Market announcement

Title

Financial results 3M 2009

Message

MANAGEMENT REPORT

General information

AS Merko Ehitus operates in Estonia, Latvia and Lithuania as a construction
group providing integrated construction solutions. 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 3 April 2009, a suspicion was elaborated which was earlier submitted
against AS Merko Ehitus in relation to the giving of a bribe to Ivo Parbus.
While the suspicion submitted at 17 December 2008 stated that the bribe was
given for the purpose of accelerating the proceedings with the plans of
seven properties, then according to the elaboration of 3 April, the number
of properties decreased to three. Concerning the plans for the remaining
four properties, a suspicion on the same bribe object was submitted against
OÜ Woody, OÜ Metsailu and OÜ Constancia that are subsidiaries of AS Merko
hitus. In addition to Estravel's gift coupon of EEK 25 thousand, the
suspected bribe of AS Merko Ehitus also includes book "Eesti Talurahva
Arhitektuur" costing EEK 410. The suspicion submitted against the
subsidiaries mentions Estravel's gift coupon of EEK 25 thousand, a book
costing EEK 410 and Estravel's gift coupon of EEK 15 thousand as the bribe.
The suspects consider the suspicions to be unfounded
(http://www.nasdaqomxbaltic.com/market/?pg=news&news_id=232461).

At its 16 April 2009 session, the Government of the Republic of Estonia
approved the tender submitted by Tallinna Teede AS (100% subsidiary of
AS Merko Ehitus) as the winning tender in the privatisation auction of
the 100% holding in the state-owned company AS Vooremaa Teed. The
acquisition of AS Vooremaa Teed will significantly improve the group's
presence in the road construction and maintenance sector and will create
new opportunities for the further development of the field.

Operating results
 
Group's revenue for the 2009 3 months was EEK 609.2 million, which
constitutes an annual decrease of 45.6%. 73.5% of the sales originated
from Estonia, 23.5% from Latvia and 3.0% from Lithuania. As compared to
with the 2008 3 months, company's sales decreased in Lithuania by 91.1%,
in Latvia by 52.1% and in Estonia by 27.5%. 
 
As at 31 March 2009, the group's backlog of construction contracts in
progress amounted to EEK 2886 million. 

Companies of the Group 3M 2009 consolidated revenue
(sales outside the Group) were (in thousand kroons and euros):

                                              3M 2009             3M 2008
                                            EEK      EUR        EEK       EUR
Estonian companies
   AS Merko Ehitus (parent company)     358 256   22 897    458 331    29 293
   AS Gustaf (75% partnership)           12 732      814     44 746     2 860
   OÜ Gustaf Tallinn (80% partnership)   17 048    1 090     40 188     2 568
   AS Merko Tartu (66% partnership)      36 657    2 343     39 940     2 553
   Tallinna Teede AS (100% partnership)  19 397    1 240     33 244     2 125
   OÜ Woody (100% partnership)            4 096      262     16 805     1 074
Latvian company 				
   SIA Merks (100% partnership)         143 192    9 152    287 354    18 365
Lithuanian company				
   UAB Merko Statyba (100% partnership)  17 070    1 091    195 203    12 476


In one year, the Group's cost of goods sold decreased by 40.9% and marketing
and general administrative expenses by 23.1%. The economizing measures taken
to reduce costs helped to decrease marketing and administrative expenses,
with the EEK 4.7 million decrease in labour costs, EEK 2.6 million decrease
in consultation and legal aid and EEK 1.4 million decrease in advertising and
sponsoring being the most significant factors. Despite the vigorous measures,
the group's cost-cutting rate failed to keep up with the fall in revenue -
thus, the cost of goods sold in the period increased to 85.8% and marketing
and administrative costs to 7.2%.

The Group's profit before taxes for 3 months 2009 amounted to EEK 36.9
million, having decreased by EEK 139.2 million compared to 2008 3 months
and net profit amounted to EEK 32.7 million, having decreased by EEK 122.2
million or 78.9% correspondingly. The slump in profit was influenced both
by the decreased profitability of the construction and development fields
and the general fall in construction volumes. The seasonality of the
construction business and the cyclic nature of development activities did
not have a significant influence on the results of the quarter.

In Q1 2009, the Group sold 70 apartments in total cost of EEK 87.4 million
(without VAT). As at 31.03.2009 Group held in inventories unsold 344
completed apartments in total cost EEK 422.1 million and 444 apartments
in the construction stage, of which construction progress was frozen for
433 apartments until a recovery in demand. Group's revenue from development
activities for Q1 2009 amounted to EEK 100.4 million, having decreased by
EEK 314.9 million compared to Q1 2008.

In 3 months 2009 Group's total cash flows amounted to EEK -261.6 million,
of which the cash flows from operating activities totalled EEK +4.5
million, from investment activities EEK -199.5 million and from financing
activities EEK -66.6 million. The cash flows from operating activities of
the reporting period were mostly affected by change in liabilities and
prepayments related to operating activities EEK -170,4 million, change in
receivables and prepayments related to operating activities EEK +107.3
million, change in inventories EEK +54.7 million and operating profit
EEK +41,2 million. From investment activities cash flows EEK -170.9 million
constituted from pecuniary means applied to deposits, EEK -32.9 million
from balance of granted/received loans and EEK +6.4 million from received
interests.

As at 31 March 2009, the Group has EEK 688.1 million of funds on the
Group's bank accounts and deposits.

