4).
Q1 2013 Q1 2012 ----------------------------------------------------------- In millions of euros ----------------------------------------------------------- Revenue 2.8 3.6 ----------------------------------------------------------- Operating profit/loss 0.3 -0.5 ----------------------------------------------------------- Net profit/loss 0.0 -1.3 -----------------------------------------------------------
----------------------------------------------------------- EPS (in euros) 0.01 -0.18 -----------------------------------------------------------
----------------------------------------------------------- Total assets at period-end 29.0 54.9 ----------------------------------------------------------- Invested capital at period-end 19.4 44.3 ----------------------------------------------------------- Net loans at period-end 14.2 22.3 ----------------------------------------------------------- Equity at period-end 3.4 20.3 -----------------------------------------------------------
----------------------------------------------------------- Average loan term (in years) 2.1 2.3 ----------------------------------------------------------- Average interest rate of loans (per year) 5.2% 6.9% ----------------------------------------------------------- ROIC (rolling, four quarters) neg neg ----------------------------------------------------------- ROE (rolling, four quarters) neg neg -----------------------------------------------------------
----------------------------------------------------------- Number of staff at period-end 76 140 -----------------------------------------------------------
REVENUE AND PROFIT
Q1 2013 Q1 2012 ------------------------------------------------- In millions of euros ------------------------------------------------- Revenue ------------------------------------------------- Service 0.6 0.6 ------------------------------------------------- Development 1.2 0.7 ------------------------------------------------- Construction 1.1 2.4 ------------------------------------------------- Eliminations -0.1 -0.1 ------------------------------------------------- Total revenue 2.8 3.6 -------------------------------------------------
------------------------------------------------- Operating profit/loss ------------------------------------------------- Service 0.0 0.0 ------------------------------------------------- Development 0.4 -0.6 ------------------------------------------------- Construction 0.0 0.4 ------------------------------------------------- Eliminations 0.0 0.0 ------------------------------------------------- Unallocated income and expenses -0.1 -0.3 ------------------------------------------------- Total operating profit/loss 0.3 -0.5 -------------------------------------------------
------------------------------------------------- Interest income and expense -0.3 -0.4 ------------------------------------------------- Net profit/loss 0.0 -0.9 -------------------------------------------------
CASH FLOWS
Q1 2013 Q1 2012 ------------------------------------------------------------------ In millions of euros ------------------------------------------------------------------ Cash flows from operating activities 0.1 -1.2 ------------------------------------------------------------------ Cash flows from investing activities 1.4 1.0 ------------------------------------------------------------------ Cash flows from financing activities -1.8 -0.3 ------------------------------------------------------------------ Net cash flow -0.3 -0.4 ------------------------------------------------------------------
------------------------------------------------------------------ Cash and cash equivalents at beginning of period 1.8 2.2 ------------------------------------------------------------------ Cash and cash equivalents at end of period 1.5 1.8 ------------------------------------------------------------------
At 31 March 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 0.7 million euros; -- repayments of the loan taken for the Manastirski project of 1.7 million euros; -- repayments of the loan taken for the Bisumuiza 1 project of 0.5 million euros.
In the first quarter of 2013, the group made repayments of 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, sales-linked loan repayments were made by Marsili II SIA and repayments were made under the settlement schedule agreed for the bank loan taken by Arco Real Estate AS.
SERVICE DIVISION
In the first quarter of 2013, the Service division performed better than a year ago, generating an operating profit of 46 thousand euros compared with an operating loss of 5 thousand euros incurred in the first quarter of 2012. Revenue for the first quarter of 2013 was 572 thousand euros, which is practically equal to the figure posted a year ago. The number of brokerage transactions increased by 3% and the number of valuation reports issued grew by 6% year over year. At the same time, the number of brokers decreased by 5% and the number of appraisers increased by 18%.
