Market announcement

Title

2013 12 months and IV quarter consolidated unaudited interim report

Message

Tallinn, Estonia, 2014-02-13 15:30 CET (GLOBE NEWSWIRE) --




MANAGEMENT REPORT

Overview of the 12 months and Q4 results

-- Profitability: net profit in 12M 2013 was EUR 10.4 million (12M 2012: EUR  
7.6 million), which has increased 36.3% compared to the same period last      
year. Net profit in Q4 was EUR 2.5 million (Q4 2012: EUR 4.4 million).        
-- Revenue has increased: 12M 2013 revenue was EUR 262.7 million (12M 2012:   
EUR 249.1 million), which has increased 5.5% compared to the same period      
last year. Revenue in Q4 was EUR 64.9 million (Q4 2012: EUR 71.4 million),    
which is mainly influenced by the decrease of revenues in engineering and     
road construction segments.                                                   
-- Strong cash position: by the end of the reporting period, the group had EUR
46.6 million in cash and cash equivalents and equity EUR 121.9 million        
(50.9% of total assets). Comparable figures in 2012 were accordingly EUR      
35.3 million and EUR 116.9 million (52.0% of total assets).                   
-- Secured order book: In Q4 2013, EUR 48.6 million worth of new contracts    
were signed (Q4 2012: EUR 49.4 million) and as at 31 December 2013, the       
group’s secured order book amounted to EUR 213.7 million (31 December 2012:   
EUR 189.9 million).                                                           
-- Dividend proposal: the Management Board proposes to pay the shareholders   
EUR 7.3 million as dividends from the total net profits brought forward       
(EUR 0.41 per share), that gives dividend rate of 70% for 2013.               



                             12M ’13   12M ’12  Varianc  Q4 ’13  Q4 ’12  Varianc
                                                      e                        e
Revenue            million     262.7     249.1    +5.5%    64.9    71.4    -9.1%
                     EUR                                                        
Gross profit       million      22.7      17.9   +26.9%     5.4     7.3   -26.2%
                     EUR                                                        
Gross profit         %           8.6       7.2   +20.3%     8.3    10.2   -18.8%
 margin                                                                         
Net profit         million      10.4       7.6   +36.3%     2.5     4.4   -44.6%
 (parent)            EUR                                                        
Net profit           %           4.0       3.1   +29.3%     3.8     6.2   -39.0%
 margin                                                                         
EPS                  EUR        0.59      0.43   +36.4%    0.14    0.25   -44.5%
                                                                                
                            31.12.13  31.12.12  Varianc                         
                                                      e                         
ROE (on yearly       %           8.8       6.8   +28.7%                         
 basis)                                                                         
Equity ratio         %          50.9      52.0    -2.0%                         
Secured order      million     213.7     189.9   +12.5%                         
 book                EUR                                                        
Total assets       million     239.2     225.0    +6.3%                         
                     EUR                                                        
Number of          people        860       915    -6.0%                         
 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. The dividends in the sum of EUR 5.3 million (EUR 0.3 per
share) 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, including electrical engineering tenders, in
order to supplement the competence and references of SIA Merks if necessary. 

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. 

AS Merko Ehitus has decided to make changes in the structure of the group
companies in 2014 for the purpose of more effective management and saving on
administrative costs. As part of the activity plan, holdings in non-significant
subsidiaries will be reviewed and possible mergers or disposals of companies
will be decided. The activity plan will not affect the significant
subsidiaries, nor will they have a significant effect on the group’s financial
results. The first changes are in progress and the activity plan will continue
to be implemented during 2014. 

On 20 December 2013 AS Merko Ehitus initiated a process to merge real estate
development companies in which it has a 100% holding – OÜ Woody, OÜ Metsailu
and OÜ Käibevara – specifically for the purpose of reducing the administrative
costs of managing the companies. The acquiring company will be OÜ Metsailu. The
companies being acquired will be merged into OÜ Metsailu and as a result of the
merger the companies being acquired will wind up without liquidation
proceedings and OÜ Metsailu will become the legal successor of the companies
being acquired. As a result of the merger, AS Merko Ehitus will remain the sole
shareholder in OÜ Metsailu, the acquiring company.The balance sheet date of the
merger – i.e., the date as of which all of the transactions of the companies
being acquired are considered executed from the accounts of the acquiring
company – is 1 January 2014. The final merger entry will be made in the
Commercial Register during the first half of 2014. 

