COMMENTARY FROM MANAGEMENT
Merko Ehitus posted revenue of EUR 119.2 million in Q4 of 2018 and the 12-month
revenue figure was EUR 418 million. The group's net profit for Q4 of 2018 was
EUR 7 million and the 12-month net profit was EUR 19.3 million. Both the 12-
month revenue as well as net profit grew by 32%, compared to 2017 figures. As
discussed with the supervisory board, the group's management board proposes to
pay shareholders a dividend of 92% of last year's profit, which amounts to
1 euro per share.
In recent years, the management of Merko Ehitus has implemented a strategy by
which one-half of the group's business would be located outside Estonia. Also,
investments into apartment development have been increased. 2018 was an
exceptional year in regard to construction volumes, with the group's revenue on
the upswing in all Baltic states, and doubling in Latvia. The growth in revenue
was supported by several major ongoing projects in Latvia and Estonia on which
construction work was completed in 2018 or is set to be completed in the first
half of 2019. All of the group's countries and main areas of activity made a
profit and the growth in revenue also increased the group's net profit.
Because of the rise in construction input prices and higher wages, the situation
on the construction market continued to be complicated in 2018, especially in
regard to contracts concluded by the group at a fixed price in earlier years. In
addition, the problems of availability of building design and subcontracting
resources exacerbated risks related to on-time completion of construction and
financial risks. The rise in construction prices began slowing the growth in the
volume of new orders on the market, which also resulted in stiffer competition
between main contractors vying for construction orders and applied pressure on
profit margins. The launch of new commercial real estate projects is also now
being slowed by the large volume of retail and office space accruing in recent
years and the more complicated financing conditions. The group's secured order
book shrank by about one-third in 2018, which will likely affect our
construction volumes in 2019.
In addition to providing construction services to customers, a strategic
business area for Merko Ehitus is apartment development, into which the group
invested EUR 35 million in 2018. Last year, Merko launched the construction of a
total of more than 1,000 new apartments in Tallinn, Riga and Vilnius, most of
which will be completed in 2020. The largest projects are the Uus-Veerenni and
Pikaliiva residential environments in Tallinn, the Gai?ezers and Viesturd?rzs
developments in Riga and the Vilneles slenis and Rinktin?s Urban developments in
Vilnius. In Q4 of 2018, Merko sold 227 apartments; for the entire year, sales
totalled 482 apartments.
The apartment market in the Baltics in 2018 was stable and demand remained
healthy. As the supply of new apartments has increased, the price level has
stabilized and sales periods are somewhat longer. The trend can be expected to
continue this year, especially in case of apartments in the above-average price
segment. On the other hand, the apartment market is supported by low prime
interest rates, high employment and economic growth. Large development areas
occupy a more central position in the group's apartment development strategy,
allowing to shape an integral living environment and launch development projects
stage-by-stage in response to demand.
In Q4 of 2018, Merko Ehitus posted revenue of EUR 119.2 million with EBITDA of
EUR 7.6 million and a net profit of EUR 7.0 million. For 2018 overall, sales
revenue was EUR 418 million, EBITDA was 21.9 million and net profit was EUR
19.3 million. The growth of net profit was supported not only by the rise in
revenue but the lower expense on income tax compared to 2017, as dividends were
paid out in 2018 from dividends received from subsidiaries outside Estonia. At
the same time, 2018 did not see real estate transactions of a one-off nature,
which had a positive influence on the Q4 2017 profit.
In the 12 months of 2018, the group signed new contracts totalling EUR 246
million, and in Q4 alone, EUR 89 million, including for the design and
construction of an office building at Pärnu mnt 186 in Tallinn and Tesla service
centre in Oslo, the construction of a student home in Rakvere, laying of
undersea cables under the Suur and Väike Väin straits in western Estonia, and
road maintenance in the city of Tallinn.
As at 31 December 2018, Merko Ehitus group´s secured order book amounted to EUR
229 million, compared to EUR 344 million as at the same date in the previous
year. In Q4, the largest projects in progress in Estonia were T1 Mall of Tallinn
shopping centre, Maakri Kvartal business complex, Öpiku Office Building tower B,
Noblessner residential district, Tallink office building, and renovation and
dredging work at the Port of Hundipea. In Latvia, the largest projects in
progress were Akropole and Alfa shopping centres, Z?Towers business complex and
Ventspils Music School and Concert Hall; and in Lithuania, they were Hotel
Neringa, Quadrum office building and two school buildings. In Norway, the
biggest projects in progress in Q4 were the design and construction of Tesla
customer service centre and renovation of an office building at Møllergata
23-25 in Oslo.
