2020 3 months consolidated unaudited interim reportCOMMENTARY FROM MANAGEMENT Merko Ehitus posted revenue of EUR 56 million and net profit of EUR 2.0 million in Q1 of 2020. Construction services made up 62% and real estate development 38% of the group’s revenue. New construction contracts worth EUR 87 million in total were signed, and the volume of the secured order-book at the end of the quarter was EUR 193 million, of which close to three-quarters were public sector contracts. In Q1, 133 apartments were handed over to apartment buyers. The decrease in revenue by about a quarter compared to the same period last year was to be expected – there were fewer major projects in progress and the construction market was seeing a cooling trend. Starting from March, business activity began to be affected by pandemic related restrictions, but the impact of the pandemic on the group’s operations and results will start to show up more extensively in the quarters ahead. The outlook for the construction and real estate sector in all of group’s home markets became negative in March, and the possibility that the impact of the economic crisis will be long in duration. Due to that, the group cancelled its initial dividend proposal and suspended the launch of new apartment developments at first for three months until there is greater clarity on further developments. Therefore, the supply of group’s apartments will decrease from the planned level for both 2020 and 2021. The group’s companies have started gradually implementing cost control measures to ensure efficient functioning and strong capability for operating both during and after the crisis. Most of the commercial real estate projects have been placed on hold. Private sector clients have practically disappeared from the construction market and public sector procurements will play a commanding role in new construction tenders. It will definitely take time for private sector clients’ confidence to recover and adjust to the new conditions. Management hopes that state investments into buildings and infrastructure will continue and project preparations will speed up to support the vitality of the construction sector and prevent job losses. Due to the projected drop in construction volumes, price competition in construction tenders has become even more aggressive. A positive aspect is that work is continuing on the group’s construction sites and new construction contracts worth EUR 87 million were signed in the first quarter. Owing to that the volume of secured order-book at the end of the quarter was even slightly greater than a year ago. In Q1 of 2020, Merko Ehitus handed over 133 apartments to home buyers (Q1 2019: 63 apartments) and 3 commercial premises. Merko’s biggest projects in Tallinn are Uus-Veerenni and Pikaliiva residential projects, Gaiļezers and Viesturdārzs developments in Riga and Vilneles slenis and Rinktinės Urban developments in Vilnius. In connection with the pandemic, the sales of new apartments slowed down starting in March in Estonia, Latvia and Lithuania. The number of applications for home loans is down; the number of apartments to rent is up, and unemployment has increased in the economic sectors hit hardest by the pandemic. As the apartment market was fairly well balanced before the beginning of the crisis – supply, price level, purchasing power and loan burden were at a reasonable level – going through the current crisis may turn out to be less of an ordeal than the one that started in 2008. Considering the nature of the current economic crisis, it is essential not only that government support measures arrive quickly, but that banks do not overreact in terms of tightening financing conditions, including issuing home loans. People and companies must quickly learn to operate in conditions of higher health risks and restrictions on everyday activities. Group’s companies are taking the necessary safety measures in the apartment sale process and use digital channels to execute transactions. In current situation, home buyers put even more importance on a trustworthy developer and integrally developed living environments. The group will complete the developments in progress and assess possibilities of launching new projects based on the market situation. The management also analyses how the current crisis could impact the real estate market in the future. Merko Ehitus posted revenue of EUR 56 million in Q1 2020 (Q1 2019: EUR 77 million), an EBITDA of EUR 2.8 million (Q1 2019: EUR 3.5 million), and net profit of EUR 2.0 million (Q1 2019: EUR 2.8 million). In the first quarter of this year, new construction contracts worth EUR 87 million were signed (Q1 2019: EUR 32 million), the largest of these being the construction of Tallinn Music and Ballet School, Tallinn Arte Gymnasium, new public water supply and sewerage pipeline in Kohila Parish and a data centre in Harju County. The largest projects in progress for Merko in Q1 in Estonia were the construction of Terminal D parking house at the Tallinn passenger port, Türi Basic School, the commercial building at Pärnu mnt 186 and high-voltage power cables in Tallinn, and the reconstruction of Aaspere-Haljala road section. In Latvia, the largest projects in progress were the construction of the school building and dormitory in Pinki, Lidl’s logistics centre and Laima chocolate factory, as well as the reconstruction of the Riga Technical University Civil Engineering Faculty building. In Lithuania, projects in progress were the construction of Hotel Neringa and Kaunas district police headquarters building. OVERVIEW OF THE 3 MONTHS RESULTS PROFITABILITY
