AI assistant
Arco Vara — Interim / Quarterly Report 2020
Feb 11, 2021
2211_10-q_2021-02-11_8d89f470-d41d-4083-b4ff-75621bca5b01.pdf
Interim / Quarterly Report
Open in viewerOpens in your device viewer
Arco Vara AS INTERIM REPORT FOR THE IV QUARTER AND TWELVE MONTHS OF 2020 (UNAUDITED)
INTERIM REPORT FOR THE FOURTH QUARTER AND TWELVE MONTHS OF 2020 (UNAUDITED)
| Company name: | Arco Vara AS |
|---|---|
| Registry number: | 10261718 |
| Address: Maakri 19/1, 10145 Tallinn, Republic of Estonia | |
| Telephone: | +372 6 144 630 |
| E-mail: | [email protected] |
| Corporate website: | www.arcovara.com |
| Core activities: | Real estate development (EMTAK 41201) Renting and operating of real estate (EMTAK 6820) Real estate management (EMTAK 6832) |
| Financial year: | 1 January 2020 – 31 December 2020 |
| Reporting period: | 1 January 2020 – 31 December 2020 |
| Supervisory board: | Tarmo Sild, Steven Yaroslav Gorelik, Kert Keskpaik, Hillar-Peeter Luitsalu, Allar Niinepuu, Rait Riim |
| Chief executive: | Miko-Ove Niinemäe |
| Auditor: | KPMG Baltics OÜ |
| DIRECTORS' REPORT FOR Q4 AND 12 MONTHS 2020 3 | |
|---|---|
| GROUP CEO'S REVIEW 3 | |
| GENERAL INFORMATION 4 | |
| Activities of the group 4 | |
| Group structure 4 | |
| KEY PERFORMANCE INDICATORS 6 | |
| Operating report 7 | |
| PEOPLE 8 | |
| Remuneration 8 | |
| Management board and supervisory board 8 | |
| DESCRIPTION OF MAIN RISKS 8 | |
| Strategic risk 8 | |
| Credit risk 9 | |
| Liquidity and interest rate risks 9 | |
| Currency risk 9 | |
| SHARES AND SHAREHOLDERS 9 | |
| Share price 9 | |
| Shareholder structure 11 | |
| CEO'S CONFIRMATION ON DIRECTORS' REPORT 12 | |
| CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 13 | |
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 13 | |
| CONSOLIDATED STATEMENT OF FINANCIAL POSITION 14 | |
| CONSOLIDATED STATEMENT OF CASH FLOWS 15 | |
| CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 16 | |
| NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS 17 | |
| 1. Significant accounting policies 17 | |
| 2. Segment information 17 | |
| 3. Revenue 18 | |
| 4. Cost of sales 18 | |
| 5. Marketing and distribution expenses 18 | |
| 6. Administrative expenses 19 | |
| 7. Financial income and expenses 19 | |
| 8. Earnings per share 19 | |
| 9. Receivables and prepayments 20 | |
| 10. Inventories 20 | |
| 11. Investment property 20 | |
| 12. Interest bearing liabilities 21 | |
| 13. Payables and deferred income 21 | |
| 14. Related party disclosures 22 | |
| STATEMENT BY THE CEO / MEMBER OF THE MANAGEMENT BOARD 23 |
DIRECTORS' REPORT FOR Q4 AND 12 MONTHS 2020
GROUP CEO'S REVIEW
Arco Vara's fourth quarter of 2020 was largely spent on the realisation of pre-sales. There were no significant setbacks in the process of handing over nor final sales of the apartments, for which we had been prepared due to the ongoing uncertainty in the field of healthcare.
The fourth quarter of 2020 was also spent in a positive light in terms of project financing. The bonds issued by Arco Vara in December were oversubscribed and the terms of development loans have improved. The company's credibility with financial partners has increased.
We consider the issuance of authorisation of the use of Iztok Parkside, the timely completion of Tartu Kodukalda and the start of the construction of the next stage of the Kodulahe quarter to be important advances in the development area in the fourth quarter.
In the Kodulahe quarter, we started the construction of stage IV and V, where a total of 72 apartments have been designed. By the time of submitting the report, during the two-month sales period, 33 apartments have binding agreements. The fast pace of sales provides confidence that the offered real estate meets the expectations of our customers and increases our desire for further development of the Kodulahe region.
In the Kodulahe quarter, we also started to deliver the III stage homes to customers. Thanks to favourable construction conditions and the operative work of the project team, we handed over the keys of half of the homes two months earlier than expected, in December 2020. The delivery of the remaining apartments was carried out at the beginning of 2021.
The development of Tartu Kodukalda was completed according to plan, where 20 homes have been handed over by today, of which approximately 95% of the sales revenue remained in 2020.
Bulgaria's Iztok Parkside apartment buildings received the long-awaited usage permit, which enabled the sale of a total of 38 apartments by the end of 2020. The remaining sales revenue of the project is expected in the first quarter of 2021. At the time of submitting the report, there are only 3 apartments in the buildings without a pre-sale agreement.
The Madrid BLVD building has a tenant occupancy rate of around 95%, which fluctuates due to the persistent COVID-19 restrictions in Bulgaria. Due to local legislation, we have to take into account the temporary reduction of some rental payments, but due to the different functions of the building, the Arco Vara retail and office building is allowed to be open despite restrictions on other shopping centres.
We consider the fourth quarter of Arco Vara successful. We have been able to significantly increase the return on equity, which confirms the increase in the company's efficiency. Arco Vara's ongoing developments are also moving according to plan, which gives the company the confidence to start new developments in both Estonia and Bulgaria.
GENERAL INFORMATION
Activities of the group
Arco Vara AS and other entities of Arco Vara group (hereafter together 'the group') are engaged in real estate development and services related to real estate. The group considers Estonia and Bulgaria as its home markets.
The group develops complete living environments and commercial real estate. Fully developed housing solutions are sold to the end-consumer. In some cases, the group also develops commercial properties until they start to generate cash flow for two possible purposes: for the support of the group's cash flows or for resale. The group is currently holding completed commercial properties that generate rental income.
