OREANDA-NEWS. August 23, 2012. The most important events of the second quarter and the first half-year are related to the supervisory board. In the previous quarterly report, we informed you of three resignations and the election of three new members of the supervisory board - Toomas Tool, Stephan David Balkin and Aivar Pilv. An extraordinary general meeting that convened after the reporting date, on 30 July 2012, also elected to the supervisory board Arvo Noges and Rain Lohmus.

A significant transaction was conducted in April when we divested our 49.9% stake in the joint venture Bisumuizas Nami SIA to the co-venturer SIA Linstow Baltic. Arco Vara sought possibilities for exiting the project for over a year. Through the transaction, we disposed of the obligation to support the joint venture in the development of apartment buildings and in servicing loan liabilities. In 2011 we financed the joint venture to the extent of 0.3 million euros and Bisumuizas Nami SIA’s loan liabilities alone totalled 14 million euros.

Out of the six-month net loss of 1.3 million euros, 0.7 million euros resulted from the sale of an investment property in Tallinn, where we disposed of the right of superficies on the property at Kadaka tee 131. The remaining loss of 0.6 million euros is mainly attributable to the fact that the conclusion of real right contracts in the Manastirski project in Sofia was postponed from the second quarter to the third one.

In the first half of 2012, a total of 35 apartments and plots were sold in the projects of Arco Vara: 29 in Estonia and 6 in Latvia. The figure does not yet include the apartments sold in the Manastirski apartment block, which was completed at the end of spring, because currently only contracts under the law of obligations (presale contracts) have been concluded there. The sales of those apartments will be included in revenue from the third quarter.

As regards major ongoing work, in Tallinn we are developing a large-scale apartment buildings project called Tivoli. A construction contract of 13 million euros was signed in May. Construction of phase VI in the Kodukolde project (48 apartments) at Helme 16 in Tallinn was completed in June 2012. In the second quarter, 28 of the apartments were sold under real right contracts. In June, we signed a contract for the construction of a residential and commercial building of energy class B called Kastanimaja (Chestnut House) at Tehnika 53 in Tallinn. Pre-sale of the apartments has been successful: by the reporting date 8 of the 14 apartments were covered with contracts under the law of obligations.

In Bulgaria, the construction of phase I of the Manastirski project (7,000 square metres) has been completed. At the reporting date, 76% of its 74 apartments were reserved. In addition, we continue to lease out commercial premises and to sell the remaining free apartments in the commercial and residential building Boulevard Residence Madrid in Sofia.

In the Bisumuiza 1 apartment buildings project in Latvia, the fourth building of phase II (14 apartments) will be completed in the second half of 2012. In addition to selling the apartments of Bisumuiza 1, we continue to sell plots in the Mazais Baltezers project. Completion of development projects has a strong impact on the Group’s revenue, because sales are recognised as revenue when construction has been completed, not when it is in progress.

In the first half of 2012, our Service division performed better than a year ago, generating revenue of 1,291 thousand euros, 13% up on the first half of 2011. In the first six months of 2012, the division earned an operating profit of 59 thousand euros compared with an operating profit of 44 thousand euros for the comparative period. The number of brokerage transactions increased by 15% and the number of valuation reports issued grew by 14% year over year. At the same time, the number of brokers decreased by 3% and the number of appraisers increased by 18%.

In the first half of 2012, we secured new construction contracts of 3.2 million euros. At the reporting date, the order backlog stood at 10.3 million euros against 13.5 million euros at the end of the second quarter of 2011. The Construction division ended the first half-year with an operating profit of 0.2 million euros compared with an operating loss of 0.8 million euros incurred in the first half of 2011.

In the first half-year, the Group’s loans and borrowings decreased by 0.3 million euros while equity to assets ratio remained more or less stable at around 40%. The weighted average interest rate of loans and borrowings decreased by 0.5 percentage points compared with a year ago, mainly thanks to a decline in EURIBOR. The weighted average duration of loans and borrowings extended slightly, from 2.0 years to 2.1 years.

KEY PERFORMANCE INDICATORS

The Group ended the first six months of 2012 with revenue of 11.1 million euros. Revenue for the first half of 2011 was 23.5 million euros (including 8.3 million euros earned on the sale of the Tivoli properties). Excluding the effect of the Tivoli transaction, revenue for the first six months of 2012 was 27% smaller than a year ago.

Operating loss for the period was 0.6 million euros. Compared with the first half of 2011 when the figure was 1.4 million euros, operating loss has decreased by 59%.

Net loss for the first half-year was 1.3 million euros, a 33% decrease from the net loss of 1.9 million euros incurred in the first half of 2011.

Equity to assets ratio at period-end was 40.3% (30 June 2011: 39.1%). Return on equity (12 months rolling) was negative.

At the end of the second quarter, the Group’s order backlog stood at 10.3 million euros compared with 13.5 million euros at the end of the second quarter of 2011.

During the first six months, the Group sold 35 apartments and plots (HY1 2011: 56 apartments and plots) in its self-developed projects.