Market announcement

Title

2022 12 months and IV quarter consolidated unaudited interim report

Message

COMMENTARY FROM MANAGEMENT

Merko  Ehitus revenue was  EUR 143 million in  Q4 2022, and the  revenue for 12
months  amounted to EUR 410 million, while the respective figures for net profit
were  EUR 17.6 million and  12 months was EUR  34.6 million. Merko has delivered
more than 900 apartments to buyers in 12 months this year.

According  to  the  management  of  Merko  Ehitus, the group's results for 2022
reflect the increase of investments in previous years into apartment development
business  area, the choice of the right development projects and successful sale
of  apartments on all three Baltic markets. The greatest share of Merko's profit
came from the real estate development business area.

The outlook for the residential real estate market worsened last year rapidly in
connection  with soaring  inflation and  interest rates,  as well  as due to the
uncertainty  from  the  Ukraine  war.  The  volume  of  preliminary sales of new
apartments  dropped to all-time lows  in November, which made  the group to slow
down  the tempo  of launching  new developments.  Although the sales volume will
also  decrease in the years ahead along  with the construction volume, our long-
term position and development potential on the residential real estate market of
the Baltic capitals remain solid.

In  the 12 months of 2022, the group companies signed new construction contracts
worth  EUR 318 million and the  balance of secured order  book stood at EUR 297
million  as of the  end of December  (respectively EUR 288 million  and EUR 257
million  in 2021). There  was much  ambiguity in  the construction service field
last  year  in  connection  with  the  rapid  growth  of energy prices and other
construction  input prices.  Both customers  and construction  enterprises spent
much time and energy to find the best balance in sharing price and supply risks.
Few  new business real estate projects came on to the market, a number of public
procurements  were postponed to future  periods and road construction investment
volumes  were downsized significantly. According to the management, in this sort
of  complicated market situation, the volume of construction contracts concluded
last  year and the portfolio  of orders can be  considered a fairly good footing
for supporting the construction service business area for the next 12-24 months.
Since  a  certain  stabilization  has  been  seen in construction process and an
adaptation to inflation is also under way, hopefully new construction sites will
come  to the market  in future. The  management hopes that  the group companies'
capabilities will support continued investment into the energy sector. According
to management, the group must continue to adapt quickly to market changes, being
in the project management business and directly dependent on orders.

In  the 12 months of this year, the  group delivered 923 new apartments and nine
commercial  units to buyers (12  months of 2021: 496 apartments and 7 commercial
units).  According to the management,  there is still hope  that in the next 12
months,  confidence  will  recover  and  demand  for  new  housing will improve,
supported by growing need for homes with higher energy-efficient.

During  the 12 months, the  group launched five  new development projects with a
total  581 apartments.  As  of  year's  end,  there  were 1,207 apartments under
construction by the group, of which almost half were covered by preliminary sale
contracts. The largest apartment developments were Uus-Veerenni, Noblessneri and
Lahekalda   in   Tallinn;  Erminurme  in  Tartu;  Viesturd?rzs,  Mezhpils?ta  and
Magnolijas in Riga, and Vilneles Skverai in Vilnius.

In  Q4 of 2022, the largest objects under construction in Estonia were the third
phase  of  the  Mustamäe  medical  campus  of  the North-Estonia Medical Centre,
Pelgulinna  and  Rae  state  gymnasiums,  the  Arter  Quarter,  construction  of
infrastructure  segments of the Republic of Estonia's southeast land border, the
tram  line  between  Old  City  Harbour  and  Rail  Baltic's  Ülemiste passenger
terminal,  and renovation of Rannamõisa tee and Vana-Kalamaja street in Tallinn.
In  Latvia, projects in progress included the GUSTAVS business centre, Elemental
Skanste  office buildings  and NATO  facilities in  Adazhi; in Lithuania, several
wind  farm infrastructures as well  as a car service  building and NATO training
centre buildings in Vilnius.

OVERVIEW OF THE IV QUARTER AND 12 MONTHS RESULTS

PROFITABILITY
2022 12 months'  pre-tax profit was  EUR 37.1 million and  Q4 2022 was EUR 18.4
million  (12M 2021: EUR  32.1 million and  Q4 2021 was  EUR 15.6 million), which
brought the pre-tax profit margin to 9.1% (12M 2021: 9.5%).
Net  profit attributable to shareholders for 12 months 2022 was EUR 34.6 million
(12M  2021: EUR  29.1 million)  and  for  Q4  2022 net  profit  attributable  to
shareholders  was EUR  17.6 million (Q4  2021: EUR 13.9 million).  12 months net
profit margin was 8.5% (12M 2021: 8.6%).

REVENUE
Q4  2022 revenue  was  EUR  143.4 million  (Q4  2021: EUR 112.8 million) and 12
months'  revenue was EUR 409.6 million (12M 2021: EUR 339.4 million). 12 months'
revenue  increased  by  20.7% compared  to  same  period last year. The share of
revenue earned outside Estonia in 12 months 2022 was 50.1% (12M 2021: 37.4%).

