Published: 2016-02-11 15:17:06 CET
Arco Vara
Quarterly report

Arco Vara AS Interim Report (unaudited) for fourth quarter and twelve months 2015

General information

As at 31 12 2015: the group comprised 25 companies, this is one more than at the end of year 2014. On 31 July 2015, was registered a real estate fund in Bulgaria named Arco Real Estate Fund REIT, with starting capital of 256 thousand euros. The group holds 70% interest in the fund.

Significant subsidiaries

Company name Location Segment Share capital (nominal value) Equity balance
at 31 Dec 2015
The group's interest
In thousands of euros          
Arco Manastirski EOOD Bulgaria Development 2,676 3,679 100%
Arco Invest EOOD Bulgaria Development 26,826 -106 100%
Arco Real Estate Fund REIT ¹ Bulgaria Development 256 256 70%
Kodulahe OÜ Estonia Development 3 -115 100%
Kerberon OÜ Estonia Development 5 1,280 100%
Marsili II SIA Latvia Development 1,524 934 100%
Arco Real Estate AS Estonia Service 42 -855 100%
Arco Real Estate SIA ¹ Latvia Service 1,905 49 70.6%
Arco Imoti EOOD Bulgaria Service 444 290 100%

¹ - Non-controlling interest in Arco Real Estate SIA and Arco Real Estate Fund REIT equals to the group’s total non-controlling interest

Key Performance Indicators 

·                     In 12 months 2015, the group’s revenue was 10.7 million euros, exceeding by 16% the revenue of 12 months 2014, when revenue amounted to 9.1 million euros. In Q4, revenue was 2.1 million euros (in Q4 2014: 5.8 million euros). The increase of the group’s annual revenue comes from Development division, where revenue amounted to 7.9 million euros in 12 months 2015 (in 12 months 2014: 6.5 million euros). Though, revenue of Development division amounted to 1.4 million euros in Q4 2015, 3.8 million euros less than Q4 2014. The revenue of Service division amounted 3.3 million euros in 12 months 2014, increased by 4% compared to 12 months 2014. In Q4 2015, revenue of Service division increased by 10% compared to Q4 of previous year. The sales figures of brokerage and valuation services shows growth third quarter in a row, after the falling trend in second half of year 2014 and in the beginning of year 2015.

·                     In 12 months 2015, the group’s operating profit (=EBIT) was 1.3 million euros and net profit 0.5 million euros, a year ago the same figures were 2.2 million euros and 1.0 million euros respectively. The result of 2014 was impacted by two single events with total effect of 1.2 million euros on profit: gain from the sale of a subsidiary and reversal of inventory write-down. In Q4, operating loss was 0.2 million euros and net loss amounted to 0.4 million euros. In Q4 2014, the group had operating profit of 1.2 million euros and net profit of 0.8 million euros.

·                     The group’s net loans have decreased by 1.3 million euros in 12 months 2015, down to the level of 12.0 million euros as at 31 December 2015. Total loans and borrowings amounted 12.8 million euros at 31 December 2015, decreased by 2.2 million euros through a year. As at 31 December 2015, the weighted average annual interest rate of loans was 5.0%. This is a decrease by 0.8 percentage points compared to 31 December 2015.

·                     In 12 months 2015, were sold 96 apartments and commercial spaces and four residential plots (of which 17 apartments and three plots in Q4) in projects developed in the group. In 12 months 2014, were sold 77 apartments and commercial spaces and 4 plots (of which 73 apartments and commercial spaces in Q4).

    12 months 2015 12 months 2014 Q4 2015 Q4 2014
In millions of euros          
Development   7.9 6.5 1.4 5.2
Service   3.3 3.1 0.8 0.7
Eliminations   -0.5 -0.5 -0.1 -0.1
Total revenue   10.7 9.1 2.1 5.8
Operating profit (EBIT)          
Development   1.8 1.9 0.2 1.2
Service   -0.1 0.2 -0.2 0.1
Unallocated income and expenses   0.1 0.0 0.1 -0.3
Eliminations   -0.5 0.1 -0.3 0.1
Total operating profit (EBIT)   1.3 2.2 -0.2 1.1
Finance income and expense   -0.7 -1.1 -0.1 -0.4
Income tax   -0.1 -0.1 -0.1 0.0
Net profit   0.5 1.0 -0.4 0.7
Main ratios          
Earnings per share, EPS (in euros)   0.08 0.15 -0.07 0.07
Diluted earnings per share (in euros)   0.07 0.14 -0.07 0.07
ROIC (rolling, four quarters)   2.0% 3.4%    
ROE (rolling, four quarters)   4.6% 10.7%    
ROA (rolling, four quarters)   1.8% 3.1%         
    31 Dec 2015 31 Dec 2014    
In millions of euros          
Total assets   24.5 27.0    
Invested capital   22.4 24.1    
Net loans   12.0 13.3    
Equity   9.6 9.1    
Current ratio   3.22 2.43    
Quick ratio   0.32 0.47    
Financial leverage   2.54  2.98    
Average loan term (in years)   1.7 2.3    
Average annual interest rate of loans   5.0% 5.8%    
Number of staff, at period end   178 189    