Q1 2013 Q1 2012 Change, % -------------------------------------------------------------------------------- Number of completed brokerage transactions 323 313 3% -------------------------------------------------------------------------------- Number of projects on sale at end of period 177 162 9% -------------------------------------------------------------------------------- Number of valuation reports issued during the 1,470 1,382 6% period -------------------------------------------------------------------------------- Number of appraisers at end of period¹ 46 39 18% -------------------------------------------------------------------------------- Number of brokers at end if period¹ 71 75 -5% -------------------------------------------------------------------------------- Number of staff at end of period 37 45 -18% -------------------------------------------------------------------------------- ¹ Includes people working under service contracts
DEVELOPMENT DIVISION
In the first quarter of 2013, Arco Vara sold 14 apartments and 1 plot in its own development projects: 1 plot in the Baltezers project in Latvia, 3 apartments in the Kodukolde project in Estonia and 11 apartments in the Manastirski project 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. Out of those apartments, 46 were sold (final sales under real right contracts) by May 2013. At the end of the first quarter the project's inventory comprised 3 unsold apartments and by the date of release of this report the figure has decreased to 2.
In January 2012, we obtained a permit for the construction of a residential and commercial building of energy class B called Kastanimaja (Chestnut House) at Tehnika 53 in Tallinn. According to plan, construction work will be completed by August 2013. Pre-sale of apartments, which began in May 2012, has been successful: by the date of release of this report 12 of the 14 apartments have been sold based on contracts under the law of obligations (pre-sale contracts).
In Bulgaria, the construction of phase I of the Manastirski project has been completed. At 31 March 2013, 90% of the 74 apartments were either reserved or sold. We have started planning phase II of the Manastirski project. In the commercial and residential building Boulevard Residence Madrid in Sofia we continue to lease out commercial and office premises and to sell the remaining free apartments.
In the third quarter of 2012, we suspended development and construction in the Bisumuiza 1 apartment buildings project in Latvia. However, in February 2013 we extended the construction permit to continue development of the project. A building with 14 apartments and a sellable area of 1,149 square metres, which is currently in the stage of interior finishing works, will be completed in August 2013. By the date of release of this report, 8 of the apartments have been reserved. After that we are going to develop the project's last building, also with 14 apartments. The outer shell has already been erected. All apartments in the project's previously completed 7 buildings have been sold.
On 1 March, Arco Investeeringute AS sold its 100% interest in the subsidiary Pärnu Turg OÜ to Bellvory Turg OÜ.
On 1 February 2013, Tivoli Arendus OÜ terminated the design and build contract with Nordecon AS because the counterparty had seriously breached its contractual obligations. On 11 April 2013, Kylemore International Invest Corp, a creditor of Tivoli Arendus OÜ, presented a claim for payment and initiated execution proceedings for satisfying its claim through sale of the properties belonging to Tivoli Arendus OÜ. Arco Vara AS joined the execution proceedings.
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 the property located at Ahtri 3 in Tallinn. On 20 February 2013, the court suspended the enforcement proceedings against Arco HCE OÜ. Concurrently with the legal proceedings, Arco Vara AS is seeking alternative solutions for resolving the situation.
At the end of March 2013, the division employed 6 people (31 December 2012: 10).
For further information on our projects, please refer to: www.arcorealestate.com/development.
CONSTRUCTION DIVISION
The Construction division specialises in environmental engineering and infrastructure construction.
At the end of the first quarter of 2013, the largest contracts in progress were the construction of the Paide wastewater treatment plant (remaining balance 1.3 million euros) and the construction of the Kuusalu public water and wastewater network (remaining balance 0.9 million euros).
In the first quarter of 2013, the group secured new construction contracts of 34 thousand euros. At the end of the first quarter, the order backlog stood at 2.3 million euros compared with 12.9 million euros at the end of the first quarter of 2012.
At 31 March 2013, the division employed 19 people (31 December 2012: 26 people).