2020 3 months’ profit before tax was EUR 2.1 million (3M 2019: EUR 3.0 million), which brought the profit before tax margin to 3.7% (3M 2019: 3.9%). Net profit attributable to equity holders of the parent in 3 months 2020 was EUR 2.0 million (3M 2019: EUR 2.8 million) and 3 months’ net profit margin was 3.6% (3M 2019: 3.6%). REVENUE
2020 3 months’ revenue was EUR 55.9 million (3M 2019: EUR 76.8 million). 3 months’ revenue decreased by 27.3% compared to same period last year. The share of revenue earned outside Estonia in 3 months 2020 was 53.5% (3M 2019: 60.8%). SECURED ORDER BOOK
As at 31 March 2020, the group’s secured order book was EUR 193.0 million (31 March 2019: EUR 190.0 million). In 3 months 2020, group companies signed new contracts in the amount of EUR 87.2 million (3M 2019: EUR 32.2 million). REAL ESTATE DEVELOPMENT
In 3 months 2020, the group sold a total of 133 apartments (incl. 2 apartments in a joint venture); in 3 months 2019, the group sold 63 apartments (incl. 29 apartments in a joint venture). The group earned a revenue of EUR 18.6 million from sale of own developed apartments in 3 months 2020 and EUR 4.6 million in 3 months 2019. CASH POSITION
At the end of the reporting period, the group had EUR 37.1 million in cash and cash equivalents, and equity of EUR 132.2 million (45.7% of total assets). Comparable figures as at 31 March 2019 were EUR 33.0 million and EUR 134.6 million (48.7% of total assets), respectively. As at 31 March 2020, the group had net debt of EUR 29.8 million (31 March 2019: EUR 9.9 million). CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros | | 2020
3 months | 2019
3 months | 2019
12 months | | Revenue | 55,872 | 76,845 | 326,779 | | Cost of goods sold | (50,398) | (70,639) | (291,958) | | Gross profit | 5,474 | 6,206 | 34,821 | | | | | | | Marketing expenses | (948) | (851) | (4,260) | | General and administrative expenses | (2,805) | (3,124) | (12,988) | | Other operating income | 508 | 701 | 2,983 | | Other operating expenses | (63) | (35) | (1,318) | | Operating profit | 2,166 | 2,897 | 19,238 | | | | | | | Finance income/costs | (99) | 83 | 1,085 | | incl. finance income/costs from joint venture | 90 | 222 | 1,766 | | interest expense | (172) | (135) | (656) | | other financial income (expenses) | (17) | (4) | (25) | | Profit before tax | 2,067 | 2,980 | 20,323 | | | | | | | Corporate income tax expense | (138) | (75) | (3,833) | | | | | | | Net profit for financial year | 1,929 | 2,905 | 16,490 | | incl. net profit attributable to equity holders of the parent | 2,019 | 2,778 | 16,270 | | net profit attributable to non-controlling interest | (90) | 127 | 220 | | | | | | | Other comprehensive income, which can subsequently be classified in the income statement | | | | | Currency translation differences of foreign entities | (188) | 32 | 13 | | Comprehensive income for the period | 1,741 | 2,937 | 16,503 | | incl. net profit attributable to equity holders of the parent | 1,823 | 2,808 | 16,281 | | net profit attributable to non-controlling interest | (82) | 129 | 222 | | Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) | 0.11 | 0.16 | 0.92 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros | | 31.03.2020 | 31.03.2019 | 31.12.2019 | | ASSETS | | | | | Current assets | | | | | Cash and cash equivalents | 37,056 | 32,970 | 24,749 | | Trade and other receivables | 42,133 | 75,297 | 50,413 | | Prepaid corporate income tax | 91 | 224 | 104 | | Inventories | 168,833 | 130,019 | 166,226 | | | 248,113 | 238,510 | 241,492 | | Non-current assets | | | | | Investments in joint venture | 2,588 | 954 | 2,498 | | Other long-term loans and receivables | 11,991 | 11,043 | 11,094 | | Investment property | 14,021 | 14,140 | 14,047 | | Property, plant and equipment | 11,699 | 10,853 | 11,919 | | Intangible assets | 724 | 700 | 777 | | | 41,023 | 37,690 | 40,335 | | | | | | | TOTAL ASSETS | 289,136 | 276,200 | 281,827 | | | | | | | LIABILITIES | | | | | Current liabilities | | | | | Borrowings | 21,496 | 15,624 | 20,725 | | Payables and prepayments | 73,488 | 82,764 | 69,585 | | Income tax liability | 816 | 420 | 812 | | Short-term provisions | 6,866 | 7,081 | 7,976 | | | 102,666 | 105,889 | 99,098 | | Non-current liabilities | | | | | Long-term borrowings | 45,355 | 27,220 | 43,001 | | Deferred income tax liability | 1,655 | 1,521 | 1,682 | | Other long-term payables | 3,164 | 2,299 | 3,491 | | | 50,174 | 31,040 | 48,174 | | | | | | | TOTAL LIABILITIES | 152,840 | 136,929 | 147,272 | | | | | | | EQUITY | | | | | Non-controlling interests | 4,135 | 4,706 | 4,217 | | 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 | (906) | (691) | (710) | | Retained earnings | 124,345 | 126,534 | 122,326 | | | 132,161 | 134,565 | 130,338 | | TOTAL EQUITY | 136,296 | 139,271 | 134,555 | | | | | | | TOTAL LIABILITIES AND EQUITY | 289,136 | 276,200 | 281,827 |
Interim report is 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 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 main contractor, the group’s other major area of activity is apartment development. As at the end of 2019, the group employed 694 people, and the group’s revenue for 2019 was EUR 327 million.
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