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2022 6 months and II quarter consolidated unaudited interim report

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·9-min read
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Merko Ehitus AS
Merko Ehitus AS

COMMENTARY FROM MANAGEMENT

Merko Ehitus revenue was EUR 88 million in Q2 2022, and EUR 156 million in H1 2022, while the respective figures for net profit were EUR 4.2 million and EUR 7.2 million. This year, Merko has delivered 214 apartments to buyers and a number of development projects will be completed in the second half of the year.

According to the management of Merko Ehitus, the results met expectations, considering the current market situation and the adaptation of all participants in the construction sector to the rapid rise in construction prices. Net profit in the second quarter was also influenced by a EUR 0.3 million donation to Ukrainian support projects and income tax expense that is EUR 0.3 million higher than a year ago.

The influence of inflation and rising input prices in the group’s sector of construction service continues to be high, yet the implementation of all the construction projects in progress has continued according to plan. The situation is complicated in all construction sectors, yet most critical in road construction where the rise in input prices has been the highest and new investment plans have been put on hold. We share the concern of sector leaders as to the sustainability of the sector.

In H1, the group companies entered into new construction contracts worth EUR 193 million and the secured order book balance stood at EUR 323 million as of the end of June. According to the management, the group's secured order book is currently strong, yet there is little business real estate and new infrastructure construction orders on the market as a whole. Considering the energy crisis and green transition policy, it is somewhat surprising that only a few major renewable energy and high energy efficient building designs have come on to the market. The faster customers adapt to the higher input prices and supply chain problems that construction companies are facing, the faster the planned projects will reach construction. It is necessary to find solutions for sharing the risks with project owners and continue to invest regardless of faster inflation.
  
In the first six months of this year, Merko delivered 214 new apartments and one commercial unit to buyers and a number of apartment developments in progress are expected to be completed on schedule in H2. Merko new sales of apartments have continued even after the price rise caused by rising input prices, which shows that the market is gradually adapting to the new prices. The supply of new apartments on the market as a whole has decreased. Residential construction is for Merko a business area with a long perspective and we have continued investing into new development projects, although at a more moderate pace.

During H1, the group launched construction of 186 new apartments and four commercial units in Riga. As of the end of the quarter, over 1700 apartments were under construction in the three Baltic states, over half of which have preliminary sale contracts concluded and will be completed in 2022 and 2023. The largest apartment developments were Uus-Veerenni, Noblessneri and Lahekalda in Tallinn, Erminurme in Tartu, Viesturdarzs, Mežpilsēta and Magnolijas in Riga, and Vilneles Skverai in Vilnius.

In the second quarter of 2022, the largest objects in operation in Estonia were the third development phase of the Mustamäe medical campus of the North-Estonia Medical Centre, the Tallinn School of Music and Ballet, St John’s School,  Pelgulinna State gymnasium and the Arter quarter, and also the construction of infrastructure segments of the Republic of Estonia’s southeast land border and reconstruction of Rannamõisa tee. In Latvia, the Orkla wafer and biscuit production plant, GUSTAVS business centre, Elemental Skanste office buildings, NATO facilities in Ādaži and the Kauguri city park and youth house were in progress; and in Lithuania, infrastructure for a number of wind farms, and a car service centre in Vilnius.

OVERVIEW OF THE II QUARTER AND 6 MONTHS RESULTS

PROFITABILITY
2022 6 months’ pre-tax profit was EUR 8.4 million and Q2 2022 was EUR 4.9 million (6M 2021: EUR 10.5 million and Q2 2021 was EUR 6.7 million), which brought the pre-tax profit margin to 5.4% (6M 2021: 7.2%).
Net profit attributable to shareholders for 6 months 2022 was EUR 7.2 million (6M 2021: EUR 9.8 million) and for Q2 2022 net profit attributable to shareholders was EUR 4.2 million (Q2 2021: EUR 6.4 million). 6 months net profit margin was 4.6% (6M 2021: 6.7%).

REVENUE
Q2 2022 revenue was EUR 87.8 million (Q2 2021: EUR 85.8 million) and 6 months’ revenue was EUR 156.2 million (6M 2021: EUR 145.9 million). 6 months’ revenue increased by 7.2% compared to same period last year. The share of revenue earned outside Estonia in 6 months 2022 was 53.8% (6M 2021: 38.0%).

SECURED ORDER BOOK
As of 30 June 2022, the group’s secured order book was EUR 322.9 million (30 June 2021: EUR 249.8 million). In 6 months 2022, group companies signed contracts in the amount of EUR 193.3 million (6M 2021: EUR 135.1 million). In Q2 2022, new contracts were signed in the amount of EUR 22.1 million (Q2 2021: EUR 37.8 million).
  