From the beginning of 2019, the group itself no longer offers real estate brokerage and appraisal services, but in both Estonia, Latvia and Bulgaria, these services continue to be provided under Arco Vara trademarks through license agreements, from which the group earns license fees.
Group structure
As of 31 December 2020, the group consisted of 17 companies, which is two less than 31 December 2019.
Significant subsidiaries as of 31 December 2020
| Company name | Location | Share capital (nominal value) |
Equity balance on 31 December 2020 |
The group's interest |
|---|---|---|---|---|
| In thousands of euros | ||||
| Arco Invest EOOD | Bulgaria | 31,762 | 2,717 | 100% |
| Iztok Parkside EOOD | Bulgaria | 1,433 | 1,132 | 100% |
| Arco Lozen EOOD | Bulgaria | 2,931 | 2,146 | 100% |
| Kodukalda OÜ | Estonia | 3 | 437 | 100% |
| Kodulahe OÜ | Estonia | 3 | 3,090 | 100% |
Group structure as of 31 December 2020
* In liquidation
** Liquidated 29.01.2021
*** Liquidated 21.01.2021
KEY PERFORMANCE INDICATORS
- In Q4 2020, the group's revenue was 10,298 thousand euros, which is 5% less than the revenue of 10,887 thousand euros in Q4 2019. In 12 months 2020, the group's revenue was 14,056 thousand euros, which is 7% more than the revenue of 13,109 thousand euros in 12 months 2019.
- In Q4 2020, the group's operating profit (=EBIT) was 1,400 thousand euros and net profit 1,289 thousand euros (in 12 months 2020: operating profit 1,449 thousand euros and net profit of 1,012 thousand euros). In Q4 2019, the group had operating profit of 1,068 thousand euros and net profit of 848 thousand euros. In 12 months 2019, the group made operating profit of 950 thousand euros and net profit of 388 thousand euros.
- In Q4 2020, 64 apartments were sold in projects developed by the group (in 12 months 2020 81 apartments and 1 land plot in Latvia). In Q4 2019, 70 apartments were sold (82 apartments in 12 months).
- In the 12 months of 2020, the group's debt burden (net loans) decreased by 2,951 thousand euros down to the level of 8,499 thousand euros as of 31 December 2020. As of 31 December 2020, the weighted average annual interest rate of interest-bearing liabilities was 4.8%. This is an increase of 0.6 percentage points compared to 31 December 2019.
| 12 months 2020 | 12 months 2019 | Q4 2020 | Q4 2019 | |
|---|---|---|---|---|
| EUR tuhandetes | ||||
| Revenue | 14,056 | 13,109 | 10,298 | 10,887 |
| Operating profit (EBIT) | 1,449 | 950 | 1,400 | 1,068 |
| Finance income and expense | -437 | -562 | -111 | -220 |
| Net profit | 1,012 | 388 | 1,289 | 848 |
| Cash flows from/used in operating activities | -1,042 | -1,517 | 2,251 | 1,848 |
| Cash flows used in investing activities | -295 | -201 | -281 | -242 |
| Cash flows from/used in financing activities | 2,667 | 261 | -388 | -1,635 |
| Net cash flows | 1,330 | -1,457 | 1,582 | -29 |
| Cash and cash equivalents at beginning of period | 870 | 2,327 | 618 | 899 |
| Cash and cash equivalents at end of period | 2,200 | 870 | 2,200 | 870 |
| Total assets at the end of period | 28,231 | 28,754 | ||
| Invested capital at the end of period | 24,923 | 25,619 | ||
| Net loans at the end of period | 8,499 | 11,450 | ||
| Equity at the end of period | 14,224 | 13,299 |
Main financial figures
Revenue and net profit/loss during last years
| Q1 2018 |
Q2 2018 |
Q3 2018 |
Q4 2018 |
Total 2018 |
Q1 2019 |
Q2 2019 |
Q3 2019 |
Q4 2019 |
Total 2019 |
Q1 2020 |
Q2 2020 |
Q3 2020 |
Q4 2020 |
Total 2020 |
|
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In millions of euros | |||||||||||||||
| Revenue | 2.1 | 1.1 | 2.1 | 1.3 | 6.6 | 1.1 | 0.7 | 0.4 | 10.9 | 13.1 | 2.1 | 1.0 | 0.6 | 10.3 | 14.0 |
| Net profit/loss | -0.1 | -0.3 | 0.1 | -0.2 | -0.5 | -0.1 | -0.2 | -0.2 | 0.9 | 0.4 | 0.0 | -0.1 | -0.2 | 1.3 | 1.0 |
Key ratios
| 12 months 2020 | 12 months 2019 | Q4 2020 | Q4 2019 | |
|---|---|---|---|---|
| EPS (in euros) | 0.11 | 0.04 | 0.14 | 0.09 |
| Diluted EPS (in euros) | 0.11 | 0.04 | 0.14 | 0.09 |
| ROIC (rolling, four quarters) | 3.8% | 1.3% | ||
| ROE (rolling, four quarters) | 7.6% | 3.0% | ||
| ROA (rolling, four quarters) | 3.4% | 1.2% | ||
| Equity ratio | 50.4% | 46.3% | ||
| Current ratio | 2.73 | 1.80 | ||
| Quick ratio | 0.52 | 0.15 | ||
| Financial leverage | 1.98 | 2.16 | ||
| Average loan term (in years) | 2.5 | 2.8 | ||
| Average annual interest rate of loans | 4.8% | 4.2% | ||
| Number of staff, at period end | 11 | 17 |
Formulas used:
Earnings per share (EPS) = net profit attributable to owners of the parent / weighted average number of ordinary shares outstanding during the period Diluted earnings per share (Diluted EPS) = net profit attributable to owners of the parent / (weighted average number of ordinary shares outstanding during the period + number of all potentially issued shares)
Invested capital = current + non-current interest-bearing loans and borrowings + equity (at the end of period)
Net loans = current + non-current interest-bearing loans and borrowings – cash and cash equivalents – short-term investments in securities (at the end of period)
Return on invested capital (ROIC) = net profit of last four quarters / average invested capital
Return on equity (ROE) = net profit of last four quarters / average equity
Return on assets (ROA) = net profit of last four quarters / average total assets
Equity ratio = equity / total assets
Current ratio = current assets / current liabilities
Quick ratio = (current assets - inventory) / current liabilities
Financial leverage = total assets / equity
Number of staff = number of people working for the group under employment or service contracts
Operating report
The revenue of the group totalled 10,298 thousand euros in Q4 2020 (in Q4 2019: 10,887 thousand euros) and 14,056 thousand euros in 12 months 2020 (in 12 months 2019: 13,109 thousand euros), including revenue from the sale of properties in the group's own development projects in the amount of 10,015 thousand euros in Q4 and 13,129 thousand euros in 12 months 2020 (2019: 10,665 thousand euros in Q4 and 12,152 thousand euros in 12 months).
