Market announcement

Title

2013 9 months and III quarter consolidated unaudited interim report

Message

Tallinn, Estonia, 2013-11-07 15:30 CET (GLOBE NEWSWIRE) --




MANAGEMENT REPORT

Overview of the 9 months and Q3 results

-- Profitability:                                                         
net profit in 9M 2013 was EUR 7.9 million (9M 2012: EUR 3.2 million) and  
net profit in Q3 was EUR 3.9 million (Q3 2012: EUR 2.6 million).          
-- Revenue has increased:                                                 
9M 2013 revenue was EUR 197.8 million (9M 2012: EUR 177.7 million).       
Revenue in Q3 was EUR 84.1 million (Q3 2012: EUR 70.9 million), which has 
increased 18.7% compared to the same period last year.                    
-- Strong cash position:                                                  
by the end of the reporting period, the group had EUR 39.1 million in cash
and cash equivalents and equity EUR 119.4 million (48.1% of total assets).
Comparable figures in 2012 were accordingly EUR 15.5 million and EUR 112.5
million (47.9% of total assets).                                          
-- Secured order book is stable:                                          
In Q3 2013, EUR 109.8 million worth of new contracts were signed (Q3 2012:
EUR 32.4 million) and as at 30 September 2013, the group’s secured order  
book amounted to EUR 218.1 million (30 September 2012: EUR 199.5 million).



                              9M ’13    9M ’12  Varianc  Q3 ’13  Q3 ’12  Varianc
                                                      e                        e
Revenue            million     197.8     177.7   +11.3%    84.1    70.9   +18.7%
                     EUR                                                        
Gross profit       million      17.4      10.7   +63.0%     7.5     5.6   +34.3%
                     EUR                                                        
Gross profit         %           8.8       6.0   +46.4%     9.0     7.9   +13.2%
 margin                                                                         
Net profit         million       7.9       3.2  +148.2%     3.9     2.6   +48.6%
 (parent)            EUR                                                        
Net profit           %           4.0       1.8  +122.9%     4.6     3.7   +25.2%
 margin                                                                         
EPS                  EUR        0.45      0.18  +148.2%    0.22    0.15   +48.6%
                                                                                
                            30.09.13  30.09.12  Varianc                         
                                                      e                         
ROE (on yearly       %          10.5      -3.2  +426.5%                         
 basis)                                                                         
Equity ratio         %          48.1      47.9    +0.8%                         
Secured order      million     218.1     199.5    +9.3%                         
 book                EUR                                                        
Total assets       million     248.3     235.0    +5.7%                         
                     EUR                                                        
Number of          people        902       936    -3.6%                         
 employees                                                                      

Background information and major changes introduced in the corporate structure

AS Merko Ehitus is a holding company incorporating construction and real estate
development companies offering integrated construction solutions in Estonia,
Latvia and Lithuania. Major construction companies incorporated under the
holding company include AS Merko Ehitus Eesti (100%), SIA Merks (100%), UAB
Merko Statyba (100%), as well as the AS Merko Ehitus Eesti group companies
Tallinna Teede AS (100%) and AS Merko Infra (100%). 

The main activity of the holding company is development and implementation of
the strategies of Merko Ehitus group’s separate business areas primarily
through long-term planning of resources. The Management Board of the holding
company AS Merko Ehitus has two members: Andres Trink and Tõnu Toomik. 

Annual General Meeting and changes in the management structure of AS Merko
Ehitus 

The general meeting of the shareholders was held on 5 June 2013. The general
meeting resolved to approve the annual report and the profit allocation
proposal for 2012. Pursuant to the profit allocation proposal, a dividend
payable of EUR 5.3 million (EUR 0.3 per share) was recognised in the
consolidated balance sheet as at 30 June 2013. The dividends were paid out to
shareholders on 3 July 2013. 

In addition, the annual general meeting resolved to recall Member of the
Supervisory Board Tõnu Toomik in connection with the Supervisory Board's
resolution to appoint Tõnu Toomik as Member of the Management Board of AS Merko
Ehitus. The Supervisory Board of AS Merko Ehitus resolved to recall Member of
the Management Board Viktor Mõisja from 5 June 2013, with Mr Mõisja continuing
service in the engineering division of the company’s subsidiary AS Merko Ehitus
Eesti, and to appoint the former member of the Supervisory Board Tõnu Toomik as
a new member of the Management Board. 

Changes in the legal structure of the group

In the first quarter of 2013, OÜ Paepargi 57 was established as a 100%
subsidiary of AS Merko Ehitus group. The share capital of the private limited
company is EUR 2,500. The company was founded for the purpose of ensuring
company-based accounting for development projects. 