Cash flows

      12 months 2015 12 months 2014   Q4 2015 Q4 2014
In millions of euros              
Cash flows from/used in operating activities     2.4 0.4   -0.6 3.7
Cash flows from/used in investing activities     -0.2 0.2   -0.1 0.0
Cash flows from/used in financing activities     -3.2 0.3   0.2 -3.4
Net cash flows     -1.0 0.9   -0.5 0.3
Cash and cash equivalents at beginning of period    1.7 0.8   1.2 1.4
Cash and cash equivalents at end of period     0.7 1.7   0.7 1.7


Revenue and net profit/loss from continuing operations    
    Q1 2013 Q2 2013 Q3 2013 Q4 2013 Total 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Total 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Total 2015  
In millions of euros                                  
Revenue   1.7 3.5 3.5 2.0 10.7 1.1 1.1 1.2 5.8 9.2 4.4 2.1 2.1 2.1 10.7  
Net profit/loss   0.0 1.4 0.1 2.0 3.5 0.4 -0.3 0.4 0.6 1.1 0.7 0.0 0.2 -0.4 0.5  


Earnings per share (EPS) = net profit attributable to owners of the parent / (weighted average number of ordinary shares outstanding during the period – own shares)

Invested capital = current interest-bearing liabilities + non-current liabilities + equity (at end of period)

Net loans = current interest-bearing liabilities + non-current liabilities – cash and cash equivalents – short-term investments in securities (at end of period)

Return on invested capital (ROIC) = past four quarters’ net profit / average invested capital

Return on equity (ROE) = past four quarters’ net profit / average equity

Return on assets (ROA) = past four quarters’ net profit / average total assets

Current ratio = current assets / current liabilities

Quick ratio = (current assets - inventory) / current liabilities

Financial leverage = total assets / equity

Number of staff at period-end = number of people working for the group under employment or authorization (service) contracts


Group Chief Executive’s review

One should start the year’s end with a resume. The resume is as follows: we were profitable and grew. Yet the fourth quarter and full year results turned out weaker than we expected. We expected the group’s revenue to be at least 11 million euros and net profit at least 1 million euros. Actually we achieved 10.7 million euros revenue and only 0.5 million euros profit. The management is not proud at all. We need to improve our results. The following part of comments sums up, what has been done and what exactly should be improved in order to keep the group moving forward with necessary speed.

Service division

The equity in service division companies is negative and during 2015 we did not invest additional equity into them. The division as a whole operates on the edge of profitability, although countrywise the results are different. We are pleased with profitable results and cash earned during 2015 by our Bulgarian unit. Considering the Latvian real estate market’s prolonged weakness, the Latvian unit’s results were satisfactory. The single outstanding lossmaking unit of the group is in Estonia. The reasons of loss lie within the company itself and the solutions are in the hands of management. We have started rearrangements within the service division to improve the work processes and along with rearrangements, executed also replacements in the middle management.

The objective of 2016 is to achieve the profitability of services division as a whole and also increase its usability factor for Arco’s development projects – both in preparatory and in sales phase.

In the big picture the group’s results are determined by development division, where 100% of the group’s equity is allocated to. Development division’s results in turn are determined overwhelmingly by three pillars within it: (i) Madrid Blvd cash flow property in Sofia, (ii) Manastirski residential development in Sofia (and its possible successor project Izstok Parkside) and (iii) Kodulahe residential development in Tallinn.

