Published: 2017-05-11 15:30:06 CEST
Arco Vara
Quarterly report

Arco Vara AS unaudited consolidated interim report for the first quarter of 2017


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, Latvia and Bulgaria as its home markets. The group has two business lines: the Service Division and the Development Division.

The Service Division is engaged in real estate brokerage, valuation, management and consulting as well as in short-term investment in residential real estate. The Service Division offers to the group additional value by generating analytical data on market demand and supply, and behaviour of potential clients. Analytical data allows making better decisions on real estate development: purchase of land plots, planning and designing, pricing end products, and timing the start of construction.

The Development Division 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.

As of 31 March 2017, the group consisted of 22 companies, the same as on 31 December 2016. During first three months of the year, there were no changes in the group’s structure.


Significant subsidiaries as of 31 March 2017

Company name Location Segment Share capital (nominal value) Equity balance
on 31 March 2017
The group's interest
In thousands of euros          
Arco Invest EOOD Bulgaria Development 26,826 -1,359 100%
Iztok Parkside EOOD Bulgaria Development 1,433 1,120 100%
Arco Real Estate Fund REIT Bulgaria Development 332 307 100%
Kodulahe OÜ Estonia Development 3 -380 100%
Kerberon OÜ Estonia Development 5 1,413 100%
Marsili II SIA Latvia Development 1,524 735 100%
Arco Real Estate AS Estonia Service 42 -32 100%
Arco Imoti EOOD Bulgaria Service 444 206 100%



·                     In Q1 2017, the group’s revenue was 1.6 million euros, which is 68% less compared to the revenue of 5.1 million euros in Q1 2016. In Q1 2017, revenue of the Development Division amounted to 1.1 million euros (Q1 2016: 4.4 million euros) and revenue of the Service Division amounted to 0.7 million euros (Q1 2016: 0.8 million euros).

·                     In Q1 2017, the group’s operating loss (=EBIT) was 0.2 million euros and net loss 0.3 million euros. In Q1 2016, the group earned operating profit of 1.2 million euros and net profit of 1.1 million euros. In Q1 2017, the Development Division made operating loss of 14 thousand euros and the Service Division made operating loss of 12 thousand euros. In Q1 2016, the Development Division earned operating profit of 1.4 million euros and the Service Division made operating loss of 0.1 million euros.

·                     In Q1 2017, 1 apartment and 3 land plots were sold in projects developed in the group (in Q1 2016: 68 apartments and 2 commercial spaces were sold). Number of sold properties explains big differences in revenue and operating profit figures of the Development Division. In Q1 2016, active sale was ongoing in Manastirski project in Bulgaria, but no development projects were completed in Q1 2017.

·                     In the first 3 months 2017, the group’s debt burden (net loans) increased by 1.2 million euros up to the level of 14.6 million euros as of 31 March 2017. As of 31 March 2017, the weighted average annual interest rate of interest bearing liabilities was 5.1%. This is a decrease of 0.2 percentage points compared to 31 December 2016.


Main financial figures

In millions of euros   Q1 2017 Q1 2016
Development   1,1 4,4
Service   0,7 0,8
Eliminations   -0,2 -0,1
Total revenue   1,6 5,1
Operating profit (EBIT)      
Development   0,0 1,4
Service   0,0 -0,1
Unallocated income and expenses   -0,2 -0,2
Eliminations   0,0 0,1
Total operating profit/loss (EBIT)   -0,2 1,2
Finance income and expense   -0,1 -0,2
Income tax   0,0 0,0
Net profit/loss   -0,3 1,1
Total assets at the end of period   30,0 27,7
Invested kapital at the end of period   24,4 23,2
Net loans at the end of period   14,6 13,4
Equity at the end of period   8,7 9,0
Cash flows from/used in operating activities   -0,6 2,9
Cash flows used in investing activities   -0,3 -0,1
Cash flows from/used in financing activities   1,2 -1,7
Net cash flows   0,3 1,1
Cash and cash equivalents at the beginning of period   0,8 0,8
Cash and cash equivalents at the end of period   1,1 1,9


Key ratios      
EPS (in euros)   -0,04 0,17
Diluted EPS (in euros)   -0,04 0,16
ROIC (rolling, four quarters)   -9,6% 3,6%
ROE (rolling, four quarters)   -22,4% 7,9%
ROA (rolling, four quarters)   -8,1% 3,3%
Current ratio   0,88 1,15
Quick ratio   0,09 0,09
Financial leverage   3,45 3,09
Average loan term (in years)   0,9 1,2
Average annual interest rate of loans   5,1% 5,3%
Number of staff, at period end   120 110


