2020 9 months and III quarter consolidated unaudited interim report
COMMENTARY FROM MANAGEMENT
Merko Ehitus posted revenue of EUR 79.7 million and a net profit of EUR 4.9 million in the third quarter of 2020, the respective growth were 8.6% and 92%. The group’s 9-month revenue amounted to EUR 209 million and net profit to EUR 13.1 million. In 9 months of 2020, Merko sold 534 apartments.
The majority of group’s profit has come from the sale of apartments in previously launched projects. Merko sold the most apartments in Vilnius, where the good work done in the last couple of years has borne fruit. The share of apartment development in Merko’s business has grown – therefore, the quarterly results may vary considerably, depending on when the projects are finished.
In the first 9 months of 2020, Merko’s sales revenue in the area of real estate development grew more than three times compared to the same period in the preceding year, and the number of apartments sold increased more than 2.5 times. The largest apartment development projects include Uus-Veerenni, Lahekalda and Pikaliiva in Tallinn, Gaiļezers and Viesturdārzs in Riga, and Vilneles Slenis and Rinktinės Urban in Vilnius.
The majority of construction contracts concluded in 9 months are public procurements. According to the management, there will be no increase in the orders in the Baltic construction market in the coming 12 months. The group’s companies concluded new contracts for EUR 248 million in the first 9 months of 2020 and for EUR 72.9 million in the third quarter. The largest of those were the establishment of the third stage of the Mustamäe medical campus of the North Estonia Medical Centre, the renovation of Nordic Hotel Forum and Tallink City Hotel in Estonia and the construction of the Orkla waffle and biscuit factory in Ādaži as well as a kindergarten in Salaspils, both in Latvia. As at the end of September, the group’s secured order book balance was EUR 251.2 million.
In the third quarter, the largest projects in progress were the Tallinn School of Music and Ballet, the Arte Gymnasium, Terminal D parking house at the Tallinn passenger port, a data centre in Harju County, the reconstruction of Aaspere-Haljala road section, and the design and construction of the infrastructure of the Republic of Estonia’s southeast land border. In Latvia, work continued on the school building and dormitory in Pinki and Lidl logistics centre as well as the reconstruction of the Riga Technical University Civil Engineering Faculty building. In Lithuania, the major ongoing projects included Hotel Neringa in Vilnius, wind park infrastructure facilities in Telšiai district, and, in Kaunas, the district police headquarter building and NATO barracks.
OVERVIEW OF THE III QUARTER AND 9 MONTHS RESULTS
PROFITABILITY
2020 9 months’ profit before tax was EUR 13.9 million and Q3 2020 was EUR 5.1 million (9M 2019: EUR 10.3 million and Q3 2019 was EUR 2.8 million), which brought the profit before tax margin to 6.6% (9M 2019: 4.5%).
Net profit attributable to equity holders of the parent in 9 months 2020 was EUR 13.1 million (9M 2019: EUR 7.0 million) and Q3 2020 net profit attributable to equity holders of the parent was EUR 4.9 million (Q3 2019: EUR 2.5 million). 9 months net profit margin was 6.2% (9M 2019: 3.1%). Compared to 9 months 2020, the net profitability of 2019 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. In 2020, the group’s parent company has not paid dividends.
REVENUE
Q3 2020 revenue was EUR 79.7 million (Q3 2019: EUR 73.4 million) and 9 months’ revenue was EUR 209.5 million (9M 2019: EUR 227.6 million). 9 months’ revenue decreased by 8.0% compared to same period last year. The share of revenue earned outside Estonia in 9 months 2020 was 47.6% (9M 2019: 53.2%).
SECURED ORDER BOOK
As at 30 September 2020, the group’s secured order book was EUR 251.2 million (30 September 2019: EUR 152.2 million). In 9 months 2020, group companies signed new contracts in the amount of EUR 248.0 million (9M 2019: EUR 127.6 million). In Q3 2020, new contracts were signed in the amount of EUR 72.9 million (Q3 2019: EUR 41.6 million).
REAL ESTATE DEVELOPMENT
In 9 months 2020, the group sold a total of 534 apartments (incl. 3 apartments in a joint venture); in 9 months 2019, the group sold 206 apartments (incl. 36 apartments in a joint venture). The group earned a revenue of EUR 67.0 million from sale of own developed apartments in 9 months 2020 and EUR 20.2 million in 9 months 2019. In Q3 of 2020 a total of 165 apartments (incl. 1 apartment in a joint venture) were sold, compared to 106 apartments (incl. 3 apartments in a joint venture) in Q3 2019, and earned a revenue of EUR 21.0 million from sale of own developed apartments (Q3 2019: EUR 10.9 million).