Madrid Blvd property

By publication date of this report, the renovation works of 1st and 2nd floor office space and restructuration of it into seven autonomous lettable office units has been completed. There are ongoing negotiations with potential tenants. The post-restructuration gross lettable area (GLA) of the office space is ca 4,700 sqm, in addition to 113 underground parking places, that are rented out by piece.  

Since there was no rent income from the offices during their renovation in Q4, it affected negatively both the Q4 and full year’s revenue and profit. The loss of income from rents and maintenance fees amounted to more than 150 thousand euros. The impact to net profitability is approximately the same amount. It is one of the reasons, why we did not achieve our annual revenue and net profit target.

Our objective is 100% coverage of the office spaces with long-term lease contracts during Q3 of 2016 at the latest. 

In other parts of the property we continue profitable operation of the lettable premises (incl. Shopping area GLA ca 2,200 sqm and short-term rental apartments ca 1,500 sqm GLA) and sale of remaining apartments (GSA ca 1,700 sqm). In Q4, pre-sale agreements were concluded for two apartments, revenue will be recognized in 2016. The remaining balance of Piraeus bank loan on the property is below 10.5 million euros. 

Manastirski Livadi

Construction of Block D was complete in November and the permission of usage was issued on 22 December, ie more than 2 weeks later than we forecasted. Due to this delay we had to suspend also execution of many apartments’ sales agreements and accounting of respective revenue in our books into Q1 2016. Q4 revenue from Manastirski Block D amounted to 628 thousand euros. The negative impact of the delay on targeted Q4 and full year results amounted to 800 thousand euros in revenue and over 300 thousand euros in net profit. The good news is that the missed revenue and profit is carried over into Q1 2016 revenue and net profit. However, the delay is also a live demonstration, how exposed the group’s results and key parameters such as ROE and ROA are to loss of time, even only for two weeks.

By end of Q4, 95% of apartments in Block D were presold. As at the publication date of this report, the whole Manastirski Livadi project is completed and the outstanding bank loan to UniCredit Bulbank repaid in full. Expected free cashflow from Block D alone is expected to exceed 2 million euros.

Since the beginning of Q1 2016 we can concentrate only to selling out the last remaining products in Manastirski. Our objective is full sale of outstanding inventory by end of 2016 at the latest. However the main focus from now on is on commencement of successor project in Sofia during Q1. At the moment the selected sucessor project is Izstok Parkside. By end of Q4, the preconditions of closing the purchase contract were not yet fulfilled by the Seller.    


Our long term efforts eventually bore fruit by end of Q4 and we could select amongst competing offers both the best bidder of project finance, and construction works. Simultaneously to drafting this report, we are busy with execution of finance and construction contracts that are necessary to complete the first phase of the project. We will make formal announcement on launch of Kodulahe separately, once the execution is completed.

Kodulahe first phase volume is 130 apartments and shops (GSA ca 8,700 sqm), and in addition to it respective number of parking places and storages. Gross build-up area (GBA) exceeds 15,000 sqm.  Expected sale revenue of first phase exceeds 15 million euros and first presale contract was signed on February 9, 2016.

In summary, Arco Vara is back on Tallinn residential development market with Kodulahe project. Comparing with Sofia, Tallinn residential market is less stormy waters and has tighter competition, but it is possible to make money here, too.   

Other directions of development

Besides the three development pillars described above we have undertaken two additional directions:  A. to sell off all assets, that are not production-ready immediately or where the development volume is too small. Selling off the land bank that the group has historically accumulated allows us to concentrate our forces for developments that really matter; and B. launch Arco Real Estate Investment Trust (Arco REIT) in Sofia. We want to engage external capital under our management and continue in Bulgaria with targeting and implementation of new development projects, utilizing the knowhow and reputation of Arco’s team.

In terms of selling off the assets, Q4 was successful. We sold profitably two development projects: Instituudi road properties in Harku paris and Suur-Sepa properties in Pärnu. It’s worth noting that it took only three weeks from the moment of communicating the sales team the order to commence the sale, until the moment of receiving sale price to the account. It gives credibility to our own conservative valuation of our assets in our books. We will continue selling off other properties and adding maximum value before that, for example by achieving construction rights through a detail plan or otherwise. For example, the detail plan allowing 8-floor office building onto Liimi 1b, Tallinn, entered into force in Q4. 