Consolidated statement of comprehensive income
Note Q1 2013 Q1 2012 -------------------------------------------------------------------------------- In thousands of euros -------------------------------------------------------------------------------- Revenue from rendering of services 1,940 3,368 -------------------------------------------------------------------------------- Revenue from sale of own real estate 882 260 -------------------------------------------------------------------------------- Total revenue 3 2,822 3,628 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Cost of sales 4 -2,081 -2,815 -------------------------------------------------------------------------------- Gross profit 741 813 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Other income 19 192 -------------------------------------------------------------------------------- Marketing and distribution expenses 5 -65 -82 -------------------------------------------------------------------------------- Administrative expenses 6 -490 -697 -------------------------------------------------------------------------------- Other expenses -18 -716 -------------------------------------------------------------------------------- Gain on sale of a subsidiary 11 98 0 -------------------------------------------------------------------------------- Operating profit/loss 285 -490 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Finance income 7 12 22 -------------------------------------------------------------------------------- Finance costs 7 -258 -394 -------------------------------------------------------------------------------- Profit/loss for the period attributable to 39 -862 ----------------- --------------------------------------------------------------- Owners of the parent 38 -847 ----------------- Non-controlling interests 1 -15 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Total comprehensive income/expense for the period 39 -862 attributable to ----------------- --------------------------------------------------------------- Owners of the parent 38 -847 ----------------- Non-controlling interests 1 -15 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Earnings per share (in euros) 8 0.01 -0.18 --------------------------------------------------------------------------------
Consolidated statement of financial position
Note 31 March 31 December 2013 2012 -------------------------------------------------------------------------------- In thousands of euros -------------------------------------------------------------------------------- Cash and cash equivalents 1,433 1,775 -------------------------------------------------------------------------------- Receivables and prepayments 9 3,391 3,094 -------------------------------------------------------------------------------- Inventories 10 11,542 11,701 -------------------------------------------------------------------------------- Total current assets 16,366 16,570 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Investments in equity-accounted investees 1 1 -------------------------------------------------------------------------------- Investment property 11 12,083 14,097 -------------------------------------------------------------------------------- Property, plant and equipment 526 540 -------------------------------------------------------------------------------- Intangible assets 20 21 -------------------------------------------------------------------------------- Total non-current assets 12,630 14,659 -------------------------------------------------------------------------------- TOTAL ASSETS 28,996 31,229 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Loans and borrowings 12 3,422 16,838 -------------------------------------------------------------------------------- Payables and deferred income 13 6,558 6,645 -------------------------------------------------------------------------------- Provisions 3,077 3,084 -------------------------------------------------------------------------------- Total current liabilities 13,057 26,567 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Loans and borrowings 12 12,533 1,231 -------------------------------------------------------------------------------- Payables and deferred income 13 0 64 -------------------------------------------------------------------------------- Total non-current liabilities 12,533 1,295 -------------------------------------------------------------------------------- TOTAL LIABILITIES 25,590 27,862 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Share capital 8 3,319 3,319 -------------------------------------------------------------------------------- Statutory capital reserve 2,011 2,011 -------------------------------------------------------------------------------- Retained earnings -1,920 -1,958 -------------------------------------------------------------------------------- Total equity attributable to owners of the 3,410 3,372 parent -------------------------------------------------------------------------------- Equity attributable to non-controlling -4 -5 interests -------------------------------------------------------------------------------- Total equity 3,406 3,367 -------------------------------------------------------------------------------- TOTAL LIABILITIES AND EQUITY 28,996 31,229 --------------------------------------------------------------------------------
Consolidated statement of cash flows