SECURED ORDER BOOK
As of 31 December 2022, the group's secured order book was EUR 297.2 million (31
December  2021: EUR  257.3 million).  In  12 months 2022, group companies signed
contracts  in the amount of EUR  317.9 million (12M 2021: EUR 288.1 million). In
Q4  2022, new contracts were signed in the amount of EUR 27.5 million (Q4 2021:
EUR 15.2 million).

REAL ESTATE DEVELOPMENT
In 12 months 2022, the group sold a total of 923 apartments (incl. 46 apartments
in  a joint venture); in 12 months 2021, the group sold 496 apartments (incl. 1
apartment  in a joint venture). The group  earned a revenue of EUR 127.0 million
from  sale of own developed apartments in 12 months 2022 and EUR 72.7 million in
12 months  2021. In Q4 of 2022 a total  of 467 apartments were sold, compared to
299 apartments in Q4 2021, and earned a revenue of EUR 70.2 million from sale of
own developed apartments (Q4 2021: EUR 39.4 million).

CASH POSITION
At  the end of the reporting period, the  group had EUR 17.7 million in cash and
cash  equivalents,  and  equity  of  EUR  184.2 million (47.5% of total assets).
Comparable  figures as of 31 December 2021 were  EUR 44.9 million and EUR 167.2
million  (51.6%  of  total  assets),  respectively.  As of 31 December 2022, the
group's net debt was EUR 74.3 million (31 December 2021: EUR 7.7 million).

PROPOSAL FOR DISTRIBUTION OF PROFITS
In  coordination 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 2023. This is equivalent to a 51% dividend rate for 2022.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros

                                         2022      2021        2022        2021
                                    12 months 12 months  IV quarter  IV quarter

 Revenue                              409,633   339,375     143,427     112,842

 Cost of goods sold                 (355,975) (292,563)   (120,852)    (92,499)

 Gross profit                          53,658    46,812      22,575      20,343



 Marketing expenses                   (4,077)   (3,611)     (1,132)       (979)

 General and administrative
 expenses                            (15,860)  (13,925)     (4,449)     (4,827)

 Other operating income                 3,144     3,508         718         997

 Other operating expenses             (1,834)     (582)     (1,187)       (254)

 Operating profit                      35,031    32,202      16,525      15,280



 Finance income/costs                   2,067      (75)       1,899         276

 incl. finance income/costs from
 associates and joint ventures          3,516       799       2,423         415

 interest expense                     (1,180)     (681)       (510)       (133)

 foreign exchange gain (loss)           (138)       (8)          14          31

 other financial income (expenses)      (131)     (185)        (28)        (37)

 Profit before tax                     37,098    32,127      18,424      15,556



 Corporate income tax expense         (2,995)   (3,104)     (1,084)     (1,678)



 Net profit for financial year         34,103    29,023      17,340      13,878

 incl. net profit attributable to
 equity holders of the parent          34,640    29,140      17,617      13,863

 net profit attributable to non-
 controlling interest                   (537)     (117)       (277)          15



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

 Currency translation differences
 of foreign entities                       30        33          19          19

 Comprehensive income for the
 period                                34,133    29,056      17,359      13,897

 incl. net profit attributable to
 equity holders of the parent          34,648    29,163      17,628      13,871

 net profit attributable to non-
 controlling interest                   (515)     (107)       (269)          26

 Earnings per share for profit
 attributable to equity holders of
 the parent (basic and diluted, in
 EUR)                                    1.96      1.65        1.00        0.78

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros

                                                     31.12.2022 31.12.2021

 ASSETS

 Current assets

 Cash and cash equivalents                               17,665     44,930

 Trade and other receivables                             77,959     55,484

 Prepaid corporate income tax                                38        114

 Inventories                                            225,661    160,593

                                                        321,323    261,121

 Non-current assets

 Investments in associates and joint ventures            12,895      7,703

 Other long-term loans and receivables                   22,982     24,079

 Deferred income tax assets                                 693        622

 Investment property                                     11,485     13,828

 Property, plant and equipment                           17,452     16,350

 Intangible assets                                          582        669

                                                         66,089     63,251



 TOTAL ASSETS                                           387,412    324,372



 LIABILITIES

 Current liabilities

 Borrowings                                              49,687     11,636

 Payables and prepayments                                96,248     90,054

 Income tax liability                                     1,241        681

 Short-term provisions                                    9,820      7,976

                                                        156,996    110,347

 Non-current liabilities

 Long-term borrowings                                    42,236     41,001

 Deferred income tax liability                            2,355      3,112

 Other long-term payables                                 2,133      2,900

                                                         46,724     47,013



 TOTAL LIABILITIES                                      203,720    157,360



 EQUITY

 Non-controlling interests                                (495)      (227)

 Equity attributable to equity holders of the parent

 Share capital                                            7,929      7,929

 Statutory reserve capital                                  793        793

 Currency translation differences                         (783)      (791)

 Retained earnings                                      176,248    159,308

                                                        184,187    167,239

 TOTAL EQUITY                                           183,692    167,012



 TOTAL LIABILITIES AND EQUITY                           387,412    324,372

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 Finance
AS Merko Ehitus
+372 650 1250
[email protected] (mailto:[email protected])

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 2022, the group employed 661 people, and
the group's revenue for 2022 was EUR 410 million.