Market announcement

Title

2014 3 months consolidated unaudited interim report

Message

Tallinn, Estonia, 2014-05-08 15:30 CEST (GLOBE NEWSWIRE) --


MANAGEMENT REPORT

Overview of the 3 months results

Revenue                                                                         
Revenue in Q1 2014 was EUR 48.9 million (Q1 2013: EUR 47.9 million), which has  
 increased 2.1% compared to the same period last year. The share of revenue     
 earned outside of Estonia has incresed in Q1 2014 to 33.4% (Q1 2013: EUR       
 21.6%).                                                                        
Profitability                                                                   
Net profit in Q1 was EUR 0.7 million (comparable figure in Q1 2013: EUR 1.8     
 million). Gross margin in Q1 was 8.1% (Q1 2013: 8.8%), which has decreased by  
 9.0% compared to the same period last year. Current period’s net profit has    
 been exceptionally effected by the dividend tax expense of Gustaf Tallinn OÜ in
 the amount of EUR 0.3 million.                                                 
Cash position                                                                   
At the end of the reporting period, the group had EUR 51.9 million in cash and  
 cash equivalents and equity EUR 122.6 million (51.0% of total assets).         
 Comparable figures in 2013 were accordingly EUR 35.8 million and EUR 118.6     
 million (52.9% of total assets).                                               
Secured order book                                                              
In Q1 2014, group companies signed new contracts in the amount of EUR 48.6      
 million (Q1 2013: EUR 44.6 million) and as at 31 March 2014, the group’s       
 secured order book stood at EUR 224.0 million (31 Marchr 2013: EUR 193.4       
 million).                                                                      
Changes in group structure                                                      
In Q1 2014 the group sold its 80% share in subsidiary Gustaf Tallinn OÜ.        



                                  Q1 ’14  Q1 ’13  Variance   2013
-----------------------------------------------------------------
Revenue              million EUR    48.9    47.9     +2.1%  262.7
-----------------------------------------------------------------
Gross profit         million EUR     3.9     4.2     -7.1%   22.7
-----------------------------------------------------------------
Gross profit margin       %          8.1     8.8     -9.0%    8.6
-----------------------------------------------------------------
Net profit (parent)  million EUR     0.7     1.8    -59.8%   10.4
-----------------------------------------------------------------
Net profit margin         %          1.5     3.7    -60.6%    4.0
-----------------------------------------------------------------
EPS                      EUR        0.04    0.10    -59.8%   0.59
-----------------------------------------------------------------



                                    31.03.14  31.03.13  Variance  31.12.13
--------------------------------------------------------------------------
ROE (on yearly basis)       %            7.8       8.1     -3.4%       8.8
--------------------------------------------------------------------------
Equity ratio                %           51.0      52.9     -3.7%      50.9
--------------------------------------------------------------------------
Secured order book     million EUR     224.0     193.4    +15.8%     213.7
--------------------------------------------------------------------------
Total assets           million EUR     240.5     224.0     +3.4%     239.2
--------------------------------------------------------------------------
Number of employees       people         824       870     -5.3%       860
--------------------------------------------------------------------------



OPERATING RESULTS

Business activities

Key financial indicators (in million euros)

                                              3M 2014  3M 2013  12M 2013
------------------------------------------------------------------------
Revenue                                                                 
------------------------------------------------------------------------
Estonia                                          32.6     37.5     211.9
------------------------------------------------------------------------
Latvia                                           14.0      8.4      44.4
------------------------------------------------------------------------
Lithuania                                         2.3      2.0       6.4
------------------------------------------------------------------------
Revenue total                                    48.9     47.9     262.7
------------------------------------------------------------------------
Gross profit                                      3.9      4.2      22.7
------------------------------------------------------------------------
EBITDA                                            1,9      2,9      15.1
------------------------------------------------------------------------
Operating profit (EBIT)                           1.3      2.3      12.3
------------------------------------------------------------------------
Net profit                                                              
------------------------------------------------------------------------
attributable to equity holders of the parent      0.7      1.8      10.4
------------------------------------------------------------------------
attributable to non-controlling interest        (0.1)      0.0       0.0
------------------------------------------------------------------------
Net profit total                                  0.6      1.8      10.4
------------------------------------------------------------------------
Earnings per share (EPS), euros                  0.04     0.10      0.59
------------------------------------------------------------------------
Cash and cash equivalents closing position       51.9    35.8*      46.6
------------------------------------------------------------------------

* incl short-term deposits in the amount of EUR 2.5 million



Revenue and gross profit

Merko Ehitus group generated a total of EUR 48.9 million in revenue in 3 months
of 2014 (3 months of 2013: EUR 47.9 million). 66.6% of the revenue was
generated in Estonia, 28.6% in Latvia and 4.8% in Lithuania (3 months of 2013:
78.4% in Estonia, 17.4% in Latvia and 4.2% in Lithuania). Compared to the first
3 months of 2013 the group revenue increased by 2.1%. During the reporting
period, orders from the private sector have increased as an ongoing trend. In
the first quarter of 2014 the share of Latvian revenue has increased from 17.4%
to 28.6%, which is an ongoing trend in 2014. The increase in revenue, compared
to the same period last year, can be mainly attributed to projects pursued in
the general construction, real estate development and road construction
segment. At the same time there has been 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. 

The group’s objective is to increase the revenues outside Estonia. Therefore we
are continually monitoring the development of and searching for opportunities
in the neighbouring markets. 

