Market announcement

Title

Financial results 3M 2008

Message

MANAGEMENT REPORT

General information

Merko Ehitus is a leading building corporation offering integrated solutions
since 1990, with branches currently in Estonia, Latvia and Lithuania. Largest
companies of the Group are SIA Merks (100%), UAB Merko Statyba (100%),
Tallinna Teede AS (100%), AS Gustaf (75%), OÜ Gustaf Tallinn (80%), AS Merko
Tartu (66%), OÜ Woody (100%) and AS Tartu Maja Betoontooted (25%).

At a joint meeting held at 14 March 2008, the Management Board and the
Supervisory Board of AS Merko Ehitus adopted a resolution to restructure
the Company and separate operating activities from the criminal proceedings
related to the land swap. The Company's management estimates that the
restructuring of the Company is the best way to ensure its sustainable
development and protect the interests of shareholders and employees in the
long-lasting criminal proceedings related to the land swap.  

The delay in the process of criminal proceedings related to the land swap
launched in 2005 and the accompanying ambiguity and speculation in the media
have started to take a toll on the Company's operations and thus harming the
interests of the Company and its shareholders.
 
At 15 April 2008, the management of AS Merko Ehitus presented the Company's
restructuring plan (http://www.baltic.omxgroup.com/market/?pg=
etails&instrument=EE3100003559&list=2&tab=news&news_id=222602), according
to which AS Merko Ehitus will be split up/demerged so that AS Merko Ehitus,
e.g. assets (other than liquid assets in the amount of 250 million kroons),
liabilities and contracts as well as the business name will be separated and
transferred to the new company being set up (hereinafter AS Uus Merko).
The exact description of assets and the division plan have been published
in the materials announcing the general meeting of shareholders
http://www.merko.ee/eng/investor/generalmeeting/2008. As a result of the
demerger, each shareholder will receive one share of AS Uus Merko for each
share of AS Merko Ehitus and the shares of AS Uus Merko will be listed on
the Tallinn Stock Exchange as soon as possible. The business name of
AS Merko Ehitus will also be changed and the Company's shares will continue
to be listed on the Tallinn Stock Exchange. The sole member of the Management
Board of the new company will be Toomas Annus.

At May 2 2008 AS Merko Ehitus transferred the 100-percent holding in the
company OÜ Karulaugu Kinnisvara (registry code 11034491) to AS E.L.L.
Kinnisvara. The sale price of the company was 42 million kroons; from this
amount, 4.12 million kroons, the balance of company's financial obligations
and current assets, were deducted.
(http://www.baltic.omxnordicexchange.com/market/?pg=details&instrument=EE3100003
559&list=2&tab=news&news_id=223284) 

At May 21 2008 AS Merko Ehitus transferred the 50-percent holding in the
company OÜ Tornimäe Apartments (registry code 11016607) to the copartner
AS EKE Invest. The sale price of the company was 58 million kroons.
(http://www.baltic.omxnordicexchange.com/market/?pg=news&news_id=223709). 


Business operations

Group's revenue for the 3 months in 2008 were 1119.6 million kroons, which
constitutes an annual increase of 10.3%. 55.2% of the sales originated from
Estonia, 26.7% from Latvia and 18.1% from Lithuania. As compared with the
respective period in 2007, company's sales in Latvia increased by 94.1%,
in Lithuania by 19,7% and decreased in Estonia by -10,7%.

The warm winter jointly with the cyclic nature of residential construction
and real estate development had a positive effect on the revenue.

Companies of the Group 3M 2008 consolidated revenue
(sales outside the Group) were (in thousand kroons and euros):

                                              3M 2008             3M 2007
                                            EEK      EUR        EEK       EUR
Estonian companies
   Construction
   AS Merko Ehitus (parent company)     458 331   29 293     464 357   29 678
   AS Gustaf (75% partnership)           44 746    2 860      22 411    1 432
   OÜ Gustaf Tallinn (80% partnership)   40 188    2 568      34 221    2 187
   AS Merko Tartu (66% partnership)      39 940    2 553      40 030    2 558
   Tallinna Teede AS (100% partnership)  33 244    2 125      20 650    1 320
   OÜ Woody (100% partnership)           16 805    1 074     123 227    7 876
Latvian company 
   SIA Merks (100% partnership)         287 354   18 365     127 341    8 139
Lithuanian company
   UAB Merko Statyba (100% partnership) 195 203   12 476     156 893   10 027


The ratios and calculation methods characterizing the operating activities
of the Group
                                            2008 3 months      2007 3 months
Net profit margin                                  13,8 %              8,7 %
Operating profit margin                            15,9 %              8,7 %
Return on equity per annum                         29,6 %             21,6 %
Return on assets per annum                         15,8 %             10,9 %
Current ratio                                       2,7                2,1
Equity ratio                                       55,5 %             51,0 %
General expense ratio                               5,1 %              4,1 %
Personnel expense ratio                            10,9 %             12,8 %
Average number of full-time employees              1081                907

In 31.03.2008, the number of employees in the Group's service was 1117,
including 1082 full-time employees. The number of the Group's employees
increased by 15.5% (150 new employees were recruited). The gross remuneration
paid to full-time personnel in 3 months 2008 amounted to 104.2 million kroons
an increase of 31.4% compared to previous year.


