ARC: Arco Vara AS Audited Consolidated Annual Report 2014
KEY PERFORMANCE INDICATORS
The group’s revenue for 2014 from continuing operations was 9.2 million euros, declined by 1.5 million euros (14.6%) compared to year 2013. Revenue of Service division increased 6% on yearly basis up to 3.1 million euros. Revenue of Development division was 6.5 million euros in 2014 (in 2013: 8.1 million euros), having decreased by 19.4%. The main reason for decrease of revenue in Development division is because the group’s development projects are in such a stage, where revenue is not yet accrued. Most of Development division revenue in 2014 was accrued in the last quarter of the year when sale of apartments to clients amounted to 4.9 million euros.
In 2014, the group earned operating profit from continuing operations of 2.3 million euros and net profit from continuing operations of 1.1 million euros. In previous year, the corresponding figures were 4.5 million euros and 3.5 million euros respectively. Better profit figures in 2013 were due to the reversal of provisions and revaluation of assets and liabilities in total amount of 3.3 million euros (in 2014: 0.5 million euros). The group ended year 2014 with net profit of 0.8 million euros (in 2013: 3.4 million euros).
Equity to assets ratio has been recovered compared to the year end 2013, achieving 33.5% as at 31 December 2014. As at 31 December 2013, the ratio was 27.2%. In addition to the profitable operating activities reason contributing to growth was also the share issue conducted in Q3 2014 which raised 1.3 million euros in equity.
The balance of the group’s total assets is increased by 1.8 million euros in 2014. Main reason is increase of inventory through construction of Manastirski Livadi II stage apartment building in Sofia.
The group’s loan burden (net loans) have decreased by 0.8 million euros in 2014. As at 31 December 2014, the weighted average annual interest rate of loans is 5.8%. This is a decrease by 0.2 percentage point since the end of year 2013 mainly due to very low Euribor rates in second half of 2014.
In 2014, the group sold 77 apartments and commercial areas and 4 residental plots (in 2013: 78 apartments and commercial areas and 5 residental plots) in its own development projects.
Group chief executive’s review
In 2014, focus was on restarting Arco Vara development activities. By the end of year, development in Sofia with 135 apartments and smaller commercial spaces - second stage of Manastirski Livadi, which construction started in November 2013, was finalised. Moreover, through adoption of detail plan we got building right for up to 330 apartments for Paldiski road 70C property in Tallinn. The plot was acquired in June 2013.
Business activities remained profitable and at the same time were oriented to growth. In 2013, profit was resulted mainly from successful release of the group from liabilities and risks beyond the reach of the group and clearing the balance sheet. But in 2014, significant role in profit had the group’s main activities: sale of development products and provision of real estate services.
The group achieved the targets set for year 2014: revenue exceeded 9 million euros (targeted was 9 million euros), net profit was 0.8 million euros (target was 0.5 million euros) and yield from selling development products exceeded 20%. The group’s return on equity did not exceed 20% yet, because about one quarter of balance sheet consisted of assets not suitable for development. Predominantly, this includes ‘land bank’ acquired in previous years in Latvian and Estonian regions with low demand. The management is continuously working on ‘land bank’ to bring it to active development, to sell it or exchange it against property more suitable to our goal: to be an active developer.
Forecast and objectives for 2015
The management is predicting for the group at least 11 million euros as revenue and at least 1 million euros as net profit in 2015. In addition to changes of the general economic environment, the achievement of the forecast in 2015 and the results of the group in 2015 – 2017 also depend on the following critical intermediate results.
(i) Final stabilisation of the Madrid Blvd loan and extension of important rent contracts. By the reporting date, the group has made the repayment of the principal in amount of 950 thousand euros, after which the loan balance dropped below 11 million euros and the loan agreement is prolonged until December 2017. The main tasks for the next couple of years will be: 1) to keep stable rental income in amount of approx. 1 million euros and 2) sale of remaining apartments in Madrid Blvd building (as at 31 December 2014 the sellable area is 3,762 m2) at amount of approx. 1 million euros per year or letting out with annual yield at least 6%.
(ii) Sell out of apartments in Manastirski AB block by the end of the year.