In the second quarter of 2013, OÜ Baltic Electricity Engineering, a 100%
subsidiary of AS Merko Ehitus, was renamed OÜ Merko Investments. The private
limited company has a share capital of EUR 10,000. 

On 22 May 2013, AS Merko Ehitus concluded an intra-group transaction, disposing
a 100% stake in SIA Merks, a subsidiary engaged in construction, to OÜ Merko
Investments, which is fully owned by AS Merko Ehitus. The transaction served
the technical purpose of reorganising the legal structure of the group. 

By 4 July 2013, the liquidation of Merko Ukraine LLC, initiated in the autumn
of 2012, was completed, with the company deleted from the registers. 

On 10 June 2013, the shareholders of OÜ Unigate, a 50%-owned joint venture of
AS Merko Ehitus, resolved to increase the nominal value of the share of the
joint venture by EUR 887.07 to EUR 6,000 with the aim of bringing the company’s
share capital into line with the requirements arising from the Commercial Code.
A monetary contribution of EUR 350,000 was made by both shareholders, with the
nominal value of the share capital amounting to EUR 444 and the share premium
to EUR 349,556. 

On 17 July 2013, UAB Merko Bustas, a 100% subsidiary of AS Merko Ehitus,
established a 100% subsidiary UAB Kražiu Projektas in Lithuania, with a share
capital of LTL 10,000 (EUR 2,896). The subsidiary was established with the aim
of acquiring registered immovables for development purposes in Lithuania. 

On 16 August 2013, OÜ Paepargi, a 100% subsidiary of AS Merko Ehitus 100%
subsidiary OÜ Constancia, was sold at a sales price of EUR 2,500 to Capital
Mill OÜ. 

AS Merko infra branch in Latvia was registered on 10 September 2013. The branch
was established with the aim of participating in large-scale infrastructure
facilities construction tenders where the competence and references of SIA
Merks alone would fall short. 

On 3 October 2013, AS Merko Ehitus Eesti, a 100% subsidiary of AS Merko Ehitus,
established a 51% subsidiary OÜ Heamaja. The company was established with the
aim of participating in the Suur-Ameerika 1, Tallinn building construction
works concession contract tender organized by AS Riigi Kinnisvara. 



OPERATING RESULTS

Business activities

Key financial indicators (in million of euros):

                                              9M 2013  9M 2012  Q3 2013  Q3 2012
Revenue                                                                         
Estonia                                         163.4    152.8     70.6     58.6
Latvia                                           29.4     18.9     11.9     10.4
Lithuania                                         5.0      6.0      1.6      1.9
Revenue total                                   197.8    177.7     84.1     70.9
                                             -----------------------------------
                                             -----------------------------------
                                                                                
Gross profit                                     17.4     10.7      7.5      5.6
                                                                        --------
                                             -----------------------------------
                                                                                
Operating profit (EBIT)                           9.5      4.0      4.4      2.9
                                                               -----------------
                                             -----------------------------------
                                                                                
attributable to equity holders of the parent      7.9      3.2      3.9      2.6
attributable to non-controlling interest        (0.0)    (0.1)    (0.0)    (0.0)
Net profit                                        7.9      3.1      3.9      2.6
                                             -----------------------------------
                                             -----------------------------------
                                                                                
Earnings per share (EPS), in euros               0.45     0.18     0.22     0.15
                                             -----------------------------------
                                             -----------------------------------
                                                                                
Pecuniary means at the end of period             39.1     15.5     39.1     15.5
                                             -----------------------------------



Revenue and gross profit

Merko Ehitus group generated a total of EUR 197.8 million in revenue in 9
months of 2013 (9 months of 2012: EUR 177.7 million). 82.6% of the revenue was
generated in Estonia, 14.9% in Latvia and 2.5% in Lithuania (9 months of 2012:
86.0% in Estonia, 10.6% in Latvia and 3.4% in Lithuania). Compared to the first
9 months of 2012 the group revenue increased by 11.3%. During the reporting
period, orders from the private sector have increased as an ongoing trend, but
the majority of revenue is still related to projects financed with support from
the EU structural funds – state orders. Revenue in Q3 2013 was EUR 84.1
million, which has increased 18.7% compared to the previous year (Q3 2012: EUR
70.9 million). The increase in revenue, compared to last year, can be mainly
attributed to projects pursued in the general and road construction segment. 

In 9 months of 2013 the group’s gross profit from development and construction
activities totalled EUR 17.4 million (9 months of 2012: EUR 10.7 million). The
gross profit in Q3 2013 was EUR 7.5 million (Q3 2012: EUR 5.6 million). Both
the 9 month (8.8%) and the quarterly (9.0%) gross profit margin has improved,
compared to the same period last year (first 9 months of 2012: 6.0%; Q3 2012:
7.9%). Key contributors to the rise in the profit margin are the road
construction segment and the real estate development segment. At the same time,
the margin has fallen at the expense of the profitability of the general
construction segment. The scarcity of projects and the ever-tightening
competition in the construction sector pose a huge challenge in the maintaining
of the current gross profit margin for new procurements in all segments, but
especially in general construction, where competition and the number of
companies participating at the procurements is the highest. 