CASH POSITION
At the end of the reporting period, the group had EUR 25.4 million in cash and cash equivalents, and equity of EUR 143.3 million (53.0% of total assets). Comparable figures as at 30 September 2019 were EUR 13.4 million and EUR 121.1 million (39.4% of total assets), respectively. As at 30 September 2020, the group’s net debt stood at EUR 25.2 million (30 September 2019: EUR 71.0 million).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros
| 2020 9 months | 2019 9 months | 2020 III quarter | 2019 III quarter | 2019 12 months | |
| Revenue | 209,480 | 227,620 | 79,747 | 73,418 | 326,779 |
| Cost of goods sold | (184,268) | (206,723) | (71,018) | (67,191) | (291,958) |
| Gross profit | 25,212 | 20,897 | 8,729 | 6,227 | 34,821 |
| Marketing expenses | (3,157) | (2,626) | (1,284) | (842) | (4,260) |
| General and administrative expenses | (8,148) | (8,841) | (2,755) | (2,600) | (12,988) |
| Other operating income | 1,714 | 1,740 | 592 | 510 | 2,983 |
| Other operating expenses | (1,316) | (1,222) | (64) | (969) | (1,318) |
| Operating profit | 14,305 | 9,948 | 5,218 | 2,326 | 19,238 |
| Finance income/costs | (432) | 363 | (122) | 460 | 1,085 |
| incl. finance income/costs from joint venture | 204 | 845 | 112 | 642 | 1,766 |
| interest expense | (530) | (471) | (200) | (185) | (656) |
| foreign exchange gain (loss) | (12) | - | (8) | 4 | - |
| other financial income (expenses) | (94) | (11) | (26) | (1) | (25) |
| Profit before tax | 13,873 | 10,311 | 5,096 | 2,786 | 20,323 |
| Corporate income tax expense | (1,227) | (2,983) | (441) | (95) | (3,833) |
| Net profit for financial year | 12,646 | 7,328 | 4,655 | 2,691 | 16,490 |
| incl. net profit attributable to equity holders of the parent | 13,071 | 7,003 | 4,896 | 2,550 | 16,270 |
| net profit attributable to non-controlling interest | (425) | 325 | (241) | 141 | 220 |
| Other comprehensive income, which can subsequently be classified in the income statement | |||||
| Currency translation differences of foreign entities | (117) | (10) | 11 | (39) | 13 |
| Comprehensive income for the period | 12,529 | 7,318 | 4,666 | 2,652 | 16,503 |
| incl. net profit attributable to equity holders of the parent | 12,939 | 7,002 | 4,895 | 2,522 | 16,281 |
| net profit attributable to non-controlling interest | (410) | 316 | (229) | 130 | 222 |
| Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR) | 0.74 | 0.40 | 0.28 | 0.14 | 0.92 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros
| 30.09.2020 | 30.09.2019 | 31.12.2019 | |
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents | 25,353 | 13,355 | 24,749 |
| Trade and other receivables | 44,518 | 72,280 | 50,413 |
| Prepaid corporate income tax | 91 | 94 | 104 |
| Inventories | 153,433 | 183,056 | 166,226 |
| 223,395 | 268,785 | 241,492 | |
| Non-current assets | |||
| Investments in joint venture | 2,702 | 1,577 | 2,498 |
| Other long-term loans and receivables | 16,238 | 10,590 | 11,094 |
| Investment property | 13,955 | 14,077 | 14,047 |
| Property, plant and equipment | 13,152 | 11,336 | 11,919 |
| Intangible assets | 664 | 777 | 777 |
| 46,711 | 38,357 | 40,335 | |
| TOTAL ASSETS | 270,106 | 307,142 | 281,827 |
| LIABILITIES | |||
| Current liabilities | |||
| Borrowings | 24,221 | 41,750 | 20,725 |
| Payables and prepayments | 60,916 | 84,643 | 69,585 |
| Income tax liability | 1,325 | 309 | 812 |
| Short-term provisions | 5,775 | 7,675 | 7,976 |
| 92,237 | 134,377 | 99,098 | |
| Non-current liabilities | |||
| Long-term borrowings | 26,365 | 42,571 | 43,001 |
| Deferred income tax liability | 1,635 | 1,589 | 1,682 |
| Other long-term payables | 2,785 | 2,653 | 3,491 |
| 30,785 | 46,813 | 48,174 | |
| TOTAL LIABILITIES | 123,022 | 181,190 | 147,272 |
| EQUITY | |||
| Non-controlling interests | 3,807 | 4,893 | 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 | (842) | (722) | (710) |
| Retained earnings | 135,397 | 113,059 | 122,326 |
| 143,277 | 121,059 | 130,338 | |
| TOTAL EQUITY | 147,084 | 125,952 | 134,555 |
| TOTAL LIABILITIES AND EQUITY | 270,106 | 307,142 | 281,827 |
Interim report is 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
AS Merko Ehitus () 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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