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2012 6 months and II quarter consolidated unaudited interim report

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Tallinn, Estonia, 2012-08-08 15:30 CEST (GLOBE NEWSWIRE) --


MANAGEMENT REPORT

General information and structure of the group

AS Merko Ehitus operates as a holding company the group of undertakings of
which includes construction and real estate development companies that provide
integral solutions in Estonia, Latvia and Lithuania. The largest construction
companies of the group are AS Merko Ehitus Eesti (100%), SIA Merks (100%), UAB
Merko Statyba (100%) and companies belonging to the AS Merko Ehitus Eesti group
Tallinna Teede AS (100%), AS Merko Infra (100%), AS Gustaf (85%), OÜ Gustaf
Tallinn (80%) and AS Merko Tartu (66%). 

In the 2nd quarter of the year 2012 it was decided to make changes in the
management of SIA Merks, the Latvian subsidiary of AS Merko Ehitus, according
to which the former chairman of the management board Ivars Geid?ns will become
a member of the supervisory board of SIA Merks and the former Director of
Finance Oskars Ozoli?š will become the chairman of the management board of SIA
Merks as of September 2012. The management board of SIA Merks will continue to
consist of two members: Oskars Ozoli?š as the chairman of the management board
and Construction Director J?nis Šperbergs as a member of the management board.
The supervisory board of the company will continue to consist of Andres Trink
as the chairman of the supervisory board and Tõnu Toomik, Jaan Mäe and Ivars
Geid?ns as members of the supervisory board. 

After the balance sheet date, on 6 July 2012, AS Merko Ehitus transferred its
25% of shareholding in a producer of reinforced concrete structures AS TMB to
the management of the company. 

Operating results

In 2012 6 months, the revenue of the group was EUR 106.9 million. Estonia
contributed 88.2%, Latvia 7.9% and Lithuania 3.9% to the group’s revenue. As
compared to 2011 6 months, the group’s revenue increased by +42.4%, including
+59.3% in Estonia, +72.0% in Lithuania and -37.1% in Latvia. 

Group’s revenue for 2nd quarter of the year 2012 was EUR 59.1 million, which
constitutes an annual increase of EUR 10.2 million (+20.8%). 

The consolidated revenue of the group’s largest entities (in thousand euros):

                                          6 months       6 months       6 months
                                              2012         2011**         2010**
-------------------------------------                                           
Estonian entities                                                               
AS Merko Ehitus*                             8 521            112            533
AS Merko Ehitus Eesti group (100%           86 511         59 283         46 213
 ownership)                                                                     
AS Merko Ehitus Eesti (100%                 41 668         41 561         34 104
 ownership)                                                                     
Tallinna Teede AS (100% ownership)          11 097          6 895          8 328
AS Merko Infra (100% ownership)             25 576          4 034              5
Other subsidiaries                           8 170          6 793          3 776
Latvian entity                                                                  
SIA Merks (100% ownership)                   8 493         13 508         22 630
Lithuanian entity                                                               
UAB Merko Statyba (100% ownership)           3 330          2 144          1 478
Total Merko Ehitus group                   106 855         75 047         70 854

* includes the revenues of the smaller subsidiaries of AS Merko Ehitus
** approximate comparative indicators of the new structure of AS Merko Ehitus

As of 30 June 2012, the group’s portfolio on unfinished construction contracts
totalled EUR 233 million. The contract portfolio does not include residential
projects developed by the group and the works related to construction of
investment properties. 

In 2012 6 months, 67 apartments were sold at the total cost of EUR 8.0 million
(VAT not included), which does not include transactions covered with
preliminary contracts under the law of obligations. As of 30.06.2012
inventories included 103 unsold completed apartments (78 apartments in Tallinn,
23 in Tartu and 2 in Riga) with the total cost of EUR 9.5 million and 580
apartment in the stage of construction, the cost of which, as on the balance
sheet date was EUR 22.9 million. Due to the continuing low transaction activity
on the housing market, the construction of 311 apartments (in the amount of EUR
8.5 million) has currently been halted. The construction of 269 apartments is
underway, including in Tallinn three 13-apartment buildings on Pallasti street
(time of completion: summer of 2012), 20-apartment buildings on Räägu street
(time of completion: summer of 2013) and 27-apartment building on Eha street
(time of completion: summer of 2013). A 115-apartment building in Riga, on
Skanstese street (time of completion: autumn of 2012) and 68-apartment building
in Vilnius, on Mokslinink? street (time of completion: at the end of 2012) is
also underway. In order to minimise risks, new projects are generally
small-scaled or directed at a specific target group and regionally dispersed.
The cyclical nature of the development activities was affected in 2nd quarter
by the sale of apartments in the amount of EUR 6.0, accounting for 75.2% of the
6 months 2012 sales from apartments. 

