Market announcement

Title

2023 6 months and II quarter consolidated unaudited interim report

Message

COMMENTARY FROM MANAGEMENT

Q2  2023 revenue for Merko Ehitus was EUR  142 million and the H1 figure was EUR
217 million.  Net profit in Q2 was EUR  13.6 million and net profit for the last
six   months  was  EUR  19.4 million.  Merko  delivered  512 apartments  to  new
homeowners and 15 commercial units to businesses in H1.

According  to the management of  Merko Ehitus, the profit  for the first half of
the  year was strong, as expected, since a number of apartment developments were
completed,  and pre-sold apartments  were delivered to  home-buyers. At the same
time,  the backstock of pre-sold apartments is nearing exhaustion and the market
situation  today is  very different  compared to  2020 and 2021. The pace of new
apartment  sales has dropped significantly, due to  which also the launch of new
developments  by Merko  group and  on the  Baltic market  as a  whole has slowed
greatly. This in turn will mean fewer developments reaching completion and fewer
apartments  sold in the coming years. On the positive side, the situation on the
apartment market has stabilized in the first half of the year, adjustment to the
changes in the economic environment continues and market is seeing slightly more
relaxed   sentiment.   Although  there  are  currently  fewer  apartment  buyers
purchasing  as an  investment, new  home purchase  transactions are  still being
closed. However, a rapid change in demand is not seen in the near future and the
launch  of new projects is viewed cautiously. In the first half of the year, the
group invested a total of EUR 56.5 million into developments in progress and new
immovables.

In  the  first  six  months  of  2023, the  group  companies  entered  into  new
construction  contracts worth  EUR 255 million,  which was  32% more than in the
comparison  period, and the balance of  secured order-book grew by approximately
29% as  compared  to  the  last  year  to  EUR  418 million.  In  the  sense  of
construction  volumes, the group's  secured order-book will  to a certain extent
counterbalance  the  impacts  of  the  apartment  market decline in the next few
years.  At the same  time, the operating  environment in the construction sector
remains unstable. Risk management is extremely important, as much as is possible
given   the  high  inflation  and  high  interest  rates,  new  regulations  and
administrative practices as well as the geopolitical situation.

In  the first  six months  of the  year, Merko  delivered 512 apartments  to new
homeowners and 15 commercial units to businesses. As of the end of Q2, the group
companies  had  978 apartments  on  their  balance  sheets.  Of apartments under
construction,  approximately 40% were covered by preliminary sale contracts. The
largest  apartment developments  were Uus-Veerenni,  Noblessner and Lahekalda in
Tallinn, Erminurme in Tartu, Viesturdarzs, Mezhpilseta and Magnolijas in Riga and
Vilneles Skverai in Vilnius.

In  Q2 of 2023, the largest sites under construction in Estonia were the Rae and
Pelgulinna  state gymnasiums, Hampton by Hilton and Hyatt hotel buildings, Arter
Quarter and the infrastructure along the south-eastern border of the Republic of
Estonia,  Defence Forces buildings  on Tapa base,  a tram line  between Old City
Harbour  and Rail  Baltica Ülemiste  passenger terminal  and the  first phase of
Ülemiste  terminal as well  the renovation of  Vana-Kalamaja Street. Projects in
progress  in  Latvia  were  the  GUSTAVS  business centre and Elemental Business
Centre  office buildings.  In Lithuania,  wind farm  infrastructure works  and a
substation  in Kelm? region,  and various buildings  and infrastructure for NATO
training centres.

OVERVIEW OF THE II QUARTER AND 6 MONTHS RESULTS

PROFITABILITY
2023 6 months'  pre-tax profit  was EUR  20.2 million and  Q2 2023 was EUR 14.1
million  (6M  2022: EUR  8.4 million  and  Q2  2022 was  EUR 4.9 million), which
brought the pre-tax profit margin to 9.3% (6M 2022: 5.4%).
Net  profit attributable to shareholders  for 6 months 2023 was EUR 19.4 million
(6M   2022: EUR   7.2 million)  and  for  Q2  2023 net  profit  attributable  to
shareholders  was  EUR  13.6 million  (Q2  2022: EUR  4.2 million). 6 months net
profit margin was 8.9% (6M 2022: 4.6%).

REVENUE
Q2  2023 revenue was EUR 141.6 million (Q2 2022: EUR 87.8 million) and 6 months'
revenue  was EUR  217.3 million (6M  2022: EUR 156.2 million). 6 months' revenue
increased  by  39.1% compared  to  same  period  last year. The share of revenue
earned outside Estonia in 6 months 2023 was 30.6% (6M 2022: 53.8%).

SECURED ORDER BOOK
As  of 30 June  2023, the group's  secured order  book was EUR 418.2 million (30
June   2022: EUR   322.9 million).  In  6 months  2023, group  companies  signed
contracts in the amount of EUR 254.8 million (6M 2022: EUR 193.3 million). In Q2
2023, new  contracts were signed in the amount of EUR 84.4 million (Q2 2022: EUR
22.1 million).