In 3 months of 2014 the group’s gross profit from development and construction
activities totalled EUR 3.9 million (3 months of 2013: EUR 4.2 million). The
gross profit margin (8.1%) has decreased compared to the same period last year
(3 months of 2013: 8.8%). The main impact is from the general construction
segment and the decrease of civil engineering segment volumes. At the same time
the margin has been supported by road construction segment and the higher
profitability in real estate development 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 3 months of 2014, the group’s profit before tax totalled EUR 1.1 million and
net profit attributable to equity holders of the parent was EUR 0.7 million as
compared to the pre-tax profit or EUR 2.0 million and net profit attributable
to equity holders of the parent of EUR 1.8 million in 3 months of 2013. Group’s
net profit margin was 1.5% (3 months of 2013: 3.7%). The net profit for the
first quarter of 2014 was affected by the income tax expenses paid on the
dividends received from OÜ Gutsaf Tallinn in the amount of EUR 0.3 million.
This will increase the income tax expenses as extraordinary one-off item,
compared to the first quarter of 2013. 

Business segments

The group companies operate mainly in Estonian, Latvian and Lithuanian market
and depending on the country provide services across the following segments:
general construction, civil engineering (including electrical and external
networks), road construction, real estate development (including apartment
development and sales, long-term real estate investments and commercial real
estate projects) and other comprising sale of raw materials obtained from pit
mining, equipment lease, consulting and construction supervision. 

General construction

General construction consists of the construction of different buildings, from
commercial and office buildings, retail and entertainment centres to public
sector and residential and specialised industrial buildings. Group companies
provide strategic consulting and quality complete solutions as part of the
general contracting service of construction according to the customer's
requirements: preparation, design, construction, interior and warranty service. 

million EUR

                     3M 2014  3M 2013   Change  12M 2013
--------------------------------------------------------
Revenue                 25.8     12.6  +105.4%      86.6
--------------------------------------------------------
% of total revenue     52.8%    26.3%  +101.2%     32.9%
--------------------------------------------------------
Gross profit (loss)      0.2      0.5   -54.9%     (0.5)
--------------------------------------------------------
Gross profit margin     0.8%     3.8%   -78.0%     -0.6%
--------------------------------------------------------

In the first 3 months of 2014, the revenue of the general construction segment
increased by 105.4% from the same period last year. At the same time the
segments gross profit has decreased by 54.9% and the segments overall gross
profit for the period is EUR 0.2 million (3 months of 2013: EUR 0.5 million).
The segment continues to be mainly influenced by the pressure on the margins
exerted by tightening competition. In the first quarter the revenue of the
general construction segment formed the largest proportion in the group’s
revenue with a 52.8% share. The tight competition in the general construction
segment has left it’s mark on the segments gross margin (3 months of 2014:
0.8%), having decreased 78.0% compared to the same period last year. 

While in 2013 the market saw an increase in private sector orders, then the
trend has continued in the first 3 months of 2014. As at the end of the quarter
the private sector projects make up more than half of general construction
segment projects in work. 

Our major projects in the first quarter included the construction of Tondiraba
ice arena and Hilton Tallinna Park hotel construction works in Tallinn, the
reconstruction work at the North-Estonia Medical Centre in Mustamäe, the
construction of Polipaks NT manufacturing and logistics centre in Marupe and
the multifunctional concert hall in Liepaja. Among the projects completed and
delivered to the customer in Q1 2014 the one to highlight is the Nurmevälja
logistics center. 

Civil engineering

The civil engineering segment includes port, waste management and road
structures (bridges, tunnels, overpasses, roads), electrical construction of up
to 330 kV, various environmental protection structures, water treatment plants,
both open-cut and trenchless construction of water and sewerage pipelines and
other various engineering projects. Complex and unique engineering projects
require specialised knowledge and a good partnership with the customer and
local authorities. 

million EUR

                     3M 2014  3M 2013  Change  12M 2013
-------------------------------------------------------
Revenue                  9.4     20.7  -54.7%      94.5
-------------------------------------------------------
% of total revenue     19.2%    43.3%  -55.6%     36.0%
-------------------------------------------------------
Gross profit             1.0      2.4  -56.4%      12.5
-------------------------------------------------------
Gross profit margin    11.0%    11.4%   -3.7%     13.2%
-------------------------------------------------------

The revenue of the civil engineering segment amounted to EUR 9.4 million in the
first 3 months of 2014 (3 months of 2013: EUR 20.7 million), which is 54.7%
less than in 2013. The decrease from the previous year is mainly due to a drop
in the volume of pipeline projects. If the civil engineering segment revenues
of first 3 months of 2013 formed the largest proportion in the group’s revenue
(3 months of 2013: 43.3%), then during 3 months of the current year the
segments revenues formed 19.2% of total revenue being down 55.6% compared to
the previous year. The gross profit of the civil engineering segment amounted
to EUR 1.0 million (3 months of 2013: EUR 2.4 million) and the gross profit
margin was 11.0% (3 months of 2013: 11.4%), which has remained unchanged
compared to the same period previous year. We consider this a very good result,
given that the volumes of the segment have decreased by more than a half. We
continue to closely monitor the changes in the volumes,  to maintain an
effective cost base. 

In the first quarter of 2014, the main projects included were the
reconstruction of pipelines in Vääna-Jõesuu and Narva-Jõesuu and the closing of
industrial waste and semi-coke landfill in Kohtla-Järve. 

