Published: 2019-08-08 07:00:00 CEST
Merko Ehitus
Half Year financial report

2019 6 months and II quarter consolidated unaudited interim report


The decrease in revenue that continued in Q2 2019 for Merko Ehitus was an expected development due to the completion of major projects that had been under construction at the group’s subsidiaries, the general market situation and the decline in the secured order book. Revenue for the second quarter was EUR 77 million and for the first half-year, EUR 154 million, representing a decrease of 16% compared to the year before. Sales revenue for six months decreased year-over-year in Estonia and Latvia, but increased in Lithuania and Norway.

The group’s profit before taxes in Q2 was EUR 4.5 million and for the first half-year EUR 7.5 million – an increase of 6.7% from the year before. Net profit in Q2 was impacted by income tax expenses on dividends paid in the amount of EUR 2.7 million. Profitability in Q2 was also influenced by the fact that due to timing of project completion, the subsidiaries of the group sold significantly fewer apartments compared to Q2 last year. At the same time, preliminary sales of apartments are going according to plan and the number of apartments to be handed over to buyers in the second half-year on the basis of preliminary sale contracts is growing. Net profit attributable to equity holders of the parent in Q2 was EUR 1.7 million and for the first half-year EUR 4.5 million.

With construction orders generally declining, very strong competition and pressure on prices persist on the main contractors’ market. In this type of market situation, the group’s subsidiaries are focusing first and foremost on projects where it is possible to create value added for the customer in terms of quality of project management, where pricing is fair and contractual risks are distributed in a reasonable manner. Considering the rapid growth of input prices that has taken place in recent years, especially in terms of the cost of workforce, it is extremely important for the normal development of the construction market that there is a good cooperation between the parties of the construction process, and that liability and risk are balanced appropriately.

The group’s secured order book balance decreased by the end of June 2019 to EUR 172 million, decreasing 30% compared to the level in the same period last year (EUR 247 million). At the same time, EUR 86 million in new contracts were signed in the first half-year, this being 27% more than in the same period last year (EUR 68 million). The largest contracts signed were for the renovation of the Aaspere-Haljala road section as well as construction of Türi Basic School and Laima chocolate factory. In addition to the abovementioned, the largest projects in progress were construction works of water supply and sewerage piping in Metsanurme, Kasemetsa and Üksnurme area, the commercial building at Pärnu mnt 186, construction of undersea electric power cables of Suur Väin and Väike Väin straits, the student home for Rakvere Vocational School and the reconstruction and dredging of the Port of Hundipea; in Latvia, Lidl’s logistics centre and Alfa shopping centre; in Lithuania, Neringa hotel, Quadrum office building, and a private school; and in Norway, the Tesla service centre and the renovation of the office building at Møllergata 23-25.

Strategically, Merko Ehitus is increasingly focused on the apartment development business area. Investments into apartment development have grown significantly and in the first half-year, the group invested close to EUR 40 million into projects in progress. In addition, in Q2 the group purchased a large development area in Vilnius for EUR 13 million. The planned total investment volume for this year in apartment developments is on the order of EUR 100 million. In Estonia, Latvia and Lithuania, the group currently has a total of more than 1,000 apartments in development. The biggest projects in Tallinn are the Uus-Veerenni and Pikaliiva residential projects, in Riga, the Gaiļezers and Viesturdārzs development projects, and, in Vilnius, the Vilneles slenis and Rinktinės Urban developments.

In Q2, the group sold 37 apartments compared to 117 in Q2 last year. The reason for the lower number is the fact that previous larger development projects have been completed and the apartments largely sold. At the end of the first half-year, there were about one hundred apartments in the three Baltic states in total that were ready to be sold and not covered by preliminary contracts. New projects are in the construction phase and Merko will start selling some of them as they are finished at the end of this year and most of them next year, in 2020.

The apartment markets in Tallinn and Vilnius continue to favour well-prepared projects with high-quality execution, which offer integral living environments. Riga’s apartment market continues to be less active with the sales potential being higher for projects that are more precisely targeted to market expectations. For the real estate market as a whole, the question remains about the current and future developments in the Baltic banking sector. This pertains to both the sufficiency of competition between banks, regulations and the rigidity of their interpretations in selecting customers, as well as the general risk appetite of banks when it comes to financing both the developers and home buyers. In case of unfavourable developments, banking activities may start curtailing the general economic activity of the Baltic states, including the normal functioning of the real estate market.


2019 6 months profit before tax was EUR 7.5 million and Q2 2019 was EUR 4.5 million (6M 2018: EUR 7.1 million and Q2 2018: EUR 5.8 million), which brought the profit before tax margin to 4.9% (6M 2018: 3.8%).

Net profit attributable to equity holders of the parent in 6 months 2019 was EUR 4.5 million (6M 2018: EUR 6.7 million) and Q2 2019 net profit attributable to equity holders of the parent was EUR 1.7 million (Q2 2018: EUR 5.6 million). 6 months net profit margin was 2.9% (6M 2018: 3.6%). Net profitability was influenced by, among other things, a significantly increased income tax expense: in Q2, the group’s income tax expense on paid dividends was EUR 2.7 million greater than the year before. There was no income tax expense on the dividends paid in 2018 – the dividends were distributed from dividends paid by foreign subsidiaries to the parent.