Revenue and net profit/loss from continuing operations                  
    Q1 2014 Q2 2014 Q3 2014 Q4 2014 Total 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Total 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Total 2016 Q1 2017  
In millions of euros                                    
Revenue   1.1 1.1 1.2 5.8 9.2 4.4 2.1 2.1 2.1 10.7 5.1 2.1 1.2 1.3 9.7 1.6  
Net profit/loss   0.4 -0.3 0.4 0.6 1.1 0.7 0.0 0.2 -0.4 0.5 1.1 -0.2 -0.4 -1.3 -0.8 -0.3  

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 interest-bearing liabilities + non-current liabilities + equity (at the end of period)

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



As promised, Q1 2017 was a boring quarter and should remain the last but one boring quarter with modest financial volumes. We continued selling the last units from already empty stock. During the first 3 months, our balance sheet grew by 10% to 30M EUR. Investors and bypassers alike could watch construction works of Kodulahe phase I and follow its presale levels, which by now exceed 70% and which will convert into effective sales numbers starting from Q3. If we outperform ourselves, Kodulahe sales may commence already at the end of Q2. Expected revenue from phase I exceeds 16M EUR.

We have run into bureacuratic delays with Iztok Parkside, another potential source of significant revenue (more than 8M EUR) and profit. The problem lies in getting the construction permit for future access street that will be constructed on the landplots belonging to the state. We depend on cooperation of Sofia municipality and the government, which hopefully will be efficient and smooth so that we can commence the construction very soon. Achieved presale levels exceed 20%, but currently we have stopped presales as we cannot guarantee to our clients the delivery time.   

We made progress in Madrid Blvd building where the offices vacancy has dropped to only two premises (unoccupied GLA has decreased to 2000 sqm) and new tenants have moved in. We also sold the Liimi 1b landplot in Tallinn for a price that exceeded our expectations.

We progressed well with Oa development in Tartu where we are in design phase, and Kodulahe phase II building design. Arco Vara’s aim is to commence construction of both projects by year-end. Taking into account our recent experience, it should be added - subject to getting the construction permit according to our schedule.  

We have been the least successful with acquiring new landplots in Sofia. There is nothing to report about it at this time.

The backbone of Q1 results are the ongoing brokerage and evaluation services in Estonia and in Bulgaria that on a stand-alone basis have crossed the breakeven point and have started to support the Group’s overhead costs.  In the first quarter, the number of served customers exceeded 2000 people and the combined revenue from those customers exceeded 660,000 EUR, which is better than in Q1 2016 (when our revenue without Latvia was 520,000 EUR).

To sum up, the Group stays well on the course of meeting its 2017 targets.



Revenue of the Service Division amounted to 680 thousand euros in Q1 2017 (Q1 2016: 748 thousand euros), which included intra-group revenue of 120 thousand euros (Q1 2016: 77 thousand euros). In Q1 2017, revenue of the Service Division from main services (real estate brokerage and valuation services) decreased by 11% compared to Q1 2016. The main reason is the fact that the revenue in the amount of 235 thousand euros from Latvian agency (which was sold in Q4 2016) was included in the group revenue Q1 2016. It is pleasant to see from the table below that the revenue from main services increased significantly both in Estonian and Bulgarian agencies (increases compared to the Q1 2016 by 35% and 38%, respectively).

Revenue of real estate agencies from brokerage and valuation
    Q1 2017 Q1 2016 Change, %
In thousands of euros        
Estonia   406 300 35%
Bulgaria   197 143 38%
Latvia   - 235 -
Total   603 678 -11%

In Q1 2017, Estonian agency had net loss of 62 thousand euros (Q1 2016: net loss of 73 thousand euros), but Bulgarian agency earned net profit of 35 thousand euros (Q1 2016: net profit of 9 thousand euros).

In addition to brokerage and valuation services, the Service Division also provides real estate management services and accommodation service in Bulgaria. The revenue from real estate management was 29 thousand euros in Q1 2017, 24 thousand euros of which was intra-group revenue (Q1 2016: 27 thousand and 23 thousand euros, respectively). Revenue from accommodation services amounted to 39 thousand euros in Q1 2017 (Q1 2016: 30 thousand euros).

The numbers of brokerage deals and valuation reports of the Service Division, together with the number of staff are shown in the following graphs. For better comparability, only Bulgarian and Estonian figures are shown.

On 31 March 2017, the number of staff in the Service division was 107 (on 31.12.2016: 97).



In Q1 2017, revenue of the Development Division totalled 1,063 thousand euros (in Q1 2016: 4,412 thousand euros) including revenue of 938 thousand euros (Q1 2016: 4,305 thousand euros) from the sale of properties in the group’s own development projects.