Note Q1 2013 Q1 2012 -------------------------------------------------------------------------------- In thousands of euros -------------------------------------------------------------------------------- Cash receipts from customers 3,398 6,018 -------------------------------------------------------------------------------- Cash paid to suppliers -2,412 -6,818 -------------------------------------------------------------------------------- Taxes paid -543 -529 -------------------------------------------------------------------------------- Taxes recovered 53 235 -------------------------------------------------------------------------------- Cash paid to employees -294 -417 -------------------------------------------------------------------------------- Other cash payments and receipts related to operating -57 -24 activities -------------------------------------------------------------------------------- NET CASH FROM/USED IN OPERATING ACTIVITIES 145 -1,535 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Purchase of property, plant and equipment and intangible 0 -12 assets -------------------------------------------------------------------------------- Proceeds from sale of property, plant and equipment 2 0 -------------------------------------------------------------------------------- Proceeds from sale of investment property 20 1,140 -------------------------------------------------------------------------------- Proceeds from sale of non-current assets held for sale 0 373 -------------------------------------------------------------------------------- Proceeds from sale of a subsidiary 1,610 0 -------------------------------------------------------------------------------- Loans provided 0 -63 -------------------------------------------------------------------------------- Placement of security deposits -263 0 -------------------------------------------------------------------------------- Interest received 4 3 -------------------------------------------------------------------------------- Other payments related to investing activities 0 -29 -------------------------------------------------------------------------------- NET CASH FROM INVESTING ACTIVITIES 1,373 1,412 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Proceeds from loans received 12 93 261 -------------------------------------------------------------------------------- Settlement of loans and finance lease liabilities 12 -1,666 -165 -------------------------------------------------------------------------------- Interest paid -248 -393 -------------------------------------------------------------------------------- Other payments related to financing activities -2 -2 -------------------------------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES -1,823 -299 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- NET CASH FLOW -305 -422 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Cash and cash equivalents at beginning of period 1,775 2,209 -------------------------------------------------------------------------------- Decrease in cash and cash equivalents -305 -422 -------------------------------------------------------------------------------- Decrease in cash and cash equivalents through sale of a -37 0 subsidiary -------------------------------------------------------------------------------- Cash and cash equivalents at end of period 1,433 1,787 --------------------------------------------------------------------------------
Egert Paulberg Financial Controller Arco Vara AS Phone: +372 614 4503 egert.paulberg@arcovara.ee
Attachment:
https://newsclient.omxgroup.com/cds/DisclosureAttachmentServlet?messageAttachmentId=433118
General commentary
In the first quarter the group's operations in Bulgaria stabilised because we succeeded in changing the conditions of the loan agreements with Piraeus bank that financed the Manastirski and Madrid projects. In addition, we restarted completion of the Bisumuiza apartments in Latvia.
At the same time, the situation in Estonia became more strained due to circumstances surrounding the group's Ahtri 3 and Tivoli projects that are 50/50 joint ventures with external partners. Danske bank, which had financed the Ahtri 3 project, initiated enforcement proceedings against the group's joint venture Arco HCE and called in the surety guarantee provided by its shareholders, Arco Investeeringute AS and OÜ Ahtrimaa. There are currently three litigations in progress and enforcement proceedings have been suspended. Parallel to legal action, the parties are seeking constructive solutions. It is quite probable that in the near future a solution will be found, which will satisfy all parties.
In the Tivoli project, the venture partner, International Invest Project OÜ, and Kylemore International Invest Corp, which had financed the project, terminated the loan agreement of the group's joint venture Tivoli Arendus OÜ. Moreover, due to contractor's breach, Tivoli Arendus OÜ was forced to terminate the construction contract. Realisation of the Tivoli project in the manner and timeframe foreseen in the business plan, which was difficult already at the end of 2012, became impossible. The group and the partner have been seeking solutions for restructuring or ending the project in the least damaging manner, considering the surety guarantee provided by Arco Vara AS, the rankings of the mortgages created on the Tivoli properties and the balances and interest rates of the loans provided to Tivoli Arendus OÜ. By the date of release of this report, the Tivoli property has been put up for auction. It is also probable that in the second or third quarter a solution can be found that will satisfy all involved.
Commentary on sales volumes
The decrease in first quarter revenue compared with the same period in 2012 was expected because the group is discontinuing its environmental engineering operations. In 2011-2012, the Construction division contributed around 40% of the group's turnover. Hence, shrinkage in its operations has a strong impact on the group's sales. I would like to emphasize that all construction-related commitments have been duly met although during last month this has required significant efforts from other group companies as well as Arco Ehitus OÜ itself.
The Development division increased its first quarter sales by 71% and the Service division maintained stable performance. However, in absolute terms the revenue of the Development division is relatively small and our target is to increase it.