Q2 2019 revenue was EUR 77.4 million (Q2 2018: EUR 103.3 million) and 6 months revenue was EUR 154.2 million (6M 2018: EUR 183.7 million). 6 months revenue has decreased by 16.0% compared to same period last year. The share of revenue earned outside Estonia in 6 months 2019 was 57.0% (6M 2018: 52.6%).

As at 30 June 2019, the group’s secured order book was EUR 172.1 million (30 June 2018: EUR 247.0 million). In 6 months 2019, group companies signed new contracts in the amount of EUR 86.0 million (6M 2018: EUR 67.5 million). In Q2 2019, new contracts were signed in the amount of EUR 53.8 million (Q2 2018: EUR 45.3 million).

In 6 months 2019, the group sold a total of 100 apartments (incl. 33 apartments in a joint venture); in 6 months 2018, the group sold 168 apartments (incl. 34 apartments in a joint venture). The group earned a revenue of EUR 9.2 million from sale of own developed apartments in 6 months 2019 and EUR 16.3 million in 6 months 2018. In Q2 of 2019 a total of 37 apartments (incl. 4 apartment in a joint venture) were sold. compared to 117 apartments (incl. 9 apartment in a joint venture) in Q2 2018, and earned a revenue of EUR 4.7 million from sale of own developed apartments (Q2 2018: EUR 12.0 million).

At the end of the reporting period, the group had EUR 14.0 million in cash and cash equivalents, and equity of EUR 118.5 million (41.2% of total assets). Comparable figures as at 30 June 2018 were EUR 27.2 million and EUR 119.1 million (42.8% of total assets), respectively. As at 30 June 2019, the group had net debt of EUR 48.7 million (30 June 2018: EUR 26.9 million).

in thousand euros

6 months
6 months
 II quarter
 II quarter
12 months
Revenue 154,202 183,650 77,357 103,340 418,011
Cost of goods sold (139,532) (170,621) (68,893) (94,394) (384,962)
Gross profit 14,670 13,029 8,464 8,946 33,049
Marketing expenses (1,784) (1,729) (933) (923) (3,285)
General and administrative expenses (6,241) (5,664) (3,117) (2,845) (12,304)
Other operating income 1,230 1,695 529 843 3,527
Other operating expenses (253) (105) (218) (73) (1,115)
Operating profit 7,622 7,226 4,725 5,948 19,872
Finance income/costs (97) (171) (180) (145) (97)
incl. finance income/costs from sale of subsidiary and liquidation - (59) - (59) (62)
finance income/costs from joint venture 203 226 (19) 90 653
interest expense (286) (309) (151) (156) (652)
foreign exchange gain (loss) (4) (1) (4) - 5
other financial income (expenses) (10) (28) (6) (20) (41)
Profit before tax 7,525 7,055 4,545 5,803 19,775
Corporate income tax expense (2,888) (201) (2,813) (111) (375)
Net profit for financial year 4,637 6,854 1,732 5,692 19,400
incl. net profit attributable to equity holders of the parent 4,453 6,669 1,675 5,565 19,343
net profit attributable to non-controlling interest 184 185 57 127 57
Other comprehensive income, which can subsequently be classified in the income statement          
Currency translation differences of foreign entities 29 28 (3) 15 (6)
Comprehensive income for the period 4,666 6,882 1,729 5,707 19,394
incl. net profit attributable to equity holders of the parent 4,480 6,696 1,672 5,579 19,324
net profit attributable to non-controlling interest 186 186 57 128 70
Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) 0.25 0.38 0.09 0.31 1.09

in thousand euros

  30.06.2019 30.06.2018 31.12.2018
Current assets      
Cash and cash equivalents 13,980 27,230 39,978
Trade and other receivables 72,561 91,541 76,183
Prepaid corporate income tax 94 163 224
Inventories 162,829 120,467 117,992
  249,464 239,401 234,377
Non-current assets      
Investments in joint venture 935 306 732
Other long-term loans and receivables 11,418 14,861 10,391
Deferred income tax assets - 5 -
Investment property 14,115 13,748 13,771
Property, plant and equipment 11,255 9,454 9,715
Intangible assets 727 574 671
  38,450 38,948 35,280
TOTAL ASSETS 287,914 278,349 269,657
Current liabilities      
Borrowings 31,786 16,202 19,900
Payables and prepayments 88,748 92,638 77,016
Income tax liability 2,854 375 381
Short-term provisions 6,276 4,487 8,100
  129,664 113,702 105,397
Non-current liabilities      
Long-term borrowings 30,921 37,894 24,266
Deferred income tax liability 1,556 1,335 1,481
Other long-term payables 2,473 1,500 2,179
  34,950 40,729 27,926
TOTAL LIABILITIES 164,614 154,431 133,323
Non-controlling interests 4,763 4,789 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 (694) (675) (721)
Retained earnings 110,509 111,082 123,756
  118,537 119,129 131,757
TOTAL EQUITY 123,300 123,918 136,334
TOTAL LIABILITIES AND EQUITY 287,914 278,349 269,657

Interim report and the investor presentation are attached to the announcement and are also published on NASDAQ Tallinn and Merko’s web page (

Priit Roosimägi
Head of Group Finance Unit
AS Merko Ehitus
+372 650 1250

AS Merko Ehitus ( 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.