ARCO REIT project has progressed as anticipated. As of the publication date of this report, ARCO REIT is listed on Sofia stock exchange where Arco Vara is the sole shareholder (by end of Q4 the shareholding was 70%). We have placed 332 thousand euros into its share capital. The next and crucial step ahead is issue of additional shares and raising external capital into the fund during 2016, in order to commence effective business operations by end of the year.    



To sum up with what I began with: 2015 profit of 0.5 million euros does not meet management’s expectations (1 million euros).  

In addition to already described reasons of smaller profit (suspended Manastirski D sale: negative effect of ca 300 thousand euros; and dropping rent income from Madrid Blvd offices in Q4: negative effect of ca 150 thousand euros) there is one more accounting factor that killed part of the profit. It is the accounting effect of share option issued to the management in 2013, what entitled the option holder to subscribe 390,000 Arco Vara shares at 70 cents per share during 2016. 

According to IFRS regulations, the company must account in the profit statement also the effect of share option issued to the management board. According to the prescribed methodology, the effect has to be measured as difference between the nominal acquisition price (70 cents) and the measurement price determined according to the rules (1.46 cents). Respective provision into equity reserve had to be established. The cost of establishing the provision is distributed between 2.5 years since issue of the share option in July 2013 until January 1 2016 (first possible date for using the option). Respective cost for 2015 year is 119 thousand euros. The 2013 share option will not impact in any way the profit statement of 2016 or following years.

While being the stakeholder and cause of the additional 119 thousand euros accounting loss, the management board would still like to point out that there is no effective damage to the company. In order to effectuate the option, one has to pay into the company share capital 273 thousand euros and to improve the cash position of the company. The option does not give any right to cash out from the company.

Now, having covered important issues of Q4 and full year 2015, we sum up our expectations for 2016.

The company’s target revenue for 2016 is 10.3 million euros and net profit 0.8 million euros. Year 2016 should be distinct from 2015 with one big feature: instead of one development under construction with revenue potential of ca 4...5 million euros (Manastirski D construction in Sofia), there should be two developments under construction with revenue potential of ca 20 million euros (Kodulahe 1st phase in Tallinn and Manastirski successor project in Sofia). That positive dynamics should reflect strongly in 2017 results.



In Q4 2015, revenue of service division was 814 thousand euros (in Q4 2014: 738 thousand euros), that included intra-group revenue of 100 thousand euros (in Q4 2014: 130 thousand euros). Revenue of service division from main services (real estate brokerage and valuation services) was 2,926 thousand euros increased by 2% compared to previous year. In fourth quarter, revenue from main services increased by 9% compared to Q4 2014. Revenue continues to increase in Bulgaria, seeing 39% annual increase and 35% increase if fourth quarters are compared. In Q4, revenue increased also in Estonian agency, exceeding by 33% the figures of Q4 2014. The revenue from main services is strongly decreasing in Latvian real estate agency: by 23% if compared 12 months periods and by 25% if fourth quarters are compared.

Revenue of real estate agencies from brokerage and valuation

    12 months 2015 12  months 2014 Change, %   Q4 2015 Q4 2014 Change, %
In thousands of euros                
Estonia   1,282 1,166 10%   319 239 33%
Latvia   898 1,170 -23%   219 291 -25%
Bulgaria   746 536 39%   208 154 35%
Total   2,926 2,872 2%   746 684 9%

During 12 months 2015, the Estonian and Latvian agencies have operated on a loss: 209 thousand and 73 thousand euros, respectively. In 12 months 2014, Estonian and Latvian agencies had net profit of 48 thousand euros and 65 thousand euros, respectively. In Q4, Estonian and Latvian agencies ended also with the loss, 141 thousand euros and 22 thousand euros respectively (in Q4 2014: loss of 17 thousand in Estonia and profit of 3 thousand euros in Latvia). The decrease in profitability of Estonian agency is caused by significant increase of marketing and IT expenses: the goal is set to reach higher level in revenues and accordingly growth of profit. Revenues will increase with the help of wider reputation and bigger number of contacts, customer oriented data processing and smarter work environment. Bulgarian agency’s net profit was 109 thousand euros in 12 months 2015 (in 12 months 2014: 90 thousand euros). In Q4 2015, Bulgarian agency accumulated a loss of 29 thousand euros (in Q4 2014: 9 thousand euros profit was earned).