Net profit

In 9 months of 2013, the group’s pre-tax profit totalled EUR 8.7 million and
net profit was EUR 7.9 million as compared to the pre-tax profit or EUR 3.5
million and net profit of EUR 3.2 million in 9 months of 2012. Group’s net
profit margin was 4.0% (9 months of 2012: 1.8%). 

In Q3 of 2013, the group’s pre-tax profit totalled EUR 4.2 million and net
profit was EUR 3.9 million as compared to the pre-tax profit or EUR 2.6 million
and net profit of EUR 2.6 million in Q3 of 2012. 

Business segments

The group business activities are managed according to the following areas:

  -- General construction – 
includes the construction of buildings for different purposes including
     offices, hotels, museums, culture and business centres, social, production
     and service buildings as well as buildings of various industrial structures
.
  -- Engineering construction – 
The engineering construction segment of Merko builds port structures,
     landfilling areas at landfills, various road structures (tunnels,
     overpasses, bridges), water and sewerage pipelines, water treatment plants,
     up to 330 kV electrical construction projects and other complex engineering
     and environmental projects
.
  -- Road construction – In this segment, Merko carries out road construction
     and builds the associated infrastructure. In addition, we carry out road
     maintenance works and maintenance repair.
  -- Real estate development – including development of apartment projects,
     long-term financial investments and commercial real estate projects.

General construction

General construction       9M 2013  9M 2012  Varianc  Q3 2013  Q3 2012  Variance
 million EUR                                       e                            
Revenue                       59.9     43.1   +38.9%     39.0     31.4    +24.2%
% of revenue                 30.3%    24.3%   +24.7%    29.5%    26.4%    +11.7%
Gross profit                   1.5      3.2   -52.3%      0.8      2.1    -63.8%
Gross profit margin           2.6%     7.4%   -65.7%     2.0%     6.7%    -70.9%

In the first 9 months of 2013, the revenue of the general construction segment
increased by 38.9% from the same period last year. At the same time, the gross
profit of the segment has decreased by 52.3%, mainly due to the pressure on the
margins exerted by tightening competition caused by the scarcity of projects.
While in 2012 the market was primarily dominated by public sector projects, the
2013 has seen an increase also in private sector orders. Nevertheless, public
procurements continue to make up a bulk of the work-in-progress. 

Our major projects in the third quarter included reconstruction work at the
North-Estonia Medical Centre in Mustamäe, the launch of construction of
Polipaks NT manufacturing and logistics centre in Marupe and the
multifunctional concert hall in Liepaja and the continuation of Tondiraba ice
arena construction. 

Engineering or infrastructure construction

Civil engineering    9M 2013  9M 2012  Variance  Q3 2013  Q3 2012  Variance
million EUR                                                                
Revenue                 74.1     86.3    -14.1%     49.3     56.7    -12.9%
% of revenue           37.5%    48.5%    -22.8%    37.4%    47.8%    -21.7%
Gross profit             7.6      5.5    +38.6%      6.0      3.8    +58.4%
Gross profit margin    10.2%     6.3%    +61.4%    12.2%     6.7%    +81.9%

The revenue of the civil engineering segment amounted to EUR 74.1 million in
the first 9 months of 2013 (9 months of 2012: EUR 55.3 million), which is 14.1%
less than in 2012. The decrease from the previous year is mainly due to a drop
in the volume of pipeline projects. In the third quarter of 2013, our main
projects included the reconstruction of pipelines in Vääna-Jõesuu and the
closing of industrial waste and semi-coke landfill in Kohtla-Järve.
Vääna-Jõesuu water and sewerage pipelines reconstruction project was almost
completed at the moment of writing the interim report, which was approximately
18 months earlier than forseen by the contract. The civil engineering segment
continues to form the largest proportion in the group’s revenue (3 months of
2013: 37.5%). The gross profit of the civil engineering segment amounted to EUR
7.6 million (9 months of 2012: EUR 5.5 million) and the gross profit margin was
10.2% (9 months of 2012: 6.3%). The positive shift compared to the previous
year is mainly due to the fact that the results of loss-making projects had
already been recorded in the previous period. 

The civil engineering segment includes challenges, primarily in connection with
the end of the 2007-2013 EU budgeting period and due to the fact that the pace
of launching new projects has decreased. This applies particularly to water
management projects. 