(iii) Finishing the construction of Manastirski D-block (final stage of the development project) in December 2015 and delivery and sale to the final customers in 2016.
(iv) Buying a new plot suitable for development in Sofia, with gross sellable area (GSA) of at least 7,000 m2, on which to build in 2016 and sell to customers in 2017.
(v) The completion of the construction project for Paldiski road 70c first stage and beginning construction in the fourth quarter 2015. The sellable volume of first stage is predicted to exceed 120 apartments and the gross sellable area (GSA) of apartments will be 8,000 m2.
The sales of remaining completed products in Latvia also influences the results to an extent, but the management board is not particularly optimistic about the outlook of new developments in Latvia. The management board is the most optimistic about the real estate market in Sofia, which is indicating the strongest absolute demand, the increase of demand and the margins of the developer. In Tallinn, the key issue is entering the market with a product which would exceed the customers’ expectations by its properties, the developed and added quality for apartment supply, and bring the using apartment usage costs lower. Arco Vara does not need to bring more trees into the forest.
Moreover, Arco Vara needs to strengthen its ability to gather and analyse information about customers’ preferences and needs not fulfilled yet. It means, that the work on development of service division data processing capabilities will continue and second generation of Arco Vara information system (AVIS 2) will be launched during the year.
SERVICE DIVISION
In 2014, the sales revenue of the service division increased by 6% compared to the previous year, up to 3,139 thousand euros (includes 451 thousand euros of intra-group revenue). Sales revenue increased in Latvia and Bulgaria where revenue from main activities of real estate agencies, brokerage and valuation of real estate, increased by 17% in Latvia and very good 61% in Bulgaria. The turnover of the Estonian real estate agency has decreased by 17% compared to previous year mainly due to drop in revenue from valuation services in 2014 by 25%.
The revenue growth of Latvian and Bulgarian agencies was caused both by general increased activity on the market and strongly seizing the market by increasing the number of employees. But growth in Latvian remains mainly to the first half of 2014 and is slowed down in second half of the year. It would not be a big surprise to see further slow-down in 2015 due to adverse effect of recent changes in laws that directly influencing real estate sales. In 2014, brokerage of the group’s own development projects had 44% of Bulgarian agency’s revenue, providing significant part of turnover of Bulgarian agency.
All three real estate agencies finished the year 2014 with net profit: the net profit of the Estonian agency was 48 thousand euros (in 2013: 156 thousand euros), the net profit of the Latvian agency was 65 thousand euros (in 2013: 81 thousand euros) and the net profit of the Bulgarian agency was 90 thousand euros (in 2013: 25 thousand euros).
In addition to brokerage and valuation services, the service division also provides real estate management and accommodation services in Bulgaria. The revenue from real estate management was 148 thousand euros in 2014, including 105 thousand euros of which was intra-group revenue (in 2013: 135 thousand and 103 thousand euros, respectively). Revenue from accommodation services amounted to 74 thousand euros in 2014 (in 2013: 24 thousand euros). The accommodation services have been provided since July 2013.
The number of staff in service division has been increased to 176 employees as at 31 December 2014, growing by 15 people within a year.
DEVELOPMENT DIVISION
In 2014, revenue of development division totalled 6,466 thousand euros, dropped by 20% compared to previous year (in 2013: 8,049 thousand euros). Most of 2014 revenue from development activities accrued in fourth quarter due to getting permit of use for two apartment buildings In November: for Manastirski Livadi second stage building (with 135 apartments and smaller commercial spaces in total) and for last stage building (with 14 apartments) in Bisumuiza-1 project in Riga. In Q4 2014, 72 apartments were sold in these two projects. Information on sold real estate properties in the group’s own development projects is presented in following table.
Most of other revenue of development division consisted of rental income from commercial and office space in Madrid Blvd building in Sofia, amounted to 953 thousand euros in 2014 (in 2013: 956 thousand euros).
In 2014, operating profit of development division was 1,942 thousand euros (in 2013: 5,100 thousand euros). In 2013, the impact of extraordinary items to the profit amounted to 3,332 thousand euros and 521 thousand euros in 2014.
