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, Mezhpils?ta 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 ?dazhi 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 2021 2022 2021 2021
6 months 6 months II quarter II quarter 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
(https://group.merko.ee/en/)).
Urmas Somelar
Head of Group Finance Unit
AS Merko Ehitus
+372 650 1250
urmas.somelar@merko.ee (mailto:urmas.somelar@merko.ee)
AS Merko Ehitus (group.merko.ee (https://group.merko.ee/en/)) 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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