English Estonian
Published: 2022-11-03 07:00:00 CET
Merko Ehitus
Quarterly report

2022 9 months and III quarter consolidated unaudited interim report

COMMENTARY FROM MANAGEMENT

Merko Ehitus revenue was EUR 110 million in Q3 2022 and the revenue for the first nine months of the year amounted to EUR 266 million, while the respective figures for net profit were EUR 9.8 million and EUR 17 million. Merko has delivered more than 450 apartments to buyers in 9 months this year.

According to the management of Merko Ehitus, the results for Q3 reflect the growth of investments made into apartment development in recent years, and balanced management of the construction projects portfolio in a complicated market situation.

The outlook of the next 12 months and the years ahead for the construction sector have worsened sharply during the current year. The slowing of inflation and the expected adjustment by companies and households to the high prices of energy has not yet taken place. In addition, interest rates continue rising rapidly. Both customers for major construction projects and the apartment market are gripped by great uncertainty. In conditions of high inflation, pressure on prices continues despite of the fact that demand has decreased. Since processes in construction and real estate development take time, the impact of the current economic and market situation will manifest fully in the financial results for our sectors in 12–24 months.

In the nine months of the current year, the group companies entered into new construction contracts worth EUR 290 million and the balance of secured order book stood at EUR 341 million as of the end of September (respectively EUR 273 million and EUR 314 million in 2021). Merko secured order book is currently strong, which will help to get through the recessionary period of the next few years with a bit less pain. The outlook for new construction orders on the market as a whole is extremely unclear, but at the same time, we are well-positioned for investments into the energy sector.
  
In the first nine months of this year, Merko delivered 456 new apartments and four commercial units to buyers (first 9 months of 2021: 197 apartments and 7 commercial units). Despite the exceedingly complicated situation in the economy, Merko has continued investments into apartment development and launched new development projects, albeit at a more moderate pace than years past. According to the management of Merko Ehitus, in conditions of rapid inflation the construction will not become cheaper in the future.

During the first nine months of this year, the group launched four new development projects with approximately 280 apartments. As of the end of Q3, there were 1,617 apartments under construction by the group, of which more than half have preliminary sale contracts. The largest apartment developments were Uus-Veerenni, Noblessneri and Lahekalda in Tallinn; Erminurme in Tartu; Viesturdarzs, Mežpilseta and Magnolijas in Riga, and Vilneles Skverai in Vilnius.

In Q3 of 2022, the largest objects under construction in Estonia were the third phase of the Mustamäe medical campus of the North-Estonia Medical Centre, Pelgulinna and Rae state gymnasiums, the Arter quarter, construction of infrastructure segments of the Republic of Estonia’s southeast land border, the tram line between Old City Harbour and Rail Baltic’s Ülemiste passenger terminal, and renovation of Rannamõisa tee and Vana-Kalamaja street in Tallinn. In Latvia, projects in progress included the Orkla wafer and biscuit production plant, GUSTAVS business centre, Elemental Skanste office buildings, NATO facilities in Adaži; in Lithuania, several wind farm infrastructures and a car service centre in Vilnius.

OVERVIEW OF THE III QUARTER AND 9 MONTHS RESULTS

PROFITABILITY
2022 9 months’ pre-tax profit was EUR 18.7 million and Q3 2022 was EUR 10.3 million (9M 2021: EUR 16.6 million and Q3 2021 was EUR 6.1 million), which brought the pre-tax profit margin to 7.0% (9M 2021: 7.3%).
Net profit attributable to shareholders for 9 months 2022 was EUR 17.0 million (9M 2021: EUR 15.3 million) and for Q3 2022 net profit attributable to shareholders was EUR 9.8 million (Q3 2021: EUR 5.5 million). 9 months net profit margin was 6.4% (9M 2021: 6.7%).

REVENUE
Q3 2022 revenue was EUR 110.0 million (Q3 2021: EUR 80.7 million) and 9 months’ revenue was EUR 266.2 million (9M 2021: EUR 226.5 million). 9 months’ revenue increased by 17.5% compared to same period last year. The share of revenue earned outside Estonia in 9 months 2022 was 53.4% (9M 2021: 38.8%).

SECURED ORDER BOOK
As of 30 September 2022, the group’s secured order book was EUR 341.0 million (30 September 2021: EUR 314.4 million). In 9 months 2022, group companies signed contracts in the amount of EUR 290.4 million (9M 2021: EUR 272.9 million). In Q3 2022, new contracts were signed in the amount of EUR 97.1 million (Q3 2021: EUR 137.7 million).