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

In the road construction segment, the company carries out road construction and
builds the associated infrastructure, road maintenance and maintenance repair. 

million EUR

                     3M 2014  3M 2013   Change  12M 2013
--------------------------------------------------------
Revenue                  3.1      7.8   -60.3%      49.5
--------------------------------------------------------
% of total revenue      6.3%    16.3%   -61.1%     18.8%
--------------------------------------------------------
Gross profit             0.5      0.5    -4.4%       5.9
--------------------------------------------------------
Gross profit margin    15.3%     6.4%  +140.5%     12.0%
--------------------------------------------------------

The revenue of the road construction segment amounted to EUR 3.1 million in the
first 3 months of 2014 (3 months of 2013: EUR 7.8 million), which means a 60.3%
decrease from the same period 2013. In the first 3 months of 2014, the segment
earned a gross profit of EUR 0.5 million (3 months of 2013: EUR 0.5 million),
which yields a gross profit margin of 15.3%. The drop in revenue has been
affected the most by the lack of large-scale construction projects (such as the
last year’s Ülemiste junction in Tallinn) in the contracts portfolio of the
group in 2014. On a positive note, the road construction segment was supported
by a growth in the volume of road repair and maintenance work, compared to the
same period last year. This was mostly due to favorable weather conditions,
that allowed the seasonal road works to be started earlier compared to the last
year. 

The largest projects in work in the first quarter were the maintenance works
done under the service agreement with Tallinn and Jõgeva county. 

Real estate development

The real estate development segment includes residential construction, the
development of apartment projects, long-term real estate investments and
commercial real estate projects. 

million EUR

                     3M 2014  3M 2013   Change  12M 2013
--------------------------------------------------------
Revenue                 10.3      6.5   +58.5%      31.0
--------------------------------------------------------
% of total revenue     21.1%    13.6%   +55.2%     11.8%
--------------------------------------------------------
Gross profit             2.2      0.9  +146.7%       5.1
--------------------------------------------------------
Gross profit margin    21.8%    14.0%   +55.7%     16.5%
--------------------------------------------------------

A total of 99 apartments were sold in 3 months of 2014 at the total value of
EUR 9.0 million (excl. VAT), (3 months of 2013: 57 apartments and EUR 6.2
million, respectively). At the end of the period, Merko Ehitus group’s
inventory comprised 23 completed but not yet sold apartments (8 in Estonia, 7
in Latvia and 8 in Lithuania) and 11 completed and pre-sol apartments (all in
Latvia). 

As at 31 March 2014, Merko Ehitus group had a total of 304 apartments for sale
(as at 31 March 2013: 242 apartments; as at 31 December 2013: 300 apartments),
this comprises apartments for which no pre-sale agreements have been signed
with buyers. 

Apartment projects in progress and indicative date of completion

Project             Municipality/Country      Completion date  No of apartments*
--------------------------------------------------------------------------------
Pärna avenue 6   Tartu municipality, Estonia     Completed             2        
--------------------------------------------------------------------------------
Eha st. 4 /           Tallinn, Estonia           Completed             2        
 Paldiski road                                                                  
 17                                                                             
--------------------------------------------------------------------------------
Pärna avenue 8   Tartu municipality, Estonia     Completed             2        
--------------------------------------------------------------------------------
Pallasti 48, 50       Tallinn, Estonia           Completed             2        
--------------------------------------------------------------------------------
Skanstes                Riga, Latvia             Completed             6        
 virsotnes 4                                                                    
 tower                                                                          
--------------------------------------------------------------------------------
Grostonas 17            Riga, Latvia             Completed            12        
--------------------------------------------------------------------------------
Mokslininku           Vilnius, Lithuania         Completed             2        
 stage I                                                                        
--------------------------------------------------------------------------------
Mokslininku           Vilnius, Lithuania         Completed             6        
 stage II house                                                                 
 1                                                                              
--------------------------------------------------------------------------------
                                                                      34        
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Tedre 55              Tallinn, Estonia          Spring 2014           47        
--------------------------------------------------------------------------------
Grostonas 19            Riga, Latvia            Autumn 2014           82        
--------------------------------------------------------------------------------
Mokslininku           Vilnius, Lithuania        Summer 2014           36**      
 stage II house                                                                 
 2                                                                              
--------------------------------------------------------------------------------
Pärna avenue 7   Tartu municipality, Estonia    Autumn 2014           28        
--------------------------------------------------------------------------------
Kentmanni 6           Tallinn, Estonia          End of 2014           93        
--------------------------------------------------------------------------------
Grostonas 21            Riga, Latvia            Spring 2015           125       
--------------------------------------------------------------------------------
                                                                      411       
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Started in Q1                                                                   
 2014                                                                           
--------------------------------------------------------------------------------
Vana-Kalamaja         Tallinn, Estonia          Autumn 2014           12        
 31+Suur-Laagri                                                                 
 2                                                                              
--------------------------------------------------------------------------------
Paepargi 17,          Tallinn, Estonia          Autumn 2014           54        
 19, 21                                                                         
--------------------------------------------------------------------------------
Pärna avenue 10  Tartu municipality, Estonia    End of 2014           42        
--------------------------------------------------------------------------------
                                                                      108       
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Total                                                                 553       
--------------------------------------------------------------------------------

* The completed apartments indicate the number of apartments that are unsold
and where possession has not been given to consumers. 
** The first house of the projecti with 18 apartments is completed (out of
which 12 have been sold); the second house with 36 apartments is due to be
completed in summer 2014. 

