COMMENTARY FROM MANAGEMENT
Merko Ehitus posted revenue of EUR 74 million and a net profit of EUR 6.2
million in Q2 of 2020. The respective six month figures were EUR 130 million and
EUR 8.2 million. In 6 months of 2020, Merko sold 369 apartments, and the 6-month
revenue generated by the real estate development segment grew more than four
times compared to the same period last year, making up 40 % of the group's
revenue. During the first six months of the year, the group companies concluded
new construction contracts worth EUR 175 million, which is twice as much as a
year ago.
The sale of apartments in the second quarter exceeded the management's spring
expectations, which due to the pandemic restrictions took a sudden turn for the
negative. Yet the restrictions did not significantly impact the second-quarter
delivery of apartments sold under preliminary contracts signed before the
pandemic. Merko sold the most apartments in Vilnius and at the moment, the
market for apartments in all three Baltic capitals is moderate. Activity levels
are not as high as they were before the crisis but the price level has remained
stable. The increase in revenue from real estate development had a positive
impact on the growth of net profit in Q2 as well. The sale of apartments may
vary significantly by quarter, depending on the time during which development
projects were completed and authorisations for use were obtained.
The group's volume of construction contracts has grown 38% compared to a year
ago, and over the first six months of the year, group signed 175 million euros
worth of new construction contracts, which is approximately twice as much as a
year ago. Based on the diminished economic outlook, a large share of orders from
private sector customers has been postponed and public contracts are prevalent
among new orders.
Despite the positive results in the second quarter, the impacts caused by the
pandemic are gradually becoming more apparent in the construction and real
estate sector, and because of this, the outlook for the market developments in
the second half of the year and 2021 are likely to be moving in a negative
direction. The group companies have implemented cost-cutting measures to ensure
efficient and flexible operations during and after the crisis. The market as a
whole has been supported by the response from banking in terms of payment
moratoria and more broadly in ensuring availability of credit.
Over six months, Merko Ehitus Group sold 369 apartments and 4 commercial units
(6 months 2019: 100 apartments and 6 commercial units). The revenue figure for
the real estate development segment in the first half of 2020 saw fourfold
growth year-over-year, making up 40.1% of the group's total revenue (6 months
2019: 7.9%). Merko's biggest projects in Tallinn are the Uus-Veerenni, Lahekalda
and Pikaliiva residential projects; in Riga, the Gai?ezers and Viesturd?rzs
developments; and, in Vilnius, the Vilneles slenis and Rinktin?s Urban
developments. In spring, the group halted the launch of new development projects
for three months due to risks related to the pandemic. At the end of the period,
the third stage of construction and sales of the Uus-Veerenni project in Tallinn
was started.
Merko Ehitus posted revenue of EUR 73.9 million in Q2 of 2020 (Q2 2019: EUR
77.4 million), an EBITDA of EUR 7.7 million (Q2 2019: EUR 5.3 million), and net
profit of EUR 6.2 million (Q2 2019: EUR 1.7 million). In 6 months 2020, the
group companies entered into new contracts totalling EUR 175.1 million and, for
Q2 alone, EUR 87.8 million (Q2 2019: EUR 53.8 million).
As of 30 June 2020, the group had a secured order book balance of EUR 236.7
million (30 June 2019: EUR 172.1 million). The largest projects in progress in
Q2 in Estonia were the construction of the Tallinn Music and Ballet School, the
Arte Gymnasium, Terminal D parking house at the Tallinn passenger port, the
high-voltage power cables in Tallinn, Türi Basic School, the reconstruction of
Aaspere-Haljala road section, the public water supply and sewerage pipeline in
Kohila Parish and a data centre in Harju County. In Latvia, the biggest projects
in progress were construction of the school building and dormitory in Pinki,
Lidl logistics centre and the renovation of the Riga Technical University Civil
Engineering Faculty building. In Lithuania, the construction of Hotel Neringa
and the Kaunas district police headquarter building were in progress.
OVERVIEW OF THE II QUARTER AND 6 MONTHS RESULTS
PROFITABILITY
2020 6 months' profit before tax was EUR 8.8 million and Q2 2020 was EUR 6.7
million (6M 2019: EUR 7.5 million and Q2 2019 was EUR 4.5 million), which
brought the profit before tax margin to 6.8% (6M 2019: 4.9%).
Net profit attributable to equity holders of the parent in 6 months 2020 was EUR
8.2 million (6M 2019: EUR 4.5 million) and Q2 2020 net profit attributable to
equity holders of the parent was EUR 6.2 million (Q2 2019: EUR 1.7 million). 6
months net profit margin was 6.3% (6M 2019: 2.9%). Compared to 6 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 did not pay
dividends.
REVENUE
Q2 2020 revenue was EUR 73.9 million (Q2 2019: EUR 77.4 million) and 6 months'
revenue was EUR 129.7 million (6M 2019: EUR 154.2 million). 6 months' revenue
decreased by 15.9% compared to same period last year. The share of revenue
earned outside Estonia in 6 months 2020 was 50.3% (6M 2019: 57.0%).
