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Arricano Real Estate Plc (ARO)
22 September 2021
("Arricano" or the "Company" or, together with its subsidiaries, the "Group")
Unaudited Interim Results for the 6 months ended 30 June 2021
Arricano is one of the leading real estate developers and operators of shopping centres in Ukraine with over 148,100 sqm of gross leasable area under operation and land for a further three sites under development.
Ganna Chubotina, Chief Executive Officer of Arricano, commented:
"Despite the challenges created by the global pandemic, our portfolio of shopping centres continued to operate close to capacity with occupancy at 99.5%. This demonstrates, in our view, that we have been successful in supporting some of our tenants through the last 18 months and equally importantly the appeal amongst our tenant base of retaining their retail presence in our centres over a period when the retail market has been very challenging. While the impact of COVID-19 remains, normal trading is returning which enables us to switch from protecting the business to once again growing it."
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Chief Executive Officer's Report
I am pleased to be reporting on a positive trading performance for the first six months of 2021. While the effects of the global pandemic are still visible, visitor numbers to our shopping centres accelerated fast when restrictions were lifted, much faster than when they were lifted in 2020 and continue to rise; indicating that our customers are no longer avoiding social space for fear of COVID-19 and are instead keen to return to normal retail patterns.
Our ability to retain occupancy at 99.5% during a very challenging period for all retailers reflects well on our business. This led to revenue generation of USD 16.9 million, which is just 2% below pre-COVID-19 revenue levels in 2019, a good result especially as the portfolio was partially closed for nearly two of the six months under review. That being the case, the Company is performing well and is positioned, assuming trading remains restriction free, to continue to grow and develop.
Overall, we believe the retail market is recovering, in response to increased consumer spending and a general improvement in consumer confidence.
Recurring revenues for the period increased by 19% to USD 16.9 million (2020: USD 14.2 million). Underlying operating profit before revaluation of investment property increased to USD 11.9 million (2020: USD 9.6 million).
The revaluation of the investment property portfolio, resulted in a loss of USD 9.0 million (6 months 2020: gain of USD 30.1 million), caused by the rise in value of the Hryvna against the USD dollar. However, the revaluation effect was offset by foreign exchange gains in the amount of USD 10.2 million included in Other Comprehensive Income. The total value of investment property portfolio comprised USD 281.6 million (31 December 2020: USD 275.5 million).
The Company has continued to make excellent progress in bringing the cost of borrowings down with the average cost of bank loans decreasing from an average of 10.1% as at 31 December 2020 to 8.3% as at 30 June 2021.
Cash flow from operating activities was USD 10.0 million with Group cash balances as at 30 June 2021 of USD 15.0 million (31 December 2020: USD 12.0 million).
Net asset value increased to USD 125.2 million (31 December 2020: USD 119.4 million).
Each year our shopping centres welcome tens of millions of visitors. To maintain and grow this level of interest and loyalty, which Arricano has achieved over the last years, requires hard work and a continual focus on evolving the customer experience. In 2021, despite the distractions of managing the impact of the pandemic, 41 new tenants were introduced into the portfolio.
New additions improve retail mix within each mall by expanding the most successful product categories. In the Rayon shopping mall, the fast fashion and electronics categories were expanded and in the Prospect shopping mall, the well-known French sports retailer Decathlon opened in May 2021 with a 2,000 sqm retail space, quickly adding to both visitor numbers and operating income.
As the challenges associated with the pandemic have reduced, key categories such as fast fashion, sporting goods, home appliances and electronics, and goods for home and interior have shown positive turnover growth in comparison to 2020 when shopping centres were under greater restrictions.
Alongside introducing new tenants into the retail mix, the Group continued to focus on direct dialogue with individual tenants with a focus on promoting closer working partnerships. Sharing of data is also key to evolving tenant partnerships. In the period under review, the Group has been testing and implementing new analytical products for tracking customer behavior, tenant turnover and providing a greater analysis of footfall across multiple different categories, as well as conversion into sales and other trading indicators, all in real time.
It is worth noting there has been a gradual recovery in the F&B segment as well as a moderate recovery in cinemas and entertainment centres, though they continue to operate with some restrictions relating to social distancing.
Operational experience gained in 2020 and the reduced impact of the pandemic enabled the introduction of a smart-leasing strategy. Each tenant was judged individually when providing assistance in rent relief based on their sales performance which, together with a general improvement in trading by all tenants, led to very low vacancy rates in the portfolio.
The safety of all visitors and employees remains the Group's first priority. Alongside adhering to strict PPE protocols, Arricano introduced vaccination points across all shopping centres with the assistance of local authorities and support of the Ministry of Health. As part of this initiative, all Arricano shopping centre employees were given an opportunity to be vaccinated.
Arricano continues to focus on promoting offline shopping through multiple communication venues, including cultural and art exhibitions. Recently, a new unique project in the Prospect shopping mall drew out the influences fashion and professional life have had on each other. This was a very popular project and, along with other similar projects, has helped to increase footfall and visit times.
While development projects have naturally slowed over the past 18 months, the Group is progressing the Lukianivka project, Kyiv. Although there have been a number of delays, commitment to the project remains unchanged and it is still expected to open in 2023.
As part of the Group's ESG policy, we continue to support our shopping centres' communities with charitable and educational activities, which also help to strengthen local loyalty, stimulate footfall and increase both visit times and number of stores visited. We also continue to engage with consumers around social responsibility topics focusing on brands with strong social responsibility credentials and/or extensive charitable works.
The first half-year of 2021 was still challenging for the Company, but the successful performance of the Group reflects high levels of commitment and hard work from all employees of Arricano and on behalf of the Board I would like to thank them.
Changes to the Board
In July 2021, Urmas Somelar decided to retire as a Director and as Chairman of the Board for personal reasons.
The Board has agreed that Mr Georgios Komodromos, an independent non-executive director of the Company, will succeed Mr Somelar as Chairman pending the appointment of a permanent independent successor.
Management and the Directors would like to thank Mr Somelar for his contribution and valuable advice over the last few years.
Though the market situation and shopping centres performance within the remaining months of 2021 directly depends on the pandemic dynamics and any potential restrictions, with our focus on long-term partnerships with our tenants, I feel confident we will continue to perform and are well placed to make a good start in 2022.
These consolidated interim condensed financial statements were approved by the Board of Directors on 22 September 2021 and were signed on its behalf by:
Balances at 1 January 2021
Total comprehensive income for the period
Profit for the period (unaudited)
Foreign exchange gains on monetary items that form part of net investment in the foreign operation, net of tax effect (unaudited)
Foreign currency translation differences (unaudited)