In 3 months of 2014, we launched the construction of a total of 108 new
apartments in the Baltic States (3 months of 2013: 93 apartments). In 2013 we
launched the construction of a total of 409 new apartments. We will continue to
invest in residential real estate projects and depending on the apartment
market developments in 2014, the group plans to launch the construction of
approximately 500-550 new apartments in the Baltic States. In 2014, the group’s
investments in both development projects initiated in the previous years and
new projects to be launched in 2014 will be in the range of EUR 45-50 million. 

As at 31 March 2014, the group has 88 apartments in Tartu where the
construction activity has been frozen (as at 31 March 2013, the respective
number in Tallinn and Tartu was 200 apartments). In the first quarter of 2014,
we re-launched one development project that was frozen in prior years – the
development of Pärna avenue 10 in Tartu municipality (the number of apartments
for sale is 42). 

One of our objectives is to keep a moderate portfolio of land plots to ensure
stable inventory of property development projects considering the market
conditions. The group is actively searching for new real estate development
projects in Estonian and Lithuania. The real estate portfolio in Latvia is
extensive enough, with no need for active portfolio expansion. 

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 consumer group. Taking
into account low interest rates on loans and limited supply on the market of
new apartments, in the last three years the demand and transaction activity on
the apartment market has grown moderately. The number of transactions and the
average price per square meter are showing a growth trend, especially in
Estonia and Latvia. There is still room for new development projects in the
Baltic capital cities, though one should proceed with care in Vilnius. An
increased supply of apartments will influence the stabilisation of prices and
lengthening of sales periods in the future. 

Other

The segment other includes the sale of raw materials obtained from pit mining,
equipment lease, consulting, construction supervision and other non-core
activities. 

million EUR

                     3M 2014  3M 2013     Change  12M 2013
----------------------------------------------------------
Revenue                  0.3      0.3      -1.4%       1.1
----------------------------------------------------------
% of total revenue      0.6%     0.5%      -3.4%      0.5%
----------------------------------------------------------
Gross profit (loss)      0.0    (0.1)  +1,900.0%     (0.3)
----------------------------------------------------------
Gross profit margin    -7.1%    -0.4%  +1,928.6%    -29.9%
----------------------------------------------------------



Secured order book

As at 31 March 2014, the group’s secured order book (excluding property
developments) amounted to EUR 224.0 million as compared to EUR 193.4 million as
at 31 March 2013. The secured order book excludes the group's own residential
development projects and work related to developing real estate investments. 

In first quarter of 2014, EUR 48.6 million worth of new contracts were signed
(without own developments) as compared to EUR 44.6 million in same period last
year. 

Largest construction contracts signed in the first quarter of 2014

Brief description of contract                      Countr   Completion    Cost  
                                                      y       time       million
                                                                           eur  
--------------------------------------------------------------------------------
Design and renovation of the infrastructure of     Estoni   December      26.0  
 Tallinn tram line No. 4                              a       2015              
--------------------------------------------------------------------------------
Riga State Technical School school campus          Latvia   June 2015      4.8  
 construction works                                                             
--------------------------------------------------------------------------------
Re-cultivation and construction works of a waste   Latvia    January       6.5  
 recycling site in Riga                                       2016              
--------------------------------------------------------------------------------

Whereas the share of public procurements was still predominant among new
construction contracts at the start of 2013, the private customer segment
became more active in the construction markets of all three Baltic countries in
the second half of 2013. Of the contracts signed in 2013, at 31 December close
to half were connected to private contracting entities. Public orders made up a
bulk of the contracts concluded in the first three months of the year. As at 31
March 2014, the group’s secured order book was dominated by public sector
orders, which made up nearly two-thirds of the portfolio. Nonetheless, public
sector orders are decreasing compared to private sector orders. Considering the
end of the previous EU funding period and the beginning phase of the current EU
funding period, one can forecast continued decline in the volume of public
procurements for 2014. 

It continues to be a challenge to maintain new construction contract volume at
the level of 2013. Traditionally the share of Estonian construction activity
has been the highest in the group's revenues. Given the weak growth outlook of
the Estonian construction market, the group's goal is to continue to look for
construction orders from outside Estonia. Thus, we are closely monitoring the
development and opportunities in the neighbouring markets. AS Merko Ehitus
Eesti has selectively and on project basis started to participate in public
procurements in Finland, Sweden and Norway in order to gain experience and
sufficient knowledge in the qualification conditions, requirements established
and risks associated in these countries. 



Cash flows

The cash position of the group is stable. As at 31 March 2014 the group had
cash equivalents in the amount of EUR 51.9 million (31.03.2013: EUR 33.3
million, and additionally EUR 2.5 million in short-term deposits with a
maturity term of more than 3 months). Compared to the same period last year,
the group's strategic cash level and investment capacity have strengthened. 

The 3-month cash flow from operating activity was positive at EUR 9.0 million
(3 months of 2013: positive EUR 5.1 million), cash flow from investing activity
was negative at EUR 0.5 million (3 months of 2013: negative EUR 2.7 million)
and the cash flow from financing activity was negative at EUR 3.2 million (3
months of 2013: negative EUR 4.4 million). The cash flow from operating
activity was mostly influenced by the operating profit EUR 1.3 million, by the
positive change in receivables and liabilities related to construction
contracts recognised under the stage of completion method EUR 5.3 million, by
the negative change in provisions EUR 2.0 million, by the positive change in
trade and other receivables related to operating activities EUR 2.7 million, by
the negative change in inventory EUR 1.2 million, and by the positive change in
trade and other payables related to operating activities EUR 2.6 million. 