Road construction

Road construction    9M 2013  9M 2012  Variance  Q3 2013  Q3 2012  Variance
million EUR                                                                
Revenue                 43.5     32.6    +33.5%     28.7     21.5    +33.8%
% of revenue           22.0%    18.3%    +19.9%    21.8%    18.1%    +20.3%
Gross profit             5.6      1.2   +351.1%      3.3      2.1    +58.7%
Gross profit margin    12.9%     3.8%   +237.9%    11.6%     9.8%    +18.6%

The revenue of the road construction segment amounted to EUR 43.5 million in
the first 9 months of 2013, which means a 33.5% increase from 2012. In the
first 9 months of 2013, the segment earned a gross profit of EUR 5.6 million,
which yields a gross profit margin of 12.9%. The increase in both revenue and
profit was supported by the increase in road construction and maintenance
volumes in the second and third quarter of 2013. 

The largest construction projects in the third quarter were the maintenance
works done under the service agreement with Tallinn as well as the completing
of constructing at the Ülemiste traffic junction in the beginning of October. 

Real estate development

Real estate development  9M 2013  9M 2012  Variance  Q3 2013  Q3 2012  Variance
million EUR                                                                    
Revenue                     19.4     14.3    +35.6%     14.2      8.4    +70.2%
% of revenue                9.8%     8.0%    +21.8%    10.8%     7.0%    +53.1%
Gross profit                 2.9      0.9   +236.5%      1.9      0.4   +363.3%
Gross profit margin        15.0%     6.0%   +148.2%    13.7%     5.0%   +172.2%

A total of 165 apartments were sold in 9 months of 2013 at the total value of
EUR 17.3 million (excl. VAT), (9 months of 2012: 119 apartments and EUR 12.8
million, respectively). At the end of the period, Merko Ehitus group’s
inventory comprised 25 completed but not yet sold apartments (14 in Estonia, 2
in Latvia and 9 in Lithuania) and 24 completed and pre-sol apartments (12 In
Estonia, 9 in Latvia and 3 in Lithuania). 

As at 30 September 2013, Merko Ehitus group had 385 apartments on active sale
(as at 30 September 2012: 266 apartments), meaning apartments that had no
signed pre-sale agreement. 

The following table lists the apartment projects in progress and their
indicative completion time: 

Project                        Town/Country    Completion time       No of      
                                                                   apartments*  
Tartu road 50a               Tallinn, Estonia     Completed            4        
Pärna Avenue 5 and 6          Tartu, Estonia      Completed            10       
Pallasti 46                  Tallinn, Estonia     Completed            9        
Räägu 9                      Tallinn, Estonia     Completed            3        
Skanstes Virsotnes 4th         Riga, Latvia       Completed            11       
 thower                                                                         
Mokslininku I stage              Vilnius,         Completed            12       
                                Lithuania                                       
                                                                       49       
                                                                                
Eha 4 / Paldiski 17          Tallinn, Estonia    2013 autumn           27       
Pallasti 48                  Tallinn, Estonia    2013 autumn           23       
Grostonas 17                   Riga, Latvia     2013 year-end          64       
Pärna Avenue 8                Tartu, Estonia    2013 year-end          27       
Pallasti 50                  Tallinn, Estonia    2014 spring           23       
Tedre 55                     Tallinn, Estonia    2014 spring           47       
Grostonas 19                   Riga, Latvia      2014 autumn           82       
Mokslininku II stage             Vilnius,        2014 autumn           54       
                                Lithuania                                       
Kentmanni 6                  Tallinn, Estonia   2014 year-end          92       
                                                                       439      
Started in Q3 2013                                                              
Grostonas 21                   Riga, Latvia      2015 spring           125      
                                                                       125      
                                                               -----------------
Total                                                                  613      
                                                               -----------------
* Included under completed apartments is the number of apartments that are      
 unsold and not delivered to the customers                                      

Two previously frozen development projects were re-launched in the second
quarter of 2013. In Tallinn, the company launched construction of the Kentmanni
6 residential and commercial building (number of apartments in the new design:
92), a project frozen in 2008. The first two floors of the building have been
designed as commercial space, with the remaining 12 floors allocated for
apartments. Two underground parking lots had been constructed for the building
by the end of 2008. The building is scheduled to be completed at the end of
2014. 

In the second quarter of 2013, we partially re-launched the Pärna Avenue
development project (number of apartments for sale according to the new design:
27 apartments) in Raadi district, Tartu. As at 30 September 2013, the company
thus has a single frozen project in Tartu – the 158-apartment project shelved
in 2007 (the comparable number in Tallinn and Tartu as at 30 September 2012 was
311 apartments). 

