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2021 9 months and III quarter consolidated unaudited interim report

·9-min read

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.

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