The group’s cash flows from operating activities continue to have contracts
(incl. both government and private sector) with long payment terms (by
contract, an average of 56 days after registered delivery of the work) and
there is an persistent burden on working capital, including optimal management
of cash flows. This is especially true, considering the increase in Latvian
construction volumes and the need for additional working capital. 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 (13.4% as at 31.03.2014; 14.5% as
at 31.03.2013). 

Cash flows from investment activities include negative cash flow from the cash
balance excluded from the group in connection with the sale of subsidiary
Gustaf Tallinn OÜ, while the balance of non-current asset acquisition was EUR
0.1 million (3 months of 2013: EUR 0.2 million). Cash flows from investment
activities in 3 months of 2013 was negatively impacted by the acquisition of
short-term deposit with a maturity term of more than 3 months in the amount of
EUR 2.5 million. The group mainly invested in non-current assets for the
purpose of renewing its fleet of machinery in the road construction segment. 

The largest single negative item in cash flows from financing was the premature
repayment of a working capital loan in the amount of EUR 3.5 million, instead
of which the group entered into an overdraft contract with an overall limit of
EUR 3.5 million. Project specific loans obtained using investment property as
collateral were repaid in the amount of EUR 0.1 million (3 months of 2013: EUR
0.1 million), net of loans received and loans repaid in connection with
development projects amounted to positive cash flow of EUR 0.6 million (3
months of 2013: negative cash flow of EUR 3.2 million), factoring in the amount
of EUR 0.0 million (3 months of 2013: negative cash flow of EUR 0.7 million)
and finance lease principal repayments of EUR 0.2 million (3 months of 2013:
EUR 0.3 million). 



Ratios

(attributable to equity holders of the parent)

                                                     3M      3M      3M      12M
                                                   2014    2013    2012     2013
--------------------------------------------------------------------------------
Income statement summary                                                        
--------------------------------------------------------------------------------
Revenue                               million      48.9    47.9    47.8    262.7
                                        EUR                                     
--------------------------------------------------------------------------------
Gross profit                          million       3.9     4.2     2.5     22.7
                                        EUR                                     
--------------------------------------------------------------------------------
Gross profit margin                       %         8.1     8.8     5.2      8.6
--------------------------------------------------------------------------------
Operating profit                      million       1.3     2.3     0.6     12.3
                                        EUR                                     
--------------------------------------------------------------------------------
Operating profit margin                   %         2.7     4.8     1.2      4.7
--------------------------------------------------------------------------------
Profit before tax                     million       1.1     2.0     0.4     11.1
                                        EUR                                     
--------------------------------------------------------------------------------
EBT margin                                %         2.3     4.1     0.9      4.2
--------------------------------------------------------------------------------
Net profit                            million       0.6     1.8     0.2     10.4
                                        EUR                                     
--------------------------------------------------------------------------------
attributable to equity holders of     million       0.7     1.8     0.2     10.4
 the parent                             EUR                                     
--------------------------------------------------------------------------------
attributable to non-controlling       million     (0.1)     0.0     0.0      0.0
 interest                               EUR                                     
--------------------------------------------------------------------------------
Net profit margin                         %         1.5     3.7     0.3      4.0
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Other income statement indicators                                               
--------------------------------------------------------------------------------
EBITDA                                million       1.9     2.9     1.2     15.1
                                        EUR                                     
--------------------------------------------------------------------------------
EBITDA margin                             %         3.8     6.0     2.4      5.7
--------------------------------------------------------------------------------
General expense ratio                     %         6.1     5.5     5.2      4.7
--------------------------------------------------------------------------------
Labour cost ratio                         %        13.9    13.6    12.0     11.8
--------------------------------------------------------------------------------
Revenue per employee                  thousand       61      57      54      308
                                        EUR                                     
--------------------------------------------------------------------------------



Other significant                 31.03.2014  31.03.2013  31.03.2012  31.12.2013
 indicators                                                                     
--------------------------------------------------------------------------------
Return on equity           %             7.8         8.1        -8.7         8.8
--------------------------------------------------------------------------------
Return on assets           %             3.9         4.1        -4.5         4.4
--------------------------------------------------------------------------------
Return on invested         %             7.3         7.0        -5.9         8.0
 capital                                                                        
--------------------------------------------------------------------------------
Equity ratio               %            51.0        52.9        51.7        50.9
--------------------------------------------------------------------------------
Debt ratio                 %            13.4        14.5        17.4        14.8
--------------------------------------------------------------------------------
Current ratio            times           2.0         2.2         2.0         2.0
--------------------------------------------------------------------------------
Quick ratio              times           1.1         1.2         0.9         1.1
--------------------------------------------------------------------------------
Accounts receivable       days            59          58          55          58
 turnover                                                                       
--------------------------------------------------------------------------------
Accounts payable          days            41          46          47          43
 turnover                                                                       
--------------------------------------------------------------------------------
Average number of       people           800         839         880         853
 employees                                                                      
--------------------------------------------------------------------------------
Secured order book      million        224.0       193.4       189.4       213.7
                          EUR                                                   
--------------------------------------------------------------------------------



Employees and labour costs

Compared to the same period last year, the number of the group’s employees
decreased by 46 (-5.3%) and as at 31 March 2014, the group had a total of 824
employees (including fixed-term and part-time employees). Compared to the end
of the previous financial year the number of empolyees has decreased by 36
(-4.2%). 