We launched new development projects in both Riga and Vilnius in the second
quarter of 2013. In Riga we launched a 82 apartment development project at
Grostonas 17 and in Vilnius 54 apartment in the second stage of the Mokslininku
project. 

In the third quarter of 2013 we launched a new development projects in Riga.
The development project launched constitutes a continuation of the apartment
building block in the Skanstese district where we will build a residential
building with the 125 apartments at Grostonas 21. The building is scheduled to
be completed in the spring of 2015. 

One of our objectives is to keep a moderate portfolio of land plots to ensure
stable implementation of property development projects considering the market
conditions. At the same time the real estate market has become more selective –
key aspects considered in the evaluation of risks prior to the launch of each
project are the location, scale of development, design solutions and the target
group. In view of the low mortgage interest rates and the limited supply on the
market of new apartments over the last three years, demand and transaction
activity in the apartment market has grown moderately. 

Secured Order Book

As at 30 September 2013, the group’s secured order book amounted to EUR 218,1
million as compared to EUR 199.5 million as at 30 September 2012. The group
does not include residential building projects developed by the group and
development of the investment property in the order book. 

In third quarter of 2013, EUR 109.8 million worth of new contracts were signed
(without own developments) as compared to EUR 32.4 million in same period
previous year. The table below shows the largest construction contracts that
were signed in the third quarter of 2013: 

Brief description of contract                   Cost       Completion    Country
                                              million         time              
                                                EUR                             
OEG/Hilton hotel- and entertainment complex     31.0      December 2015  Estonia
Liepaja multifunctional center “Lielais         28.3        July 2015     Latvia
 Dzintars”                                                                      
Polipaks NT production and logistics center     17.8      February 2015   Latvia
Gipša Fabrika apartment building finishing      5.3       August 2014     Latvia
 works                                                                          

As at 30 September 2013 the secured order book is still dominated by public
orders, which show a clear tendency of decreasing when compared with new
private sector orders. If the public procurements made up the bulk of
construction orders in the end of 2012 and the beginning of 2013, then the
private sector has recovered in all three Baltic States during the first 9
months of 2013. As at 30 September about half of the new contracts entered into
during the year 2013 are in connection with the private sector. We are
expecting a steady decrease in the volume of public procurements in the end of
2013 due to the expiry of the current EU budget period. Consequently, it will
prove quite challenging during the next 12 months to keep the volume of new
contracts at its current level. 

Cash flows

The cash position of the group is stable. As at the end of the reporting
period, the cash and cash equivalents of Merko Ehitus group amounted to EUR
39.1 million (as at 30 September 2012: EUR 15.5 million). The strategic cash
position and investment capability of the holding company AS Merko Ehitus has
improved during the year. 

The 9-month cash flow from operating activity was positive at EUR 11.8 million
(9 months of 2012: negative EUR 5.0 million), cash flow from investing activity
was negative at EUR 0.2 million (9 months of 2012: positive EUR 1.2 million)
and the cash flow from financing activity was negative at EUR 7.8 million (9
months of 2012: positive EUR 0.9 million). The cash flow from operating
activity was mostly influenced by the operating profit EUR 9.5 million, by the
negative change in trade and other receivables related to operating activities
EUR 14.6 million, by the negative change in inventory EUR 5.9million, and by
the positive change in trade and other payables related to operating activities
EUR 22.5 million (incl. significant positive inflow from the advances for real
estate development projects). 

The share of public orders remains high in the consolidated cash flows, with
long terms of payment (an average of 56 days after registered delivery of the
work) and a persistent burden on current assets, including cash flow
management. To support cash flows arising from operating activity, the group
has been prudent in raising additional external capital, including factoring.
At the same time, the debt ratio has remained at a moderate level (13.9% as at
9 months of 2013, 17.9% as at 9 months of 2013). 

The balance of other investments and acquisition of PPE included in cash flows
from investing activities was EUR -1.0 million and the balance of sale of PPE
EUR +0.8 million. 

The largest single item in cash flows from financing was the dividend payment
in the amount of EUR -5.3 million. The other contributors in the cash flow from
financing activities where net of loans received and loans repaid in connection
with development projects that amounted to EUR -2.0 million, new loans received
in connection with investment property projects amounted to EUR +2.0 million,
factoring to EUR -1.5 million and financial lease repayments to EUR -0.9
million. 

The Q3 2013 cash flow from operating activity was positive at EUR 8.5 million
(Q3 2012: negative EUR 0.7 million), cash flow from investing activity was
positive at EUR 3.1 million (Q3 2012: positive EUR 2.7 million) and the cash
flow from financing activity was negative at EUR 3.9 million (Q3 2012: positive
EUR 1.7 million). The positive quarterly cash flow from operating activities
was mainly influenced by the advances received from the pre-sales for real
estate development projects. 