Commentary on profit
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 minimal net profit. However, to uphold the trend and increase profits, we will have to grow our sales volumes. Although growth is supported by the Service division, the main opportunities for growth lie in continuing and expanding development operations. It would be difficult to finance expansion of development operations with the group's current capital. Thus, in 2013 solutions will have to be found for raising additional capital.
Commentary on the loan burden
In the first quarter the group reduced its loan burden significantly. At 31 December 2012 interest-bearing loans and borrowings totalled 18.8 million euros and at 31 March 2013 16.6 million euros, a decrease of 2.2 million euros within three months. In addition, we lowered the average loan interest rate, which has had a positive impact on our performance, particularly in Bulgaria. The loan burden can be further reduced by selling finished goods. However, we will have to raise additional funds to continue and expand our development operations. Thus, we do not foresee a rapid decline in the group's loan burden.
Commentary on human resources
In the first quarter the number of people working for the group did not change considerably 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. The main focus is on streamlining our operations and creating intra-group synergies.
KEY PERFORMANCE INDICATORS
In the first quarter of 2013, the group generated revenue of 2.8 million euros compared with 3.6 million euros in the first quarter of 2012. Revenue was 22% smaller than in the comparative period mainly because construction volumes decreased significantly. At the same time, the revenue of the Service division remained stable and the Development division increased its revenue by 71% (year over year).
-- Operating profit for the first quarter amounted to 0.3 million. The same period in 2012 ended in an operating loss of 0.5 million euros. -- Net profit for the first quarter was 39 thousand euros compared with a net loss of 1.3 million euros incurred in the first quarter of 2012. -- Equity to assets ratio improved to 11.7% (31 December 2012: 10.8%). -- The loan burden (net loans) decreased to 14.2 million euros (31 March 2012: 22.3 million euros) and the average interest rate of loans dropped to 5.2% per year. -- At the end of the first quarter, the group's order backlog stood at 2.3 million euros compared with 12.9 million euros at the end of the first quarter of 2012. In 2013, the group will duly complete all environmental engineering projects, which are in progress. After that, the group is planning to discontinue provision of environmental engineering services. -- In the first quarter, the group sold 15 apartments and plots in its self-developed projects (2012 Q1: 4).
Q1 2013 Q1 2012 ----------------------------------------------------------- In millions of euros ----------------------------------------------------------- Revenue 2.8 3.6 ----------------------------------------------------------- Operating profit/loss 0.3 -0.5 ----------------------------------------------------------- Net profit/loss 0.0 -1.3 -----------------------------------------------------------
----------------------------------------------------------- EPS (in euros) 0.01 -0.18 -----------------------------------------------------------
----------------------------------------------------------- Total assets at period-end 29.0 54.9 ----------------------------------------------------------- Invested capital at period-end 19.4 44.3 ----------------------------------------------------------- Net loans at period-end 14.2 22.3 ----------------------------------------------------------- Equity at period-end 3.4 20.3 -----------------------------------------------------------
----------------------------------------------------------- Average loan term (in years) 2.1 2.3 ----------------------------------------------------------- Average interest rate of loans (per year) 5.2% 6.9% ----------------------------------------------------------- ROIC (rolling, four quarters) neg neg ----------------------------------------------------------- ROE (rolling, four quarters) neg neg -----------------------------------------------------------
----------------------------------------------------------- Number of staff at period-end 76 140 -----------------------------------------------------------
REVENUE AND PROFIT
Q1 2013 Q1 2012 ------------------------------------------------- In millions of euros ------------------------------------------------- Revenue ------------------------------------------------- Service 0.6 0.6 ------------------------------------------------- Development 1.2 0.7 ------------------------------------------------- Construction 1.1 2.4 ------------------------------------------------- Eliminations -0.1 -0.1 ------------------------------------------------- Total revenue 2.8 3.6 -------------------------------------------------