As at 31.12.2014, the group had in stock 113 apartments and smaller commercial spaces ready for sale, of which 109 in Bulgaria and 4 in Riga. Pre-sale agreements were concluded to 48 apartments and commercial spaces in stock, revenue from final sales will be accrued in first quarter of 2015.
In fourth quarter 2014, after a year break, the sale of free apartments in Madrid Blvd building restarted. In December, the first sale transaction was concluded and as at the annual report date two more apartments have been presold. 15 apartments and all parking places, out of all Madrid Blvd unsold assets, are rented out. In Q4 2014, four more apartments were prepared for letting out.
In Bulgaria, the group will be coming to the end with preparations for the construction of Manastirski Livadi D-block (also named as Manastirski III stage). Construction will start in Q1 2015. The building will have 87 apartments and commercial areas with saleable area of nearly 6,900 m2 and construction will be finished by the end of 2015.
In the most important Estonian development project for the group, Paldiski road 70C, has been reached to the final stage of concluding first stage design contract. The construction works of the apartment building (at least 120 apartments and 4-5 smaller commercial spaces) should start in fourth quarter of 2015.
In February 2014, the group acquired as an addition to the land bank, two land plots with building right for 2 apartment buildings (30 apartments with GSA of 2,100 m2) near Tallinn, at Instituudi tee 7 and 9 in Harku. In Q3 2014, the development of the project was suspended due to the need to use the group’s finances for carrying out best yielded projects (Paldiski road 70c foremost). The sale of the development project could also be an option.
As at 31 December 2014, 5 people were employed in development division, one employee hired during a year.
PEOPLE
As at 31 December 2014, 189 people worked for the group under employment or authorization contract (178 at 31 December 2013). Employee remuneration expenses in 2014 amounted to 2.5 million euros (in 2013: 2.5 million euros).
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 taxes in 2014 amounted to 102 thousand euros (in 2013: 174 thousand euros).
The management board
The management board of Arco Vara AS has one member. Since 22 October 2012, the chief executive officer/member of the management board of Arco Vara AS has been Tarmo Sild.
The members of supervisory board
At the time of publishing the annual report, supervisory board of Arco Vara AS consist of 5 members. As at 31.12.2014, the supervisory board had 7 members. After the reporting date, extraordinary shareholders meeting held on 10 February 2015, previous supervisory board was recalled and new supervisory board with 5 members was elected. Hillar-Peeter Luitsalu, Allar Niinepuu and Rain L?hmus, remained from the previous supervisory board and two new members are Steven Yaroslav Gorelik and Kert Keskpaik. The members of previous supervisory board Toomas Tool, Arvo N?ges, Aivar Pilv and Stephan David Balikn will not continue in new board.
SOCIAL RESPONSIBILITY
Main business lines of Arco Vara are real estate development, real estate brokerage and valuation services. In our work, we follow principles which are environmentally friendly and sustainable.
We plan real estate developments which have excellent energy class and are environmentally friendly and buildings fit well into surrounding. We turn attention to construction quality of our buildings, because we would like to create living environments, which will last for generations.
Services we provide have noticeable weight in society. Customers invest to real estate each year tens of millions of euros through our mediation and make credit decision in almost the same volume based on our professional valuation. It is important to achieve and to maintain operating real estate market which is balanced informatively, making it also more sustainable. Each and every client, out of thousands who purchase real estate mediated by us, has to make balanced and informative decision and broker has to help client in getting the right and timed information about object properties, merits and demerits and alternatives. Each credit in form of real estate collateral should be supported by objective expertise. Our brokers and valuators are aware of social responsibility when providing services.
In 2014, Arco Vara turned special attention to well-being of its employees and improvement of working conditions – we replaced computers, renewed offices and office furniture, organised joint events. In our everyday work we are following sustainability principles by using digital possibilities – digital signature, digital archiving and intra-office data processing without physical data carriers.
We inspire and encourage our people to participate voluntarily in charity projects and contribute to environmental initiatives. Our people are participating in support of orphanage children and activities for the benefit of community.
