COMMENTARY FROM MANAGEMENT
Merko Ehitus posted revenue of EUR 99 million and net profit of EUR 9.3 million
in Q4 of 2019, close to a one-third gain over the same period a year ago. In Q4,
the revenue generated by the real estate development business area more than
doubled compared to 2018 and made up approximately 47% of the group's revenue as
a whole. In 2019, the 12-month revenue of Merko Ehitus was EUR 327 million and
net profit was EUR 16.3 million. As discussed with the supervisory board, the
group's management board proposes to pay shareholders 0.60 euros per share as
dividends.
The fourth quarter of Merko Ehitus was expected to be strong. The professional
work of the group companies' teams and timely completion of apartment
development projects contributed to the result. The forecasts of group's
management were somewhat exceeded as some apartment development projects were
completed earlier than planned and sales were faster thanks to greater interest
from buyers.
The decline in annual sales revenue by about one fifth was expected because of
the extra¬ordinarily high comparison base of 2018, which included the
construction of some very large shopping centres in Tallinn and Riga. The
group's smaller secured order book also reflects the situation on the market:
fewer commercial real estate sites are being built because competition is
stiffer, construction prices have risen and financing conditions have become
more complicated. The price competition on the main contracting market continues
to be tight. So it is all the more gratifying to note that in spite of the lower
revenue, we were able to improve profitability through a more precise selection
of construction projects and the team's effectiveness. The year's net profit
figure was impacted by significantly higher income tax expenses compared to
2018 in connection with the payment of dividends. The group's profit before
taxes for the 12 months was EUR 20.3 million and increased by 2.8% from the year
before.
The proportion of the real estate development business area has continued to
increase, and in Q4 it made up close to 47% of the entire group's revenue. The
real estate development business area's sales revenue was EUR 46.5 million in Q4
and totalled EUR 70.1 million for the 12 months. In Q4, Merko sold a total of
276 apartments, 482 for the entire year, and the respective figures for
commercial areas sold were 13 and 24. The apartment market in Tallinn, Riga and
Vilnius is stable and our focus continues to be on large development areas where
we can establish an integral residential environment and launch and build
development projects stage by stage based on demand.
In 2019, the group Invested EUR 87.4 million into new and ongoing development
projects and started construction of a total of 368 new apartments in the
Baltics. The largest projects were the Uus-Veerenni, Lahekalda and Pikaliiva
residential projects in Tallinn; in Riga, the Gai?ezers and Viesturd?rzs
developments; and, in Vilnius, the Vilneles slenis and Rinktin?s Urban
developments.
Q4 2019 revenue of Merko Ehitus was EUR 99 million (Q4 of 2018: EUR 119
million), EBITDA was EUR 10.2 million (Q4 of 2018: 7.6 million), and net profit
was EUR 9.3 million (Q4 of 2018: EUR 7.0 million). In Q4 2019, Merko
subsidiaries signed new agreements worth EUR 42 million and the volume of new
contracts over the 12 months of 2019 stood at EUR 170 million. As of 31 December
2019, the group's secured order book amounted to EUR 141 million, compared to
EUR 229 million on the same date in the previous year.
The largest projects in progress in Q4 in Estonia were the construction of
Terminal D parking house at the Tallinn passenger port, Türi Basic School, the
student home for Rakvere Vocational School and the commercial building at Pärnu
mnt 186, as well as the reconstruction of the Aaspere-Haljala road section. In
Latvia, the largest projects in progress were the construction of the Pinki
school building and dormitory, Lidl's logistics centre, Alfa shopping centre,
and Laima chocolate factory, as well as the reconstruction of the Riga Technical
University Civil Engineering Faculty building. In Lithuania, the larger projects
were the construction of Neringa Hotel, Quadrum office building, and a private
school in Vilnius.
OVERVIEW OF THE IV QUARTER AND 12 MONTHS RESULTS
PROFITABILITY
2019 12 months' profit before tax was EUR 20.3 million and for Q4 2019 it was
EUR 10.0 million (12M 2018: EUR 19.8 million and Q4 2018: EUR 7.1 million),
which brought the profit before tax margin to 6.2% (12M 2018: 4.7%).
Net profit attributable to equity holders of the parent in 12 months 2019 was
EUR 16.3 million (12M 2018: EUR 19.3 million) and Q4 2019 net profit
attributable to equity holders of the parent was EUR 9.3 million (Q4 2018: EUR
7.0 million). 12 months' net profit margin was 5.0% (12M 2018: 4.6%). Net
profitability 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 greater than the year before. There was no income tax expense on
the dividends paid in 2018 - the dividends were distributed from dividends paid
by foreign subsidiaries to the parent.
REVENUE
Q4 2019 revenue was EUR 99.2 million (Q4 2018: EUR 119.2 million) and 12 months'
revenue was EUR 326.8 million (12M 2018: EUR 418.0 million). 12 months'
decreased by 21.8% compared to same period last year. The share of revenue
earned outside Estonia in 12 months 2019 was 48.3% (12M 2018: 51.5%).