With the first six months of the year 2012, the group earned a gross profit of
EUR 5.0 million (within 6 months of 2011 EUR -2.4 million) from development and
construction activities. The impact of seasonality of construction activities
on the results of the first half year as compared to the previous years has
been insignificant. As compared to the 6 months of 2011 the marketing and
general administration costs of the group decreased by 1.9% and the share of
these costs in the revenue formed 4.6% (6.7% in the 6 months of 2011). 

During the first half of the year 2012, the profit before taxes of the group
was EUR 0.8 million and the net profit EUR 0.6 million as compared to the EUR
7.5 million of loss before taxes and EUR 7.6 million net loss during the first
half of the year 2011. 

Group’s net profit for 2nd quarter of 2012 was EUR 0.4 million, compared to EUR
3.5 million loss in 2nd quarter of 2011. 

In 2012 6 months, the change in short-term investments, and cash and cash
equivalents of Merko Ehitus group was EUR -6.7 million, improving by EUR 3.0
million in 2nd quarter and as of 30 June 2012, the cash and cash equivalents in
the bank accounts and term deposits of the group were in the amount of EUR 11.7
million. The cash flows from operating activities totalled EUR -10.0 million,
cash flows from investing activities totalled EUR +1.1 million and cash flows
from financing activities totalled EUR +2.2 million. The cash flows from
operating activities in the reporting period were mostly affected by the change
in receivables and prepayments of EUR -13.5 million and change in liabilities
and prepayments related to operating activities of EUR +5.2 million. Of the
cash flows from investing activities, the balance of issued and repaid loans
totalled EUR +2.3 million and purchase of investment property EUR -1.3 million.
Of the cash flows from financing activities, the balance of loans received and
repaid totalled EUR +2.7 million and finance lease payments totalled EUR -0.5
million. 

The financial ratios and methodology for calculating the ratios describing the
group’s main operations 

                                              6 months     6 months     6 months
                                                  2012         2011         2010
------------------------------------------                                      
Net profit margin                                0,5 %      -10,1 %        4,7 %
EBT margin                                       0,8 %      -10,0 %        5,5 %
Operating profit margin                          0,4 %       -9,6 %        5,8 %
Gross margin                                     4,7 %       -3,2 %       11,9 %
EBITDA margin                                    1,5 %       -8,3 %        7,5 %
Return on equity per annum                       1,1 %      -12,6 %        5,0 %
Return on assets per annum                       0,5 %       -7,4 %        3,0 %
Equity ratio                                    48,5 %       53,7 %       60,1 %
Current ratio                                      1,8          2,0          2,3
Quick ratio                                        0,9          0,9          1,0
General expense ratio                            4,6 %        6,7 %        7,3 %
Gross remuneration ratio                         8,1 %       10,7 %       10,9 %
Debt to assets                                  17,6 %       16,6 %       13,9 %
Accounts receivable turnover (in days)              76           85           56
Accounts payable turnover (in days)                 62           66           55
Revenue per employee (in thousand euros)           122           81           92
Average number of full-time employees at           874          923          766
 the group                                                                      

Net profit margin: Net profit* / Revenue
EBT margin: Profit before taxes / Revenue
Operating profit margin: Operating profit / Revenue
Gross margin: Gross profit / Revenue
EBITDA margin: (Operating profit + Depreciation and impairment charge) / 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
Equity ratio: Owners equity* / Total assets
Current ratio: Current assets / Current liabilities
Quick ratio: (Current assets – Inventories) / Current liabilities
General expense ratio: General expenses / Revenue
Gross remuneration ratio: Gross remuneration / Revenue
Debt to assets: Interest-bearing liabilities / Total assets
Accounts receivable turnover: Trade receivables x 365 / Revenue x 2
Accounts payable turnover: Payables to supplies x 365 / Cost of goods sold x 2
Revenue per employee: Revenue / Average number of full-time employees

* attributable to equity holders of the parent

Employees and remuneration

The number of group’s employees decreased by 75 (-7.4%) employees in a year and
as of 30.06.2012, the group had 942 employees. Within the framework of the
efficiency program implemented at the beginning of 2012 changes were carried
out in the management of UAB Merko Statyba and SIA Merks, furthermore, the
number of administrative employees was decreased in the Lithuanian and Latvian
subsidiaries. The gross remuneration paid to employees in 2012 6 months
amounted to EUR 8.7 million an increase of 7.8% compared to previous year.
Salaries accounted for 83.4% of the gross remuneration, and performance-related
pay accounted for 16.6%. 

Construction market

The company’s assessment of the principal trends affecting the construction
market in the upcoming quarters has not significantly changed compared to the
previous quarter. 