Most of the other revenue of the group consisted of rental income from commercial and office premises in Madrid Blvd building in Sofia, amounting to 211 thousand euros in Q4 2020 and 699 thousand euros in 12 months (2019: 160 thousand euros in Q4 and 696 thousand euros in 12 months). The Q2 of 2020 and Covid-19 brought changes in the economic situation of tenants. Several tenants have been replaced during 2020, but surprisingly in a more favourable direction for Arco Vara, that is why at the moment 95% of retail and office spaces with the accompanying parking spaces are rented out.
In the II Stage of the Kodulahe quarter, which was completed at the end of 2019, commercial space remains unsold – the last apartment was sold in Q2 2020. In 2020, Lahepea 9 house received permit of use.
In Q4 2020, construction works ended in Stage III of Kodulahe quarter, where a building with 50 apartments was finished at Soodi 4 Merimetsa. By the publishing date of the interim report, 49 apartments have been sold and 1 presold.
In Q4 2020, the joint construction of Stages IV and V of Kodulahe started. Two 36-apartment residential buildings at Pagi 3 and Pagi 5 in Merimetsa are under construction. The apartment buildings will become ready for final sale in about 1,5 years. By the publishing date of the interim report, 16 apartments of total 72 have been presold and 17 booked for waiting for notary.
In Q4 2020, final sales of Oa street plots in Tartu started, where 4 smaller apartment buildings were constructed under the Kodukalda project name. By the publishing time of the interim report, 20 of the 30 apartments have been sold and 1 presold.
In Iztok Parkside project in Sofia, the majority of final sales of apartments started in December 2020, after receiving an occupancy permit. By the publishing date of the interim report, presale agreements for 3 apartments have not been concluded. Iztok project consists of three apartment buildings with a total of 67 apartments.
In the Lozen project near Sofia in Bulgaria, design works have been completed. As the development was designed as a premium class product, it has been decided to temporarily freeze the project and wait for the market to recover from Covid-19. Under favourable market conditions, construction may start in Q3 2021, divided into smaller sub-stages. The project foresees construction of 179 homes (apartments and houses), commercial spaces and a kindergarten. Minimum construction period is 2 years.
In Q3 2020 a land plot without accounting value was sold in Latvia. As of 31 December 2020 and the date of this report, 4 Marsili residential plots remained unsold in Latvia.
Summary table of Arco Vara's active projects as of 31 December 2020
| Project name | Address | Product main type |
Stage | Area of plot(s) (m2 ) |
GSA / GLA (above grade) available or |
No of units (above grade) available or |
|---|---|---|---|---|---|---|
| Madrid Blvd | Madrid Blvd, Sofia | Lease: Retail/Office | S6 | - | 7,350 | 22 |
| Iztok Parkside | Iztok, Sofia | Apartments | S5 | 2,470 | 3,045 | 29 |
| Marsili residential plots | Marsili, near Riga | Residential plots | S5 | 6,153 | - | 4 |
| Kodulahe, Stage II | Lahepea 9, Tallinn | Apartments | S5 | 3,686 | 380 | 1 |
| Kodulahe, Stages III | Soodi 4, Tallinn | Apartments | S5 | 3,199 | 1,393 | 24 |
| Kodulahe, Stages IV-V | Pagi 3 and 5, Tallinn | Apartments | S4 | 7,383 | 4,774 | 72 |
| Paldiski road 74 | Paldiski road 74, Tallinn | Apartments | S3 | 9,525 | <9,000> | <123> |
| Kodukalda | Oa street, Tartu | Apartments | S5 | 4,146 | 955 | 11 |
| Botanica Lozen, Stage I | Lozen, near Sofia | Apartments, houses | S3 | 47,450 | <25,200> | <179> |
Note: Values presented between < > sign represent future target values for projects which do not have a construction permit yet. The table does not reflect sellable or lettable volumes below grade including parking spaces and storages. The table does not give complete overview of the group's land reserves.
Description of stages
S1: Land plot acquired
S2: Building rights procedure
- S3: Design and preparation works
- S4: Construction
S5: Marketing and rale S6: Facility management and/or lease
PEOPLE
Remuneration
As of 31 December 2020, 11 people worked for the group (17 as of 31 December 2019). Employee remuneration expenses in 12 months 2020 amounted to 468 thousand euros, out of which 87 thousand euros in Q4 2020 (2019 same periods: 494 thousand euros and 170 thousand euros).
The remuneration of the member of the management board / CEO of the group's parent company including social security charges amounted to 89 thousand euros in 12 months 2020, out of which 22 thousand euros in Q4 2020 (in 12 months and Q4 2019: 121 thousand euros and 57 thousand euros, respectively). The members of the supervisory board of the group's parent company were remunerated by 18 thousand euros, out of which 7 thousand euros in Q4 2020. The remuneration of the members of the supervisory board was 8 thousand euros in 12 months 2019, out of which 3 thousand euros in Q4 2019.
Management board and supervisory board
The management board of Arco Vara AS has one member. Since 30 April 2020, the member of the management board and chief executive officer of Arco Vara AS is Miko-Ove Niinemäe who has a mandate until 30 April 2023.
From 30 April 2020 to 12.01.2021, the supervisory board of Arco Vara AS consisted of Tarmo Sild (the Chairman), Kert Keskpaik, Hillar-Peeter Luitsalu, Allar Niinepuu, Rait Riim and Steven Yaroslav Gorelik. As of 12.01.2021, the supervisory board has 5 members: Tarmo Sild (the Chairman), Kert Keskpaik, Hillar-Peeter Luitsalu, Allar Niinepuu and Steven Yaroslav Gorelik.