In addition to brokerage and valuation services, the service division also provides real estate management services as well as accommodation service in Bulgaria. The revenue from real estate management was 141 thousand euros in 12 months 2015, 105 thousand euros of which was intra-group revenue (in 12 months 2014: 148 thousand and 105 thousand euros, respectively). Revenue from accommodation services amounted to 132 thousand euros in 12 months of 2015, of which 27 thousand euros in Q4 (in 12 months and Q4 2014: 74 thousand and 19 thousand euros, respectively). In 2015, the sales of accommodation service have shown a nice 78% growth. 

The number of staff in service division has been decreased down to 165 employees as at 31 December 2015, which is 11 people less compared to year end 2014. The number of staff is decreased in Estonia and Latvia and increased in Bulgaria.


In 12 months 2015, revenue of development division totalled 7,947 thousand euros (in 12 months 2014: 6,503 thousand euros), of which 1,403 thousand euros in Q4 2015 (in Q4 2014: 5,214 thousand euros). The leap in revenues comes from the sale of properties in the group’s own development projects, amounting to 7,019 thousand euros in 12 months 2015 (5,414 thousand euros in 12 months 2014).

Most of the remaining revenue of development division consist of rental income from commercial and office premises in Madrid Blvd building in Sofia, amounted to 77 thousand euros in Q4 2015 and 838 thousand euros in 12 months (in Q4 2014: 236 thousand euros and 12 months 2014: 953 thousand euros). In Q4, rental income has decreased due to conclusion of rental agreements and the rental spaces were renovated. In first half of 2016, the search of new tenants is in pipeline. The rental income is planned to recover on the previous level in Q3 2016 at latest.  

In 12 months 2015, operating profit of development division was 1,790 thousand euros, of which 192 thousand euros in Q4.  In 12 months 2014, was earned 1,942 thousand euros of operating profit, of which 1,246 thousand euros in Q4.

In Q4, the apartment building of third stage in Manastirski Livadi project was completed and permit of use was obtained on 22 December. In 2015, 13 apartments were handed over, which corresponds to revenue of 628 thousand euros. As at 31 December 2015, 76 apartments out of 80 and one commercial space out of 8 have been sold or presold.

In Bulgaria, has been continued the apartment sales of first two stages in Manastirski Livadi project. In Q4 2015, were sold 3 last apartments from second stage. At 31 December 2015, two commercial spaces and some parking places remained in stock from first two stages of the project (blocks C and AB).

26 apartments and 113 parking places remained unsold in Madrid Blvd complex in Sofia. Two apartments were presold in Q4, final sales will be concluded in 2016. 16 apartments, out of all Madrid Blvd unsold apartments, are rented out as accommodation service. Unsold parking places are also rented out.

In 12 months 2015, 92 apartments and commercial spaces were sold in the group’s Bulgarian projects (in 12 months 2014: 63 apartments and commercial spaces).

In Q4, the last apartment in Bishumuiza-1 project was sold in Latvia. That means the whole project could be considered as closed for the group. There remains 14 residential plots in Marsili to be sold in from the group’s stock in Latvia. A presale agreement was concluded for one of these plots in Q4.

In Estonia, there were concluded design works of the first stage apartment building (with 125 apartments and 5 commercial spaces) in Kodulahe project. Permit for construction of apartment building was obtained at the end of September. At the publishing date of the interim report, the construction and financing contracts have been signed as well as the first apartment presale agreement. The construction of the apartment building starts in February 2016.

In June 2015, a smaller land plot in Suur-Sepa street, in centre town of Pärnu, was acquired as an addition to the group’s land bank. The plot is suitable for apartment building. After preparing preliminary design the plot was sold profitably at the beginning of October. Also at the beginning of October, the group sold another smaller development: Instituudi road residential development project, acquired in February 2014. The latter project was also up-valued with the preliminary design. Selling smaller projects bears the goal of focusing on most important projects in Estonia and Bulgaria.

At 31 December 2015, 5 people were employed in development division, the same number as at the end of year 2014.


