Published: 2021-11-04 07:00:00 CET
Merko Ehitus
Quarterly report

2021 9 months and III quarter consolidated unaudited interim report

COMMENTARY FROM MANAGEMENT

Third-quarter revenue for Merko Ehitus was EUR 81 million and net profit for the same period was EUR 5.5 million. The revenue for the first nine months of 2021 grew by 8% to EUR 227 million and net profit by 17% to over EUR 15 million. This year in the three Baltics, Merko has launched construction of more than 1,300 apartments due to be completed in the next two years.

According to the management of Merko Ehitus, the situation on the general construction contracting market continues to be complicated due to global supply chain problems. There has also been a jump in the prices of materials and there is a major shortage of qualified workforce. The risks to on-time completion of projects and staying within budget are quite sizeable today and unfortunately we are also seeing them be realized on some sites. There are fewer new projects and actual orders on the market, since customers have not managed to adapt to the changes and higher prices on the construction market. These problems are more manageable in the apartment development sector, where we have greater control of the development and construction process.

The share of apartment developments in the group’s nine-month revenue is, as expected, lower because of the timing of the completion of projects and delivery to buyers. The delivery of pre-sold apartments to buyers continues in the following quarters, which is also reflected in the group’s financial result. New sales of apartments are going according to plan – most of the finished apartments have been sold and a large part of the apartments under construction are reserved under preliminary contracts of sale.

In the first nine months of 2021, Merko delivered 197 apartments and 7 commercial units to buyers and launched construction of 1,300 apartments expected to be completed in 2022 and 2023. The largest residential developments are Noblessner, Uus-Veerenni, Odra, Metsatuka and Lahekalda, in Tallinn; Erminurme, in Tartu; Viesturdārzs and Mežpilsēta, in Riga; and Vilneles Skverai, in Vilnius.
  
Considering the changes that have taken place in the last few years on the construction and real estate market, it can be said that the group’s companies have adjusted rapidly. Merko group companies have been able to maintain and even increase profitability despite the supply chain problems and rise in input prices. A greater strategic focus on residential real estate development has also paid off so far. Many thanks to the company’s employees and all partners who have to contend with the extremely fraught situation. Unfortunately, the latest developments regarding the coronavirus in the Baltic countries are very negative, and the group must be prepared that high morbidity and restrictions will pose new obstacles to the normal course of processes in construction and real estate development in the coming months.

The Merko group’s secured order-book balance grew to EUR 314 million as of the end of Q3. In Q3 of 2021, Merko entered into new contracts worth EUR 138 million of which the biggest were a contract for the construction of the Elemental Skanste office buildings and GUSTAVS business centre in Riga and construction of wind farm infrastructure in the Akmenė and Šilalė region in Lithuania.

In the third quarter, Merko had under construction in Estonia the third development phase of the Mustamäe medical campus of the North-Estonia Medical Centre, the Tallinn School of Music and Ballet, the Liivalaia business and residential complex and the construction of infrastructure segments of the Republic of Estonia’s southeast land border. In Latvia, the works in progress were the Orkla wafer and biscuit production plant and NATO facilities in Ādaži, and the Kauguri city park and youth house. In Lithuania, infrastructure for a number of wind farms and the Kaunas district police headquarters building, NATO barracks and a production building for Continental Automotive.

OVERVIEW OF THE III QUARTER AND 9 MONTHS RESULTS

PROFITABILITY
2021 9 months’ pre-tax profit was EUR 16.6 million and Q3 2021 was EUR 6.1 million (9M 2020: EUR 13.9 million and Q3 2020 was EUR 5.1 million), which brought the pre-tax profit margin to 7.3% (9M 2020: 6.6%).
Net profit attributable to shareholders for 9 months 2021 was EUR 15.3 million (9M 2020: EUR 13.1 million) and for Q3 2021 net profit attributable to shareholders was EUR 5.5 million (Q3 2020: EUR 4.9 million). 9 months net profit margin was 6.7% (9M 2020: 6.2%).

REVENUE
Q3 2021 revenue was EUR 80.7 million (Q3 2020: EUR 79.7 million) and 9 months’ revenue was EUR 226.5 million (9M 2020: EUR 209.5 million). 9 months’ revenue increased by 8.1% compared to same period last year. The share of revenue earned outside Estonia in 9 months 2021 was 38.8% (9M 2020: 47.6%).

SECURED ORDER BOOK
As of 30 September 2021, the group’s secured order book was EUR 314.4 million (30 September 2020: EUR 251.2 million). In 9 months 2021, group companies signed new contracts in the amount of EUR 272.9 million (9M 2020: EUR 248.0 million). In Q3 2021, new contracts were signed in the amount of EUR 137.7 million (Q3 2020: EUR 72.9 million).