Additional information on key persons of Arco Vara is presented on company's corporate web page www.arcovara.com.
DESCRIPTION OF MAIN RISKS
Strategic risk
Most of the group's equity is invested into real estate development. The group is focused mainly on residential real estate development where development cycle lasts for years, starting from the acquisition of a land plot, moving on to detail planning, design and construction, and ending with the sale of end products to customers. The equity is invested mainly in the early phase of the cycle (purchase of land) on the assumption that there will be a demand for certain products in the future. Considering that the demand for development product is largely based on forecasts, the main risk for the group is investing equity into a development product for which there is no or too little demand in the future.
For mitigating the risk, the group: (i) invests equity into different development projects in different markets (in 2020, in Sofia and Tallinn), (ii) monitors current demand and supply in its home markets and (iii) makes efforts to narrow the time gap between making initial investment and selling the final product – by signing pre-agreements with clients, acquiring land with no or little upfront equity investment etc.
Credit risk
The group considers credit risks to be substantially mitigated. The final sale of real estate development product takes place simultaneously with customer payment; therefore customer debts do not arise. Also, cash and cash equivalents are not held in the same banking group.
Liquidity and interest rate risks
The base currency of the group's all loan agreements is euro and the base interest rate is 1, 3 or 6 months' EURIBOR. As a result, the group is exposed to developments on international capital markets. The group does not use hedging instruments to mitigate its long-term interest rate risk. In Q4 2020, the group's interest-bearing liabilities amounted to 10.7 million euros on 31 December 2020, out of which 3.5 million euros is due within next 12 months. The group's cash and cash equivalents totalled 2.2 million euros as of 31 December 2020 (31 December 2019 0.9 million). In Q4 2020, interest payments on interest-bearing liabilities totalled 0.1 million euros (in Q4 2019: 0.2 million euros). The group's weighted average loan interest rate was 4.8% as of 31 December 2020. This is an increase by 0.6 percentage points compared to the end of year 2019. The reason for the increase is the new borrowings raised in 2020 for Estonian developments which bear an above-average interest rate.
Currency risk
Real estate sales are mostly nominated in euros, as a result of which the group's assets and liabilities structure does not involve a significant currency risk. The group is not protected against currency devaluations. Liquid assets are mostly held on demand or short-term deposits denominated in euros.
SHARES AND SHAREHOLDERS
Share price
Arco Vara AS has issued a total of 8,998,367 ordinary shares with nominal value of 0.7 euros per share. The shares are freely traded on NASDAQ Tallinn stock exchange. The share price closed at 1.21 euros on 31 December 2020; the closing price was 1.14 euros on 31 December 2019. During the period, the highest traded price per share was 1.35 euros and the lowest price 0.84 euros. As of 31 December 2020, market capitalization of shares amounted to 10,888 thousand euros and P/B (price to book value) ratio was 0.77 (31 December 2019: 10,258 thousand euros and 0.77, respectively). P/E (price to earnings) ratio of the share was 10.76 on 31 December 2020, 26.44 as on 31 December 2019.
The following charts reflect the movements in the price and daily turnover of Arco Vara's share in during the last three years and 12 months 2020.
Performance of Arco Vara's shares from 1 January 2018 until 31 December 2020
Source: https://nasdaqbaltic.com 2 nd of January 2021
Performance of Arco Vara's shares in 12 months 2020
Source: https://nasdaqbaltic.com 2 nd of January 2021
Changes in Arco Vara share price compared with the benchmark index OMX Tallinn in 12 months 2020
Source: https://nasdaqbaltic.com 2 nd of January 2021
| Index/equity | 31 Dec 2019 | 31 Dec 2020 | +/-% |
|---|---|---|---|
| OMX Tallinn | 1,279.70 | 1,343.72 | +5.00 |
| ARC1T – Arco Vara | 1.14 EUR | 1.21 EUR | +6.14 |
Shareholder structure
As of 31 December 2020, Arco Vara had 1,475 shareholders (on 31 December 2019 1,315), including 1,311 individuals as shareholders (on 31 December 2019: 1,138 individuals) who jointly owned 11.1% (on 31 December 2019: 10.8%) out of all Arco Vara shares. Complete shareholder structures are presented on the following diagrams.
Major shareholders on 31 December 2020
| Name | No of shares | Share, % |
|---|---|---|
| Alarmo Kapital OÜ | 2,517,405 | 28.0% |
| LHV Pensionifond L | 869,587 | 9.7% |
| AS Lõhmus Holdings | 850,000 | 9.4% |
| Baltplast AS | 837,498 | 9.3% |
| Gamma Holding Investment OÜ | 580,369 | 6.4% |
| LHV Pensionifond XL | 365,619 | 4.1% |
| Firebird Republics Fund Ltd | 356,428 | 4.0% |
| HM Investeeringud OÜ | 330,505 | 3.7% |
| Firebird Avrora Fund Ltd | 185,800 | 2.1% |
| Marko Teimann | 162,439 | 1.8% |
| Other shareholders | 1,942,717 | 21.5% |
| Total | 8,998,367 | 100.0% |
Holdings of management and supervisory board members on 31 December 2020
| Name | Position | No of shares | Share, % |
|---|---|---|---|
| Tarmo Sild and Allar Niinepuu (OÜ Alarmo Kapital)3 | chairman/ member of supervisory board | 2,517,405 | 28.0% |
| Tarmo Sild (Aia Tänav OÜ) | chairman of supervisory board | 19,880 | 0.2% |
| Hillar-Peeter Luitsalu (HM Investeeringud OÜ, related persons) | member of supervisory board | 369,259 | 4.1% |
| Kert Keskpaik (privately and through K Vara OÜ) | member of supervisory board | 206,371 | 2.3% |
| Rait Riim 1, 3 | member of supervisory board | 0 | - |
| Steven Yaroslav Gorelik 2 | member of supervisory board | 0 | - |
| Miko-Ove Niinemäe | member of management board | 722 | - |
| Total | 3,113,637 | 34.6% |
¹ - Rait Riim is a real estate investment manager of LHV Pension Funds. LHV Pensionifond, LHV Pensionifond XL, LHV Pensionifond M and LHV Täiendav Pensionifond hold 1,296,837 shares (total 14.4% interest) of Arco Vara.