SECURED ORDER BOOK
As at 31 December 2019, the group's secured order book was EUR 141.4 million (31
December 2018: EUR 229.0 million). In 12 months 2019, group companies signed new
contracts in the amount of EUR 169.6 million (12M 2018: EUR 246.4 million). In
Q4 2019, new contracts were signed in the amount of EUR 42.0 million (Q4 2018:
EUR 89.4 million).
REAL ESTATE DEVELOPMENT
In 12 months 2019, the group sold a total of 482 apartments (incl. 47 apartments
in a joint venture); in 12 months 2018, the group sold 482 apartments as well
(incl. 131 apartments in a joint venture). The group earned a revenue of EUR
63.8 million from sale of own developed apartments in 12 months 2019 and EUR
41.3 million in 12 months 2018. In Q4 of 2019 a total of 276 apartments (incl.11
apartments in a joint venture) were sold compared to 227 apartments (incl. 84
apartments in a joint venture) in Q4 2018, and earned a revenue of EUR 43.6
million from sale of own developed apartments (Q4 2018: EUR 17.0 million).
CASH POSITION
At the end of the reporting period, the group had EUR 24.7 million in cash and
cash equivalents, and equity of EUR 130.3 million (46.2% of total assets).
Comparable figures as at 31 December 2018 were EUR 40.0 million and EUR 131.8
million (48.9% of total assets), respectively. As at 31 December 2019, the group
had net debt of EUR 39.0 million (31 December 2018: EUR 4.2 million).
PROPOSAL FOR DISTRIBUTION OF PROFITS
As discussed with the Supervisory Board, the Management Board proposes to
distribute to shareholders EUR 10.6 million in dividends (0.60 euro per share)
from retained earnings in 2020. This is equivalent to a 65% dividend rate for
2019.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros
2019 2018 2019 2018
12 months 12 months IV quarter IV quarter
Revenue 326,779 418,011 99,159 119,243
Cost of goods sold (291,958) (384,962) (85,235) (107,978)
Gross profit 34,821 33,049 13,924 11,265
Marketing expenses (4,260) (3,285) (1,634) (803)
General and administrative
expenses (12,988) (12,304) (4,147) (3,721)
Other operating income 2,983 3,527 1,243 1,050
Other operating expenses (1,318) (1,115) (96) (838)
Operating profit 19,238 19,872 9,290 6,953
Finance income/costs 1,085 (97) 722 176
incl. finance income/costs from
sale of subsidiary and liquidation - (62) - (3)
finance income/costs from joint
venture 1,766 653 921 379
interest expense (656) (652) (185) (200)
foreign exchange gain (loss) - 5 - 6
other financial income (expenses) (25) (41) (14) (6)
Profit before tax 20,323 19,775 10,012 7,129
Corporate income tax expense (3,833) (375) (850) (206)
Net profit for financial year 16,490 19,400 9,162 6,923
incl. net profit attributable to
equity holders of the parent 16,270 19,343 9,267 7,031
net profit attributable to non-
controlling interest 220 57 (105) (108)
Other comprehensive income, which
can subsequently be classified in
the income statement
Currency translation differences
of foreign entities 13 (6) 23 (37)
Comprehensive income for the
period 16,503 19,394 9,185 6,886
incl. net profit attributable to
equity holders of the parent 16,281 19,324 9,279 6,981
net profit attributable to non-
controlling interest 222 70 (94) (95)
Earnings per share for profit
attributable to equity holders of
the parent (basic and diluted, in
EUR) 0.92 1.09 0.52 0.40
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros
31.12.2019 31.12.2018
ASSETS
Current assets
Cash and cash equivalents 24,749 39,978
Trade and other receivables 50,413 76,183
Prepaid corporate income tax 104 224
Inventories 166,226 117,992
241,492 234,377
Non-current assets
Investments in joint venture 2,498 732
Other long-term loans and receivables 11,094 10,391
Investment property 14,047 13,771
Property, plant and equipment 11,919 9,715
Intangible assets 777 671
40,335 35,280
TOTAL ASSETS 281,827 269,657
LIABILITIES
Current liabilities
Borrowings 20,725 19,900
Payables and prepayments 69,585 77,016
Income tax liability 812 381
Short-term provisions 7,976 8,100
99,098 105,397
Non-current liabilities
Long-term borrowings 43,001 24,266
Deferred income tax liability 1,682 1,481
Other long-term payables 3,491 2,179
48,174 27,926
TOTAL LIABILITIES 147,272 133,323
EQUITY
Non-controlling interests 4,217 4,577
Equity attributable to equity holders of the parent
Share capital 7,929 7,929
Statutory reserve capital 793 793
Currency translation differences (710) (721)
Retained earnings 122,326 123,756
130,338 131,757
TOTAL EQUITY 134,555 136,334
TOTAL LIABILITIES AND EQUITY 281,827 269,657
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 (https://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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