INCOME STATEMENT 3M 2008
consolidated, in thousand EEK and EUR
                                           EEK                   EUR
                                   3M 2008     3M 2007    3M 2008    3M 2007

Revenue                          1 119 572   1 014 864     71 554     64 862
Cost of goods sold                (884 377)   (886 352)   (56 522)   (56 648)

GROSS PROFIT                       235 195     128 512     15 032      8 214

Marketing expenses                  (7 888)     (5 605)      (504)      (358)
Administrative and general expenses(49 373)    (35 610)    (3 156)    (2 276)
Other operating income               1 704       2 102        109        134
Other operating expenses            (1 738)     (1 038)      (111)       (66)

OPERATING PROFIT                   177 900      88 361     11 370      5 648

Financial income and expenses from stocks
of associate com. and joint ventures 2 280       6 831        145        437
Interest expense                    (5 584)     (2 733)      (357)      (175)
Foreign exchange gain               (1 692)     (3 447)      (108)      (220)
Other financial income               3 240       3 257        207        208
Other financial expenses                (6)         (1)        (0)        (0)
Total financial income and expenses (1 762)      3 907       (113)       250

PROFIT BEFORE TAX                  176 138      92 268     11 257      5 898

Corporate income tax expense       (20 138)       (881)    (1 287)       (57)

NET PROFIT FOR FINANCIAL YEAR      156 000      91 387      9 970      5 841
  incl. net profit attributable
        to equity holders of
        the parent company         154 881      88 450      9 898      5 653
        minority interest            1 119       2 937         72        188

Earnings per share for profit attributable
to the equity holders of the parent company
(basic and diluted, in EEK and EUR)   8,75        5,00       0,56       0,32


BALANCE SHEET AS OF 31.03.2008
consolidated, in thousand EEK and EUR
                                       EEK                      EUR
                             31.03.2008   31.12.2007  31.03.2008  31.12.2007
ASSETS
Current assets
Cash and cash equivalents       356 863      205 564      22 808      13 138
Trade and other receivables   1 004 399    1 201 942      64 191      76 818
Inventories                   2 047 829    2 025 426     130 880     129 448
Total current assets          3 409 091    3 432 932     217 879     219 404

Non-current assets
Long-term financial investments 303 589      290 852      19 403      18 589
Investment property              12 946        7 361         828         470
Property, plant and equipment   172 134      172 912      11 001      11 051
Intangible assets                12 675       12 574         810         804
Total non-current assets        501 344      483 699      32 042      30 914

TOTAL ASSETS                  3 910 435    3 916 631     249 921     250 318

LIABILITIES AND OWNERS' EQUITY
Current liabilities
Borrowings                      192 924      304 879      12 330      19 485
Trade and other payables        975 752    1 032 210      62 361      65 970
Government grants                 1 498        1 498          96          96
Short-term provisions            81 495       73 212       5 208       4 680
Total current liabilities     1 251 669    1 411 799      79 995      90 231

Non-current liabilities
Long-term borrowings            399 165      397 713      25 512      25 418
Long-term payables to suppliers   7 655       11 091         489         709
Long-term suppliers adv. payments47 141       46 332       3 013       2 961
Total non-current liabilities   453 961      455 136      29 014      29 088

Total liabilities             1 705 630    1 866 935     109 009     119 319

Equity				

Minority interest                35 058       33 939       2 241       2 169

Equity attributable to equity holders of the parent company
Share capital                   177 000      177 000      11 312      11 312
Statutory reserve capital        17 700       17 700       1 131       1 131
Currency translation adjustment  (5 976)      (5 085)       (382)       (325)
Retained earnings             1 981 023    1 826 142     126 610     116 712
Total equity attributable to equity
holders of the parent company 2 169 747    2 015 757     138 671     128 830
Total equity                  2 204 805    2 049 696     140 912     130 999

TOTAL LIABILITIES AND EQUITY  3 910 435    3 916 631     249 921     250 318


Alar Lagus
Member of Board
+372 6 805 109
[email protected]