SHARE AND SHAREHOLDERS
Arco Vara AS has issued a total of 6,117,012 ordinary shares (as at 31 December 2013: 4,741,707 shares) with nominal value of 0.7 euros per share. The shares are freely traded on NASDAQ OMX Tallinn stock exchange. In September 2014, share capital was raised by issuing 1,375,305 new shares. As at 31 December 2014, the company had 1,668 shareholders and the share price closed at 0,828 euros, a decrease by 40.86% within 2014. During the year, the highest price per share was 1.55 euros and the lowest price 0.821 euros. As at 31 December 2014, market capitalization of shares amounted to 5,065 thousand euros (as at 31 December 2013: 6,638 thousand euros) and P/E ratio of the share was 5.5 (as at 31 December 2013: 1.9).
DESCRIPTION OF THE MAIN RISKS
Liquidity risk
The group’s free funds are placed on current accounts or short-term deposits with the banks operating in Estonia, Latvia and Bulgaria. Owing to high refinancing risk, cash flow management is critical. The group’s cash and cash equivalents balance is constantly smaller than the balance of loans that require refinancing in the next 12 months. At 31 December 2014, the weighted average duration of interest-bearing liabilities was 2.3 years. At the end of 2014, the group’s cash and cash equivalents totalled 1.7 million euros (at the end of 2013: 0.8 million euros). Liquidity and refinancing risks continue to be the most significant risks for the group.
Interest rate risk
The base currency of most 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 in international capital markets. The group does not use hedging instruments to mitigate its long-term interest rate risk. In 2014, the group’s interest-bearing liabilities has increased by 0.1 million euros and amounted to 15.0 million euros at 31 December 2014. In 2014, interest payments on interest-bearing liabilities totalled 1.1 million euros (in 2013: 1.0 million euros). The group’s weighted average loan interest rate is 5.8%. This is a decrease by 0.2 percentage point within year 2014 mainly due to decreased EURIBOR rates.
Currency risk
Purchase and sales contracts 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 short-term deposits denominated in euros. Devaluation risk has decreased since the beginning of year 2014 because Republic of Latvia transferred to euro.
Corporate governance report
The shares of Arco Vara AS were listed in the main list of the Tallinn Stock Exchange on 21 June 2007. As a listed company, Arco Vara AS (hereinafter also “Company”) observes the laws and regulations that are effective in Estonia, the rules and recommendations of NASDAQ OMX Tallinn Stock Exchange, and its own core values.
Together with the annual report the Company discloses its corporate governance report in which the Management confirms the Company’s compliance with the Corporate Governance Recommendations (‘the CGR’). Any instances of non-compliance with the CGR are disclosed and the reasons for non-compliance are explained.
The annual report has been prepared in accordance with the guidance of the CGR. The current corporate governance report is a separate section of the directors’ report, which is part of the Company’s annual report.
I General meeting
The Company’s highest governing body is the general meeting of its shareholders. The competence of the general meeting and the procedure for convening general meetings and passing resolutions are set out in the Company’s articles of association.
In 2013, one annual general meeting and one extraordinary general meeting took place.
Annual general meeting
The annual general meeting was held on 5 June 2014 from 10:04 a.m. until 10:46 a.m. in Tallinn at Viru Square 4, in Bolero meeting room of Sokos Hotel Viru.
Notice of the annual general meeting was given in the information system of the Tallinn Stock Exchange and on the Company’s website on 14 May 2014. The notice was published in the national daily newspaper Postimees on 14 May 2014. The notice included information on where materials concerning the general meeting had been made available, where shareholders could submit their questions and a direct link to information on the agenda and relevant documents on the Company’s website. The information was published in Estonian and in English.
The proposals of the Supervisory Board were published in the notice of the annual general meeting. On the agenda of the annual general meeting was the following:
· approval of the annual report for 2013 and distribution of profit;
· raising share capital;
· appointment of Auditor.
The following decisions were adopted at the annual general meeting:
· To approve the year 2013 annual report of Arco Vara AS and allocate the net profit for the year ended on 31 December 2014 in the amount of 3 427 thousand euros to retained earnings.
· To appoint an auditor for one year (until the next annual general meeting of shareholders) and appoint AS PricewaterhouseCoopers as the auditor. To pay the auditor for auditing the 2014 annual report according to an agreement to be signed between Arco Vara AS and AS PricewaterhouseCoopers.