In 2014, the number of employees mainly declined because of the sale of
subsidiary Gustav Tallinn OÜ but also due to the proportion of the civil
engineering segment declined within the work volumes of the group. In 2014, the
reduction in the number of employees will continue due to the streamlining of
the group corporate structure and the decrease in ownership interest in
immaterial subsidiaries, however not materially. 

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

The group defines labour cost as salary (incl. fixed salary, additional pay
(night work, overtime and public holidays), holiday pay and bonus), taxes based
on salary, fringe benefits and taxes based on fringe benefits. In 3 months
2014, the labour cost was EUR 6.8 million (3 months 2012: EUR 6.5 million), up
4.4% from the previous year. This increase is mainly caused by accrued bonuses. 



Share and shareholders

                 Information on security                  
              Issuer  AS Merko Ehitus                     
    Name of security  Share of Merko Ehitus               
              Ticker  MRK1T                               
 Residency of issuer  Estonia                             
 Stock Exchange List  NASDAQ OMX Tallinn, Baltic Main List
            Industry  Construction                        
                ISIN  EE3100098328                        
       Nominal value  without nominal value               
Number of securities  17,700,000                          
     Volume of issue  12,000,000                          
            Currency  EUR                                 
        Listing date  11.08.2008                          



The shares of Merko Ehitus are listed in the Main List of NASDAQ OMX Tallinn.
As at 31 March 2014, the company has 17,700,000 shares. The number of shares
has not changed during 2014. 

A total of 613 transactions were conducted with the shares of Merko Ehitus in 3
months of 2014, with 0.29 million shares (1.7% of total shares) traded,
generating a turnover of EUR 2.26 million (comparable figures in 3 months 2013
were accordingly: 408 transactions with 0.13 million shares traded (0.7% of
total shares) and generating a turnover of EUR 0.85 million). The lowest share
price amounted to EUR 7.20 and the highest to EUR 7.99 per share (3 months of
2013: EUR 5.71 and EUR 7.48). The closing price of the share was EUR 7.75 on 31
March 2014 (31.03.2013: EUR 7.18). As at 31 March 2014, the market value of AS
Merko Ehitus amounted to EUR 137.2 million, which has risen 7.9% compared to
the same period end last year (as at 31 March 2013: EUR 127.1 million). 

                                 31.03.2014  31.03.2013  31.03.2012
-------------------------------------------------------------------
Number of shares                 17,700,000  17,700,000  17,700,000
-------------------------------------------------------------------
Earnings per share (EPS), euros        0.04        0.10        0.01
-------------------------------------------------------------------
Equity per share, euros                6.77        6.47        6.35
-------------------------------------------------------------------
P/B ratio                              1.14        1.11        0.94
-------------------------------------------------------------------
P/E ratio                             14.68       13.76      -10.81
-------------------------------------------------------------------
Market value, million EUR             137.2       127.1       106.2
-------------------------------------------------------------------

Structure of shareholders as at 31.03.2014

Number of shares           Number of            % of       Number of        % of
                        shareholders    shareholders          shares      shares
--------------------------------------------------------------------------------
1,000,001 - …                      1           0.07%      12,742,686      71.99%
--------------------------------------------------------------------------------
100,001 –                         10           0.70%       2,966,814      16.76%
 1,000,000                                                                      
--------------------------------------------------------------------------------
10,001 – 100,000                  31           2.18%         962,246       5.44%
--------------------------------------------------------------------------------
1,001-10,000                     235          16.54%         698,793       3.95%
--------------------------------------------------------------------------------
101-1,000                        740          52.08%         307,605       1.74%
--------------------------------------------------------------------------------
1-100                            404          28.43%          21,856       0.12%
--------------------------------------------------------------------------------
Total                          1,421            100%      17,700,000        100%
--------------------------------------------------------------------------------

Shareholders of AS Merko Ehitus as at 31.03.2014 and change compared to the
previous quarter 

                                  Number of    % of total    % of total   Change
                                     shares    31.03.2014    31.12.2013         
--------------------------------------------------------------------------------
AS Riverito                      12,742,686        71.99%        71.99%        -
--------------------------------------------------------------------------------
ING Luxembourg S.A. AIF Account     974,126         5.50%         5.50%        -
--------------------------------------------------------------------------------
Skandinaviska Enskilda Banken       481,379         2.72%         2.72%        -
 S.A.                                                                           
--------------------------------------------------------------------------------
Skandinaviska Enskilda Banken       305,060         1.72%         1.86%  -25,000
 AB, Swedish customers                                                          
--------------------------------------------------------------------------------
Firebird Republics Fund Ltd         302,395         1.71%         1.71%        -
--------------------------------------------------------------------------------
Gamma Holding OÜ                    198,182         1.12%         1.07%   +9,420
--------------------------------------------------------------------------------
State Street Bank and Trust         153,018         0.86%         0.86%        -
 Omnibus Account a Fund No OM01                                                 
--------------------------------------------------------------------------------
SEB Elu- ja Pensionikindlustus      148,020         0.84%         0.72%  +20,000
 AS                                                                             
--------------------------------------------------------------------------------
Clearstream Banking Luxembourg      141,052         0.80%         0.80%     -210
 S.A. customers                                                                 
--------------------------------------------------------------------------------
Skandinaviska Enskilda Banken       132,397         0.75%         0.76%   -2,585
 AB, Finnish customers                                                          
--------------------------------------------------------------------------------
Total largest shareholders       15,578,315        88.01%        87.99%   +1,625
--------------------------------------------------------------------------------
Total other shareholders          2,121,685        11.99%        12.01%   -1,625
--------------------------------------------------------------------------------
Total                            17,700,000          100%          100%        -
--------------------------------------------------------------------------------



Dividends and 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. 