OVERVIEW OF THE IV QUARTER AND 12 MONTHS RESULTS
PROFITABILITY
Q4 2018 net profit was EUR 7.0 million (Q4 2017: EUR 8.1 million) and net profit
margin 5.9% (Q4 2017: 7.9%). Net profit in 12 months 2018 was EUR 19.3 million
(12M 2017: EUR 14.7 million), having increased by 31.6% compared to the same
period last year. Net profit margin remained at the same level: 4.6% (12M
2017: 4.6%). In 2018, the group incurred EUR 2.6 million less corporate income
tax costs.
Q4 2018 profit before tax was EUR 7.1 million (Q4 2017: EUR 10.6 million) and
12 months 2018 profit before tax was EUR 19.8 million (12M 2017:
EUR 18.8 million), which brought the profit before tax margin to 4.7% (12M
2017: 5.9%).
REVENUE
Q4 2018 revenue was EUR 119.2 million (Q4 2017: EUR 102.8 million) and 12 months
2018 revenue was EUR 418.0 million (12M 2017: EUR 317.6 million). 12 months'
revenue has increased by 31.6% compared to same period last year. The share of
revenue earned outside Estonia in 12 months 2018 was 51.5% (12M 2017: 39.9%).
SECURED ORDER BOOK
As at 31 December 2018, the group's secured order book was EUR 229.0 million (31
December 2017: EUR 344.4 million). In 12 months 2018, group companies signed new
contracts in the amount of EUR 246.4 million (12M 2017: EUR 334.9 million). In
Q4 2018, new contracts were signed in the amount of EUR 89.4 million (Q4 2017:
EUR 31.3 million).
REAL ESTATE DEVELOPMENT
In 12 months 2018, the group sold a total of 482 apartments (incl. 131
apartments in a joint venture); in 12 months 2017, the group sold 392 apartments
(incl. 17 apartment in a joint venture). The group earned a revenue of EUR 41.3
million from sale of own developed apartments in 12 months 2018 and EUR 47.1
million in 12 months 2017. In Q4 of 2018, the group sold a total of 227
apartments (incl. 84 apartments in a joint venture); in Q4 of 2017, the group
sold 106 apartments (incl. 16 apartment in a joint venture). The group earned a
revenue of EUR 17.0 million from sale of own developed apartments in Q4 of 2018
and EUR 13.3 million in Q4 of 2017.
CASH POSITION
At the end of the reporting period, the group had EUR 40.0 million in cash and
cash equivalents, and equity EUR 131.8 million (48.9% of total assets).
Comparable figures as at 31 December 2017 were EUR 39.2 million and EUR 130.2
million (47.0% of total assets), respectively. As at 31 December 2018, the group
had net debt of EUR 4.2 million (31 December 2017: EUR 20.1 million).
PROPOSAL FOR DISTRIBUTION OF PROFITS
As discussed with the Supervisory Board, the Management Board proposes to
distribute to shareholders EUR 17.7 million in dividends (1 euro per share) from
retained earnings in 2019. This is equivalent to a 92% dividend rate for 2018.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros
2018 2017 2018 2017
12 months 12 months IV quarter IV quarter
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Revenue 418,011 317,598 119,243 102,791
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Cost of goods sold (384,962) (286,747) (107,978) (88,638)
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Gross profit 33,049 30,851 11,265 14,153
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Marketing expenses (3,285) (3,215) (803) (795)
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General and administrative
expenses (12,304) (11,289) (3,721) (3,500)
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Other operating income 3,527 3,793 1,050 1,148
-------------------------------------------------------------------------------
Other operating expenses (1,115) (601) (838) (277)
-------------------------------------------------------------------------------
Operating profit 19,872 19,539 6,953 10,729
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Finance income/costs (97) (767) 176 (173)
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incl. finance income/costs from
sale of subsidiary and
liquidation (62) 14 (3) 14
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finance income/costs from joint
ventures 653 64 379 76
-------------------------------------------------------------------------------
finance income/costs from other
long-term investments - 2 - 2
-------------------------------------------------------------------------------
interest expense (652) (745) (200) (192)
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foreign exchange gain (loss) 5 (1) 6 1
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other financial income (expenses) (41) (101) (6) (74)
-------------------------------------------------------------------------------
Profit before tax 19,775 18,772 7,129 10,556
-------------------------------------------------------------------------------
Corporate income tax expense (375) (3,020) (206) (1,625)
-------------------------------------------------------------------------------
Net profit for financial year 19,400 15,752 6,923 8,931
-------------------------------------------------------------------------------
incl. net profit attributable to
equity holders of the parent 19,343 14,694 7,031 8,133
-------------------------------------------------------------------------------
net profit attributable to non-
controlling interest 57 1,058 (108) 798
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Other comprehensive income, which
can subsequently be classified in
the income statement
-------------------------------------------------------------------------------
Currency translation differences
of foreign entities (6) (74) (37) (47)
-------------------------------------------------------------------------------
Comprehensive income for the
period 19,394 15,678 6,886 8,884
-------------------------------------------------------------------------------
