Market announcement

Title

Financial results 6M 2008

Message

MANAGEMENT REPORT

General information

The presented report shows AS Merko Ehitus predecessor's AS Järvevana's
6 months 2008 economic activities and financial indicators. Up until 1 August
2008, AS Järvevana operated in Estonia, Latvia and Lithuania as a construction
group providing integrated construction solutions. Largest companies of the
Group were 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%).

On 1 August 2008, the registration department of Harju County Court made
an entry in the Commercial Register registering the division of AS Merko
Ehitus (registry code 10068022, with the new business name ‘Aktsiaselts
Järvevana') into the limited companies Merko Ehitus (registry code 11520257)
and Järvevana (registry code 10068022).

Pursuant to the division plan (http://www.merko.ee/upload/File/
Restruktureerimise%20dokumendid/AS%20Merko%20Ehitus%20jagunemiskava%20ENG.pdf),
upon the division, AS Järvevana transferred to AS Merko Ehitus the entire set
of assets related to the economic activities of the building company,
including all concluded building, subcontracting and supply contracts; the
equipment, machinery and employees; all professional know-how and cash-flows
without interrupting the continuing economic activities.

On 3 June the Annual General Meeting (http://www.baltic.omxnordicexchange.com/
market/?pg=news&news_id=226094) approved the division of the company to into
the limited companies new Merko Ehitus (registry code 11520257) and Järvevana
(registry code 10068022).

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).

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/
arket/?pg=details&instrument=EE3100003559&list=2&tab=news&news_id=223284).

At 15 April 2008, the management of AS Merko Ehitus presented the Company's
restructuring plan (http://www.baltic.omxgroup.com/market/?pg=details&
instrument=EE3100003559&list=2&tab=news&news_id=222602), according to which
AS Merko Ehitus was 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 was separated and transferred to
the new company being set up (hereinafter AS Uus Merko). The exact description
of assets and the division plan were published in the materials announcing
the general meeting of shareholders
http://www.merko.ee/eng/investor/generalmeeting/2008.

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.

Business operations

Group's revenue for the 6 months in 2008 was 2372.3 million kroons, which
constitutes an annual decrease of 4.9%. 61.0% of the sales originated from
Estonia, 23.1% from Latvia and 15.9% from Lithuania. As compared with the
respective period in 2007, company's sales in Lithuania increased by 1.6%,
and decreased in Latvia by 5.5% and in Estonia by 6.3%. 

Group's revenue in the second quarter of 2008 were 1252.7 million having
decreased by 228.2 million kroons as compared to the same period in 2007. 

The decrease in the period's revenue was the result of the low activity
in the building sector, caused by the overall economic slump.

Companies of the Group 6M 2008 consolidated revenue
(sales outside the Group) were (in thousand kroons and euros):

                                              6M 2008             6M 2007
                                            EEK      EUR        EEK       EUR
Estonian companies
   AS Merko Ehitus (parent company)     973 059   62 190  1 020 003    65 190
   AS Gustaf (75% partnership)           98 371    6 287     70 117     4 481
   OÜ Gustaf Tallinn (80% partnership)   69 626    4 450     65 958     4 215
   AS Merko Tartu (66% partnership)     100 733    6 438    111 607     7 133
   Tallinna Teede AS (100% partnership) 176 607   11 287    118 159     7 552
   OÜ Woody (100% partnership)           58 170    3 718    182 716    11 678
Latvian company 				
   SIA Merks (100% partnership)         527 491   33 713    507 653    32 445
Lithuanian company				
   UAB Merko Statyba (100% partnership) 361 165   23 083    342 945    21 918

In one year, the Group's cost of goods sold decreased by 12.6%, whereas the
marketing and general administrative expenses increased by 26.2%, constituting
80.6% and 5.0% of the revenue respectively. The successful development
activities enabled the company to compensate the impact of the rapid growth of
the costs of services and labour and as a result Group's net profit margin
increased from 9.7% to 12.2%.  