Project name Address Product main type Stage Area of plot(s) (m2) GSA / GLA (above grade) available or <future target>   No of units (above grade) available or <future target>
Manastirski A/B Manastirski, Sofia Apartments S5 - 140 2
Manastirski D Manastirski, Sofia Apartments S5 - 5,832 75
Madrid Blvd  Madrid Blvd, Sofia Lease: Retail/Office S5/S6 - 7,350 12/8
Madrid Blvd  Madrid Blvd, Sofia Apartments S5/S6 - 3,216 12/16
Marsili residential plots Marsili, near Riga Residential plots S5 - 25,389 14
Marsili residential plots Marsili, near Riga Residential plots S2 120,220 <120,220> <68>
Kodulahe, stage 1  Lahepea 7, Tallinn Apartments S3 6,102 8,732 130
Kodulahe, stages 2-5 Lahepea, Soodi, Pagi streets, Tallinn Apartments S2 22,396 <13,300> <200>
Lehiku carpet building Lehiku 21,23 Tallinn Apartments S2 5,915 <1,100> <5>
Liimi Liimi 1b, Tallinn Lease: Office S2/S5 2,463 <6,500> 1
Viimsiranna Haabneeme, Viimsi vald Office/Mix S3/S5 14,174 500 1

Note: Value presented inbetween < > means future target value as the project is in early (S1, S2) development stage and the building rights or the design have not been finished yet. The table does not reflect sellable or lettable volumes below grade including parking spaces and storages. The table does not provide complete overview of the group’s land bank.   

Description of stages

S1: Land plot acquired
S2: Building Rights Procedure
S3: Design and Preparation Works
S4: Construction
S5: Marketing and Sale
S6: Facility Management and/or Lease



As at 31 December 2015, 178 people worked for the group (189 as at 31 December 2014). Employee remuneration expenses in 12 months 2015 amounted to 2.7 million euros (in 12 months 2014: 2.5 million euros), including 0.8 million euros in Q4 2015 (0.7 million euros in Q4 2014).

The remuneration of the member of the management board/chief executive and the members of the supervisory board of the group’s parent company including social security charges in 12 months 2015 amounted to 108 thousand euros (102 thousand euros in 12 months 2014).



The management board of Arco Vara AS has one member. Since 22 October 2012, the member of the management board and chief executive of Arco Vara AS has been Tarmo Sild. The mandate of the chief executive was prolonged by 3 years (until October 2018) on the supervisory board meeting held in September 2015.

At 30 September 2015, the supervisory board of Arco Vara AS has 5 members. As at the end of 2014, the supervisory board had 7 members. On 10 February 2015, extraordinary shareholders meeting recalled previous supervisory board and elected new supervisory board with 5 members: Hillar-Peeter Luitsalu, Allar Niinepuu and Rain Lõhmus (re-elected from the previous board), and Steven Yaroslav Gorelik and Kert Keskpaik (newly elected to the new board). The members of previous supervisory board Toomas Tool, Arvo Nõges, Aivar Pilv and Stephan David Balikn will not continue in new board.

More information on key persons of Arco Vara you can find on company’s corporate web page



Strategic risk

Most of the group’s equity is placed in real estate development. The group is focused mainly on residential real estate development where development cycle lasts for years consisting of detail planning, designing, construction and sale - starts from purchase of land plot and finishes with the sale of end products to customers. The equity is invested mainly in starting 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 forecast and not on transaction then the main risk for the group is investing equity to the development product for which there is no demand in the future.

For mitigating the risk: (i) the group invests equity into different development project in different markets (in 2016, in Sofia and Tallinn), (ii) monitoring current demand and supply in its home markets and (iii) makes efforts to narrow the time between moment of investment and moment of the demand is rising - signing pre-agreements with clients, purchases land without using equity or postpones it using project financing alternatives there equity placement is not necessary. 

Credit risk

The group’s credit risk arises mainly from two sources: real estate development activities and reliability of the banks where bank deposits are placed. As on real estate transactions a lot of counterparty financing goes through banks, co-operation with financing banks is common to mitigate counterparty risk. And not all cash and cash equivalents are placed on the same banking group. As a consequence, the group considers credit risk as substantially mitigated.

Liquidity and interest rate risks

The base currency of all of the group’s loan agreements is euro and the base interest rate is 3 or 6 months EURIBOR. As a result, the group is exposed to developments on the international capital markets. The group does not use hedging instruments to mitigate its long-term interest rate risk. In 12 months 2015, the group’s interest-bearing liabilities have decreased by 2.2 million euros and at 31 December 2015 amounted to 12.8 million euros, of which 2.3 million euros is due within next 12 months. At the same time, the group’s cash and cash equivalents totalled 0.7 million euros as at 31 December 2015 (at 31 December 2014: 1.7 million euros). In 12 months 2015, interest payments on interest-bearing liabilities totalled 0.8 million euros (in 12 months 2014: 1.1 million euros). The group’s weighted average loan interest rate was 5.0% as at 31 December 2015. This is a decrease by 0.8 percentage points in 12 months 2015. The main reason for the decrease of average interest rate is the premature redemption of bonds in February 2015. The bonds bore higher than average interest rate. Marginal effect had also the decrease of EURIBOR rates even below zero-level.

