Published: 2019-11-07 07:00:00 CET
Merko Ehitus
Quarterly report

2019 9 months and III quarter consolidated unaudited interim report


Merko Ehitus posted revenue of EUR 73 million in Q3 and EUR 228 million for the first nine months of 2019. Sales revenue for nine months decreased year-over-year in Estonia and Latvia, increased significantly in Norway and stayed more or less the same in Lithuania. The profit before taxes in Q3 was EUR 2.8 million and for the first nine months EUR 10.3 million. The group’s net profit attributable to equity holders of the parent in Q3 was EUR 2.5 million, and the nine-month net profit was EUR 7 million.

Due to the completion of major construction projects in progress over the last two years, the cooling off of the construction market and the fact that the group is placing its strategic focus more firmly on apartment development, revenue decreased by 24% compared to last year; while pre-tax earnings decreased by 18%. Considering the declining trend in the portfolio of construction contracts in the last 1.5 years, a drop in volumes was to be expected this year. Yet the civil engineering services area has fallen short of management expectations this year. The group has taken a clearer direction toward apartment development and providing main contracting services for construction on projects where the group’s subsidiaries have competitive advantages, such as in the form of engineering and technical knowhow, construction and financial capability and long-term cooperative relations. Ensuring higher construction volumes is not a goal in its own right if it should come at the expense of larger contractual risks (unrealistic deadlines, contractual penalties, lack of clarity regarding the scope of contracting) or customer insolvency. Public-private partnership (PPP) projects also continue to be in the group’s focus, and the greatest market activity in this area has thus far been seen in Lithuania.

Based on developments in the economy and the real estate market, the volume of construction orders in the Baltics is seeing an overall declining trend. The greater caution exercised by banks as to selection of customers and projects for financing and the growth in loan margins are also having an increasing impact on the construction market. The orders from the public sector have not managed to compensate for the decrease in the activity of private sector customers. This places main contractors in an increasingly difficult competitive situation and increases pressure on them to reduce costs. The decreasing level of construction activity may at some point also mean concessions in terms of input prices, though this has not yet occurred. Thus, general contractors are working in an environment where on the one hand they face pressure from customers (contract conditions) and on the other hand from subcontractors (expenses).

The group has continued investments in residential real estate development as planned. During 2019, Merko Ehitus has invested EUR 83 million into the real estate development business segment, of which close to EUR 65 million into building apartments and nearly EUR 19 million into acquiring new land for development in Lithuania and Estonia to ensure development capability in years to come. In Estonia, Latvia and Lithuania, the group currently has a total of more than 1,100 apartments in development. Considering the cycle for completion of apartment development projects, investments will start yielding results to a greater extent in the form of apartment sales starting in Q4 of this year and even more so next year. Sales and pre-sales of apartments are going according to plan. We see the new apartment markets remaining active at current levels in Tallinn and Vilnius, while in Riga, general activity continues to be lower. The group will continue focusing on the real estate development business segment on all three markets.

The biggest projects in Tallinn are the Uus-Veerenni, Lahekalda and Pikaliiva residential projects; in Riga, the Gaiļezers and Viesturdārzs developments; and, in Vilnius, the Vilneles slenis and Rinktinės Urban developments. In Q3, the group sold 106 apartments compared to 87 in the third quarter last year. At the end of September, there were a total of 123 apartments in the three Baltic states ready to be sold and not covered by pre-sale agreements.

The group’s secured order book decreased by end of September 2019 to EUR 152 million, decreasing 36% compared to the level at the same time last year (EUR 239 million). EUR 128 million in new contracts were signed in the first nine months, this being 19% less than in the same period last year (EUR 157 million). The largest contracts in Q3 were signed, in Latvia, for the reconstruction of the Riga Technical University Civil Engineering Faculty building and the construction of college building and dormitory in Babites county in Pinki, and, in Tallinn, the construction of Terminal D parking house at the Tallinn passenger port. In addition to the abovementioned ones, the largest projects in progress were, in Estonia, reconstruction of the Aaspere-Haljala road section, construction of Türi Basic School, establishing water supply and sewerage piping for the 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, student home for Rakvere Vocational School, as well as reconstruction and dredging of the Port of Hundipea; in Latvia, construction of Lidl’s logistics centre, Alfa shopping centre and Laima chocolate factory; and in Lithuania, Neringa Hotel, Quadrum office building, and a private school in Vilnius.


2019 9 months profit before tax was EUR 10.3 million and Q3 2019 was EUR 2.8 million (9M 2018: EUR 12.6 million and Q3 2018: EUR 5.6 million), which brought the profit before tax margin to 4.5% (9M 2018: 4.2%).

Net profit attributable to equity holders of the parent in 9 months 2019 was EUR 7.0 million (9M 2018: EUR 12.3 million) and Q3 2019 net profit attributable to equity holders of the parent was EUR 2.5 million (Q3 2018: EUR 5.6 million). 9 months net profit margin was 3.1% (9M 2018: 4.1%). 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.