------------------------------------------------- Operating profit/loss ------------------------------------------------- Service 0.0 0.0 ------------------------------------------------- Development 0.4 -0.6 ------------------------------------------------- Construction 0.0 0.4 ------------------------------------------------- Eliminations 0.0 0.0 ------------------------------------------------- Unallocated income and expenses -0.1 -0.3 ------------------------------------------------- Total operating profit/loss 0.3 -0.5 -------------------------------------------------
------------------------------------------------- Interest income and expense -0.3 -0.4 ------------------------------------------------- Net profit/loss 0.0 -0.9 -------------------------------------------------
CASH FLOWS
Q1 2013 Q1 2012 ------------------------------------------------------------------ In millions of euros ------------------------------------------------------------------ Cash flows from operating activities 0.1 -1.2 ------------------------------------------------------------------ Cash flows from investing activities 1.4 1.0 ------------------------------------------------------------------ Cash flows from financing activities -1.8 -0.3 ------------------------------------------------------------------ Net cash flow -0.3 -0.4 ------------------------------------------------------------------
------------------------------------------------------------------ Cash and cash equivalents at beginning of period 1.8 2.2 ------------------------------------------------------------------ Cash and cash equivalents at end of period 1.5 1.8 ------------------------------------------------------------------
At 31 March 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 0.7 million euros; -- repayments of the loan taken for the Manastirski project of 1.7 million euros; -- repayments of the loan taken for the Bisumuiza 1 project of 0.5 million euros.
In the first quarter of 2013, the group made repayments of 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, sales-linked loan repayments were made by Marsili II SIA and repayments were made under the settlement schedule agreed for the bank loan taken by Arco Real Estate AS.
SERVICE DIVISION
In the first quarter of 2013, the Service division performed better than a year ago, generating an operating profit of 46 thousand euros compared with an operating loss of 5 thousand euros incurred in the first quarter of 2012. Revenue for the first quarter of 2013 was 572 thousand euros, which is practically equal to the figure posted a year ago. The number of brokerage transactions increased by 3% and the number of valuation reports issued grew by 6% year over year. At the same time, the number of brokers decreased by 5% and the number of appraisers increased by 18%.
Q1 2013 Q1 2012 Change, % -------------------------------------------------------------------------------- Number of completed brokerage transactions 323 313 3% -------------------------------------------------------------------------------- Number of projects on sale at end of period 177 162 9% -------------------------------------------------------------------------------- Number of valuation reports issued during the 1,470 1,382 6% period -------------------------------------------------------------------------------- Number of appraisers at end of period¹ 46 39 18% -------------------------------------------------------------------------------- Number of brokers at end if period¹ 71 75 -5% -------------------------------------------------------------------------------- Number of staff at end of period 37 45 -18% -------------------------------------------------------------------------------- ¹ Includes people working under service contracts
DEVELOPMENT DIVISION
In the first quarter of 2013, Arco Vara sold 14 apartments and 1 plot in its own development projects: 1 plot in the Baltezers project in Latvia, 3 apartments in the Kodukolde project in Estonia and 11 apartments in the Manastirski project 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. Out of those apartments, 46 were sold (final sales under real right contracts) by May 2013. At the end of the first quarter the project's inventory comprised 3 unsold apartments and by the date of release of this report the figure has decreased to 2.
In January 2012, we obtained a permit for the construction of a residential and commercial building of energy class B called Kastanimaja (Chestnut House) at Tehnika 53 in Tallinn. According to plan, construction work will be completed by August 2013. Pre-sale of apartments, which began in May 2012, has been successful: by the date of release of this report 12 of the 14 apartments have been sold based on contracts under the law of obligations (pre-sale contracts).
In Bulgaria, the construction of phase I of the Manastirski project has been completed. At 31 March 2013, 90% of the 74 apartments were either reserved or sold. We have started planning phase II of the Manastirski project. In the commercial and residential building Boulevard Residence Madrid in Sofia we continue to lease out commercial and office premises and to sell the remaining free apartments.