In the year 2012, most new construction contracts still originate from the
public sector and they are financed from the sources of the Structural Funds of
the Europen Union. Considering the contracting entities’ continuously strict
demands for guarantees and long payment periods, the strain on the current
assets of a construction company continues to be significant and in order to
remain competitive a company must demonstrate significant skills in managing
its cash flows. Some construction companies may experience difficulties in the
acquisition of guarantees due to lack of securities. Construction companies
with a stronger equity base and lower debt burden have better chances to
improve their market positions in the segment of larger building orders. 

Competition will continue to be severe in major public procurements. It is
still reasonable to predict that in public procurements the price risks and
costs arising from building design flaws will be left for the contractors to
bear, thus having a potential negative impact on the business results of
construction companies upon the realisation of risks. Considering the low
profitability of the construction sector and the negative business results of
previous years, especially in the area of road construction, companies can no
longer afford to take on new lossmaking construction sites. Risk assessment and
management in the process of making building offers has become an increasingly
significant area that construction companies regard as progressively more
important. 

As a positive trend, the activity of private contracting entities is somewhat
increasing in the preparation of commercial real estate development projects,
supported by relatively strong domestic consumption indicators. The Lithuanian
market indicates an increasing interest in the commencement of public-private
partnership projects. 

The activity of the apartment market is still low in all three Baltic markets
compared to the pre-crisis years, although it has shown a steady improvement.
Some of the previously frozen apartment development projects have once again
been revitalised and this has increased the supply of new apartments. Buyers of
apartments are increasingly aware of construction quality and they base their
purchasing decisions on the existence of relevant infrastructure (parking,
services and logistics) in the area. The availability of bank loans in the
financing of apartment transactions may be described as relatively good in all
three Baltic countries and this situation is continuously stimulated by the low
level of Euribor interest rates. 

Share and shareholders

Share information

ISIN                                         EE3100098328
Short name of the security         MRK1T
Stock Exchange List                   Baltic Main List
Nominal value                           no par value
Total no of securities issued       17 700 000
No of listed securities                 17 700 000
Listing date                               11.08.2008

The shares of Merko Ehitus are listed in the main list of NASDAQ OMX Tallinn
Stock Exchange. In 2012 6 months 1085 transactions with the shares of Merko
Ehitus were performed in the course of which 0.6 million shares were traded and
the total monetary value of transactions was EUR 3.4 million. The lowest share
price was EUR 5.37 and the highest price was EUR 6.80 per share. The closing
share price as of 30.06.2012 was EUR 6.24. AS Merko Ehitus market value as of
30.06.2012 was EUR 110 million. 

                                    30.06.2012  30.06.2011  30.06.2010
-----------------------------------                                   
No. of shares, thousand pcs             17 700      17 700      17 700
Earnings per share (EPS), in euros        0,03       -0,43        0,19
Equity per share, in euros                6,21        6,52        7,17
P/B (price to book ratio)                 1,00        1,20        1,03

Main shareholders of AS Merko Ehitus as of 30.06.2012

                                                     Number of     Percentage of
                                                        shares             total
-----------------------------------------------                                 
AS Riverito                                         12 742 686            71,99%
ING Luxembourg S.A., clients                           974 126             5,50%
Skandinaviska Enskilda Banken Ab, clients              738 864             4,17%
Firebird Republics Fund Ltd                            269 654             1,52%
Ergo Pensionifond 2P2                                  171 679             0,97%
State Street Bank and Trust Omnibus Account a          153 018             0,86%
 Fund No OM01                                                                   
Gamma Holding OÜ                                       151 265             0,85%
SEB Elu- ja Pensionikindlustus AS                      125 520             0,71%
Skandinaviska Enskilda Banken Finnish Clients          125 191             0,71%
AS Midas Invest                                        112 555             0,64%
Andersson Investeeringud OÜ                            111 841             0,63%
Clearstream Banking Luxembourg S.A. clients            102 937             0,58%



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited, in thousand euros

                                                                  2012      2011
                                                              6 months  6 months
                                                                                
Revenue                                                        106 855    75 047
Cost of goods sold                                           (101 817)  (77 480)
Gross profit (loss)                                              5 038   (2 433)
                                                                                
Marketing expenses                                               (902)   (1 162)
Administrative and general expenses                            (4 056)   (3 893)
Other operating income                                             458       320
Other operating expenses                                         (120)      (49)
Operating profit (loss)                                            418   (7 217)
                                                                                