incl. net profit attributable to
equity holders of the parent 19,324 14,637 6,981 8,099
-------------------------------------------------------------------------------
net profit attributable to non-
controlling interest 70 1,041 (95) 785
-------------------------------------------------------------------------------
Earnings per share for profit
attributable to equity holders of
the parent (basic and diluted, in
EUR) 1.09 0.83 0.40 0.46
-------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros
31.12.2018 31.12.2017
--------------------------------------------------------------------------
ASSETS
--------------------------------------------------------------------------
Current assets
--------------------------------------------------------------------------
Cash and cash equivalents 39,978 39,210
--------------------------------------------------------------------------
Trade and other receivables 76,183 75,844
--------------------------------------------------------------------------
Prepaid corporate income tax 224 492
--------------------------------------------------------------------------
Inventories 117,992 118,421
--------------------------------------------------------------------------
234,377 233,967
--------------------------------------------------------------------------
Non-current assets
--------------------------------------------------------------------------
Long-term financial assets 11,123 17,242
--------------------------------------------------------------------------
Deferred income tax assets - 5
--------------------------------------------------------------------------
Investment property 13,771 15,719
--------------------------------------------------------------------------
Property, plant and equipment 9,715 9,665
--------------------------------------------------------------------------
Intangible assets 671 497
--------------------------------------------------------------------------
35 280 43,128
--------------------------------------------------------------------------
--------------------------------------------------------------------------
TOTAL ASSETS 269,657 277,095
--------------------------------------------------------------------------
--------------------------------------------------------------------------
LIABILITIES
--------------------------------------------------------------------------
Current liabilities
--------------------------------------------------------------------------
Borrowings 19,900 24,218
--------------------------------------------------------------------------
Payables and prepayments 77,016 74,972
--------------------------------------------------------------------------
Income tax liability 381 413
--------------------------------------------------------------------------
Short-term provisions 8,100 4,569
--------------------------------------------------------------------------
105,397 104,172
--------------------------------------------------------------------------
Non-current liabilities
--------------------------------------------------------------------------
Long-term borrowings 24,266 35,138
--------------------------------------------------------------------------
Deferred income tax liability 1,481 1,259
--------------------------------------------------------------------------
Other long-term payables 2,179 1,789
--------------------------------------------------------------------------
27,926 38,186
--------------------------------------------------------------------------
--------------------------------------------------------------------------
TOTAL LIABILITIES 133,323 142,358
--------------------------------------------------------------------------
--------------------------------------------------------------------------
EQUITY
--------------------------------------------------------------------------
Non-controlling interests 4,577 4,567
--------------------------------------------------------------------------
Equity attributable to equity holders of the parent
--------------------------------------------------------------------------
Share capital 7,929 7,929
--------------------------------------------------------------------------
Statutory reserve capital 793 793
--------------------------------------------------------------------------
Currency translation differences (721) (702)
--------------------------------------------------------------------------
Retained earnings 123,756 122,150
--------------------------------------------------------------------------
131,757 130,170
--------------------------------------------------------------------------
TOTAL EQUITY 136,334 134,737
--------------------------------------------------------------------------
--------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY 269,657 277,095
--------------------------------------------------------------------------
Interim report and the investor presentation are 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
Estonia's leading construction company AS Merko Ehitus Eesti, the Latvian-
market-oriented SIA Merks, UAB Merko Statyba operating on the Lithuanian market,
and the Norwegian construction company Peritus Entreprenør AS. Besides provision
of construction service as a main contractor, the group's other major area of
activity is apartment development. As at the end of 2018, the group employed
764 people, and the group's revenue for 2018 was EUR 418 million.
Attachments
* Merko_Ehitus_2018_12M_presentation (https://ml-
eu.globenewswire.com/Resource/Download/4df39dca-46b1-4f48-8da0-c9571a15194a)
* Merko_Ehitus_2018_12M_interim_report (https://ml-
eu.globenewswire.com/Resource/Download/2768f046-1dfa-4ca7-bd7d-54efea10f55d)
|