AS Merko Ehitus Eesti, a subsidiary of AS Merko Ehitus group, signed an
agreement on 15 January 2014 for the transfer of its entire 80% holding in the
subsidiary Gustaf Tallinn OÜ to the previous co-shareholder and member of the
Management Board Tiit Pomerants. The share capital of Gustaf Tallinn OÜ is EUR
23,967 of which the holding of AS Merko Ehitus Eesti with a nominal value of
EUR 19,174 comprises 80% and the holding of Tiit Pomerants with a nominal value
of EUR 4,793 made up 20%. The holding was transferred with the purpose of
re-arranging the structure of the group companies and reducing holdings in
non-significant subsidiaries. The principal area of activity of the
construction company Gustaf Tallinn OÜ is construction and finishing work and
the company offers prime contractor service for smaller renovations and repair
jobs, which are not one of the strategically significant principal areas of
activity of the AS Merko Ehitus group. 

On 15 January 2014, the buyer paid the seller a sum of EUR 20,000. The final
sales price will be calculated in accordance with the audited 2013 annual
report of Gustav Tallinn OÜ on the basis of the share of equity held by AS
Merko Ehitus Eesti, adjusted by dividend payment of EUR 960,000 paid to the
seller before transfer of the share as well as by the income tax expense of EUR
255,190 related to the dividend. AS Merko Ehitus Group considers the additional
influence of adjustments of sales price to be immaterial. The buyer is obliged
to pay the adjusted part of the sales price to the seller’s bank account by 1
May 2014. 

As a result of the share disposal and future non-consolidation of Gustaf
Tallinn OÜ line by line, the transaction will have an estimated EUR 0 influence
on the consolidated profit of AS Merko Ehitus group, a decreasing influence on
assets and liabilities of EUR 966,775 and EUR 945,274 respectively. 

On 22 January 2014, UAB Merko Bustas, a 100% subsidiary of AS Merko Ehitus,
established a 100% subsidiary UAB VPSP 1 in Lithuania, with a share capital of
LTL 10,000 (EUR 2,896). The subsidiary was established with the aim to
participate in the Lithuanian state organized puplic-private partnership (PPP)
procurement tenders. 



OPERATING RESULTS

Business activities

Key financial indicators (in million of euros):

                                            12M 2013  12M 2012  Q4 2013  Q4 2012
Revenue                                                                         
Estonia                                        211.9     202.1     48.6     49.3
Latvia                                          44.4      38.3     14.9     19.4
Lithuania                                        6.4       8.7      1.4      2.7
Revenue total                                  262.7     249.1     64.9     71.4
                                           -------------------------------------
                                           -------------------------------------
                                                                                
Gross profit                                    22.7      17.9      5.4      7.3
                                                                        --------
                                           -------------------------------------
                                                                                
Operating profit (EBIT)                         12.3       8.8      2.7      4.7
                                                               -----------------
                                           -------------------------------------
                                                                                
attributable to equity holders of the           10.4       7.6      2.5      4.4
 parent                                                                         
attributable to non-controlling interest         0.0       0.0      0.0      0.1
Net profit                                      10.4       7.6      2.5      4.5
                                           -------------------------------------
                                           -------------------------------------
                                                                                
Earnings per share (EPS), in euros              0.59      0.43     0.14     0.25
                                           -------------------------------------
                                           -------------------------------------
                                                                                
Cash and cash equivalents closing position      46.6      35.3     46.6     35.3
                                           -------------------------------------



Revenue and gross profit

Merko Ehitus group generated a total of EUR 262.7 million in revenue in 12
months of 2013 (12 months of 2012: EUR 249.1 million). 80.7% of the revenue was
generated in Estonia, 16.9% in Latvia and 2.4% in Lithuania (12 months of 2012:
81.1% in Estonia, 15.4% in Latvia and 3.5% in Lithuania). Compared to the first
12 months of 2012 the group revenue increased by 5.5%. 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 Q4 2013 was EUR 64.9
million, which has decreased 9.1% compared to the previous year (Q4 2012: EUR
71.4 million). The increase in revenue, compared to last year, can be mainly
attributed to projects pursued in the general construction, real estate
development and road construction segment. There is a negative impact by a
significant reduction in sales revenue from engineering construction segment,
which is primarily due to the end of major projects financed from EU structural
funds and the reduced project volumes. 