SECURED ORDER BOOK
As at 30 June 2020, the group's secured order book was EUR 236.7 million (30
June 2019: EUR 172.1 million). In 6 months 2020, group companies signed new
contracts in the amount of EUR 175.1 million (6M 2019: EUR 86.0 million). In Q2
2020, new contracts were signed in the amount of EUR 87.8 million (Q2 2019: EUR
53.8 million).
REAL ESTATE DEVELOPMENT
In 6 months 2020, the group sold a total of 369 apartments (incl. 2 apartments
in a joint venture); in 6 months 2019, the group sold 100 apartments (incl. 33
apartments in a joint venture). The group earned a revenue of EUR 46.0 million
from sale of own developed apartments in 6 months 2020 and EUR 9.2 million in 6
months 2019. In Q2 of 2020 a total of 236 apartments (all in own developments)
were sold, compared to 37 apartments (incl. 4 apartment in a joint venture) in
Q2 2019, and earned a revenue of EUR 27.4 million from sale of own developed
apartments (Q2 2019: EUR 4.7 million).
CASH POSITION
At the end of the reporting period, the group had EUR 23.7 million in cash and
cash equivalents, and equity of EUR 138.4 million (50.3% of total assets).
Comparable figures as at 30 June 2019 were EUR 14.0 million and EUR 118.5
million (41.2% of total assets), respectively. As at 30 June 2020, the group's
net debt stood at EUR 34.2 million (30 June 2019: EUR 48.7 million).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros
2020 2019 2020 2019 2019
6 months 6 months II quarter II quarter 12 months
Revenue 129,733 154,202 73,861 77,357 326,779
Cost of goods sold (113,250) (139,532) (62,852) (68,893) (291,958)
Gross profit 16,483 14,670 11,009 8,464 34,821
Marketing expenses (1,873) (1,784) (925) (933) (4,260)
General and
administrative expenses (5,393) (6,241) (2,588) (3,117) (12,988)
Other operating income 1,122 1,230 614 529 2,983
Other operating expenses (1,252) (253) (1,189) (218) (1,318)
Operating profit 9,087 7,622 6,921 4,725 19,238
Finance income/costs (310) (97) (211) (180) 1,085
incl. finance
income/costs from joint
venture 92 203 2 (19) 1,766
interest expense (330) (286) (158) (151) (656)
foreign exchange gain
(loss) (4) (4) (4) (4) -
other financial income
(expenses) (68) (10) (51) (6) (25)
Profit before tax 8,777 7,525 6,710 4,545 20,323
Corporate income tax
expense (786) (2,888) (648) (2,813) (3,833)
Net profit for financial
year 7,991 4,637 6,062 1,732 16,490
incl. net profit
attributable to equity
holders of the parent 8,175 4,453 6,156 1,675 16,270
net profit attributable
to non-controlling
interest (184) 184 (94) 57 220
Other comprehensive
income, which can
subsequently be
classified in the income
statement
Currency translation
differences of foreign
entities (128) 29 60 (3) 13
Comprehensive income for
the period 7,863 4,666 6,122 1,729 16,503
incl. net profit
attributable to equity
holders of the parent 8,044 4,480 6,221 1,672 16,281
net profit attributable
to non-controlling
interest (181) 186 (99) 57 222
Earnings per share for
profit attributable to
equity holders of the
parent (basic and
diluted, in EUR) 0.46 0.25 0.35 0.09 0.92
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros
30.06.2020 30.06.2019 31.12.2019
ASSETS
Current assets
Cash and cash equivalents 23,728 13,980 24,749
Trade and other receivables 44,790 72,561 50,413
Prepaid corporate income tax 91 94 104
Inventories 161,534 162,829 166,226
230,143 249,464 241,492
Non-current assets
Investments in joint venture 2,590 935 2,498
Other long-term loans and receivables 14,504 11,418 11,094
Investment property 13,988 14,115 14,047
Property, plant and equipment 12,996 11,255 11,919
Intangible assets 686 727 777
44,764 38,450 40,335
TOTAL ASSETS 274,907 287,914 281,827
LIABILITIES
Current liabilities
Borrowings 28,011 31,786 20,725
Payables and prepayments 63,243 88,748 69,585
Income tax liability 912 2,854 812
Short-term provisions 5,915 6,276 7,976
98,081 129,664 99,098
Non-current liabilities
Long-term borrowings 29,900 30,921 43,001
Deferred income tax liability 1,650 1,556 1,682
Other long-term payables 2,858 2,473 3,491
34,408 34,950 48,174
TOTAL LIABILITIES 132,489 164,614 147,272
EQUITY
Non-controlling interests 4,036 4,763 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 (841) (694) (710)
Retained earnings 130,501 110,509 122,326
138,382 118,537 130,338
TOTAL EQUITY 142,418 123,300 134,555
TOTAL LIABILITIES AND EQUITY 274,907 287,914 281,827
Interim report is attached to the announcement and are also published on NASDAQ
Tallinn and Merko's web page (group.merko.ee (http://group.merko.ee/en/)).
Priit Roosimägi
Head of Group Finance Unit
AS Merko Ehitus
+372 650 1250
priit.roosimagi@merko.ee (mailto:priit.roosimagi@merko.ee)
AS Merko Ehitus (group.merko.ee (http://group.merko.ee/en/)) ) 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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