Most of the other revenue of the Development Division consists of rental income from commercial and office premises in Madrid Blvd building in Sofia, amounting to 92 thousand euros in Q1 2017 (Q1 2016: 76 thousand euros). Two new rental agreements were concluded in Q1 2017. By the publishing date of the interim report, last two office spaces remained vacant. The group expects to rent out all vacant spaces during Q2 2017.

In Q1 2017, operating loss of the Development Division was 14 thousand euros. In Q1 2016, operating profit in the amount of 1,386 thousand euros was earned. Revenue and profitability figures were significantly higher in Q1 2016 due to the conclusion of most of sale agreements in the last stage of Manastirski project in Sofia in that period (the construction of apartment building was finished in December 2015).

During Q1 2017, the construction and presale of apartments of the first stage apartment building (with 125 apartments and 5 commercial spaces) in the group’s largest development project Kodulahe continued in Tallinn. By the publishing date of the interim report, presale agreements for 92 apartments and two commercial spaces have been concluded. The construction of the apartment building should be finished by summer 2017.

In Q1 2017, preparatory works in the second stage of Kodulahe project started, where a building with ca 70 apartments and commercial spaces is planned. Preparatory works also started for Oa street properties in Tartu, where 4 smaller apartment buildings are planned. Both of these projects are expected to be finalised by mid-2019.

In Q1 2017, one apartment was sold in Madrid Blvd complex in Sofia. As of 31 March 2017, 4 apartments remained unsold. Additional 15 apartments are furnished and are being rented out as accommodation service. Unsold parking places are also being rented out.

In Q1 2017, delays emerged in the development of Iztok Parkside project in Sofia, Bulgaria. The problem lies in obtaining construction permit for the construction of access road, which is located on state-owned land. By the publication date of interim report, presale agreements for 18 apartments have been concluded, but presale has been stopped by now until the construction permit issue will be cleared out. Iztok project consists of three apartment buildings with 68 apartments (7,070 square meters of apartments’ sellable area).

As of 31 March 2017, 9 Marsili residential plots remained unsold in Latvia, out of which a presale agreement for one had been concluded in December 2016. In Q1 2017, one plot was sold in the project. Additionally, the sale of Baltezers-3 project (68 undeveloped land plots as a whole) was finished in Latvia in January.  

As of 31 March 2017, 5 people were employed in the Development Division, the same number as at the end of 2016.

Summary table of Arco Vara’s active projects as of 31 March 2017

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>
Madrid Blvd  Madrid Blvd, Sofia Lease: Retail/Office S5/S6 - 7,350 21
Madrid Blvd  Madrid Blvd, Sofia Apartments S5/S6 - 1,874 19
Iztok Parkside Iztok, Sofia Apartments S3 2,470 7,070 68
Marsili residential plots Marsili, near Riga Residential plots S5 - 15,839 9
Kodulahe, stage 1  Lahepea 7, Tallinn Apartments S4/S5 6,102 8,732 130
Kodulahe, stage 2 Lahepea 9, Tallinn Apartments S3 3,686 <4,850> <70>
Kodulahe, stages 3-5 Soodi 4, Pagi 3, 5, Tallinn Apartments S2 10,578 <8,100> <120>
Oa street apartments Oa street 37,39,41, Tartu Apartments S3 4,146 <2,300> <40>
Lehiku carpet building Lehiku 21,23 Tallinn Apartments S2 5,915 <1,100> <5>

Note: Values presented between < > sign represent future target values for projects where 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 give 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



Share price

Arco Vara AS has issued a total of 6,507,012 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 1.24 euros on 31 March 2017 2016, the same price as on 31 December 2016. During the period, the highest traded price per share was 1.39 euros and the lowest price 1.15 euros. As of 31 March 2017, market capitalization of shares amounted to 8,069 thousand euros and P/B ratio was 0.93 (31 December 2016: 8,069 thousand euros and 0.90, respectively). P/E ratio of the share was negative on 31 March 2017 and also on 31 December 2016.

Shareholder structure

As of 31 March 2017, Arco Vara had 1,453 shareholders (on 31 December 2016: 1,502) including 1,256 individuals as shareholders (on 31 December 2016: 1,297 individuals) who jointly owned 12.4% (on 31 December 2016: 12.5%) out of all Arco Vara shares. 