REAL ESTATE DEVELOPMENT
In 9 months 2021, the group sold a total of 197 apartments; in 9 months 2020, the group sold 534 apartments. The group earned a revenue of EUR 33.3 million from sale of own developed apartments in 9 months 2021 and EUR 67.0 million in 9 months 2020. In Q3 of 2021 a total of 52 apartments were sold, compared to 165 apartments in Q3 2020, and earned a revenue of EUR 7.5 million from sale of own developed apartments (Q3 2020: EUR 21.0 million).

CASH POSITION
At the end of the reporting period, the group had EUR 19.6 million in cash and cash equivalents, and equity of EUR 150.8 million (50.9% of total assets). Comparable figures as of 30 September 2020 were EUR 25.4 million and EUR 143.3 million (53.0% of total assets), respectively. As of 30 September 2021, the group’s net debt was EUR 20.6 million (30 September 2020: EUR 25.2 million).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros


 
2021
9 months
2020
9 months
2021
 III quarter
2020
 III quarter
2020
12 months
Revenue 226,533 209,480 80,673 79,747 315,918
Cost of goods sold (200,064) (184,268) (71,442) (71,018) (272,169)
Gross profit 26,469 25,212 9,231 8,729 43,749
           
Marketing expenses (2,632) (3,157) (802) (1,284) (4,212)
General and administrative expenses (9,098) (8,148) (3,392) (2,755) (13,412)
Other operating income 2,511 1,714 1,197 592 2,320
Other operating expenses (328) (1,316) (235) (64) (2,979)
Operating profit 16,922 14,305 5,999 5,218 25,466
           
Finance income/costs (351) (432) 90 (122) (1,009)
incl. finance income/costs from associate and joint venture 384 204 381 112 (144)
interest expense (548) (530) (232) (200) (719)
foreign exchange gain (loss) (39) (12) - (8) (7)
other financial income (expenses) (148) (94) (59) (26) (139)
Profit before tax 16,571 13,873 6,089 5,096 24,457
           
Corporate income tax expense (1,426) (1,227) (570) (441) (1,954)
           
Net profit for financial year 15,145 12,646 5,519 4,655 22,503
incl. net profit attributable to equity holders of the parent 15,277 13,071 5,514 4,896 22,994
net profit attributable to non-controlling interest (132) (425) 5 (241) (491)
           
Other comprehensive income, which can subsequently be classified in the income statement          
Currency translation differences of foreign entities 14 (117) (2) 11 (115)
Comprehensive income for the period 15,159 12,529 5,517 4,666 22,388
incl. net profit attributable to equity holders of the parent 15,292 12,939 5,513 4,895 22,890
net profit attributable to non-controlling interest (133) (410) 4 (229) (502)
Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) 0.86 0.74 0.31 0.28 1.30

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros


 
30.09.2021 30.09.2020 31.12.2020
ASSETS      
Current assets      
Cash and cash equivalents 19,581 25,353 47,480
Trade and other receivables 59,665 44,518 32,657
Prepaid corporate income tax 3 91 306
Inventories 154,688 153,433 126,332
  233,937 223,395 206,775
Non-current assets      
Investments in associates and joint ventures 7,288 2,702 2,354
Other long-term loans and receivables 23,832 16,238 17,979
Deferred income tax assets 1,120 - 653
Investment property 13,847 13,955 13,922
Property, plant and equipment 15,624 13,152 14,521
Intangible assets 684 664 711
  62,395 46,711 50,140
       
TOTAL ASSETS 296,332 270,106 256,915
       
LIABILITIES      
Current liabilities      
Borrowings 9,355 24,221 13,649
Payables and prepayments 88,394 60,916 55,846
Income tax liability 997 1,325 1,202
Short-term provisions 6,318 5,775 6,347
  105,064 92,237 77,044
Non-current liabilities      
Long-term borrowings 30,826 26,365 15,409
Deferred income tax liability 1,986 1,635 3,001
Other long-term payables 3,553 2,785 4,026
  36,365 30,785 22,436
       
TOTAL LIABILITIES 141,429 123,022 99,480
       
EQUITY      
Non-controlling interests 4,083 3,807 4,207
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 (799) (842) (814)
Retained earnings 142,897 135,397 145,320
  150,820 143,277 153,228
TOTAL EQUITY 154,903 147,084 157,435
       
TOTAL LIABILITIES AND EQUITY 296,332 270,106 256,915

Interim report is attached to the announcement and is also published on NASDAQ Tallinn and Merko’s web page (group.merko.ee).

Urmas Somelar
Head of Group Finance Unit
AS Merko Ehitus
+372 650 1250
urmas.somelar@merko.ee

AS Merko Ehitus (group.merko.ee) group consists of AS Merko Ehitus Eesti in Estonia, SIA Merks in Latvia, UAB Merko Statyba in Lithuania and Peritus Entreprenør AS in Norway. Besides providing construction service as a general contractor, the group’s other major area of activity is apartment development. As at the end of 2020, the group employed 666 people, and the group’s revenue for 2020 was EUR 316 million.

Attachment



Merko_Ehitus_2021_9M_interim_report.pdf