In 12 months of 2013 the group’s gross profit from development and construction
activities totalled EUR 22.7 million (12 months of 2012: EUR 17.9 million). The
gross profit in Q4 2013 was EUR 5.4 million (Q4 2012: EUR 7.3 million). While
the 12 month gross profit margin (8.6%) has improved, compared to the same
period last year (12 months of 2012: 7.2%, then the fourth quarter gross profit
margin (8.3%) has decreased, compared to the same period last year (Q4 2012:
10.2%). 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 12 months of 2013, the group’s profit before tax totalled EUR 11.1 million
and net profit attributable to equity holders of the parent was EUR 10.4
million as compared to the pre-tax profit or EUR 7.9 million and net profit
attributable to equity holders of the parent of EUR 7.6 million in 12 months of
2012. Group’s net profit margin was 4.0% (12 months of 2012: 3.1%). 

In Q4 of 2013, the group’s profit before tax totalled EUR 2.4 million and net
profit attributable to equity holders of the parent was EUR 2.5 million as
compared to the pre-tax profit or EUR 4.4 million and net profit attributable
to equity holders of the parent of EUR 4.4 million in Q4 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;
  -- Other – covers sales of materials from quarries, equipment rental,
     consultations, construction supervision and other transactions not related
     to the main area of activity.

General construction

General construction            12M      12M  Varianc  Q4 2013  Q4 2012  Varianc
 million EUR                   2013     2012        e                          e
Revenue                        86.6     61.7   +40.3%     26.7     18.6   +43.7%
% of revenue                  32.9%    24.8%   +33.1%    41.1%    26.0%   +58.2%
Gross profit (loss)           (0.5)      5.0  -110.0%    (2.0)      1.8  -211.9%
Gross profit margin           -0.6%     8.1%  -107.1%    -7.6%     9.8%  -177.9%

In the first 12 months of 2013, the revenue of the general construction segment
increased by 40.3% from the same period last year. The segments overall gross
loss for the year is EUR 0.5 million, which represents a decrease by 110.0%
compared to the previous year. The segment continues to be mainly influenced by
the pressure on the margins exerted by tightening competition. The loss
recognized in the fourth quarter is mainly due to risks – unforeseen in earlier
phases – materialising with regard to one reconstruction project in progress.
On the basis of the realisation of the said risks, the total loss from the
project has been recognised by the group in the current period. Measures are
being implemented by the Group subsidiaries to prevent similar project
management risks and losses in the future. 

While in 2012 the market was primarily dominated by public sector projects, the
2013 has seen an increase also in private sector orders and at the end of the
year the private sector projects make up more than half of general construction
segment projects in work. 

Our major projects in the fourth 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    12M 2013  12M 2012  Variance  Q4 2013  Q4 2012  Variance
million EUR                                                                  
Revenue                  94.5     113.3    -16.6%     20.4     27.0    -24.4%
% of revenue            36.0%     45.5%    -20.9%    31.5%    37.8%    -16.8%
Gross profit             12.5       9.0    +39.1%      4.9      3.5    +39.8%
Gross profit margin     13.2%      7.9%    +66.7%    24.1%    13.0%    +85.0%

The revenue of the civil engineering segment amounted to EUR 94.5 million in
the first 12 months of 2013 (12 months of 2012: EUR 113.3 million), which is
16.6% less than in 2012. The decrease from the previous year is mainly due to a
drop in the volume of pipeline projects. In the fourth quarter of 2013, our
main projects included the reconstruction of pipelines in Vääna-Jõesuu, the
reconstruction of pipelines in Narva-Jõesuu and the closing of industrial waste
and semi-coke landfill in Kohtla-Järve. 

The civil engineering segment continues to form the largest proportion in the
group’s revenue (12 months of 2013: 36.0%), even so, the drop in the volumes in
the field during the last 12 months has been the highest (12 months: -16.6%). 

The gross profit of the civil engineering segment amounted to EUR 12.5 million
(12 months of 2012: EUR 9.0 million) and the gross profit margin was 13.2% (12
months of 2012: 7.9%) which gives a positive shift compared to last year. This
is related to efficient project management in the segment. Certain stages of
Vääna-Jõesuu water and sewerage pipelines reconstruction project were completed
almost 18 months earlier than forseen by the contract. 