The meeting was chaired by Hannes Vallikivi, who is neither the chairman of the Company’s Supervisory Board nor a member of the Company’s Management Board. The meeting was attended by 52 shareholders whose votes represented 81.51% of total voting power. The meeting was conducted in Estonian and the chairman of the meeting made sure it was conducted smoothly. The meeting was also attended by the member of the Management Board of the Company, Tarmo Sild, who gave an overview of the company’s performance in 2013.
Extraordinary general meetings
The annual general meeting was held on 4 July 2014 from 10:08 a.m. until 10:36 a.m. in Tallinn at Viru Square 4, in Bolero meeting room of Sokos Hotel Viru.
Notice of the annual general meeting was given in the information system of the Tallinn Stock Exchange and on the Company’s website on 11 June 2014. The notice was published in the national daily newspaper Postimees on 12 June 2014. The notice included information on where materials concerning the general meeting had been made available, where shareholders could submit their questions and a direct link to information on the agenda and relevant documents on the Company’s website. The information was published in Estonian and in English.
The extraordinary general meeting was convened at the request of shareholders and their proposals were published in the notice of the extraordinary general meeting. On the agenda of the annual general meeting was the following:
· raising share capital;
· recall of the Supervisory Board;
· Election of members of the Supervisory Board.
The decision to raise the share capital of the Company on the terms disclosed in the notice was adopted at the extraordinary general meeting.
The meeting was chaired by Hannes Vallikivi, who is neither the chairman of the Company’s Supervisory Board nor a member of the Company’s Management Board. The meeting was attended by 205 shareholders whose votes represented 89.93% of total voting power. The meeting was conducted in Estonian and the chairman of the meeting made sure it was conducted smoothly.
The resolutions, minutes and materials of all general meetings held in 2014 were made available on the Company’s website. Information on the agenda items of all annual and extraordinary general meetings as well as questions submitted by the shareholders before the meetings and answers to those questions are available online at least until the information on the next general meeting is published on the Company’s website.
II Management Board
Since 4 September 2009 the Management Board of the Company has had one member. Since 22 October 2012, the CEO (and only member of the Management Board) of the Company is Tarmo Sild.
On assignment, three-year service contact was concluded with the member of the Management Board. The member of the Management Board was not concurrently a member of the Management Board or Supervisory Board of any other listed company.
When the member of the Management Board assumed office, service contract was signed which sets forth the powers, obligations and responsibilities of the member of the Management Board and also regulates the disbursement of his basic remuneration. Remuneration was agreed taking into account the Management Board member’s duties and activities and the Company’s current financial performance and future prospects. Under the service contract, Tarmo Sild is entitled to termination benefits equal to his five months’ basic board member remuneration in case the contract is terminated without a good reason. The Management Board member has an incentive scheme that is linked to the Company’s securities in connection to which the shareholders decided on the annual general meeting on 1 July 2013 to increase the share capital of the Company conditionally by issuing one convertible bond with the nominal value of 1,000 euros. The convertible bond enables Tarmo Sild to subscribe for 390 thousand ordinary shares of the Company in 2016 for 0.7 euros per share.
In 2014, the remuneration of member of the Management Board member Tarmo Sild (for the period 1 January 2014 to 31 December 2014) amounted to 88 thousand euros (includes social security tax). In 2014, the member of the Management Board was not paid any bonuses.
The member of the Management Board has notified the Company of his interests and involvement in the governing bodies of the companies which are not part of the group. Holding certain ownership interests and being involved in the governing bodies of other companies does not constitute breach of the prohibition on competition. Under the service contract, the member of the Management Board has agreed not to breach the prohibition on competition. In addition, the Company’s internal regulations provide that no member of the Management Board or staff may demand or accept for personal gain money or any other benefits from third parties in connection with their work and may not grant unlawful or unjustified benefits or discounts to third parties.
III Supervisory Board
The Supervisory Board is responsible for planning and organising the operation of the Company and overseeing the activities of the Management Board. Members of the Supervisory Board of the Company are elected by the general meeting.