REAL ESTATE DEVELOPMENT
In 9 months 2022, the group sold a total of 456 apartments; in 9 months 2021, the group sold 197 apartments. The group earned a revenue of EUR 56.9 million from sale of own developed apartments in 9 months 2022 and EUR 33.3 million in 9 months 2021. In Q3 of 2022 a total of 242 apartments were sold, compared to 52 apartments in Q3 2021, and earned a revenue of EUR 29.8 million from sale of own developed apartments (Q3 2021: EUR 7.5 million).

CASH POSITION
At the end of the reporting period, the group had EUR 22.2 million in cash and cash equivalents, and equity of EUR 166.6 million (40.9% of total assets). Comparable figures as of 30 September 2021 were EUR 19.6 million and EUR 150.8 million (50.9% of total assets), respectively. As of 30 September 2022, the group’s net debt was EUR 88.3 million (30 September 2021: EUR 20.6 million).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros

  2022
9 months
2021
9 months
2022
 III quarter
2021
 III quarter
2021
12 months
Revenue 266,206 226,533 110,008 80,673 339,375
Cost of goods sold (235,123) (200,064) (96,206) (71,442) (292,563)
Gross profit 31,083 26,469 13,802 9,231 46,812
           
Marketing expenses (2,945) (2,632) (776) (802) (3,611)
General and administrative expenses (11,411) (9,098) (3,889) (3,392) (13,925)
Other operating income 2,426 2,511 1,004 1,197 3,508
Other operating expenses (647) (328) (192) (235) (582)
Operating profit 18,506 16,922 9,949 5,999 32,202
           
Finance income/costs 168 (351) 361 90 (75)
incl. finance income/costs from associates and joint ventures 1,093 384 765 381 799
interest expense (670) (548) (296) (232) (681)
foreign exchange gain (loss) (152) (39) (85) - (8)
other financial income (expenses) (103) (148) (23) (59) (185)
Profit before tax 18,674 16,571 10,310 6,089 32,127
           
Corporate income tax expense (1,911) (1,426) (735) (570) (3,104)
           
Net profit for financial year 16,763 15,145 9,575 5,519 29,023
incl. net profit attributable to equity holders of the parent 17,023 15,277 9,821 5,514 29,140
net profit attributable to non-controlling interest (260) (132) (246) 5 (117)
           
Other comprehensive income, which can subsequently be classified in the income statement          
Currency translation differences of foreign entities 11 14 23 (2) 33
Comprehensive income for the period 16,774 15,159 9,598 5,517 29,056
incl. net profit attributable to equity holders of the parent 17,020 15,292 9,831 5,513 29,163
net profit attributable to non-controlling interest (246) (133) (233) 4 (107)
Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) 0.96 0.86 0.55 0.31 1.65

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros

  30.09.2022 30.09.2021 31.12.2021
ASSETS      
Current assets      
Cash and cash equivalents 22,200 19,581 44,930
Trade and other receivables 72,295 59,665 55,484
Prepaid corporate income tax 5 3 114
Inventories 243,222 154,688 160,593
  337,722 233,937 261,121
Non-current assets      
Investments in associates and joint ventures 10,472 7,288 7,703
Other long-term loans and receivables 28,323 23,832 24,079
Deferred income tax assets 1,155 1,120 622
Investment property 11,511 13,847 13,828
Property, plant and equipment 17,527 15,624 16,350
Intangible assets 592 684 669
  69,580 62,395 63,251
       
TOTAL ASSETS 407,302 296,332 324,372
       
LIABILITIES      
Current liabilities      
Borrowings 60,034 9,355 11,636
Payables and prepayments 119,251 88,394 90,054
Income tax liability 1,830 997 681
Short-term provisions 5,584 6,318 7,976
  186,699 105,064 110,347
Non-current liabilities      
Long-term borrowings 50,469 30,826 41,001
Deferred income tax liability 1,671 1,986 3,112
Other long-term payables 2,377 3,553 2,900
  54,517 36,365 47,013
       
TOTAL LIABILITIES 241,216 141,429 157,360
       
EQUITY      
Non-controlling interests (473) 4,083 (227)
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 (794) (799) (791)
Retained earnings 158,631 142,897 159,308
  166,559 150,820 167,239
TOTAL EQUITY 166,086 154,903 167,012
       
TOTAL LIABILITIES AND EQUITY 407,302 296,332 324,372

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 Finance
AS Merko Ehitus
+372 650 1250
urmas.somelar@merko.ee

AS Merko Ehitus (group.merko.ee) group companies develop real estate and construct buildings and infrastructure. We create a better living environment and build the future. We operate in Estonia, Latvia, Lithuania and Norway. As at the end of 2021, the group employed 670 people, and the group’s revenue for 2021 was EUR 339 million.

Attachment



Merko_Ehitus_2022_9M_interim_report.pdf