The Group's net profit in the six months of 2008 was 290.2 million kroons,
having increased by 19.9% compared to the last year and profit before tax
was 333.8 million kroons, having increased by 27.0% compared to six months
2007. Profitability was positively influenced by the warm winter which
boosted 1st quarter sales and by the big share of housing and property
developments in the sales of the 1st and 2nd quarters.

The net profit for the first 6 months of 2008 turned out to be the highest
profit ever received within the concern for the first half of the year.
Since the property and housing development projects have a long preparation
period, the achieved results reflect the good performance in previous periods
and do not give an adequate idea of the current slump on the construction
market. 
 
Group's net cash flow of the six months of the year was +502.5 million kroons,
including cash flow from operating activities +552.0 million kroons, from
investing activities +39.8 million kroons and financing activities -89.3
million kroons. The cash flow from operating activities were mostly influenced
by operating profit +338.9 million kroons, the change in trade and other
receivables related to operating activities (+216.3 million kroons), change
in trade and other payables (-143.3 million kroons) and adjustments of revenue
from construction contracts under stage of completion method +158.3 million
kroons. As at 30 June 2008, the group has 704.6 million kroons of funds on the
group's bank accounts.

The ratios and calculation methods characterizing the operating activities
of the Group
                                            2008 6 months      2007 6 months
Net profit margin                                  12,2 %              9,7 %
Operating profit margin                            14,3 %              8,5 %
Return on equity per annum                         26,9 %             29,3 %
Return on assets per annum                         14,5 %             14,2 %
Current ratio                                       2,3                2,1
Equity ratio                                       56,2 %             47,7 %
General expense ratio                               5,0 %              3,8 %
Personnel expense ratio                            10,1 %             10,1 %
Average number of full-time employees              1070                948

Net profit margin: Net profit* / Revenue
Operating profit margin: Operating profit / Revenue
Return on equity: Net profit x 2* / Average equity during the period*
Return on assets: Net profit x 2* / Average assets during the period
Current ratio: Current assets / Current liabilities
Equity ratio: Owners equity* / Total assets
General expense ratio: General expenses / Revenue
Personnel expense ratio: Personnel expenses / Revenue

* calculated as attributable to the equity holders of the parent company


In 30.06.2008, the number of employees in the Group's service was 1068,
including 1036 full-time employees. The number of the Group's employees
increased by 0.6% (6 new employees were recruited). The gross remuneration
paid to employees in 6 months 2008 amounted to 214.4 million kroons an
increase of 12.7% compared to previous year.


INCOME STATEMENT II quarter 2008
consolidated, unaudited in thousand EEK and EUR

                                           EEK                   EUR
                                  IIq 2008    IIq 2007   IIq 2008   IIq 2007

Revenue                          1 252 733   1 480 887     80 064     94 646
Cost of goods sold              (1 028 871) (1 303 771)   (65 757)   (83 326)

GROSS PROFIT                       223 862     177 116     14 307     11 320

Marketing expenses                  (9 603)     (6 851)      (614)      (438)
Administrative and general expenses(51 647)    (45 845)    (3 301)    (2 930)
Other operating income               4 236         387        271         25
Other operating expenses            (5 874)     (1 907)      (375)      (122)

OPERATING PROFIT                   160 974     122 900     10 288      7 855

Financial income and expenses
from stocks of associate
companies and joint ventures        (1 078)     45 943        (69)     2 936
Interest expense                    (2 095)     (3 795)      (134)      (243)
Foreign exchange gain               (4 178)      3 585       (267)       229
Other financial income               5 283       1 814        338        116
Other financial expenses            (1 291)         (1)       (83)        (0)
Total financial income and expenses (3 359)     47 546       (215)     3 038

PROFIT BEFORE TAX                  157 615     170 446     10 073     10 893

Corporate income tax expense       (20 485)    (14 197)    (1 309)      (907)

NET PROFIT FOR FINANCIAL YEAR      137 130     156 249      8 764      9 986
  incl. net profit attributable
        to equity holders
        of the parent company      135 296     153 550      8 647      9 814
        minority interest            1 834       2 699        117        172

