2019 3 months consolidated unaudited interim reportCOMMENTARY FROM MANAGEMENT In Q1 of 2019, Merko Ehitus posted revenue of EUR 77 million and net profit of EUR 2.8 million. The number of apartments delivered to buyers in Q1 of this year grew more than 20% year-over-year. Nearly 4% decrease in revenue in the first quarter was expected, considering the trend of decreasing construction orders on the market and the fact that exceptionally large construction projects in the group’s portfolio in recent years were completed. In the first quarter, the group entered into more new construction contracts than we did a year ago during the same period, but as the profit margins on construction contracts are low due to high price competition, the growth in revenue is not a goal unto itself. It was positive that the net profitability improved in the first quarter. In the construction market, the share of government contracts is increasing and the volume of public procurements is significantly influencing the outlook on the construction market in the years to come regarding buildings and especially infrastructure. In Q1 of 2019, Merko Ehitus posted revenue of EUR 77 million (Q1 2018: EUR 80 million), EBITDA was EUR 3.5 million (Q1 2018: 1.8 million) and net profit EUR 2.8 million (Q1 2018: EUR 1.1 million). In Q1, new construction contracts worth EUR 32 million were signed, the largest of these being the construction of a support warehouse and the expansion of a medical centre in Tapa armed forces campus, public water supply and sewerage pipe renovation in Harju County and the extension of the Sindi 330 kV substation. For Merko Ehitus apartment development is a strategic business area, and this year’s planned investment into that area is around EUR 100 million. At the moment, the group has more than 1,000 apartments in development in Estonia, Latvia and Lithuania, of which more than half will be completed in 2020,” said Andres Trink. No significant changes took place on the apartment market in the Baltic capitals in Q1. The price level is stabilizing in Tallinn and Vilnius due to an increased supply of new apartments: quality, integral residential environment and the developer’s professionalism have become increasingly important. Considering the low transaction volumes on the Riga apartment market and improving macroeconomic indicators, the growth potential is good there. In 2018, the group launched two development projects in Riga with about 200 apartments, which will be completed in 2020. In Q1 of 2019, Merko Ehitus handed over 63 apartments to buyers, which is more than 20% above the level shown a year ago during the same period. Merko’s largest projects include Uus-Veerenni and Pikaliiva residential communities in Tallinn, Gaiļezers and Viesturdārzs developments in Riga and Vilnelės slėnis and Rinktinės Urban developments in Vilnius. One area of concern is the situation on the Baltic banking market, where decreased competition is worsening companies’ access to credit. The tightening requirements on acceptance of bank customers as well as on their transactions can have a negative impact on economic activity in the Baltics. This may, gradually, also manifest itself in a decline of real estate market activity. As of 31 March 2019, the secured order book of Merko Ehitus group amounted to EUR 190 million, compared to EUR 292 million as at the same date last year. In Q1, the largest projects in progress in Estonia were Pärnu mnt 186 commercial building, student home of Rakvere Vocational School, the Maakri Kvartal business complex, expansion and construction work on the logistics building and medical centre at the Defence Forces Tapa base, dredging and reconstruction works of Hundipea port, and laying undersea cables under the Suur Väin and Väike Väin straits; in Latvia, construction on the Akropole multifunctional centre, Alfa shopping centre and Lidl logistics centre; and in Lithuania, Hotel Neringa, Quadrum office building and two school buildings. In Norway, the largest projects in progress included design and construction of Tesla service centre and renovation of an office building at Møllergata 23-25, Oslo.
OVERVIEW OF THE 3 MONTHS RESULTS
PROFITABILITY
Net profit attributable to equity holders of the parent in 3 months 2019 was EUR 2.8 million (3M 2018: EUR 1.1 million), having increased by 151.7% compared to the same period last year. Net profit margin increased to 3.6% (3M 2018: 1.4%). Profit before tax in 3 months 2019 was EUR 3.0 million (3M 2018: EUR 1.3 million), which brought the profit before tax margin to 3.9% (3M 2018: 1.6%). REVENUE
The 3 months 2019 revenue was EUR 76.8 million (3M 2018: EUR 80.3 million). 3 months’ revenue has decreased by 4.3% compared to same period last year. The share of revenue earned outside Estonia in 3 months 2019 was 60.8% (3M 2018: 57.5%). SECURED ORDER BOOK
As at 31 March 2019, the group’s secured order book was EUR 190.0 million (31 March 2018: EUR 291.9 million). In 3 months 2019, group companies signed new contracts in the amount of EUR 32.2 million (3M 2018: EUR 22.3 million). REAL ESTATE DEVELOPMENT