Q3 2019 revenue was EUR 73.4 million (Q3 2018: EUR 115.1 million) and 9 months revenue was EUR 227.6 million (9M 2018: EUR 298.8 million). 9 months revenue has decreased by 23.8% compared to same period last year. The share of revenue earned outside Estonia in 9 months 2019 was 53.2% (9M 2018: 51.5%).

As at 30 September 2019, the group’s secured order book was EUR 152.2 million (30 September 2018: EUR 239.4 million). In 9 months 2019, group companies signed new contracts in the amount of EUR 127.6 million (9M 2018: EUR 157.0 million). In Q3 2019, new contracts were signed in the amount of EUR 41.6 million (Q3 2018: EUR 89.4 million).

In 9 months 2019, the group sold a total of 206 apartments (incl. 36 apartments in a joint venture); in 9 months 2018, the group sold 255 apartments (incl. 47 apartments in a joint venture). The group earned a revenue of EUR 20.2 million from sale of own developed apartments in 9 months 2019 and EUR 24.3 million in 9 months 2018. In Q3 of 2019 a total of 106 apartments (incl. 3 apartments in a joint venture) were sold compared to 87 apartments (incl. 13 apartments in a joint venture) in Q3 2018, and earned a revenue of EUR 10.9 million from sale of own developed apartments (Q3 2018: EUR 8.0 million).

At the end of the reporting period, the group had EUR 13.4 million in cash and cash equivalents, and equity of EUR 121.1 million (39.4% of total assets). Comparable figures as at 30 September 2018 were EUR 23.9 million and EUR 124.8 million (43.1% of total assets), respectively. As at 30 September 2019, the group had net debt of EUR 71.0 million (30 September 2018: EUR 29.8 million).

in thousand euros

9 months
9 months
 III quarter
 III quarter
12 months
Revenue 227,620 298,768 73,418 115,118 418,011
Cost of goods sold (206,723) (276,984) (67,191) (106,363) (384,962)
Gross profit 20,897 21,784 6,227 8,755 33,049
Marketing expenses (2,626) (2,482) (842) (753) (3,285)
General and administrative expenses (8,841) (8,583) (2,600) (2,919) (12,304)
Other operating income 1,740 2,477 510 782 3,527
Other operating expenses (1,222) (277) (969) (172) (1,115)
Operating profit 9,948 12,919 2,326 5,693 19,872
Finance income/costs 363 (273) 460 (102) (97)
incl. finance income/costs from sale of subsidiary and liquidation - (59) - - (62)
finance income/costs from joint venture 845 274 642 48 653
interest expense (471) (452) (185) (143) (652)
foreign exchange gain (loss) - (1) 4 - 5
other financial income (expenses) (11) (35) (1) (7) (41)
Profit before tax 10,311 12,646 2,786 5,591 19,775
Corporate income tax expense (2,983) (169) (95) 32 (375)
Net profit for financial year 7,328 12,477 2,691 5,623 19,400
incl. net profit attributable to equity holders of the parent 7,003 12,312 2,550 5,643 19,343
net profit attributable to non-controlling interest 325 165 141 (20) 57
Other comprehensive income, which can subsequently be classified in the income statement          
Currency translation differences of foreign entities (10) 31 (39) 3 (6)
Comprehensive income for the period 7,318 12,508 2,652 5,626 19,394
incl. net profit attributable to equity holders of the parent 7,002 12,343 2,552 5,647 19,324
net profit attributable to non-controlling interest 316 165 130 (21) 70
Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) 0.40 0.70 0.14 0.32 1.09

in thousand euros

  30.09.2019 30.09.2018 31.12.2018
Current assets      
Cash and cash equivalents 13,355 23,868 39,978
Trade and other receivables 72,280 114,150 76,183
Prepaid corporate income tax 94 163 224
Inventories 183,056 116,601 117,992
  268,785 254,782 234,377
Non-current assets      
Investments in joint venture 1,577 353 732
Other long-term loans and receivables 10,590 10,707 10,391
Deferred income tax assets - 5 -
Investment property 14,077 13,785 13,771
Property, plant and equipment 11,336 9,443 9,715
Intangible assets 777 593 671
  38,357 34,886 35,280
TOTAL ASSETS 307,142 289,668 269,657
Current liabilities      
Borrowings 41,750 17,758 19,900
Payables and prepayments 84,643 95,410 77,016
Income tax liability 309 306 381
Short-term provisions 7,675 7,755 8,100
  134,377 121,229 105,397
Non-current liabilities      
Long-term borrowings 42,571 35,878 24,266
Deferred income tax liability 1,589 1,370 1,481
Other long-term payables 2,653 1,647 2,179
  46,813 38,895 27,926
TOTAL LIABILITIES 181,190 160,124 133,323
Non-controlling interests 4,893 4,768 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 (722) (671) (721)
Retained earnings 113,059 116,725 123,756
  121,059 124,776 131,757
TOTAL EQUITY 125,952 129,544 136,334
TOTAL LIABILITIES AND EQUITY 307,142 289,668 269,657

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.


Merko_Ehitus_2019_9M interim_report.pdf