2 - Steven Yaroslav Gorelik is active as fund manager in three investment funds holding interest in Arco Vara (Firebird Republics Fund Ltd. Firebird Avrora Fund Ltd and Firebird Fund L.P) of 692,750 shares (total 7.7% interest).
3 - In January 2021, LHV Pension Funds. LHV Pensionifond, LHV Pensionifond XL, LHV Pensionifond M and LHV Täiendav Pensionifond sold their shares to OÜ Alarmo Kapital, who after the transaction held 3,814,242 of shares of Arco Vara (total 42.4% interest).
CEO'S CONFIRMATION ON DIRECTORS' REPORT
The CEO and member of the management board of Arco Vara AS confirms that the directors' report of Arco Vara for the fourth quarter and 12 months ended on 31 December 2020 provides a true and fair view of business developments, financial performance and financial position of the group as well as a description of the main risks and uncertainties.
Miko-Ove Niinemäe Chief Executive and Member of the Management Board of Arco Vara AS
On 11 February 2021
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| Note | 12 months 2020 | 12 months 2019 | Q4 2020 | Q4 2019 | |
|---|---|---|---|---|---|
| In thousands of euros | |||||
| Revenue from sale of own real estate | 13,129 | 12,152 | 10,015 | 10,665 | |
| Revenue from rendering of services | 927 | 957 | 283 | 222 | |
| Total revenue | 2,3 | 14,056 | 13,109 | 10,298 | 10,887 |
| Cost of sales | 4 | -11,313 | -11,295 | -8,332 | -9,654 |
| Gross profit | 2,743 | 1,814 | 1,966 | 1,233 | |
| Other income | 10 | 137 | 10 | 46 | |
| Marketing and distribution expenses | 5 | -89 | -96 | -23 | 108 |
| Administrative expenses | 6 | -922 | -777 | -268 | -239 |
| Other expenses | -273 | -121 | -265 | -73 | |
| Loss on revaluation of investment property | -20 | -7 | -20 | -7 | |
| Operating profit | 1,449 | 950 | 1,400 | 1,068 | |
| Finance income and cost | 7 | -437 | -562 | -111 | -220 |
| Profit before tax | 1,012 | 388 | 1,289 | 848 | |
| Net profit for the period | 1,012 | 388 | 1,289 | 848 | |
| Total comprehensive income for the period | 1,012 | 388 | 1,289 | 848 | |
| Earnings per share (in euros) | 8 | ||||
| - basic | 0.11 | 0.04 | 0.14 | 0.09 | |
| - diluted | 0.11 | 0.04 | 0.14 | 0.09 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| Note | 31 December 2020 | 31 December 2019 | |
|---|---|---|---|
| In thousands of euros | |||
| Cash and cash equivalents | 2,200 | 870 | |
| Receivables and prepayments | 9 | 1,344 | 544 |
| Inventories | 10 | 14,960 | 15,807 |
| Total current assets | 18,504 | 17,221 | |
| Receivables and prepayments | 9 | 5 | 0 |
| Investment property | 11 | 9,564 | 11,051 |
| Property. plant and equipment | 22 | 265 | |
| Intangible assets | 136 | 217 | |
| Total non-current assets | 9,727 | 11,533 | |
| TOTAL ASSETS | 28,231 | 28,754 | |
| Loans and borrowings | 12 | 3,482 | 6,416 |
| Payables and deferred income | 13 | 3,308 | 3,135 |
| Total current liabilities | 6,790 | 9,551 | |
| Loans and borrowings | 12 | 7,217 | 5,904 |
| Total non-current liabilities | 7,217 | 5,904 | |
| TOTAL LIABILITIES | 14,007 | 15,455 | |
| Share capital | 6,299 | 6,299 | |
| Unregistered share capital | 14 | 273 | 0 |
| Share premium | 2,285 | 2,285 | |
| Statutory capital reserve | 2,011 | 2,011 | |
| Other reserves | 14 | 0 | 245 |
| Retained earnings | 3,356 | 2,459 | |
| TOTAL EQUITY | 14,224 | 13,299 | |
| TOTAL LIABILITIES AND EQUITY | 28,231 | 28,754 |
CONSOLIDATED STATEMENT OF CASH FLOWS
| Note | 12 months 2020 | 12 months 2019 | Q4 2020 | Q4 2019 | |
|---|---|---|---|---|---|
| In thousands of euros | |||||
| Cash receipts from customers | 10,268 | 9,084 | 5,061 | 6,142 | |
| Returned prepayments | 0 | -876 | 0 | -876 | |
| Cash paid to suppliers | -10,960 | -8,936 | -2,551 | -2,169 | |
| Taxes paid and recovered (net) | 44 | -457 | -168 | -1,168 | |
| Cash paid to employees | -380 | -328 | -73 | -85 | |
| Other cash payments and receipts related to operating activities (net) | -14 | -4 | -18 | 4 | |
| NET CASH FROM/USED IN OPERATING ACTIVITIES | -1,042 | -1,517 | 2,251 | 1,848 | |
| Payments made on purchase of tangible and intangible assets | -8 | -5 | -8 | 0 | |
| Proceeds from sale of property, plant and equipment | 14 | 0 | 28 | 0 | 28 |
| Payments made on purchase and development of investment property | 11 | -37 | -300 | -23 | -270 |
| Proceeds from sale of financial investments | 0 | 69 | 0 | 0 | |
| Repayment of loans provided | 0 | 7 | 0 | 0 | |
| Other payments related to investing activities | -250 | 0 | -250 | 0 | |
| NET CASH FROM/USED IN INVESTING ACTIVITIES | -295 | -201 | -281 | -242 | |
| Proceeds from loans received | 12 | 7,849 | 10,735 | 2,558 | 6,332 |
| Settlement of loans and borrowings | 12 | -4,369 | -9,418 | -2,713 | -7,617 |
| Interest paid | -727 | -886 | -232 | -274 | |
| Dividends paid | -360 | -90 | 0 | 0 | |
| Proceeds from share capital increase | 273 | 0 | 0 | 0 | |
| Other payments related to financing activities | 1 | -80 | -1 | -76 | |
| NET CASH FROM/USED IN FINANCING ACTIVITIES | 2,667 | 261 | -388 | -1,635 | |
| NET CASH FLOW | 1,330 | -1,457 | 1,582 | -29 | |
| Cash and cash equivalents at the beginning of period | 870 | 2,327 | 618 | 899 | |
| Change in cash and cash equivalents | 1,330 | -1,457 | 1,582 | -29 | |