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    12M 2013  12M 2012  Variance  Q4 2013  Q4 2012  Variance
million EUR                                                                  
Revenue                  49.5      45.1     +9.6%      6.0     12.5    -52.5%
% of revenue            18.8%     18.1%     +3.9%     9.2%    17.6%    -47.7%
Gross profit              5.9       1.7   +246.4%      0.3      0.5    -27.6%
Gross profit margin     12.0%      3.8%   +216.1%     5.7%     3.8%    +52.3%

The revenue of the road construction segment amounted to EUR 49.5 million in
the first 12 months of 2013, which means a 9.6% increase from 2012. In the
first 12 months of 2013, the segment earned a gross profit of EUR 5.9 million,
which yields a gross profit margin of 12.0%. 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 fourth quarter were the maintenance
works done under the service agreement with Tallinn. In addition, we completed
the constructing at the Ülemiste traffic junction in October, which was the
largest project in the segment during the last year. 

Real estate development

Real estate             12M 2013  12M 2012  Variance  Q4 2013  Q4 2012  Variance
 development                                                                    
million EUR                                                                     
Revenue                     31.0      27.1    +14.3%     11.6     12.8     -9.4%
% of revenue               11.8%     10.9%     +8.4%    17.9%    17.9%     -0.3%
Gross profit                 5.1       2.4   +113.3%      2.2      1.5    +43.9%
Gross profit margin        16.5%      8.9%    +86.5%    19.0%    12.0%    +58.8%

A total of 263 apartments were sold in 12 months of 2013 at the total value of
EUR 28.3 million (excl. VAT), (12 months of 2012: 235 apartments and EUR 25.0
million, respectively). At the end of the period, Merko Ehitus group’s
inventory comprised 36 completed but not yet sold apartments (23 in Estonia, 7
in Latvia and 6 in Lithuania) and 33 completed and pre-sol apartments (2 in
Estonia, 30 in Latvia and 1 in Lithuania). 

As at 31 December 2013, Merko Ehitus group had 300 apartments on active sale
(as at 31 December 2012: 326 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                        City/Country       Completion         No of      
                                                     time          apartments*  
Pärna Avenue 5 and 6           Tartu county,       Completed           8        
                                 Estonia                                        
Eha 4 / Paldiski 17          Tallinn, Estonia      Completed           8        
Pärna Avenue 8                 Tartu county,       Completed           9        
                                 Estonia                                        
Skanstes Virsotnes 4th         Riga, Latvia        Completed           6        
 thower                                                                         
Grostonas 17                   Riga, Latvia        Completed           31       
Mokslininku I stage         Vilnius, Lithuania     Completed           7        
                                                                       69       
                                                                                
Pallasti 48                  Tallinn, Estonia   2014 beginning         23       
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, Lithuania   2014 autumn           54       
Kentmanni 6                  Tallinn, Estonia    2014 year-end         93       
Grostonas 21                   Riga, Latvia      2015 spring           125      
                                                                       447      
                                                                                
Started in Q4 2013                                                              
Pärna Avenue 7                 Tartu county,     2014 autumn           28       
                                 Estonia                                        
                                                                       28       
                                                                                
                                                               -----------------
Total                                                                  544      
                                                               -----------------
* Included under completed apartments is the number of apartments that are      
 unsold and not delivered to the customers                                      

During 2013 construction of 409 apartments was iniciated in Baltic States (12
months of 2012 respectively: 308 apartments). 

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:
93), 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 addition we partially re-launched in the second quarter of 2013, the
Pärna Avenue 8 development project (number of apartments for sale according to
the new design: 27 apartments, of which 9 apartments remain unsold as at the
balance sheet date) in Raadi district, Tartu. 

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 125 apartments at Grostonas 21. The building is scheduled to be
completed in the spring of 2015. 

In the fourth quarter of 2013 we partially re-launched the second development
project at Pärna Avenue 7 (number of apartments for sale according to the new
design: 28 apartments) in Raadi district, Tartu. As at 31 December 2013, the
company thus has a single frozen project in Tartu – the 130-apartment project
shelved in 2007 (the comparable number in Tallinn and Tartu as at 31 December
2012 was 311 apartments). 

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. 