Under the CGR, half of the members of the Supervisory Board of a listed company have to be independent. In the event of an odd number of members in the Supervisory Board, the number of independent members may be smaller by one. Company’s Supervisory Board meets the CGR’s requirement regarding independent members of the Supervisory Board.
In 2014, there were no changes in the composition of the Company’s Supervisory Board. During 2014, the composition of the Company’s Supervisory Board was the following: Allar Niinepuu, Aivar Pilv, Arvo N?ges, Hillar-Peeter Luitsalu, Rain L?hmus, Stephan David Balkin, Toomas Tool.
Members of the Supervisory Board elect the chairman of the Supervisory Board from among themselves. Since 10 June 2013, the chairman of the Supervisory Board is Hillar-Peeter Luitsalu.
Since 1 July 2013, the members of the Supervisory Board are paid remuneration in the amount of 500 euros (net amount) for each participated meeting but not more than 1000 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. The travel and living expenses of the members of the Supervisory Board are not compensated.
In 2014, the Supervisory Board had 4 meetings. Members of the Supervisory Board attended the meetings as follows:
· Allar Niinepuu, Arvo N?ges and Hillar-Peeter Luitsalu - 4 meetings;
· Rain L?hmus - 3 meetings;
· Aivar Pilv - 2 meetings;
· Toomas Tool - 1 meeting;
· Stephan David Balkin did not attend any of the meetings.
IV Cooperation of the Management and Supervisory Boards
In line with the Company’s articles of association and historical practice, the Management and Supervisory Board cooperate closely. The Management and the Supervisory Board hold joint meetings for discussing matters related to the Company’s strategy and exchange information about the Company’s strategic development on an ongoing basis. At the meetings, the member of the Management Board informs the Supervisory Board about any deviations from the Company’s plans and objectives and the reasons for those deviations. During the period under review the member of the Management Board attended all meetings of the Supervisory Board.
The members of the Supervisory Board do not take part in everyday management of the Company but the manager updates the Supervisory Board on regular basis of important issues regarding planning the operations of the Company and business activities. In addition the Supervisory Board is able to turn to the manager at any time with additional questions and/or inquiries. In information exchange, all parties observe the rules approved by the Supervisory Board for keeping and disclosing inside information, making transactions with Company’s shares and segregating the functions of the Management and Supervisory Board. It has become customary that at the meetings of the Supervisory Board the manager provides the members of the Supervisory Board an overview of important issues and developments related to the Company.
V Disclosure of information
Since the Company’s shares were listed in the Tallinn Stock Exchange, the Company has disclosed information in accordance with the rules of the Tallinn Stock Exchange, the laws of the Republic of Estonia and the principle that all shareholders should be treated equally.
The Company discloses information in the information system of the Tallinn Stock Exchange and on its website at www.arcorealestate.com in Estonian and in English. On the website, the information intended for shareholders is in the “Investor Relations” menu. The Company discloses on its website all facts, forecasts and estimates that have been disclosed to financial analysts or other parties. Disclosed information includes inter alia information connected to the general meetings and general information about the Company. General and more specific information about the Company can be found in different menus of the corporate website. The information is logically structured and easy to find.
On the website the Company has posted its financial calendar until March 2016.
The Company’s website does not include information on shareholder agreements on concerted exercise of shareholder rights because the Company is not aware that such agreements have been concluded.
The Company has not organised presentations to investors and analysts directly before the release of a financial report and has never disclosed inside information or unreleased financial data at meetings with analysts or investors.
VI Financial reporting and auditing
The consolidated financial statements of the Company are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. Quarterly financial statements are prepared in accordance with IAS 34 Interim Financial Reporting and are designed to be read in conjunction with the Company’s most recent consolidated annual financial statements. Quarterly financial statements are not audited.
The consolidated financial statements of the Company are audited. During recent years it has become customary to appoint the groups auditor for the period of 3 years. But at the same time at yearly shareholders’ meeting the auditor is appointed for the next financial year. At the shareholders’ meeting on 5 June 2014 AS PricewaterhouseCoopers was appointed as Company’s auditor for the next financial year the third time in a row. While choosing the auditor the Company considers the ratio of the auditing price and quality and also professionalism to be important. In addition it is important for the Company that the auditor is familiar with the group’s three main home markets – prerequisite for that is the existence of the auditor company’s subsidiary in a country that is of great importance to the group.