Currency risk

Purchase and sales contracts of provided services are mostly signed in local currencies: euros (EUR) or Bulgarian lev (BGN). Real estate sales are mostly nominated in euros, as a result of which the group’s assets and liabilities structure does not denote a significant currency risk. The group is not protected against currency devaluations. Most liquid funds are held in demand or short-term deposits denominated in euros.

Share and shareholders

Arco Vara AS has issued a total of 6,117,012 ordinary shares with nominal value of 0.7 euros per share. The shares are freely traded on NASDAQ OMX Tallinn stock exchange. As at 31 December 2015, the company had 1,600 shareholders (at 31 December 2014: 1,668) including 1,381 individuals as shareholders (at 31 December 2014: 1,441 individuals). The share price closed at 1.15 euros. The price has increased by 39% within 12 months 2015 (closing price at the end of 2014 was 0.828 euros). During the period, the highest price per share was 1.29 euros and lowest price 0.83 euros. As at 31 December 2015, market capitalization of shares amounted to 7,035 thousand euros and P/E ratio of the share was 15.8 (at 31 December 2014: 5,065 thousand euros and 5.5, respectively). 


Major shareholders at 31 December 2015 No of shares Interest %
NORDEA BANK FINLAND PLC client 862,820 14.1%
AS Lõhmus Holdings 602,378 9.8%
Gamma Holding Investment OÜ 565,356 9.2%
Alarmo Kapital OÜ 489,188 8.0%
OÜ HM Investeeringud 325,505 5.3%
FIREBIRD FUND L.P. 150,522 2.5%
Other shareholders 2,015,667 33.0%
Total 6,117,012 100.0%


Holdings of members of the management and supervisory boards at 31 December 2015 Position No of shares Interest %
Rain Lõhmus (AS Lõhmus Holdings) member of supervisory board         602,378 9.8%
Tarmo Sild and Allar Niinepuu (Alarmo Kapital OÜ) member of management board/
member of supervisory board
        489,188 8.0%
Hillar-Peeter Luitsalu (OÜ HM Investeeringud, related persons) chairman of supervisory board         428,649 7.0%
Kert Keskpaik (privately and through K Vara OÜ) member of supervisory board         194,633 3.2%
Steven Yaroslav Gorelik ¹ member of supervisory board             3,150 0.1%
Total        1,717,998 28.1%

¹ - 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 of 11.3% interest).


Condensed consolidated interim financial statements

Consolidated statement of comprehensive income

  Note   12 months 2015 12 months 2014   Q4 2015 Q4 2014
In thousands of euros              
Continuing operations              
Revenue from sale of own real estate     7,019 5,414   1,306 4,929
Revenue from rendering of services     3,633 3,744   791 883
Total revenue 2, 3   10,652 9,158   2,097 5,812
Cost of sales 4   -6,865 -5,902   -1,432 -4,004
Gross profit     3,787 3,256   665 1,808
Other income     80 37   10 16
Marketing and distribution expenses 5   -530 -324   -170 -84
Administrative expenses 6   -2,020 -1,811   -648 -602
Other expenses     -151 -82   -119 -48
Gain on revaluation of investment property 11   95 0   95 0
Gain on reversal of inventory write-down 10   0 572   0 0
Gain on transactions involving joint ventures     0 -27   0 -27
Gain on sale of subsidiary     0 662   0 0
Operating profit/loss     1,261 2,283   -167 1,063
Finance income and costs 7   -666 -1,062   -128 -368
Profit/loss before tax     595 1,221   -295 695
Income tax     -135 -75   -135 -75
Net profit/loss from continuing operations     460 1,146   -430 620
Discontinued operations              
Loss from discontinued operations     -15 -324   -2 -196
Net profit/loss for the period     445 822   -432 424
   attributable to owners of the parent     467 803   -425 423
   attributable to non-controlling interests     -22 19   -7 1
Total comprehensive income/expense for the period     445 822   -432 424
   attributable to owners of the parent     467 803   -425 423
   attributable to non-controlling interests     -22 19   -7 1
Earnings per share (in euros) 8            
- basic     0.08 0.15   -0.07 0.07
    - diluted     0.07 0.14   -0.07 0.07