In 3 months 2019, the group sold a total of 63 apartments (incl. 29 apartments in a joint venture); in 3 months 2018, the group sold 51 apartments (incl. 25 apartment in a joint venture). The group earned a revenue of EUR 4.6 million from sale of own developed apartments in 3 months 2019 and EUR 4.3 million in 3 months 2018. CASH POSITION
At the end of the reporting period, the group had EUR 33.0 million in cash and cash equivalents, and equity EUR 134.6 million (48.7% of total assets). Comparable figures as at 31 March 2018 were EUR 27.6 million and EUR 131.3 million (47.6% of total assets), respectively. As at 31 March 2019, the group had net debt of EUR 9.9 million (31 March 2018: EUR 23.1 million). DISTRIBUTION OF PROFITS
The general meeting of shareholders held on 8 May 2019 resolved to approve the profit allocation proposal for 2018 and to distribute EUR 17.7 million (1 euro per share) in dividends from retained earnings. This is equivalent to a 92% dividend rate for 2018.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros
| | 2019
3 months | 2018
3 months | 2018
12 months | | Revenue | 76,845 | 80,310 | 418,011 | | Cost of goods sold | (70,639) | (76,227) | (384,962) | | Gross profit | 6,206 | 4,083 | 33,049 | | Marketing expenses | (851) | (806) | (3,285) | | General and administrative expenses | (3,124) | (2,819) | (12,304) | | Other operating income | 701 | 852 | 3,527 | | Other operating expenses | (35) | (32) | (1,115) | | Operating profit | 2,897 | 1,278 | 19,872 | | Finance income/costs | 83 | (26) | (97) | | incl. finance income/costs from sale of subsidiary and liquidation | - | - | (62) | | finance income/costs from joint venture | 222 | 136 | 653 | | interest expense | (135) | (153) | (652) | | foreign exchange gain (loss) | - | (1) | 5 | | other financial income (expenses) | (4) | (8) | (41) | | Profit before tax | 2,980 | 1,252 | 19,775 | | Corporate income tax expense | (75) | (90) | (375) | | Net profit for financial year | 2,905 | 1,162 | 19,400 | | incl. net profit attributable to equity holders of the parent | 2,778 | 1,104 | 19,343 | | net profit attributable to non-controlling interest | 127 | 58 | 57 | | Other comprehensive income, which can subsequently be classified in the income statement | | | | | Currency translation differences of foreign entities | 32 | 13 | (6) | | Comprehensive income for the period | 2,937 | 1,175 | 19,394 | | incl. net profit attributable to equity holders of the parent | 2,808 | 1,117 | 19,324 | | net profit attributable to non-controlling interest | 129 | 58 | 70 | | Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) | 0.16 | 0.06 | 1.09 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros
| | 31.03.2019 | 31.03.2018 | 31.12.2018 | | ASSETS | | | | | Current assets | | | | | Cash and cash equivalents | 32,970 | 27,600 | 39,978 | | Trade and other receivables | 75,297 | 85,027 | 76,183 | | Prepaid corporate income tax | 224 | 549 | 224 | | Inventories | 130,019 | 121,754 | 117,992 | | | 238,510 | 234,930 | 234,377 | | Non-current assets | | | | | Investments in joint venture | 954 | 215 | 732 | | Other long-term loans and receivables | 11,043 | 15,051 | 10,391 | | Deferred income tax assets | - | 5 | - | | Investment property | 14,140 | 15,655 | 13,771 | | Property, plant and equipment | 10,853 | 9,358 | 9,715 | | Intangible assets | 700 | 511 | 671 | | | 37,690 | 40,795 | 35,280 | | | | | | | TOTAL ASSETS | 276,200 | 275,725 | 269,657 | | | | | | | LIABILITIES | | | | | Current liabilities | | | | | Borrowings | 15,624 | 13,673 | 19,900 | | Payables and prepayments | 82,764 | 81,761 | 77,016 | | Income tax liability | 420 | 484 | 381 | | Short-term provisions | 7,081 | 4,119 | 8,100 | | | 105,889 | 100,037 | 105,397 | | Non-current liabilities | | | | | Long-term borrowings | 27,220 | 37,003 | 24,266 | | Deferred income tax liability | 1,521 | 1,299 | 1,481 | | Other long-term payables | 2,299 | 1,474 | 2,179 | | | 31,040 | 39,776 | 27,926 | | | | | | | TOTAL LIABILITIES | 136,929 | 139,813 | 133,323 | | | | | | | EQUITY | | | | | Non-controlling interests | 4,706 | 4,625 | 4,577 | | Equity attributable to equity holders of the parent | | | | | Share capital | 7,929 | 7,929 | 7,929 | | Statutory reserve capital | 793 | 793 | 793 | | Currency translation differences | (691) | (689) | (721) | | Retained earnings | 126,534 | 123,254 | 123,756 | | | 134,565 | 131,287 | 131,757 | | TOTAL EQUITY | 139,271 | 135,912 | 136,334 | | | | | | | TOTAL LIABILITIES AND EQUITY | 276,200 | 275,725 | 269,657 |
Interim report and the investor presentation are attached to the announcement and are also published on NASDAQ Tallinn and Merko’s web page (group.merko.ee). Priit Roosimägi
Head of Group Finance Unit
AS Merko Ehitus
+372 650 1250
priit.roosimagi@merko.ee AS Merko Ehitus (group.merko.ee) group consists of Estonia’s leading construction company AS Merko Ehitus Eesti, the Latvian-market-oriented SIA Merks, UAB Merko Statyba operating on the Lithuanian market, and the Norwegian construction company Peritus Entreprenør AS. Besides provision of construction service as a main contractor, the group’s other major area of activity is apartment development. As at the end of 2018, the group employed 764 people, and the group’s revenue for 2018 was EUR 418 million.
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