Cash flow from investing activities in the third quarter of 2013 includes the
termination of short-term deposit with a maturity term of more than 3 months in
the amount of EUR +2.5 million. 

Cash flow from financing activities was negative in the third quarter of 2013
EUR 3.9 million, which is primarily due to the dividend payment in the amount
of EUR 5.3 million. 

Financial ratios

(per share attributable to equity holders of the parent company)

                             9M 2013   9M 2012   9M 2011      Q3      Q3      Q3
                                                            2013    2012    2011
Income statement                                                                
 summary                                                                        
Revenue            million     197.8     177.7     153.4    84.1    70.9    78.3
                     EUR                                                        
Gross profit       million      17.4      10.7       0.4     7.5     5.6     2.8
                     EUR                                                        
Gross profit          %          8.8       6.0       0.2     9.0     7.9     3.6
 margin                                                                         
Operating profit   million       9.5       4.0     (6.7)     4.4     2.9     0.5
                     EUR                                                        
Operating profit      %          4.8       2.3      -4.4     5.3     4.1     0.7
 margin                                                                         
Profit before tax  million       8.7       3.5     (7.1)     4.2     2.6     0.4
                     EUR                                                        
EBT margin            %          4.4       1.9      -4.7     5.0     3.7     0.5
Net profit         million       7.9       3.1     (7.4)     3.9     2.6   (0.2)
                     EUR                                                        
equity holders of  million       7.9       3.2     (7.3)     3.9     2.6     0.3
 the parent          EUR                                                        
non-controlling    million     (0.0)     (0.1)     (0.1)   (0.0)   (0.0)   (0.1)
 interest            EUR                                                        
Net profit margin     %          4.0       1.8      -4.8     4.6     3.7     0.3
                                                                                
Other income                                                                    
 statement                                                                      
 figures                                                                        
EBITDA margin         %          5.9       3.3      -3.3     6.3     5.1     1.4
General expense       %          4.7       4.5       4.9     4.2     4.4     3.2
 ratio                                                                          
Labour cost ratio     %         12.1      11.0      10.7    11.2    10.5     7.4
Revenue per        thousan       226       194       162      96      77      83
 employee           d EUR                                                       
                                                                                
                            30.09.13  30.09.12  30.09.11                        
Other key figures                                                               
ROE                   %         10.5      -3.2      -9.5                        
ROA                   %          5.3      -1.6      -5.5                        
ROIC                  %         14.3      -1.7      -6.9                        
                                                                                
Equity ratio          %         48.1      47.9      52.7                        
Debt ratio            %         13.9      17.6      15.0                        
                                                                                
Current ratio       times        2.0       1.9       2.1                        
Quick ratio         times        1.1       1.0       1.0                        
Accounts            days          35        60        55                        
 receivable                                                                     
 turnover                                                                       
Accounts payable    days          27        51        42                        
 turnover                                                                       
                                                                                
Average number of   people       877       916       944                        
 employees                                                                      
 (group)                                                                        
                                                                                
Secured Order      million     218.1     199.5     195.0                        
 Book                EUR                                                        

Employees and labour costs

Compared to the same period end last year the number of the group’s employees
has decreased by 34 employees (-3.6%) and as at 30 September 2013, the group
had a total of 902 employees (including fixed-term and part-time employees). 

The group’s objective is to pay its employees competitive salary. The interests
of employees and the company are balanced by performance-based remuneration. 

Labour cost is recognized by the group as being salary (basic salary,
additional remuneration (night hours, overtime and public holidays), holiday
pay, and bonuses), taxes on salaries, fringe benefits and taxes on fringe
benefits.  Labour costs accounted for in the first 9 months of 2013 amounted
EUR 24.0 million (9 months of 2012: EUR 19.6 million), a growth of 22.6%
compared to the same period last year. This increase mainly occurred due to the
additional performance bonuses in the conditions of higher profitability and
minor impact of selective basic salary increases. 

Share and shareholders



         Information on security          
             Issuer  AS Merko Ehitus      
   Name of security  Share of Merko Ehitus
Residency of issuer  Estonia              
Stock Exchange List  Main List            
               ISIN  EE3100098328         
      Nominal value  without nominal value
   No of securities  17,700,000           
    Volume of issue  12,000,000           
           Currency  EUR                  
    Date of listing  11 August 2008       

The shares of Merko Ehitus have been listed in the main list of NASDAQ OMX
Tallinn. A total of 1 732 transactions were conducted with the shares of Merko
Ehitus in 9 months of 2013, with 0.59 million shares (3.3% of total shares)
traded, generating a turnover of EUR 4.08 million. The lowest share price
amounted to EUR 5.71 and the highest to EUR 7.70 per share. The closing price
of the share was EUR 7.30 on 30 September 2013. As at 30 September 2013, the
market value of AS Merko Ehitus amounted to EUR 129.2 million, which has risen
21.3% compared to the same period end last year (as at 30 September 2012: EUR
106.6 million). 