For better risk assessment and management, the group entities that have active financial activiry prepare a budget for the next financial year. The group’s consolidated budget is approved by the Supervisory Board of the Company. Execution of and adherence to approved budgets is monitored by the Company’s CFO.
To ensure high-quality financial reporting and to counteract the risks related to financial reporting, the Company has created the position of a CFO. The CFO participates actively in the preparation of the consolidated annual and quarterly reports. The consolidated financial statements are prepared using uniform group-wide cross-border financial accounting and reporting software. Consolidation procedures have largely been automated and are performed monthly. Monthly reporting is presented to the managements of relevant entities and monthly consolidated reporting is presented to the group’s management.
Consolidated financial statements
Consolidated statement of comprehensive income
| Note | 2014 | 2013 | ||
| In thousands of euros | ||||
| Continuing operations | ||||
| Revenue from rendering of services | 3,744 | 3,791 | ||
| Revenue from sale of own real estate | 5,414 | 6,937 | ||
| Total revenue | 5, 7 | 9,158 | 10,728 | |
| Cost of sales | 8 | -5,902 | -7,749 | |
| Gross profit | 3,256 | 2,979 | ||
| Other income | 9 | 37 | 404 | |
| Marketing and distribution expenses | 10 | -324 | -278 | |
| Administrative expenses | 11 | -1,811 | -1,676 | |
| Other expenses | 9 | -82 | -196 | |
| Gain on reversal of inventory write-down | 19 | 572 | 299 | |
| Gain on transactions involving joint ventures | 12 | -27 | 2,897 | |
| Gain on sale of subsidiaries | 12, 31 | 662 | 98 | |
| Operating profit | 2,283 | 4,527 | ||
| Finance income and costs | 13 | -1,062 | -972 | |
| Profit before tax | 1,221 | 3,555 | ||
| Income tax | 14 | -75 | 0 | |
| Net profit from continuing operations | 1,146 | 3,555 | ||
| Discontinued operations | ||||
| Loss from discontinued operations | 31 | -324 | -128 | |
| Net profit for the period | 822 | 3,427 | ||
| attributable to owners of the parent | 803 | 3,410 | ||
| attributable to non-controlling interests | 19 | 17 | ||
| Total comprehensive income for the period | 822 | 3,427 | ||
| attributable to owners of the parent | 803 | 3,410 | ||
| attributable to non-controlling interests | 19 | 17 | ||
| Earnings per share (in euros) | 15 | |||
| - basic | 0.15 | 0.72 | ||
| - diluted | 0.14 | 0.66 |
Consolidated statement of financial position
| As at 31 December | Note | 2014 | 2013 | |
| In thousands of euros | ||||
| Cash and cash equivalents | 17 | 1,691 | 818 | |
| Receivables and prepayments | 18 | 1,205 | 656 | |
| Inventories | 19 | 11,970 | 10,780 | |
| Assets belonging to sales group | 31 | 0 | 847 | |
| Total current assets | 14,866 | 13,101 | ||
| Investments in equity-accounted investees | 0 | 1 | ||
| Receivables and prepayments | 18 | 5 | 252 | |
| Investment property | 20 | 11,585 | 11,331 | |
| Property, plant and equipment | 21 | 434 | 459 | |
| Intangible assets | 21 | 113 | 13 | |
| Total non-current assets | 12,137 | 12,056 | ||
| TOTAL ASSETS | 27,003 | 25,157 | ||
| Loans and borrowings | 22 | 3,194 | 12,589 | |
| Payables and deferred income | 23 | 2,659 | 1,746 | |
| Provisions | 24 | 274 | 172 | |
| Liabilities belonging to sales group | 31 | 0 | 1,488 | |
| Total current liabilities | 6,127 | 15,995 | ||