The ratios and calculation methods characterizing the operating activities
of the Group
                                            2009 3 months      2008 3 months

Net profit margin                                   5,4 %             13,8 %
EBT margin                                          6,1 %              15,7%
Operating profit margin                             6,8 %             15,9 %
Return on equity per annum                          6,3 %             29,6 %
Return on assets per annum                          3,5 %             15,8 %
Current ratio                                       3,1                2,7
Equity ratio                                       57,7 %             55,5 %
General expense ratio                               7,2 %              5,1 %
Gross remuneration ratio                           12,0 %              9,3 %

Net profit margin: Net profit* / Revenue
EBT margin: Profit before tax / Revenue
Operating profit margin: Operating profit / Revenue
Return on equity: Net profit x 4* / Average equity during the period*
Return on assets: Net profit x 4* / Average assets during the period
Current ratio: Current assets / Current liabilities
Equity ratio: Owners equity* / Total assets
General expense ratio: General expenses / Revenue
Gross remuneration ratio: Gross remuneration / Revenue

*attributable to equity owners of the parent

Employees and remuneration

In 31.03.2009, the number of employees in the Group's service was 845,
including 822 full-time employees. The Group reduced the number of its
personnel by 24.4% or 252 employees in a year. The gross remuneration paid
to employees in 3 months 2009 amounted to EEK 72.8 million a decrease of
30,1% compared to previous year. The smaller amount of performance pay, due
to the fall in the group's profitability, and the reduced staff levels also
contributed to the fall in the group's labour costs.


STATEMENT OF COMPREHENSIVE INCOME 3M 2009
consolidated, unaudited, in thousand EEK and EUR

                                           EEK                   EUR
                                   3M 2009     3M 2008    3M 2009    3M 2008

Revenue                            609 191   1 119 572     38 934     71 554
Cost of goods sold                (522 383)   (884 377)   (33 386)   (56 522)

GROSS PROFIT                        86 808     235 195      5 548     15 032

Marketing expenses                  (7 050)     (7 888)      (451)      (504)
Administrative and general expenses(37 009)    (49 373)    (2 365)    (3 156)
Other operating income               1 910       1 704        122        109
Other operating expenses            (3 430)     (1 738)      (219)      (111)

OPERATING PROFIT                    41 229     177 900      2 635     11 370

Financial income and expenses from stocks of
associate comp. and joint ventures  (3 323)      2 280       (213)       145
Interest expense                    (7 839)     (5 584)      (501)      (357)
Foreign exchange gain                  170      (1 692)        11       (108)
Other financial income               7 779       3 240        497        207
Other financial expenses            (1 112)         (6)       (70)        (0)
Total financial income and expenses (4 325)     (1 762)      (276)      (113)

PROFIT BEFORE TAX                   36 904     176 138      2 359     11 257

Corporate income tax expense        (4 653)    (20 138)      (297)    (1 287)

NET PROFIT FOR FINANCIAL YEAR       32 251     156 000      2 062      9 970
  incl. equity holders
        of the parent               32 726     154 881      2 092      9 898
        minority interest             (475)      1 119        (30)        72

OTHER COMPREHENSIVE INCOME
Exchange differences on
translating foreign subsidiaries    (1 006)       (891)       (64)       (57)

COMPREHENSIVE INCOME                31 245     155 109      1 998      9 913
  incl. equity holders
        of the parent               31 720     153 990      2 028      9 841
        minority interest             (475)      1 119        (30)        72

Earnings per share for profit attributable
to the equity holders of the parent
(basic and diluted, in EEK and EUR)   1,85        8,75       0,12       0,56


STATEMENT OF FINANCIAL POSITION AS OF 31.03.2009
consolidated, unaudited, in thousand EEK and EUR

                                       EEK                      EUR
                             31.03.2009   31.12.2008  31.03.2009  31.12.2008
ASSETS
Current assets
Cash and cash equivalents       254 371      515 191      16 257      32 927
Shortterm financial investments 433 707      262 759      27 719      16 793
Trade and other receivables     727 795      784 540      46 515      50 141
Inventories                   1 763 610    1 817 486     112 714     116 158
Assets held for sale                  -          173           -          11
Total current assets          3 179 483    3 380 149     203 205     216 030

Non-current assets
Long-term financial investments 255 857      260 036      16 353      16 619
Investment property              12 581       12 002         804         767
Property, plant and equipment   193 992      197 094      12 398      12 597
Intangible assets                11 820       11 807         755         755
Total non-current assets        474 250      480 939      30 310      30 738

TOTAL ASSETS                  3 653 733    3 861 088     233 515     246 768

LIABILITIES AND OWNERS' EQUITY
Current liabilities
Borrowings                      184 458      206 657      11 789      13 208
Trade and other payables        800 700      972 330      51 172      62 144
Short-term provisions            33 058       32 317       2 113       2 065
Total current liabilities     1 018 216    1 211 304      65 074      77 417

Non-current liabilities
Long-term borrowings            486 356      531 396      31 084      33 962
Long-term payables to suppliers  11 042        8 824         706         564
Long-term suppliers advance payments 10            -           1           -
Total non-current liabilities   497 408      540 220      31 791      34 526

Total liabilities             1 515 624    1 751 524      96 865     111 943

Equity
Minority interest                31 458       34 633       2 010       2 213
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 differences(13 556)     (12 550)       (866)       (802)
Retained earnings             1 925 507    1 892 781     123 063     120 971
Total equity attributable to
equity holders of the parent  2 106 651    2 074 931     134 640     132 612
Total equity                  2 138 109    2 109 564     136 650     134 825

TOTAL LIABILITIES AND EQUITY  3 653 733    3 861 088     233 515     246 768


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