Other

Other                12M 2013  12M 2012  Variance  Q4 2013  Q4 2012  Variance
million EUR                                                                  
Revenue                   1.1       1.9    -39.1%      0.2      0.5    -57.2%
% of revenue             0.5%      0.7%    -42.3%     0.3%     0.7%    -52.9%
Gross profit (loss)     (0.3)     (0.2)    +59.3%      0.0      0.0      0.0%
Gross profit margin    -29.9%    -11.4%   +161.6%   -46.1%   -19.3%   +139.1%

Revenue for the segment other amounted to EUR 1.1 million in 2013, which was
39.1% lower then in 2012. All in all, 2013 ended with a gross loss of EUR 0.3
million, which is primarily due to imparment of mined inventory. 

Secured Order Book

As at 31 December 2013, the group’s secured order book amounted to EUR 213.7
million as compared to EUR 189.9 million as at 31 December 2012. The group does
not include residential building projects developed by the group and
development of the investment property in the order book. 

In fourth quarter of 2013, EUR 48.6 million worth of new contracts were signed
(without own developments) as compared to EUR 49.4 million in same period
previous year. The table below shows the largest construction contracts that
were signed in the fourth quarter of 2013: 

Brief description of contract                        Cost     Completion  Countr
                                                    million     time         y  
                                                      EUR                       
Long-term contract to carry out road repair and     17.5*      October    Estoni
 maintenance works in Tallinn                                   2018*        a  
Valmiera’s Professional School construction           5.9     April 2015  Latvia
Dzintaru 28, Jurmala apartment buildings             13.7     July 2015   Latvia
 construction                                                                   
* The contract value is approximately 3.5 million per year                      

After the balance sheet date, a contract was concluded on 23 January 2014
between the AS Merko Ehitus group company AS Merko Ehitus Eesti, KMG
Insenerehituse AS and Ratatek OY, and the city’s transport operator Tallinna
Linnatranspordi AS entered into a contract to perform the design and renovation
work on the infrastructure of Tallinn tram line no. 4. The contract value is
EUR 26.0 million. The works will be performed during 2014 and 2015. 

On 7 February 2014, SIA Merks – a Latvian-based subsidiary of AS Merko Ehitus –
concluded a contract with Riga State Technical School to perform the
construction works of several buildings in the school campus. The contract
value is EUR 4.8 million, with the work scheduled to be delivered in June 2015. 

Furthermore, on 10 February 2014, SIA Merks concluded a contract with Riga City
Council City Development Department to perform the re-cultivation and
construction works of waste recycling site in Riga. The contract value is EUR
6.5 million, with the work scheduled to be delivered in January 2016. 

As at 31 December 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 second half
of 2013. As at 31 December 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 2014 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
46.6 million (as at 31 December 2012: EUR 35.3 million). The strategic cash
position and investment capability of AS Merko Ehitus has improved during the
year. 

The 12-month cash flow from operating activity was positive at EUR 19.7 million
(12 months of 2012: positive EUR 21.0 million), cash flow from investing
activity was negative at EUR 1.3 million (12 months of 2012: positive EUR 0.9
million) and the cash flow from financing activity was negative at EUR 7.1
million (12 months of 2012: positive EUR 5.1 million). The cash flow from
operating activity was mostly influenced by the operating profit EUR 12.3
million, by the negative change in trade and other receivables related to
operating activities EUR 6.1 million, by the negative change in inventory EUR
4.9 million, and by the positive change in trade and other payables related to
operating activities EUR 10.2 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 (14.8% as at
12 months of 2013, 15.8% as at 12 months of 2012). 

The balance of acquisitions and improvement of investment property – included
under cash flow from investing activities – amounted to EUR -1.1 million, the
balance of other investments amounted to EUR -0.3 million, the balance of
acquisition of PPE amounted to EUR -0.8 million and the balance of sales of PPE
to EUR +0.9 million. The balance of purchase of investment property primarily
includes apartments in the Pärna allee 8 development project that were leased
out to Tartu county for childcare. Additional explanations are described in
Note 9 of the consolidated financial statements. 

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 -1.0 million, net of loans
received and loans repaid in connection with investment property projects
amounted to EUR +1.9 million, factoring to EUR -1.5 million and financial lease
repayments to EUR -1.2 million. 