In the third quarter of 2012, we suspended development and construction in the Bisumuiza 1 apartment buildings project in Latvia. However, in February 2013 we extended the construction permit to continue development of the project. A building with 14 apartments and a sellable area of 1,149 square metres, which is currently in the stage of interior finishing works, will be completed in August 2013. By the date of release of this report, 8 of the apartments have been reserved. After that we are going to develop the project's last building, also with 14 apartments. The outer shell has already been erected. All apartments in the project's previously completed 7 buildings have been sold.
On 1 March, Arco Investeeringute AS sold its 100% interest in the subsidiary Pärnu Turg OÜ to Bellvory Turg OÜ.
On 1 February 2013, Tivoli Arendus OÜ terminated the design and build contract with Nordecon AS because the counterparty had seriously breached its contractual obligations. On 11 April 2013, Kylemore International Invest Corp, a creditor of Tivoli Arendus OÜ, presented a claim for payment and initiated execution proceedings for satisfying its claim through sale of the properties belonging to Tivoli Arendus OÜ. Arco Vara AS joined the execution proceedings.
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 the property located at Ahtri 3 in Tallinn. On 20 February 2013, the court suspended the enforcement proceedings against Arco HCE OÜ. Concurrently with the legal proceedings, Arco Vara AS is seeking alternative solutions for resolving the situation.
At the end of March 2013, the division employed 6 people (31 December 2012: 10).
For further information on our projects, please refer to: www.arcorealestate.com/development.
CONSTRUCTION DIVISION
The Construction division specialises in environmental engineering and infrastructure construction.
At the end of the first quarter of 2013, the largest contracts in progress were the construction of the Paide wastewater treatment plant (remaining balance 1.3 million euros) and the construction of the Kuusalu public water and wastewater network (remaining balance 0.9 million euros).
In the first quarter of 2013, the group secured new construction contracts of 34 thousand euros. At the end of the first quarter, the order backlog stood at 2.3 million euros compared with 12.9 million euros at the end of the first quarter of 2012.
At 31 March 2013, the division employed 19 people (31 December 2012: 26 people).
Consolidated statement of comprehensive income
Note Q1 2013 Q1 2012 -------------------------------------------------------------------------------- In thousands of euros -------------------------------------------------------------------------------- Revenue from rendering of services 1,940 3,368 -------------------------------------------------------------------------------- Revenue from sale of own real estate 882 260 -------------------------------------------------------------------------------- Total revenue 3 2,822 3,628 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Cost of sales 4 -2,081 -2,815 -------------------------------------------------------------------------------- Gross profit 741 813 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Other income 19 192 -------------------------------------------------------------------------------- Marketing and distribution expenses 5 -65 -82 -------------------------------------------------------------------------------- Administrative expenses 6 -490 -697 -------------------------------------------------------------------------------- Other expenses -18 -716 -------------------------------------------------------------------------------- Gain on sale of a subsidiary 11 98 0 -------------------------------------------------------------------------------- Operating profit/loss 285 -490 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Finance income 7 12 22 -------------------------------------------------------------------------------- Finance costs 7 -258 -394 -------------------------------------------------------------------------------- Profit/loss for the period attributable to 39 -862 ----------------- --------------------------------------------------------------- Owners of the parent 38 -847 ----------------- Non-controlling interests 1 -15 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Total comprehensive income/expense for the period 39 -862 attributable to ----------------- --------------------------------------------------------------- Owners of the parent 38 -847 ----------------- Non-controlling interests 1 -15 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Earnings per share (in euros) 8 0.01 -0.18 --------------------------------------------------------------------------------
Consolidated statement of financial position
Note 31 March 31 December 2013 2012 -------------------------------------------------------------------------------- In thousands of euros -------------------------------------------------------------------------------- Cash and cash equivalents 1,433 1,775 -------------------------------------------------------------------------------- Receivables and prepayments 9 3,391 3,094 -------------------------------------------------------------------------------- Inventories 10 11,542 11,701 -------------------------------------------------------------------------------- Total current assets 16,366 16,570 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Investments in equity-accounted investees 1 1 -------------------------------------------------------------------------------- Investment property 11 12,083 14,097 -------------------------------------------------------------------------------- Property, plant and equipment 526 540 -------------------------------------------------------------------------------- Intangible assets 20 21 -------------------------------------------------------------------------------- Total non-current assets 12,630 14,659 -------------------------------------------------------------------------------- TOTAL ASSETS 28,996 31,229 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Loans and borrowings 12 3,422 16,838 -------------------------------------------------------------------------------- Payables and deferred income 13 6,558 6,645 -------------------------------------------------------------------------------- Provisions 3,077 3,084 -------------------------------------------------------------------------------- Total current liabilities 13,057 26,567 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Loans and borrowings 12 12,533 1,231 -------------------------------------------------------------------------------- Payables and deferred income 13 0 64 -------------------------------------------------------------------------------- Total non-current liabilities 12,533 1,295 -------------------------------------------------------------------------------- TOTAL LIABILITIES 25,590 27,862 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Share capital 8 3,319 3,319 -------------------------------------------------------------------------------- Statutory capital reserve 2,011 2,011 -------------------------------------------------------------------------------- Retained earnings -1,920 -1,958 -------------------------------------------------------------------------------- Total equity attributable to owners of the 3,410 3,372 parent -------------------------------------------------------------------------------- Equity attributable to non-controlling -4 -5 interests -------------------------------------------------------------------------------- Total equity 3,406 3,367 -------------------------------------------------------------------------------- TOTAL LIABILITIES AND EQUITY 28,996 31,229 --------------------------------------------------------------------------------
Consolidated statement of cash flows
Note Q1 2013 Q1 2012 -------------------------------------------------------------------------------- In thousands of euros -------------------------------------------------------------------------------- Cash receipts from customers 3,398 6,018 -------------------------------------------------------------------------------- Cash paid to suppliers -2,412 -6,818 -------------------------------------------------------------------------------- Taxes paid -543 -529 -------------------------------------------------------------------------------- Taxes recovered 53 235 -------------------------------------------------------------------------------- Cash paid to employees -294 -417 -------------------------------------------------------------------------------- Other cash payments and receipts related to operating -57 -24 activities -------------------------------------------------------------------------------- NET CASH FROM/USED IN OPERATING ACTIVITIES 145 -1,535 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Purchase of property, plant and equipment and intangible 0 -12 assets -------------------------------------------------------------------------------- Proceeds from sale of property, plant and equipment 2 0 -------------------------------------------------------------------------------- Proceeds from sale of investment property 20 1,140 -------------------------------------------------------------------------------- Proceeds from sale of non-current assets held for sale 0 373 -------------------------------------------------------------------------------- Proceeds from sale of a subsidiary 1,610 0 -------------------------------------------------------------------------------- Loans provided 0 -63 -------------------------------------------------------------------------------- Placement of security deposits -263 0 -------------------------------------------------------------------------------- Interest received 4 3 -------------------------------------------------------------------------------- Other payments related to investing activities 0 -29 -------------------------------------------------------------------------------- NET CASH FROM INVESTING ACTIVITIES 1,373 1,412 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Proceeds from loans received 12 93 261 -------------------------------------------------------------------------------- Settlement of loans and finance lease liabilities 12 -1,666 -165 -------------------------------------------------------------------------------- Interest paid -248 -393 -------------------------------------------------------------------------------- Other payments related to financing activities -2 -2 -------------------------------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES -1,823 -299 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- NET CASH FLOW -305 -422 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- Cash and cash equivalents at beginning of period 1,775 2,209 -------------------------------------------------------------------------------- Decrease in cash and cash equivalents -305 -422 -------------------------------------------------------------------------------- Decrease in cash and cash equivalents through sale of a -37 0 subsidiary -------------------------------------------------------------------------------- Cash and cash equivalents at end of period 1,433 1,787 --------------------------------------------------------------------------------
Egert Paulberg Financial Controller Arco Vara AS Phone: +372 614 4503 egert.paulberg@arcovara.ee
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