Consolidated statement of financial position

  Note   31 December 2015 31 December 2014
In thousands of euros        
Cash and cash equivalents     745 1,691
Receivables and prepayments 9   679 1,205
Inventories 10   12,818 11,970
Total current assets     14,242 14,866
Receivables and prepayments 9   0 5
Investment property 11   9,513 11,585
Property, plant and equipment     489 434
Intangible assets     229 113
Total non-current assets     10,231 12,137
TOTAL ASSETS     24,473 27,003
Loans and borrowings 12   2,345 3,194
Payables and deferred income 13   1,935 2,659
Provisions     146 274
Total current liabilities     4,426 6,127
Loans and borrowings 12   10,417 11,826
Total non-current liabilities     10,417 11,826
TOTAL LIABILITIES     14,843 17,953
Share capital     4,282 4,282
Share premium     292 292
Statutory capital reserve     2,011 2,011
Other reserves 8   298 179
Retained earnings     2,656 2,250
Total equity attributable to owners of the parent     9,539 9,014
Equity attributable to non-controlling interests     91 36
TOTAL EQUITY     9,630 9,050


Consolidated statement of cash flows

  Note   12 months 2015 12 months 2014   Q4 2015 Q4 2014
In thousands of euros              
Cash receipts from customers     13,770 10,812   2,825 5,745
Cash paid to suppliers     -7,679 -8,945   -2,926 -1,775
Income tax paid from profits     -197 -4   -24 0
Other taxes paid and recovered (net)     -2,399 -341   -267 -32
Cash paid to employees     -1,015 -866   -249 -249
Other cash payments and receipts related to operating activities (net)     9 -41   -15 -7
Net cash flow of discontinued operations     -15 -250   -2 -2
Payments made on purchase of tangible and intangible assets     -196 -71   -59 -39
Proceeds from sale of a subsidiary     0 10   0 0
Proceeds from sale of an associated company     0 1   0 0
Loans provided     0 -3   0 0
Placement of security deposits     0 -438   0 0
Release of security deposits     0 701   0 0
Interest received     4 5   0 2
Proceeds from loans received 12   2,734 4,885   1,349 832
Settlement of loans and borrowings 12   -5,025 -4,800   -916 -3,608
Interest paid     -788 -1,091   -200 -576
Dividends paid     -61 0   0 0
Proceeds from share capital issue     0 1,375   0 0
Other payments related to financing activities     -88 -76   -6 -25
NET CASH FLOW     -946 863   -490 266
Cash and cash equivalents at beginning of period     1,691 818   1,235 1,415
Increase or decrease in cash and cash equivalents     -946 863   -490 266
Increase in cash and cash equivalents through purchase of a subsidiary   0 10   0 10
Cash and cash equivalents at end of period     745 1,691   745 1,691


Consolidated statement of changes in equity

    Equity attributable to owners of the parent   Non-controlling interests   Total equity
    Share capital Share premium Statutory capital reserve Other reserves Retained earnings Total    
In thousands of euros                      
Balance as at 31 December 2013   3,319 0 2,011 60 1,452 6,842   12   6,854
Change in non-controlling interests   0 0 0 0 -5 -5   5   0
Increase of share capital   963 292 0 0 0 1,255   0   1,255
Formation of equity reserve   0 0 0 119 0 119   0   119
Total comprehensive income for the period   0 0 0 0 803 803   19   822
Balance as at 31 December 2014   4,282 292 2,011 179 2,250 9,014   36   9,050
Balance as at 31 December 2014   4,282 292 2,011 179 2,250 9,014   36   9,050
Profit distribution   0 0 0 0 -61 -61   0   -61
Change in non-controlling interest   0 0 0 0 0 0   77   77
Formation of equity reserve   0 0 0 119 0 119   0   119
Total comprehensive income for the period   0 0 0 0 467 467   -22   445
Balance as at 31 December 2015   4,282 292 2,011 298 2,656 9,539   91   9,630




         Marek Pontus
         Arco Vara AS
         Ph: +372 614 4662

AVG 2015 Q4 ENG.pdf