Major shareholders on 31 March 2017

Name No of shares Share, %
Alarmo Kapital OÜ 920,646 14.1%
NORDEA BANK FINLAND PLC client 862,820 13.3%
AS Lõhmus Holdings 602,378 9.3%
Gamma Holding Investment OÜ 553,975 8.5%
HM Investeeringud OÜ 330,505 5.1%
FIREBIRD FUND L.P. 150,522 2.3%
Other shareholders 1,980,590 30.4%
Total 6,507,012 100.0%


Holdings of management and supervisory board members on 31 March 2017

Name Position No of shares Share, %
Tarmo Sild ja Allar Niinepuu (Alarmo Kapital OÜ) member of management board/ member of supervisory board 920,646 14.1%
Rain Lõhmus (AS Lõhmus Holdings) member of supervisory board 602,378 9.3%
Hillar-Peeter Luitsalu (HM Investeeringud OÜ, related persons) chairman of supervisory board 369,259 5.7%
Kert Keskpaik (privately and through K Vara OÜ) member of supervisory board 202,623 3.1%
Steven Yaroslav Gorelik ¹ member of supervisory board 0 -
Total   2,094,906 32.2%

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 10.6% interest).




  Note   Q1 2017 Q1 2016
In thousands of euros        
Revenue from sale of own real estate     938 4,305
Revenue from rendering of services     662 752
Total revenue 2, 3   1,600 5,057
Cost of sales 4   -1,251 -3,179
Gross profit     349 1,878
Other income     10 1
Marketing and distribution expenses 5   -109 -142
Administrative expenses 6   -412 -499
Other expenses     -8 -6
Operating profit/loss     -170 1,232
Finance income and costs 7   -115 -172
Profit/loss before tax     -285 1,060
Income tax     0 0
Net profit/loss     -285 1,060
Net profit/loss for the period     -285 1,060
   attributable to owners of the parent     -285 1,060
   attributable to non-controlling interests     0 0
Total comprehensive income/expense for the period     -285 1,060
   attributable to owners of the parent     -285 1,060
   attributable to non-controlling interests     0 0
Earnings per share (in euros) 8      
- basic     -0.04 0.17
    - diluted     -0.04 0.16



  Note   31 March 2017 31 December 2016
In thousands of euros        
Cash and cash equivalents     1,133 845
Receivables and prepayments 9   676 470
Inventories 10   16,093 14,593
Total current assets     17,902 15,908
Receivables and prepayments 9   11 11
Investment property 11   11,153 10,835
Property, plant and equipment     716 718
Intangible assets     253 248
Total non-current assets     12,133 11,812
TOTAL ASSETS     30,035 27,720
Loans and borrowings 12   14,690 9,372
Payables and deferred income 13   5,550 4,369
Provisions     44 108
Total current liabilities     20,284 13,849
Loans and borrowings 12   1,051 4,886
Total non-current liabilities     1,051 4,886
TOTAL LIABILITIES     21,335 18,735
Share capital     4,555 4,555
Share premium     292 292
Statutory capital reserve     2,011 2,011
Other reserves 8   52 52
Retained earnings     1,790 2,075
Total equity attributable to owners of the parent     8,700 8,985
Equity attributable to non-controlling interests     0 0
TOTAL EQUITY     8,700 8,985



  Note   Q1 2017 Q1 2016
In thousands of euros        
Cash receipts from customers     2,039 5,826
Cash paid to suppliers     -2,362 -1,764
Other taxes paid and recovered (net)     -79 -771
Cash paid to employees     -212 -324
Other cash payments and receipts related to operating activities (net)     -10 -47
Payments made on purchase of tangible and intangible assets     -15 -39
Payments made on purchase and development of investment property 11   -318 -18
Loans provided     -5 0
Other payments related to investing activities     0 -3
Proceeds from loans received 12   1,654 1,020
Settlement of loans and borrowings 12   -171 -2,418
Interest paid     -233 -202
Other payments related to financing activities     0 -128
NET CASH FLOW     288 1,132
Cash and cash equivalents at beginning of period     845 745
Increase in cash and cash equivalents     288 1,132
Cash and cash equivalents at end of period     1,133 1,877



    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 of 31 December 2015   4,282 292 2,011 298 2,656 9,539   91   9,630
Change in non-controlling interest   0 0 0 0 0 0   -77   -77
Total comprehensive income
for the period
  0 0 0 0 1,060 1,060   0   1,060
Balance as of 31 March 2016   4,282 292 2,011 298 3,716 10,599   14   10,613
Balance as of 31 December 2016   4,555 292 2,011 52 2,075 8,985   0   8,985
Total comprehensive income
for the period
  0 0 0 0 -285 -285   0   -285
Balance as of 31 March 2017   4,555 292 2,011 52 1,790 8,700   0   8,700


Kristel Tumm


Arco Vara AS

Tel: +372 614 4662

AVG 2017 Q1 ENG.pdf