| Cash and cash equivalents at the end of period | 2,200 | 870 | 2,200 | 870 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| Share capital |
Unregistered share capital |
Share premium |
Statutory capital reserve |
Other reserves |
Retained earnings |
Total equity |
|
|---|---|---|---|---|---|---|---|
| In thousands of euros | |||||||
| Balance as of 31 December 2018 | 6,299 | 0 | 2,285 | 2,011 | 245 | 2,161 | 13,001 |
| Dividends paid | 0 | 0 | 0 | 0 | 0 | -90 | -90 |
| Total comprehensive income for the period | 0 | 0 | 0 | 0 | 0 | 388 | 388 |
| Balance as of 31 December 2019 | 6,299 | 0 | 2,285 | 2,011 | 245 | 2,459 | 13,299 |
| Balance as of 31 December 2019 | 6,299 | 0 | 2,285 | 2,011 | 245 | 2,459 | 13,299 |
| Increase of share capital | 0 | 273 | 0 | 0 | 0 | 0 | 273 |
| Dividends paid | 0 | 0 | 0 | 0 | 0 | -360 | -360 |
| Other reserves | 0 | 0 | 0 | 0 | -245 | 245 | 0 |
| Total comprehensive income for the period | 0 | 0 | 0 | 0 | 0 | 1,012 | 1,012 |
| Balance as of 31 December 2020 | 6,299 | 273 | 2,285 | 2,011 | 0 | 3,356 | 14,224 |
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
1. Significant accounting policies
The unaudited condensed consolidated interim financial statements of Arco Vara AS for the fourth quarter and 12 months ended on 31 December 2020 have been prepared in accordance with IAS 34 Interim Financial Reporting. The condensed consolidated interim financial statements should be read in conjunction with the audited consolidated annual financial statements for the year ended on 31 December 2019, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
All amounts in the financial statements are presented in thousands of euros unless indicated otherwise.
2. Segment information
Group identifies geographical segments: Estonia, Bulgaria, Latvia, active segments are Estonia and Bulgaria.
External revenue by location
| 12 months 2020 | 12 months 2019 | Q4 2020 | Q4 2019 | |
|---|---|---|---|---|
| In thousands of euros | ||||
| Estonia | 7,610 | 10,004 | 6,920 | 9,903 |
| Bulgaria | 6,406 | 3,105 | 3,378 | 984 |
| Latvia | 40 | 0 | 0 | 0 |
| Total revenue | 14,056 | 13,109 | 10,298 | 10,887 |
External operating profit (-loss) by location
| 12 months 2020 | 12 months 2019 | Q4 2020 | Q4 2019 | |
|---|---|---|---|---|
| In thousands of euros | ||||
| Estonia | 103 | 603 | 383 | 1,020 |
| Bulgaria | 1,310 | 355 | 1,017 | 49 |
| Latvia | 36 | -8 | 0 | -1 |
| Total operating profit | 1,449 | 950 | 1,400 | 1,068 |
External assets and liabilities by location
| 31.12.2020 | 31.12.2019 | |
|---|---|---|
| In thousands of euros | ||
| Assets | 28,231 | 28,754 |
| Estonia | 9,642 | 8,082 |
| Bulgaria | 18,462 | 20,546 |
| Latvia | 127 | 126 |
| Liabilities | 14,007 | 15,455 |
| Estonia | 4,938 | 2,859 |
| Bulgaria | 9,069 | 12,596 |
Non-current assets by location
| 31.12.2020 | 31.12.2019 | |
|---|---|---|
| In thousands of euros | ||
| Total non-current assets | 158 | 482 |
| Tangible assets | 22 | 265 |
| Estonia | 6 | 9 |
| Bulgaria | 16 | 256 |
| Intangible assets | 136 | 217 |
| Estonia | 86 | 171 |
| Bulgaria | 50 | 46 |
3. Revenue
External revenue by the type of goods and services and by client location
| Estonia | Bulgaria | Latvia | Consolidated | |||||
|---|---|---|---|---|---|---|---|---|
| 12M 2020 | 12M 2019 | 12M 2020 | 12M 2019 | 12M 2020 | 12M 2019 | 12M 2020 | 12M 2019 | |
| In thousands of euros | ||||||||
| Sale of own real estate | 7,414 | 9,865 | 5,675 | 2,287 | 40 | 0 | 13,129 | 12,152 |
| Rental of real estate | 5 | 5 | 614 | 696 | 0 | 0 | 619 | 701 |
| Property management services | 1 | 0 | 84 | 88 | 0 | 0 | 85 | 88 |
| Franchise | 137 | 74 | 35 | 34 | 12 | 20 | 184 | 128 |
| Other revenue | 6 | 5 | 33 | 35 | 0 | 0 | 39 | 40 |
| Total revenue | 7,563 | 9,949 | 6,441 | 3,140 | 52 | 20 | 14,056 | 13,109 |
| Estonia | Bulgaria | Latvia | Consolidated | |||||
|---|---|---|---|---|---|---|---|---|
| Q4 2020 | Q4 2019 | Q4 2020 | Q4 2019 | Q4 2020 | Q4 2019 | Q4 2020 | Q4 2019 | |
| In thousands of euros | ||||||||
| Sale of own real estate | 6,856 | 9,865 | 3,159 | 800 | 0 | 0 | 10,015 | 10,665 |
| Rental of real estate | 1 | 2 | 186 | 159 | 0 | 0 | 187 | 161 |
| Property management services | 0 | 0 | 24 | 16 | 0 | 0 | 24 | 16 |
| Franchise | 45 | 22 | 13 | 9 | 5 | 3 | 63 | 34 |
| Other revenue | -1 | 2 | 10 | 9 | 0 | 0 | 9 | 11 |
| Total revenue | 6,901 | 9,891 | 3,392 | 993 | 5 | 3 | 10,298 | 10,887 |
4. Cost of sales
| 12 months 2020 | 12 months 2019 | Q4 2020 | Q4 2019 | |
|---|---|---|---|---|
| In thousands of euros | ||||
| Cost of real estate sold (note 10, 11) | -10,405 | -10,296 | -7,964 | -9,134 |
| Brokerage fees | -276 | -347 | -136 | -347 |
| VAT cost | -39 | -161 | 0 | -34 |
| Property management costs | -347 | -342 | -85 | -84 |
| Personnel expenses | -15 | -33 | 0 | -11 |
| Depreciation, amortisation and impairment losses | -84 | -85 | -28 | -22 |
| Inventory write-down | -40 | 0 | -40 | 0 |
| Other costs | -107 | -31 | -79 | -22 |
| Total cost of sales | -11,313 | -11,295 | -8,332 | -9,654 |
5. Marketing and distribution expenses
| 12 months 2020 | 12 months 2019 | Q3 2020 | Q3 2019 | |
|---|---|---|---|---|
| In thousands of euros | ||||
