ARCO VARA AS - NASDAQ OMX Baltic

million of revenues from property management services and approximately EEK 1.0 million in
geodesy services, the service line discontinued at the end of 2005.
The real estate development division revenues maintained the level recorded in 2004 and totalled EEK
235.9 million in 2005. The sale of properties contributed EEK 174.9 million, increasing by 0.8 per
cent on a year-on-year basis. Rental and property management services declined from EEK 56.3
million in 2004 to EEK 51.6 million in 2005. In addition, other revenues declined by EEK 4.6 million
reaching EEK 1.3 million in 2005, mostly as a result of a decrease in revenues from the sale of cutting
rights of growing forest. The decline in the above mentioned service lines were partially offset by
positive developments in management services related revenues, contributing EEK 7.0 million to
revenues of the division and reaching EEK 8.2 million in financial year 2005.
Alternative analyses of revenues by revenue types shows a considerable shift towards revenues from
rendering services principally as a result of revenue multiplying in construction by approximately 3.7
times. The weight of the latter mentioned division reached 63.1 per cent in 2005, increasing by EEK
146.2 million in absolute terms reaching EEK 300.4 million. The revenues from sale of goods
decreased by 10.3 per cent, from EEK 195.7 million in 2004 to EEK 175.5 million.
Similar to the financial year ended 31 December 2006, revenues from sale of properties, construction
services, brokerage services, appraisal services and rental and property management services
constituted 95.4 per cent or substantially all of total consolidated revenue in 2005.
The structure of the Group’s revenues changed significantly in 2005 as compared to the previous
financial year. On a year-on-year basis only construction revenues increased its weight in total
revenues rising from 13.4 per cent in 2004 to 36.8 per cent in 2005. All other revenue types
experienced declines as a percentage of revenue compared to the 2004 financial year, except for asset
management services which was recognised for the first time in 2005 (EEK 9.4 million). As a
percentage of total consolidated revenue the sale of properties declined by 19.0 per cent from 55.9 per
cent in 2004 to 36.9 per cent, rental and property management services by 5.4 per cent to 11.7 per cent
and brokerage and appraisal services revenues by 0.7 per cent to 10.0 per cent from 2005 total Group
revenues.
Management services revenues increased from EEK 2.1 million in 2004 to EEK 8.8 million in 2005,
an increase of approximately 311.5 per cent on year-on-year basis.
Geodesy and other revenues aggregately made up 0.8 per cent of revenues or EEK 3.6 million in 2005.
Cost of sales
The Group’s gross profit margin declined approximately 6.5 per cent, to 24.7 per cent, due to the
increase in the direct costs of construction services purchased and personnel expenses at a rate higher
than the 36.0 per cent annual growth rate in revenue in 2005. Construction services purchased as a
percentage of revenue increased from 28.7 per cent in 2004 to 37.4 per cent for the period ended 31
December 2005. A total of EEK 178.1 million worth of construction services were purchased in 2005,
an increase of EEK 77.7 million as compared to the previous financial year, which was mainly
attributed to an increase in construction prices. Personnel expenses increased as a percentage of
revenue from 6.1 per cent to 8.0 per cent, a total of EEK 16.7 million and reached EEK 37.9 million in
2005. The growth in personnel costs is attributable mostly to the increase in personnel from 220
employees as at 31 December 2004 to 284 as at year end 2005. The carrying value of real estate sold
contributed EEK 17.4 million to the total increase of EEK 117.7 million in cost of sales. As a
percentage of revenue, the cost decreased from 26.5 per cent in 2004 to 23.1 per cent, thus having a
positive effect on gross margin. Other expenses and depreciation, amortisation and impairment made
up approximately 11.0 per cent and 9.0 per cent of cost of sales in 2004 and 2005 respectively.
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