The Q4 2013 cash flow from operating activity was positive at EUR 7.9 million
(Q4 2012: positive EUR 26.0 million), cash flow from investing activity was
negative at EUR 1.2 million (Q4 2012: negative EUR 0.2 million) and the cash
flow from financing activity was positive at EUR 0.8 million (Q4 2012: negative
EUR 6.0 million). Due to the seasonal nature of construction activity, the
quarterly cash flows from operating activities were positive in both 2013 and
2012 primarily due to a drop in receivables from construction work customers
and of receivables calculated using the percentage of completion method. 

Cash flow from investing activities in the fourth quarter of 2013 includes the
acquisition of investment property in the amount of EUR -1.0 million. 

Cash flow from financing activities was positive in the fourth quarter of 2013
EUR 0.8 million, which is primarily due to balance of loans received and loans
repaid in connection with development projects in the amount of EUR 1.1
million. 

Financial ratios

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

                            12M 2013  12M 2012  12M 2011      Q4      Q4      Q4
                                                            2013    2012    2011
Income statement                                                                
 summary                                                                        
Revenue            million     262.7     249.1     219.3    64.9    71.4    65.9
                     EUR                                                        
Gross profit       million      22.7      17.9     (3.6)     5.4     7.3   (4.0)
                     EUR                                                        
Gross profit          %          8.6       7.2      -1.6     8.3    10.2    -6.0
 margin                                                                         
Operating profit   million      12.3       8.8    (12.3)     2.7     4.7   (5.6)
                     EUR                                                        
Operating profit      %          4.7       3.5      -5.6     4.2     6.6    -8.6
 margin                                                                         
Profit before tax  million      11.1       7.9    (14.0)     2.4     4.4   (6.9)
                     EUR                                                        
EBT margin            %          4.2       3.2      -6.4     3.8     6.2   -10.5
Net profit         million      10.4       7.6    (14.2)     2.5     4.5   (6.8)
                     EUR                                                        
equity holders of  million      10.4       7.6    (14.1)     2.5     4.4   (6.8)
 the parent          EUR                                                        
non-controlling    million       0.0       0.0     (0.1)     0.0     0.1     0.0
 interest            EUR                                                        
Net profit margin     %          4.0       3.1      -6.4     3.8     6.2   -10.2
                                                                                
Other income statement                                                          
 figures                                                                        
EBITDA             million      15.1      11.4    (10.1)     3.5     5.4   (5.0)
                     EUR                                                        
EBITDA margin         %          5.7       4.6      -4.6     5.4     7.6    -7.6
General expense       %          4.7       4.5       4.6     4.7     4.5     3.7
 ratio                                                                          
Labour cost ratio     %         11.8      11.2      10.2    10.7    11.7     9.2
Revenue per        thousan       308       278       235      76      80      71
 employee           d EUR                                                       
                                                                                
                            31.12.13  31.12.12  31.12.11                        
Other key figures                                                               
ROE                   %          8.8       6.8     -12.2                        
ROA                   %          4.4       3.4      -6.6                        
ROIC                  %          8.0       6.0      -9.0                        
                                                                                
Equity ratio          %         50.9      52.0      49.6                        
Debt ratio            %         14.8      15.8      18.3                        
                                                                                
Current ratio       times        2.0       2.1       2.0                        
Quick ratio         times        1.1       1.1       1.0                        
Accounts            days          58        58        56                        
 receivable                                                                     
 turnover                                                                       
Accounts payable    days          43        47        45                        
 turnover                                                                       
                                                                                
Average number of   people       853       895       934                        
 employees                                                                      
 (group)                                                                        
                                                                                
Secured Order      million     213.7     189.9     166.5                        
 Book                EUR                                                        

Employees and labour costs

Compared to the same period end last year the number of the group’s employees
has decreased by 55 employees (-6.0%) and as at 31 December 2013, the group had
a total of 860 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 12 months of 2013 amounted EUR 30.9
million (12 months of 2012: EUR 27.9 million), a growth of 10.8% 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. In Q4 2013 the labour costs were EUR 6.9
million, which is 16.7% lower than the previus year (Q4 2012: EUR 8.3 million).
The comparison base is greater above all due to additional performance pay
accounted for at the end of 2012 in connection with the good economic results
posted by the company in Q4 2012. 