| Advertising expenses | -39 | -47 | -10 | -24 |
| Brokerage fees | 0 | 0 | 0 | 161 |
| Other marketing and distribution expenses | -50 | -49 | -13 | -29 |
| Total marketing and distribution expenses | -89 | -96 | -23 | 108 |
6. Administrative expenses
| 12 months 2020 | 12 months 2019 | Q4 2020 | Q4 2019 | |
|---|---|---|---|---|
| In thousands of euros | ||||
| Personnel expenses | -453 | -461 | -87 | -159 |
| Office expenses | -67 | -63 | -14 | -16 |
| IT expenses | -28 | -42 | -7 | -7 |
| Services purchased | -310 | -125 | -146 | -52 |
| Depreciation. amortization and impairment losses | -25 | -30 | -5 | 11 |
| Legal service fees | -22 | -28 | 0 | -6 |
| Other expenses | -17 | -28 | -9 | -10 |
| Total administrative expenses | -922 | -777 | -268 | -239 |
7. Financial income and expenses
| 12 months 2020 | 12 months 2019 | Q4 2020 | Q 2019 | |
|---|---|---|---|---|
| In thousands of euros | ||||
| Interest expenses | -426 | -454 | -110 | -139 |
| Other financial income and costs | -11 | -108 | -1 | -81 |
| Total financial income and costs | -437 | -562 | -111 | -220 |
8. Earnings per share
Basic earnings per share are calculated by dividing profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share are calculated by taking into account all potentially issued shares.
According to the decision of the annual general meeting of Arco Vara AS, held on 10 May 2016, a convertible bond was issued with the nominal value of 1,000 euros. The convertible bond gave to the CEO of the group's parent company the right to subscribe to up to 390 thousand ordinary shares of Arco Vara AS for 0.7 euros per share during the year 2019. The CEO used his right in full amount. The change of the CEO on 30 April 2020 does not reduce the right of the former CEO to use the subscribed bonds. See also note 14.
| 12 months 2020 | 12 months 2019 | Q4 2020 | Q4 2019 | |
|---|---|---|---|---|
| In thousands of euros | ||||
| Weighted average number of ordinary shares outstanding during the period | 8,998,367 | 8,998,367 | 8,998,367 | 8,998,367 |
| Number of ordinary shares potentially to be issued (at period end) | 390,000 | 390,000 | 390,000 | 390,000 |
| Net profit (in thousands of euros) | 1,012 | 388 | 1,289 | 848 |
| Earnings per share (in euros) | 0.11 | 0.04 | 0.14 | 0.09 |
| Diluted earnings per share (in euros) | 0.11 | 0.04 | 0.14 | 0.09 |
9. Receivables and prepayments
Short-term receivables and prepayments
| 31 December 2020 | 31 December 2019 | |
|---|---|---|
| In thousands of euros | ||
| Receivables from customers | 1,283 | 204 |
| Miscellaneous receivables | 12 | 12 |
| Prepaid and recoverable taxes | 19 | 226 |
| Other accrued income | 13 | 18 |
| Prepayments | 17 | 84 |
| Total short-term receivables and prepayments | 1,344 | 544 |
Long-term receivables and prepayments
| 31 December 2020 | 31 December 2019 | |
|---|---|---|
| In thousands of euros | ||
| Deposit | 5 | 0 |
| Total long-term receivables and prepayments | 5 | 0 |
10. Inventories
| 31 December 2020 | 31 December 2019 | |
|---|---|---|
| In thousands of euros | ||
| Properties purchased and being developed for resale | 14,943 | 15,779 |
| Materials and finished goods | 17 | 28 |
| Total inventories | 14,960 | 15,807 |
Properties purchased and being developed for resale
| 2020 | 2019 | |
|---|---|---|
| In thousands of euros | ||
| Balance at the beginning of period, 1 January | 15,779 | 17,467 |
| Construction costs of apartment buildings | 7,117 | 4,994 |
| Capitalized borrowing costs | 266 | 276 |
| Inventory write-down | -40 | -73 |
| Other capitalized costs | 474 | 1,655 |
| Reclassification from investment property (note 11) | 1,358 | 468 |
| Cost of sold properties (note 4) | -10,011 | -9,008 |
| Balance at the end of period, 31 December | 14,943 | 15,779 |
11. Investment property
| 2020 | 2019 | |
|---|---|---|
| In thousands of euros | ||
| Balance at the beginning of period, 1 January | 11,051 | 12,344 |
| Net loss on changes in fair value | -20 | -8 |
| Capitalized development costs | 42 | 76 |
| Capitalized borrowing costs | 14 | 95 |
| Reclassification to inventory (note 10) | -1,358 | -468 |
| Reclassification to property, plant and equipment | 229 | 0 |
| Sale of investment property (note 4) | -394 | -1,288 |
| Purchase of land plots | 0 | 300 |
| Balance at the end of period, 31 December | 9,564 | 11,051 |
12. Interest bearing liabilities
| As of 31 December, 2020 | As of 31 December, 2019 | |||||
|---|---|---|---|---|---|---|
| Total | of which current portion |
of which non current portion |
Total | of which current portion |
of which non current portion |
|
| In thousands of euros | ||||||
| Bank loans | 8,649 | 3,212 | 5,437 | 10,993 | 5,089 | 5,904 |
| Bonds | 1,780 | 0 | 1,780 | 1,327 | 1,327 | 0 |
| Other loans | 270 | 270 | 0 | 0 | 0 | 0 |
| Total | 10,699 | 3,482 | 7,217 | 12,320 | 6,416 | 5,904 |
In 12 months 2020, the group settled loans in the amount of 9,470 thousand euros (in 12 months 2019: 14,958 thousand euros) through cash transactions and raised new loans in the amount of 7,849 thousand euros (in 12 months 2019: 10,746 thousand euros). 5,101 thousand euros of the settled bank loans were paid by customers directly to the bank.