Earnings per share for profit attributable
to the equity holders of the parent company
(basic and diluted, in EEK and EUR)   7,64        8,68       0,49       0,55


INCOME STATEMENT 6M 2008
consolidated, in thousand EEK and EUR
                                           EEK                   EUR
                                   6M 2008     6M 2007    6M 2008    6M 2007

Revenue                          2 372 305   2 495 751    151 618    159 507
Cost of goods sold              (1 913 248) (2 190 123)  (122 279)  (139 974)

GROSS PROFIT                       459 057     305 628     29 339     19 533

Marketing expenses                 (17 491)    (12 456)    (1 118)      (796)
Administrative and general expen. (101 020)    (81 456)    (6 456)    (5 206)
Other operating income               5 929       2 490        379        159
Other operating expenses            (7 601)     (2 945)      (486)      (188)

OPERATING PROFIT                   338 874     211 261     21 658     13 502

Financial income and expenses
from stocks of associate
companies and joint ventures         1 202      52 775         77      3 373
Interest expense                    (7 678)     (6 528)      (491)      (417)
Foreign exchange gain               (5 870)        138       (375)         9
Other financial income               8 523       5 070        545        324
Other financial expenses            (1 297)         (2)       (83)        (0)
Total financial income and expenses (5 120)     51 453       (327)     3 289

PROFIT BEFORE TAX                  333 754     262 714     21 331     16 791

Corporate income tax expense       (40 623)    (15 079)    (2 596)      (964)

NET PROFIT FOR FINANCIAL YEAR      293 131     247 635     18 735     15 827
  incl. net profit attributable
        to equity holders
        of the parent company      290 178     242 000     18 546     15 467
        minority interest            2 953       5 635        189        360

Earnings per share for profit attributable
to the equity holders of the parent company
(basic and diluted, in EEK and EUR)  16,39       13,67       1,05       0,87


BALANCE SHEET AS OF 30.06.2008
consolidated, in thousand EEK and EUR
                                       EEK                      EUR
                             30.06.2008   31.12.2007  30.06.2008  31.12.2007
ASSETS
Current assets
Cash and cash equivalents       704 614      205 564      45 033      13 138
Trade and other receivables     946 687    1 201 942      60 504      76 818
Inventories                   1 989 425    2 025 426     127 147     129 448
Total current assets          3 640 726    3 432 932     232 684     219 404

Non-current assets
Long-term financial investments 250 635      290 852      16 018      18 589
Investment property              12 831        7 361         820         470
Property, plant and equipment   176 772      172 912      11 298      11 051
Intangible assets                12 457       12 574         797         804
Total non-current assets        452 695      483 699      28 933      30 914

TOTAL ASSETS                  4 093 421    3 916 631     261 617     250 318

LIABILITIES AND OWNERS' EQUITY
Current liabilities
Borrowings                      424 953      304 879      27 159      19 485
Trade and other payables      1 060 037    1 032 210      67 749      65 970
Government grants                 1 483        1 498          95          96
Short-term provisions            75 139       73 212       4 802       4 680
Total current liabilities     1 561 612    1 411 799      99 805      90 231

Non-current liabilities
Long-term borrowings            194 074      397 713      12 404      25 418
Long-term payables to suppliers   7 587       11 091         485         709
Long-term suppliers advance payments  0       46 332           0       2 961
Total non-current liabilities   201 661      455 136      12 889      29 088

Total liabilities             1 763 273    1 866 935     112 694     119 319

Equity

Minority interest                30 355       33 939       1 940       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 transl. adjustment   (11 227)      (5 085)       (718)       (325)
  Retained earnings           2 116 320    1 826 142     135 258     116 712
Total equity attributable to equity
holders of the parent company 2 299 793    2 015 757     146 983     128 830

Total equity                  2 330 148    2 049 696     148 923     130 999

TOTAL LIABILITIES AND EQUITY  4 093 421    3 916 631     261 617     250 318


Alar Lagus
Member of Board
+372 6 805 109
alar.lagus@merko.ee