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. The achievement of this objective is an important priority for
the group. 

The annual general meeting of shareholders of AS Merko Ehitus held at 30 April
2014 approved the Supervisory Boards proposal to pay the shareholders the total
amount of EUR 7.3 million (EUR 0.41 per share) as dividends from net profit
brought forward, which is equivalent to a 70% dividend rate and a 5.7% dividend
yield for the year 2013 (using the share price as at 31 December 2013). 

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. The dividend payment to the shareholders will take place on 20
May 2014. In 2013 the total amount of EUR 5.3 million (EUR 0.30 per share) was
paid to shareholders as dividends, which is equivalent to a 70% dividend rate
and a 5.1% dividend yield for the year 2012 (using the share price as at 31
December 2012). 



Corporate governance and structure

AS Merko Ehitus operates as a holding company whose companies in Estonia,
Latvia and Lithuania offer complete solutions in the field of construction and
real estate development. In the construction sector, the group’s largest
companies are AS Merko Ehitus Eesti (100%), SIA Merks (100%), UAB Merko Statyba
(100%) and the companies belonging to the AS Merko Ehitus Eesti group: 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 holding company AS Merko Ehitus
has a two-member Management Board: Andres Trink and Tõnu Toomik. 

It is important to maintain a simple organisational structure in the group and
in management to be guided primarily by the group's objectives and
requirements. For the purposes of maximum efficiency in the group management,
we in some cases differentiate the management structure and legal structure. 

General Meeting of Shareholders

The general meeting of the shareholders was held on 30 April 2014. The general
meeting resolved to approve the annual report and the profit allocation
proposal for 2013. The dividends payment in the sum of EUR 7.3 million (EUR
0.40 per share) will be paid out to shareholders on 20 May 2014. 

In addition, the annual general meeting resolved to extend the terms of office
of members of the Supervisory Board Toomas Annus, Teet Roopalu, Indrek Neivelt
and Olari Taal until April 30th 2017, i.e. for a period of three years from the
decision for the extension. The remuneration of members of the Supervisory
Board did not change and will continue based on terms and conditions approved
at general meeting of shareholders of AS Merko Ehitus, held on October 31st
2008. 

In addition the general meeting of shareholders decided to appoint AS
PricewaterhouseCoopers the auditor of AS Merko Ehitus for the financial year of
2014 and to pay to the auditing company for auditing the financial year of 2014
as per contract to be entered into with AS PricewaterhouseCoopers. 

Changes in the legal structure of the group

In 2014, AS Merko Ehitus has decided to streamline its group companies'
structure to improve management effectiveness and produce administrative cost
savings. As part of the action plan, ownership interests of insignificant
subsidiaries are reviewed and potential mergers or disposals are decided. The
action plan does not concern material subsidiaries of the group and does not
have a material near-term effect on the group's financial results. First
changes are under way and the implementation of the action plan will continue
in 2014. 

On 20 December 2013, AS Merko Ehitus initiated a process to merge its fully
owned subsidiaries OÜ Woody, OÜ Metsailu and OÜ Käibevara, all engaged in real
estate development, in order to have savings in administrative cost related to
company management. The acquiring company is 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 closing date of the merger was 1 January
2014 after which all transactions of the acquirees have been deemed to have
been made on account of the acquirer. The final merger entry will be made in
the Commercial Register during the first half of 2014. 

On 15 January 2014, a subsidiary of AS Merko Ehitus group, AS Merko Ehitus
Eesti, signed an agreement for the transfer of its entire 80% holding in the
subsidiary Gustaf Tallinn OÜ to the current 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 EUR 20,000. The final sales price was 17,201 euros, which was calculated
in accordance with the audited 2013 annual report of Gustaf 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 paid
dividend. On 2 May 2014, the seller returned the adjusted part of the sales
price EUR 2,799 to the buyer’s bank account. 

As a result of the sale of the ownership interest and the subsequent
deconsolidation of Gustaf Tallinn OÜ, the estimated impact on the consolidated
profit of AS Merko Ehitus group is EUR 0, the negative impact on assets and
liabilities is EUR 967 thousand and EUR 945 thousand, respectively. 

On 22 January 2014, fully owned subsidiary of AS Merko Ehitus, UAB Merko
Bustas, formed a fully owned subsidiary in Lithuania, UAB VPSP 1 with a share
capital of LTL 10,000 (EUR 2,896). The subsidiary was formed to participate in
public-private partnership (PPP) procurements organised by the Lithuanian
government. 

Changes in the management structure of the group

In conjunction with a streamlining of the management structure, there was a
change on 7 March 2014 in the composition of the Management Board of AS Merko
Ehitus Eesti, a 100% subsidiary of AS Merko Ehitus. Andres Agukas, the Member
of the Management Board was recalled. The Management Board will continue with
four members:  Tiit Roben (Chairman), Jaan Mäe, Veljo Viitmann and Alar Lagus. 

As a result of the departure of Andres Agukas, the composition of the
Supervisory Boards of AS Merko Infra and Tallinna Teede AS, subsidiaries of the
AS Merko Ehitus Eesti group, will change. Effective 7 March 2014, Tiit Roben
was appointed as Chairman of the Supervisory Board of AS Merko Infra to replace
Andres Agukas. The Supervisory Board will continue with three members: Tiit
Roben (Chairman), Veljo Viitmann and Mihkel Mugur. The Supervisory Board of
Tallinna Teede AS will continue with three members after the departure of
Andres Agukas: Tiit Roben (Chairman), Alar Lagus and Veljo Viitmann. 