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 2,183 transactions were conducted with the shares of Merko
Ehitus in 12 months of 2013, with 0.73 million shares (4.1% of total shares)
traded, generating a turnover of EUR 5.08 million (comparable figures in 2012
were accordingly: 1,662 transactions with 0.94 million shares traded (5.3% of
total shares) and generating a turnover of EUR 5.47 million). The lowest share
price amounted to EUR 5.71 and the highest to EUR 7.70 per share (12 months of
2012: EUR 5.37 and EUR 7.30). The closing price of the share was EUR 7.20 on 31
December 2013 (31.12.2012: EUR 5.90). As at 31 December 2013, the market value
of AS Merko Ehitus amounted to EUR 127.4 million, which has risen 22.0%
compared to the same period end last year (as at 31 December 2012: EUR 104.4
million). 

                                    31.12.2013  31.12.2012  31.12.2011
----------------------------------------------------------------------
----------------------------------------------------------------------
No of shares                        17,700,000  17,700,000  17,700,000
Earnings per share (EPS), in euros        0.59        0.43       -0.80
Equity per share, in euros                6.71        6.34        6.51
P/B (price to book ratio)                 1.07        0.93        0.83
P/E (price / earnings ratio)             12.25       13.69       -6.79
Market value, million EUR                127.4       104.4        95.6

Main shareholders of AS Merko Ehitus as of 31 December 2013 and the change
compared to the previous quarter: 

                                   No of     % of total    % of total   Variance
                                  shares     31.12.2013    30.09.2013           
AS Riverito                     12,742,686        71.99%        71.99%         -
ING Luxembourg S.A. AIF            974,126         5.50%         5.50%         -
 Account                                                                        
Skandinaviska Enskilda Banken      481,379         2.72%         0.00%  +481,379
 S.A.                                                                           
Skandinaviska Enskilda Banken      330,060         1.86%         4.58%  -481,379
 Ab, Swedish clients                                                            
Firebird Republics Fund Ltd        302,395         1.71%         1.71%         -
Gamma Holding OÜ                   188,762         1.07%         1.05%    +3,200
State Street Bank and Trust        153,018         0.86%         0.86%         -
 Omnibus Account a Fund No                                                      
 OM01                                                                           
Clearstream Banking Luxembourg     141,262         0.80%         0.80%         -
 S.A. clients                                                                   
Skandinaviska Enskilda Banken      134,982         0.76%         0.81%    -8,209
 Ab, Finnish clients                                                            
OÜ Midas Invest                    131,185         0.74%         0.68%   +10,000
Main shareholders total         15,579,855        88.01%        87.98%    +4,991
Minority shareholders total      2,120,145        11.99%        12.02%    -4,991
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 due to previously received and taxed distribution of
profits from subsidiaries. In the year 2012 no dividends were paid. 

The Management Board proposes to pay the shareholders EUR 7.3 million as
dividends from net profits brought forward (EUR 0.41 per share) in 2014.
According to the Estonian Income Tax Law §50 section 11 AS Merko Ehitus can pay
these dividends without any additional income tax expense and liabilities
occruing due to previously received and taxed distribution of profits from
subsidiaries. 

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
                                                            12 months  12 months
                                                                                
                                                                                
Revenue                                                       262,719    249,131
Cost of goods sold                                          (239,996)  (231,220)
Gross profit (loss)                                            22,723     17,911
                                                                                
Marketing expenses                                            (3,041)    (2,107)
Administrative and general expenses                           (9,260)    (9,173)
Other operating income                                          2,264      2,961
Other operating expenses                                        (425)      (834)
Operating profit (loss)                                        12,261      8,758
                                                                                
Finance income/costs                                          (1,116)      (856)
incl. finance income/costs from investments in associates                  (138)
and joint ventures                                                              
finance income/costs from other long-term investments               2          2
interest expense                                                (814)    (1,156)
foreign exchange gain                                           (202)       (44)
other financial income (expenses)                                  36        179
Profit (loss) before tax                                       11,145      7,902
Corporate income tax expense                                    (791)      (289)
Net profit (loss) for current period                           10,354      7,613
                                                           ---------------------
incl. net profit (loss) attributable to equity holders of      10,399      7,627
 the parent                                                                     
net profit (loss) attributable to non-controlling interest       (45)       (14)
                                                                                
Other comprehensive income (loss)                                               
Currency translation differences of foreign entities            (157)         58
Comprehensive income (loss) for the period                     10,197      7,671
                                                           ---------------------
                                                           ---------------------
incl. net profit (loss) attributable to equity holders of      10,242      7,685
 the parent                                                                     
net profit (loss) attributable to non-controlling interest       (45)       (14)
                                                                                