                                    30.09.2013  30.09.2012  30.09.2011
No of shares                        17,700,000  17,700,000  17,700,000
Earnings per share (EPS), in euros        0.45        0.18       -0.41
Equity per share, in euros                6.64        6.23        6.73
P/B (price to book ratio)                 1.10        0.97        0.79
P/E (price / earnings ratio)             10.44      -29.99        -8.3
Market value, million EUR                129.2       106.6        93.8

Main shareholders of AS Merko Ehitus as of 30 September 2013 and the change
compared to the previous quarter: 

                                   No of     % of total    % of total   Variance
                                  shares     30.09.2013    31.06.2013           
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AS Riverito                     12,742,686        71.99%        71.99%         -
ING Luxembourg S.A., clients       974,126         5.50%         5.50%         -
Skandinaviska Enskilda Banken      811,439         4.58%         4.78%   -34,172
 Ab, clients                                                                    
Firebird Republics Fund Ltd        302,395         1.71%         1.71%         -
Gamma Holding OÜ                   185,562         1.05%         0.00%  +185,562
State Street Bank and Trust        153,018         0.86%         0.86%         -
 Omnibus Account a Fund No                                                      
 OM01                                                                           
Skandinaviska Enskilda Banken      143,191         0.81%         0.81%         -
 Finnish clients                                                                
Clearstream Banking Luxembourg     141,262         0.80%         0.80%      +315
 S.A. clients                                                                   
SEB Elu- ja Pensionikindlustus     128,020         0.72%         0.72%         -
 AS                                                                             
AS Midas Invest                    121,185         0.68%         0.68%         -
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Main shareholders total         15,702,884        88.70%        87.85%  +151,705
Minority shareholders total      1,997,116        11.30%        12.15%  -151,705
--------------------------------------------------------------------------------
Total                           17,700,000          100%          100%          
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                                                                                

Dividend policy

The distribution of dividends to the shareholders of the company is recorded as
a liability in the financial statements as of the moment when the payment of
dividends is approved by the company’s shareholders. 

Dividends in the amount of EUR 5.3 million (EUR 0.3 per share) were paid out to
shareholders on 3 July 2013. AS Merko Ehitus did not have to pay any income tax
on dividend pay-out in light of previously received and taxed dividends from
subsidiaries. In the year 2012 no dividends were paid. 

At the meeting held on 8 April 2013, the Management Board and Supervisory Board
of AS Merko Ehitus reviewed the company’s strategic development trends and
approved the long-term financial objectives until 2018, under which a new
objective of paying the shareholders 50-70% of the annual profit as dividends
was established. 



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

in thousand euros, unaudited



                                                                 2013       2012
                                                             9 months   9 months
                                                                                
                                                                                
Revenue                                                       197,844    177,729
Cost of goods sold                                          (180,479)  (167,077)
Gross profit (loss)                                            17,365     10,652
                                                                                
Marketing expenses                                            (2,229)    (1,385)
Administrative and general expenses                           (7,041)    (6,688)
Other operating income                                          1,771      1,619
Other operating expenses                                        (318)      (180)
Operating profit (loss)                                         9,548      4,018
                                                                                
Finance income/costs                                            (852)      (554)
incl. finance income/costs from investments in associates                  (103)
and joint ventures                                                              
finance income/costs from other long-term investments              32          1
interest expense                                                (615)      (921)
foreign exchange gain                                           (185)         37
other financial income (expenses)                                  19        140
Profit (loss) before tax                                        8,696      3,464
Corporate income tax expense                                    (847)      (340)
Net profit (loss) for current period                            7,849      3,124
                                                           ---------------------
incl. net profit (loss) attributable to equity holders of       7,947      3,202
 the parent                                                                     
net profit (loss) attributable to non-controlling interest       (98)       (78)
                                                                                
Other comprehensive income (loss)                                               
Currency translation differences of foreign entities            (155)        107
Comprehensive income (loss) for the period                      7,694      3,231
                                                           ---------------------
                                                           ---------------------
incl. net profit (loss) attributable to equity holders of       7,792      3,309
 the parent                                                                     
net profit (loss) attributable to non-controlling interest       (98)       (78)
                                                                                
                                                                                
Earnings per share for profit (loss) attributable to             0.45       0.18
equity holders of the parent (basic and diluted, in euros)                      



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

in thousand euros, unaudited



                                                                2013        2012
                                                                 III         III
                                                             quarter     quarter
                                                                                