REAL ESTATE DEVELOPMENT
In  6 months 2023, the group sold a  total of 512 apartments; in 6 months 2022,
the  group sold 214 apartments.  The group earned  a revenue of EUR 80.5 million
from  sale of own developed apartments  in 6 months 2023 and EUR 27.1 million in
6 months  2022. In Q2 of  2023 a total of  367 apartments were sold, compared to
88 apartments  in Q2 2022, and earned a revenue of EUR 61.2 million from sale of
own developed apartments (Q2 2022: EUR 11.6 million).

CASH POSITION
At  the end of the  reporting period, the group  had EUR 9.8 million in cash and
cash  equivalents,  and  equity  of  EUR  186.0 million (51.3% of total assets).
Comparable  figures  as  of  30 June  2022 were  EUR 16.8 million and EUR 156.7
million  (41.5% of total assets), respectively.  As of 30 June 2023, the group's
net debt was EUR 68.0 million (30 June 2022: EUR 73.2 million).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros

                               2023      2022        2023        2022      2022
                           6 months  6 months  II quarter  II quarter 12 months

 Revenue                    217,347   156,198     141,596      87,772   409,633

 Cost of goods sold       (191,528) (138,917)   (125,752)    (78,363) (355,975)

 Gross profit                25,819    17,281      15,844       9,409    53,658



 Marketing expenses         (2,095)   (2,169)     (1,018)     (1,054)   (4,077)

 General and
 administrative expenses    (8,261)   (7,522)     (4,296)     (3,799)  (15,860)

 Other operating income       2,778     1,422       1,961         736     3,144

 Other operating expenses     (147)     (455)        (85)       (394)   (1,834)

 Operating profit            18,094     8,557      12,406       4,898    35,031



 Finance income/costs         2,126     (193)       1,735        (33)     2,067

 incl. finance
 income/costs from joint
 ventures                     3,819       328       2,539         330     3,516

 interest expense           (1,337)     (374)       (682)       (212)   (1,180)

 foreign exchange gain
 (loss)                       (290)      (67)        (80)       (119)     (138)

 other financial income
 (expenses)                    (66)      (80)        (42)        (32)     (131)



 Profit before tax           20,220     8,364      14,141       4,865    37,098



 Corporate income tax
 expense                      (929)   (1,176)       (637)       (755)   (2,995)



 Net profit for financial
 year                        19,291     7,188      13,504       4,110    34,103

 incl. net profit
 attributable to equity
 holders of the parent       19,450     7,202      13,570       4,196    34,640

 net profit attributable
 to non-controlling
 interest                     (159)      (14)        (66)        (86)     (537)



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

 Currency translation
 differences of foreign
 entities                        72      (12)          19        (28)        30

 Comprehensive income for
 the period                  19,363     7,176      13,523       4,082    34,133

 incl. net profit
 attributable to equity
 holders of the parent       19,490     7,189      13,580       4,169    34,648

 net profit attributable
 to non-controlling
 interest                     (127)      (13)        (57)        (87)     (515)

 Earnings per share for
 profit attributable to
 equity holders of the
 parent (basic and
 diluted, in EUR)              1.10      0.41        0.77        0.24      1.96

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros

                                               30.06.2023 30.06.2022 31.12.2022

 ASSETS

 Current assets

 Cash and cash equivalents                          9,795     16,773     17,665

 Trade and other receivables                       68,627     68,317     77,959

 Prepaid corporate income tax                         146         36         38

 Inventories                                      216,142    228,240    225,661

                                                  294,710    313,366    321,323

 Non-current assets

 Investments in joint ventures                     15,514      9,707     12,895

 Other shares and securities                           80          -          -

 Other long-term loans and receivables             21,457     23,616     22,982

 Deferred income tax assets                         1,044      1,115        693

 Investment property                               11,435     11,536     11,485

 Property, plant and equipment                     17,640     17,347     17,452

 Intangible assets                                    582        635        582

                                                   67,752     63,956     66,089



 TOTAL ASSETS                                     362,462    377,322    387,412



 LIABILITIES

 Current liabilities

 Borrowings                                        39,783     48,854     49,687

 Payables and prepayments                          83,889    117,702     96,248

 Income tax liability                               1,419      2,275      1,241

 Short-term provisions                              9,805      6,879      9,820

                                                  134,896    175,710    156,996

 Non-current liabilities

 Long-term borrowings                              37,965     41,153     42,236

 Deferred income tax liability                      1,774      1,649      2,355

 Other long-term payables                           2,472      2,322      2,133

                                                   42,211     45,124     46,724



 TOTAL LIABILITIES                                177,107    220,834    203,720



 EQUITY

 Non-controlling interests                          (622)      (240)      (495)

 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                   (743)      (804)      (783)

 Retained earnings                                177,998    148,810    176,248

                                                  185,977    156,728    184,187

 TOTAL EQUITY                                     185,355    156,488    183,692



 TOTAL LIABILITIES AND EQUITY                     362,462    377,322    387,412

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.