                                                                                
Earnings per share for profit (loss) attributable to             0.59       0.43
equity holders of the parent (basic and diluted, in euros)                      



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

in thousand euros, unaudited

                                                                 2013       2012
                                                                   IV         IV
                                                              quarter    quarter
                                                                                
                                                                                
Revenue                                                        64,875     71,402
Cost of goods sold                                           (59,517)   (64,143)
Gross profit (loss)                                             5,358      7,259
                                                                                
Marketing expenses                                              (812)      (722)
Administrative and general expenses                           (2,219)    (2,485)
Other operating income                                            493      1,342
Other operating expenses                                        (107)      (654)
Operating profit (loss)                                         2,713      4,740
                                                                                
Finance income/costs                                            (264)      (302)
incl. finance income/costs from investments in associates        (35)       (26)
and joint ventures                                                              
finance income/costs from other long-term investments            (30)          1
interest expense                                                (199)      (235)
foreign exchange gain                                            (17)       (81)
other financial income (expenses)                                  17         39
Profit (loss) before tax                                        2,449      4,438
Corporate income tax expense                                       56         51
Net profit (loss) for current period                            2,505      4,489
                                                           ---------------------
                                                           ---------------------
incl. net profit (loss) attributable to equity holders of       2,452      4,425
 the parent                                                                     
net profit (loss) attributable to non-controlling interest         53         64
                                                                                
Other comprehensive income (loss)                                               
Currency translation differences of foreign entities              (2)       (49)
Comprehensive income (loss) for the period                                      
incl. net profit (loss) attributable to equity holders of       2,503      4,440
 the parent                                                                     
                                                           ---------------------
                                                           ---------------------
net profit (loss) attributable to non-controlling interest      2,450      4,376
Other comprehensive income (loss)                                  53         64
                                                                                
                                                                                
Earnings per share for profit (loss) attributable to             0.14       0.25
equity holders of the parent (basic and diluted, in euros)                      



CONSOLIDATED STATEMENT OF FINANCIAL POSITION

in thousand euros, unaudited

                                                                             
                                                       31.12.2013  31.12.2012
ASSETS                                                                       
                                                                             
Current assets                                                               
Cash and cash equivalents                                  46,633      35,316
Trade and other receivables                                57,172      60,343
Prepaid corporate income tax                                   21         478
Inventories                                                87,451      82,830
Total current assets                                      191,277     178,967
                                                                             
                                                                             
Non-current assets                                                           
Long-term financial assets                                 27,415      24,378
Deferred income tax assets                                  1,590       1,919
Investment property                                         4,672       3,566
Property, plant and equipment                              13,117      14,853
Intangible assets                                           1,167       1,365
Total non-current assets                                   47,961      46,081
                                                                             
TOTAL ASSETS                                              239,238     225,048
                                                      -----------------------
                                                      -----------------------
                                                                             
                                                                             
LIABILITIES AND EQUITY                                                       
                                                                             
Current liabilities                                                          
Borrowings                                                 15,614      16,299
Payables and prepayments                                   72,162      63,209
Income tax liability                                           62           -
Short-term provisions                                       5,906       6,165
Total current liabilities                                  93,744      85,673
                                                                             
Non-current liabilities                                                      
Long-term borrowings                                       19,771      19,205
Long-term interest liabilities                                  8           3
Long-term trade payables                                    2,123       1,553
Other long-term liabilities                                    31           -
Deferred corporate income tax liability                       505         327
Long-term provisions                                            -          20
Total non-current liabilities                              22,438      21,108
                                                                             
Total liabilities                                         116,182     106,781
                                                      -----------------------
                                                      -----------------------
                                                                             
Equity                                                                       
                                                                             
Non-controlling interest                                    1,193       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                            (669)       (512)
Retained earnings                                         109,332     104,237
Total equity attributable to equity holders of parent     121,863     116,925
                                                                             
Total equity                                              123,056     118,267
                                                      -----------------------
                                                      -----------------------
                                                                             
                                                                             
TOTAL LIABILITIES AND EQUITY                              239,238     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 2013, the group employed 860 people and the 2013
revenue amounted to EUR 262.7 million. 



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