                                                                                
Revenue                                                       84,101      70,874
Cost of goods sold                                          (76,561)    (65,260)
Gross profit (loss)                                            7,540       5,614
                                                                                
Marketing expenses                                             (838)       (483)
Administrative and general expenses                          (2,702)     (2,632)
Other operating income                                           553         487
Other operating expenses                                       (132)        (60)
Operating profit (loss)                                        4,421       2,926
                                                                                
Finance income/costs                                           (238)       (277)
incl. finance income/costs from investments in                  (33)           7
 associates                                                                     
and joint ventures                                                              
finance income/costs from other long-term investments              9           1
interest expense                                               (199)       (278)
foreign exchange gain                                           (18)        (19)
other financial income (expenses)                                  3          12
Profit (loss) before tax                                       4,183       2,649
Corporate income tax expense                                   (326)        (35)
Net profit (loss) for current period                           3,857       2,614
                                                         -----------------------
                                                         -----------------------
incl. net profit (loss) attributable to equity holders         3,897       2,623
 of the parent                                                                  
net profit (loss) attributable to non-controlling               (40)         (9)
 interest                                                                       
                                                                                
Other comprehensive income (loss)                                               
Currency translation differences of foreign entities             (7)          19
Comprehensive income (loss) for the period                                      
incl. net profit (loss) attributable to equity holders         3,850       2,633
 of the parent                                                                  
                                                         -----------------------
                                                         -----------------------
net profit (loss) attributable to non-controlling              3,890       2,642
 interest                                                                       
Other comprehensive income (loss)                               (40)         (9)
                                                                                
                                                                                
Earnings per share for profit (loss) attributable to            0.22        0.15
equity holders of the parent (basic and diluted, in                             
 euros)                                                                         



CONSOLIDATED STATEMENT OF FINANCIAL POSITION

in thousand euros, unaudited

                                                                                
                                                    note  30.09.2013  31.12.2012
ASSETS                                                                          
                                                                                
Current assets                                                                  
Cash and cash equivalents                            5        39,082      35,316
Trade and other receivables                          6        74,049      60,343
Prepaid corporate income tax                                      39         478
Inventories                                          7        88,614      82,830
Total current assets                                         201,784     178,967
                                                                                
                                                                                
Non-current assets                                                              
Long-term financial assets                           8        26,646      24,378
Deferred income tax assets                                     1,616       1,919
Investment property                                  9         3,396       3,566
Property, plant and equipment                        10       13,630      14,853
Intangible assets                                    11        1,271       1,365
Total non-current assets                                      46,559      46,081
                                                                                
TOTAL ASSETS                                                 248,343     225,048
                                                         -----------------------
                                                         -----------------------
                                                                                
                                                                                
LIABILITIES AND EQUITY                                                          
                                                                                
Current liabilities                                                             
Borrowings                                           12       11,312      16,299
Payables and prepayments                             13       86,409      63,209
Income tax liability                                             184           -
Short-term provisions                                14        4,281       6,165
Total current liabilities                                    102,186      85,673
                                                                                
Non-current liabilities                                                         
Long-term borrowings                                 12       23,240      19,205
Long-term interest liabilities                                     7           3
Long-term trade payables                                       1,868       1,553
Other long-term liabilities                                       20           -
Deferred corporate income tax liability                          464         327
Long-term provisions                                               5          20
Total non-current liabilities                                 25,604      21,108
                                                                                
Total liabilities                                            127,790     106,781
                                                         -----------------------
                                                         -----------------------
                                                                                
Equity                                                                          
                                                                                
Non-controlling interest                                       1,140       1,342
Equity attributable to equity holders of the                                    
 parent                                                                         
Share capital                                                 12,000      12,000
Statutory reserve capital                                      1,200       1,200
Currency translation differences                               (667)       (512)
Retained earnings                                            106,880     104,237
Total equity attributable to equity holders of               119,413     116,925
 parent                                                                         
                                                                                
Total equity                                                 120,553     118,267
                                                         -----------------------
                                                         -----------------------
                                                                                
                                                                                
TOTAL LIABILITIES AND EQUITY                                 248,343     225,048
                                                         -----------------------



Interim report and the investor presentation are attached to the announcement
and are also published on NASDAQ OMX Tallinn and Merko’s web page
(www.merko.ee). 

AS Merko Ehitus (www.merko.ee) comprises the leading Estonian construction
company AS Merko Ehitus Eesti, the Latvian market based SIA Merks and the
Lithuanian market based UAB Merko Statyba as well as the group’s real estate
development business unit together with companies holding real estate
properties. As at the end of 2012, the group employed 915 people and the 2012
revenue amounted to EUR 249.1 million. 



Signe Kukin
Group CFO
+372 650 1250
[email protected]