| Loans and borrowings | 22 | 11,826 | 2,308 | |
| Total non-current liabilities | 11,826 | 2,308 | ||
| TOTAL LIABILITIES | 17,953 | 18,303 | ||
| Share capital | 25 | 4,282 | 3,319 | |
| Share premium | 25 | 292 | 0 | |
| Statutory capital reserve | 25 | 2,011 | 2,011 | |
| Other reserves | 15 | 179 | 60 | |
| Retained earnings | 2,250 | 1,452 | ||
| Total equity attributable to owners of the parent | 9,014 | 6,842 | ||
| Equity attributable to non-controlling interests | 36 | 12 | ||
| TOTAL EQUITY | 9,050 | 6,854 | ||
| TOTAL LIABILITIES AND EQUITY | 27,003 | 25,157 |
Consolidated statement of cash flows
| Note | 2014 | 2013 | ||
| In thousands of euros | ||||
| Cash receipts from customers | 10,812 | 10,516 | ||
| Cash paid to suppliers | -8,945 | -7,058 | ||
| Taxes paid | -1,150 | -1,976 | ||
| Taxes recovered | 805 | 189 | ||
| Cash paid to employees | -866 | -846 | ||
| Other cash payments and receipts related to operating activities | -41 | -218 | ||
| Net cash flow of discontinued operations | -250 | -317 | ||
| NET CASH FROM OPERATING ACTIVITIES | 365 | 290 | ||
| Purchase of property, plant and equipment | -71 | -34 | ||
| Proceeds from sale of property, plant and equipment | 0 | 118 | ||
| Proceeds from sale of investment property | 0 | 80 | ||
| Proceeds from sale of a subsidiary | 6 | 10 | 1,610 | |
| Proceeds from sale of an associate | 1 | 0 | ||
| Loans provided | -3 | -48 | ||
| Placement of security deposits | -438 | -263 | ||
| Release of security deposits | 701 | 258 | ||
| Interest received | 5 | 7 | ||
| Net cash flow of discontinued operations | 0 | -56 | ||
| NET CASH FROM INVESTING ACTIVITIES | 205 | 1,672 | ||
| Proceeds from loans received | 22 | 4,885 | 3,046 | |
| Settlement of loans and finance lease liabilities | 22 | -4,800 | -4,809 | |
| Interest paid | -1,091 | -964 | ||
| Proceeds from share capital issue | 25 | 1,375 | 0 | |
| Other payments related to financing activities | -76 | -75 | ||
| NET CASH FROM/USED IN FINANCING ACTIVITIES | 293 | -2,802 | ||
| NET CASH FLOW | 863 | -840 | ||
| Cash and cash equivalents at beginning of period | 17 | 818 | 1,775 | |
| Decrease in cash and cash equivalents | 863 | -840 | ||
| Change in cash through purchase/sale of a subsidiaries | 6 | 10 | -37 | |
| Cash and cash equivalents reclassified to sales group assets | 31 | 0 | -80 | |
| Cash and cash equivalents at end of period | 17 | 1,691 | 818 |
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 2012 | 3,319 | 0 | 2,011 | 0 | -1,958 | 3,372 | -5 | 3,367 | |||
| Formation of equity reserve (note 15) | 0 | 0 | 0 | 60 | 0 | 60 | 0 | 60 | |||
| Total comprehensive income for the period | 0 | 0 | 0 | 0 | 3,410 | 3,410 | 17 | 3,427 | |||
| Balance as at 31 December 2013 | 3,319 | 0 | 2,011 | 60 | 1,452 | 6,842 | 12 | 6,854 | |||
| Balance as at 31 December 2013 | 3,319 | 0 | 2,011 | 60 | 1,452 | 6,842 | 12 | 6,854 | |||
| Total comprehensive income for the period | 0 | 0 | 0 | 0 | 803 | 803 | 19 | 822 | |||
| Increase of share capital (note 25) | 963 | 292 | 0 | 0 | 0 | 1,255 | 0 | 1,255 | |||
| Formation of equity reserve (note 15) | 0 | 0 | 0 | 119 | 0 | 119 | 0 | 119 | |||
| Change in non-controlling interests | 0 | 0 | 0 | 0 | -5 | -5 | 5 | 0 | |||
| Balance as at 31 December 2014 | 4,282 | 292 | 2,011 | 179 | 2,250 | 9,014 | 36 | 9,050 | |||
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