Finance income/costs                                               397     (321)
incl. finance income/costs from investments in associates          182        25
 and joint ventures                                                             
finance income/costs from other long-term investments              675         -
interest expense                                                 (643)     (414)
foreign exchange gain                                               56        27
other financial income (expenses)                                  127        41
Profit (loss) before tax                                           815   (7 538)
Corporate income tax expense                                     (305)         -
Net profit (loss) for current period                               510   (7 538)
                                                            --------------------
incl. net profit (loss) attributable to equity holders of          579   (7 592)
 the parent                                                                     
net profit (loss) attributable to non-controlling interest        (69)        54
                                                                                
Other comprehensive income (loss)                                               
Currency translation differences of foreign entities                88        26
Comprehensive income (loss) for the period                         598   (7 512)
                                                            --------------------
                                                            --------------------
incl. net profit (loss) attributable to equity holders of          667   (7 566)
 the parent                                                                     
net profit (loss) attributable to non-controlling interest        (69)        54
                                                                                
Earnings per share for profit (loss) attributable to equity       0,03    (0,43)
 holders of the parent (basic and diluted, in euros)                            



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited, in thousand euros

                                                                  2012      2011
                                                                    II        II
                                                               quarter   quarter
                                                                                
Revenue                                                         59 064    48 874
Cost of goods sold                                            (56 529)  (49 872)
Gross profit (loss)                                              2 535     (998)
                                                                                
Marketing expenses                                               (474)     (600)
Administrative and general expenses                            (2 008)   (1 921)
Other operating income                                             221       136
Other operating expenses                                          (97)      (12)
Operating profit (loss)                                            177   (3 395)
                                                                                
Finance income/costs                                               222      (45)
incl. finance income/costs from investments in associates           77       101
 and joint ventures                                                             
finance income/costs from other long-term investments              340         -
interest expense                                                 (330)     (204)
foreign exchange gain                                              119        36
other financial income (expenses)                                   16        22
Profit (loss) before tax                                           399   (3 440)
Corporate income tax expense                                      (36)         -
Net profit (loss) for current period                               363   (3 440)
                                                             -------------------
                                                             -------------------
incl. net profit (loss) attributable to equity holders of          424   (3 485)
 the parent                                                                     
net profit (loss) attributable to non-controlling interest        (61)        45
                                                                                
Other comprehensive income (loss)                                               
Currency translation differences of foreign entities               111         8
                                                                                
Comprehensive income (loss) for the period                         474   (3 432)
                                                             -------------------
                                                             -------------------
incl. net profit (loss) attributable to equity holders of          535   (3 477)
 the parent                                                                     
net profit (loss) attributable to non-controlling interest        (61)        45
                                                                                
Earnings per share for profit (loss) attributable to equity       0,02    (0,20)
 holders of the parent (basic and diluted, in euros)                            



CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited, in thousand euros

                                                       30.06.2012  31.12.2011
ASSETS                                                                       
                                                                             
Current assets                                                               
Cash and cash equivalents                                  11 733      18 510
Short-term deposits                                             -         140
Trade and other receivables                                76 405      64 449
Prepaid corporate income tax                                  476         686
Inventories                                                89 463      87 834
Total current assets                                      178 077     171 619
                                                                             
Non-current assets                                                           
Long-term financial assets                                 26 551      27 051
Deferred income tax assets                                  1 641       1 870
Investment property                                         3 534       2 313
Property, plant and equipment                              15 648      16 057
Intangible assets                                           1 391       1 427
Total non-current assets                                   48 765      48 718
                                                                             
TOTAL ASSETS                                              226 842     220 337
                                                      -----------------------
                                                      -----------------------
                                                                             
LIABILITIES AND EQUITY                                                       
                                                                             
Current liabilities                                                          
Borrowings                                                 24 238      16 574
Payables and prepayments                                   68 064      61 635
Short-term provisions                                       6 794       6 781
Total current liabilities                                  99 096      84 990
                                                                             
Non-current liabilities                                                      
Long-term borrowings                                       15 606      23 764
Long-term trade payables                                      773         790
Deferred corporate income tax liability                       131         131
Long-term provisions                                           42          66
Total non-current liabilities                              16 552      24 751
                                                                             
Total liabilities                                         115 648     109 741
                                                      -----------------------
                                                      -----------------------
                                                                             
Equity                                                                       
                                                                             
Non-controlling interest                                    1 287       1 356
Equity attributable to equity holders of the parent                          
Share capital                                              12 000      12 000
Statutory reserve capital                                   1 200       1 131
Currency translation differences                            (482)       (570)
Retained earnings                                          97 189      96 679
Total equity attributable to equity holders of parent     109 907     109 240
                                                                             
Total equity                                              111 194     110 596
                                                      -----------------------
                                                                             
TOTAL LIABILITIES AND EQUITY                              226 842     220 337
                                                      -----------------------


Andres Trink
Chairman of Management Board
+372 680 5400
[email protected]