REAL ESTATE DEVELOPMENT
In 6 months 2022, the group sold a total of 214 apartments; in 6 months 2021, the group sold 145 apartments. The group earned a revenue of EUR 27.1 million from sale of own developed apartments in 6 months 2022 and EUR 25.8 million in 6 months 2021. In Q2 of 2022 a total of 88 apartments were sold, compared to 55 apartments in Q2 2021, and earned a revenue of EUR 11.6 million from sale of own developed apartments (Q2 2021: EUR 11.0 million).

CASH POSITION
At the end of the reporting period, the group had EUR 16.8 million in cash and cash equivalents, and equity of EUR 156.7 million (41.5% of total assets). Comparable figures as of 30 June 2021 were EUR 21.7 million and EUR 145.3 million (52.5% of total assets), respectively. As of 30 June 2022, the group’s net debt was EUR 73.2 million (30 June 2021: EUR 16.1 million).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros

 

2022
months

2021
6 months

2022
 II quarter

2021
 II quarter

2021
12 months

Revenue

156,198

145,860

87,772

85,753

339,375

Cost of goods sold

(138,917)

(128,622)

(78,363)

(75 489)

(292,563)

Gross profit

17,281

17,238

9,409

10 264

46,812

 

 

 

 

 

 

Marketing expenses

(2,169)

(1,830)

(1,054)

(883)

(3,611)

General and administrative expenses

(7,522)

(5,706)

(3,799)

(2,991)

(13,925)

Other operating income

1,422

1,314

736

639

3,508

Other operating expenses

(455)

(93)

(394)

(39)

(582)

Operating profit

8,557

10,923

4,898

6,990

32,202

 

 

 

 

 

 

Finance income/costs

(193)

(441)

(33)

(257)

(75)

incl. finance income/costs from associates and joint ventures

328

3

330

(4)

799

interest expense

(374)

(316)

(212)

(170)

(681)

foreign exchange gain (loss)

(67)

(39)

(119)

(39)

(8)

other financial income (expenses)

(80)

(89)

(32)

(44)

(185)

Profit before tax

8,364

10,482

4,865

6,733

32,127

 

 

 

 

 

 

Corporate income tax expense

(1,176)

(856)

(755)

(427)

(3,104)

 

 

 

 

 

 

Net profit for financial year

7,188

9,626

4,110

6,306

29,023

incl. net profit attributable to equity holders of the parent

7,202

9,763

4,196

6,395

29,140

net profit attributable to non-controlling interest

(14)

(137)

(86)

(89)

(117)

 

 

 

 

 

 

Other comprehensive income, which can subsequently be classified in the income statement

 

 

 

 

 

Currency translation differences of foreign entities

(12)

16

(28)

(7)

33

Comprehensive income for the period

7,176

9,642

4,082

6,299

29,056

incl. net profit attributable to equity holders of the parent

7,189

9,779

4,169

6,387

29,163

net profit attributable to non-controlling interest

(13)

(137)

(87)

(88)

(107)

Earnings per share for profit attributable to equity holders of the parent (basic and diluted, in EUR)

0.41

0.55

0.24

0.36

1.65


CONSOLIDATED STATEMENT OF FINANCIAL POSITION

unaudited
in thousand euros

 

30.06.2022

30.06.2021

31.12.2021

ASSETS

 

 

 

Current assets

 

 

 

Cash and cash equivalents

16,773

21,713

44,930

Trade and other receivables

68,317

62,902

55,484

Prepaid corporate income tax

36

315

114

Inventories

228,240

136,605

160,593

 

313,366

221,535

261,121

Non-current assets

 

 

 

Investments in associates and joint ventures

9,707

2,357

7,703

Other long-term loans and receivables

23,616

22,797

24,079

Deferred income tax assets

1,115

842

622

Investment property

11,536

13,872

13,828

Property, plant and equipment

17,347

14,611

16,350

Intangible assets

635

733

669

 

63,956

55,212

63,251

 

 

 

 

TOTAL ASSETS

377,322

276,747

324,372

 

 

 

 

LIABILITIES

 

 

 

Current liabilities

 

 

 

Borrowings

48,854

9,279

11,636

Payables and prepayments

117,702

77,814

90,054

Income tax liability

2,275

731

681

Short-term provisions

6,879

5,720

7,976

 

175,710

93,544

110,347

Non-current liabilities

 

 

 

Long-term borrowings

41,153

28,493

41,001

Deferred income tax liability

1,649

1,739

3,112

Other long-term payables

2,322

3,586

2,900

 

45,124

33,818

47,013

 

 

 

 

TOTAL LIABILITIES

220,834

127,362

157,360

 

 

 

 

EQUITY

 

 

 

Non-controlling interests

(240)

4,078

(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

(804)

(798)

(791)

Retained earnings

148,810

137,383

159,308

 

156,728

145,307

167,239

TOTAL EQUITY

156,488

149,385

167,012

 

 

 

 

TOTAL LIABILITIES AND EQUITY

377,322

276,747

324,372

The 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 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.

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