In 12 months 2020, the following major loan obligations were settled:
-
283 thousand euros of Madrid Blvd project's bank loan principal;
-
2,786 thousand euros of bank loan for financing construction of apartment building in Iztok Parkside project;
-
3,646 thousand euros of bank loan for financing construction of apartment building in Kodulahe project Stage III;
-
1,607 thousand euros of bank loan for financing construction of apartment building in Kodukalda project;
-
1,148 thousand euros of Arco Vara convertible bonds.
In 12 months 2020, the group raised the following new liabilities:
-
3,884 thousand euros of bank loan for financing construction of apartment building in Kodulahe project Stage III;
-
2,094 thousand euros of bank loan for financing construction of apartment building in Kodukalda project;
-
270 thousand euros of loans from private companies and individuals;
-
1,601 thousand euros of Arco Vara convertible bonds.
13. Payables and deferred income
Short-term payables and deferred income
| 31 December 2020 | 31 December 2019 | |
|---|---|---|
| In thousands of euros | ||
| Trade payables | 811 | 590 |
| Miscellaneous payables | 76 | 142 |
| Taxes payable | ||
| Value added tax | 1,431 | 415 |
| Corporate income tax | 1 | 1 |
| Social security tax | 14 | 14 |
| Personal income tax | 17 | 8 |
| Land tax | 1 | 0 |
| Garbage tax | 22 | 0 |
| Total taxes payable | 1,486 | 438 |
| Accrued expenses | ||
| Payables to employees | 17 | 82 |
| Interest payable | 44 | 41 |
| Other accrued expenses | 100 | 345 |
| Total accrued expenses | 161 | 468 |
| Deferred income | ||
| Prepayments received on sale of real estate | 631 | 1,412 |
| Guarantee deposits | 102 | 61 |
| Prepaid revenue | 41 | 24 |
| Total deferred income | 774 | 1,497 |
| Total short-term payables and deferred income | 3,308 | 3,135 |
14. Related party disclosures
The group has conducted transactions or has balances with the following related parties:
- 1) companies under the control of the chief executive and the members of the supervisory board of Arco Vara AS that have a significant interest in the group's parent company;
- 2) other related parties: the CEO and the members of the supervisory board of Arco Vara AS and companies under their control (excluding companies that have a significant interest in the group's parent company).
| Transactions with related parties | ||
|---|---|---|
| 12 months 2020 | 12 months 2019 | |
| In thousands of euros | ||
| Companies that have a significant interest in the group's parent company | ||
| Services purchased | 58 | 29 |
| Bonds | 273 | 0 |
| Proceeds from sale of property, plant and equipment | 0 | 28 |
| Other related parties | ||
| Services sold | 1 | 3 |
| Balances with related parties | ||
| 31 December 2020 | 31 December 2019 | |
| In thousands of euros | ||
| Other related parties |
Receivables from customers 0 1 Bonds issued 0 1
In 12 months 2020, the remuneration provided to the CEO / member of the management board, including social security charges, amounted to 89 thousand euros, out of which 22 thousand euros in Q4 (in 12 months and Q4 2019: 121 thousand euros and 57 thousand euros respectively).
The remuneration provided to the CEO / member of the management board is based on his service contract. As of 30 April 2020, a fixed monthly fee has been set by a resolution of the Supervisory Board on the basis of the service contract of Miko-Ove Niinemäe, the member of the Management Board of Arco Vara AS. The CEO's bonus system will be discussed in 2021.
The remuneration provided to the members of the supervisory board of the group's parent company during the 12 months in 2020 was 18 thousand euros, out of which 7 thousand in Q4 (in 12 months 2019 8 thousand euros, out of which 3 thousand in Q4 2019).
The members of the supervisory board will receive 500 euros (net amount) for every meeting where they have participated, but not more than 1,000 euros (net amount) per month. The payment of the remuneration is dependent on the signing of the minutes of the meetings of the supervisory board. Reasonable travel expenses made for participating on the board meetings are also compensated to the members of the supervisory board. The chairman of the supervisory board receives additional 500 euros per month (net amount).
According to the decision of the annual general shareholders' meeting of Arco Vara AS, held on 10 May 2016, a convertible bond was issued with the nominal value of 1,000 euros. The convertible bond gave to the CEO of the group's parent company the right to subscribe for additional 390 thousand ordinary shares of Arco Vara AS for 0.7 euros per share during the year 2019. The CEO used his right in full amount.
An equity reserve in the amount of 245 thousand euros that was formed for the option associated with the bond was used in Q2 2020, when 273 thousand euros cash was transferred to Arco Vara for the option. The added 390,000 shares are still awaiting registration. See also note 8.
STATEMENT BY THE CEO / MEMBER OF THE MANAGEMENT BOARD
The CEO / member of the management board of Arco Vara AS has prepared Arco Vara AS's condensed consolidated interim financial statements for the fourth quarter and 12 months ended on 31 December 2020.
The condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and they give a true and fair view of the financial position, financial performance and cash flows of Arco Vara AS. Arco Vara AS is a going concern.
Miko-Ove Niinemäe Chief Executive and Member of the Management Board of Arco Vara AS
On 11 February 2021