The Supervisory Board of AS Merko Infra, a 100% subsidiary AS Merko Ehitus
Eesti and with ultimate parent AS Merko Ehitus, decided to appoint Boris
Tehnikov as an additional member of the Management Board and to elect the
current member, Arno Elias, as the Chairman of the Management Board of AS Merko
Infra as of 2 April 2014. The Management Board of AS Merko Infra will continue
with three members: Arno Elias (The Chairman), Tarmo Pohlak and Boris Tehnikov. 

AS Merko Ehitus board decided to recall a member of the Supervisory Board of
UAB Merko Statyba Jaan Mäe and appoint Signe Kukin as the new member of the
Supervisory Board as of 2 April 2014. The Supervisory Board will continue with
three members: Andres Trink (The Chairman), Tõnu Toomik and Signe Kukin. 

OÜ Merko Investments, part of AS Merko Ehitus group, which has 100% holding in
SIA Merks, board decided to recall a member of the Supervisory Board of SIA
Merks Jaan Mäe and appoint Signe Kukin as the new member of the Supervisory
Board as of 2 April 2014. The Supervisory Board will continue with three
members: Andres Trink (The Chairman), Tõnu Toomik and Signe Kukin. 



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited

in thousand euros

                                                       2014      2013       2013
                                                   3 months  3 months  12 months
--------------------------------------------------------------------------------
Revenue                                              48,868    47,859    262,719
--------------------------------------------------------------------------------
Cost of goods sold                                 (44,932)  (43,624)  (239,996)
--------------------------------------------------------------------------------
Gross profit                                          3,936     4,235     22,723
--------------------------------------------------------------------------------
Marketing expenses                                    (854)     (656)    (3,041)
--------------------------------------------------------------------------------
General and administrative expenses                 (2,120)   (1,956)    (9,260)
--------------------------------------------------------------------------------
Other operating income                                  406       708      2,264
--------------------------------------------------------------------------------
Other operating expenses                               (50)      (44)      (425)
--------------------------------------------------------------------------------
Operating profit                                      1,318     2,287     12,261
--------------------------------------------------------------------------------
Finance income/costs                                  (180)     (333)    (1,116)
--------------------------------------------------------------------------------
incl. finance income/costs from joint ventures         (34)      (34)      (138)
--------------------------------------------------------------------------------
finance income/costs from other long-term                 -        13          2
 investments                                                                    
--------------------------------------------------------------------------------
interest expense                                      (178)     (210)      (814)
--------------------------------------------------------------------------------
foreign exchange gain (loss)                            (1)     (110)      (202)
--------------------------------------------------------------------------------
other financial income (expenses)                        33         8         36
--------------------------------------------------------------------------------
Profit before tax                                     1,138     1,954     11,145
--------------------------------------------------------------------------------
Corporate income tax expense                          (522)     (194)      (791)
--------------------------------------------------------------------------------
Net profit for financial year                           616     1,760     10,354
--------------------------------------------------------------------------------
incl. net profit attributable to equity holders         711     1,766     10,399
 of the parent                                                                  
--------------------------------------------------------------------------------
net profit attributable to non-controlling             (95)       (6)       (45)
 interest                                                                       
--------------------------------------------------------------------------------
Other comprehensive income                                                      
--------------------------------------------------------------------------------
Currency translation differences of foreign               -     (141)      (157)
 entities                                                                       
--------------------------------------------------------------------------------
Comprehensive income for the period                     616     1,619     10,197
--------------------------------------------------------------------------------
incl. net profit attributable to equity holders         711     1,625     10,242
 of the parent                                                                  
--------------------------------------------------------------------------------
net profit attributable to non-controlling             (95)       (6)       (45)
 interest                                                                       
--------------------------------------------------------------------------------
Earnings per share for profit attributable to          0.04      0.10       0.59
 equity holders of the parent (basic and diluted,                               
 in EUR)                                                                        
--------------------------------------------------------------------------------



CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited

in thousand euros

                                              31.03.2014  31.03.2013  31.12.2013
--------------------------------------------------------------------------------
ASSETS                                                                          
--------------------------------------------------------------------------------
Current assets                                                                  
--------------------------------------------------------------------------------
Cash and cash equivalents                         51,917      33,349      46,633
--------------------------------------------------------------------------------
Short-term deposits                                    -       2,500           -
--------------------------------------------------------------------------------
Trade and other receivables                       58,204      58,853      57,172
--------------------------------------------------------------------------------
Prepaid corporate income tax                          21         480          19
--------------------------------------------------------------------------------
Inventories                                       88,734      82,127      87,451
--------------------------------------------------------------------------------
                                                 198,876     177,309     191,275
--------------------------------------------------------------------------------
Non-current assets                                                              
--------------------------------------------------------------------------------
Long-term financial assets                        21,601      25,124      27,415
--------------------------------------------------------------------------------
Deferred income tax assets                         1,592       1,818       1,592
--------------------------------------------------------------------------------
Investment property                                4,615       3,546       4,672
--------------------------------------------------------------------------------
Property, plant and equipment                     12,704      14,826      13,117
--------------------------------------------------------------------------------
Intangible assets                                  1,139       1,346       1,167
--------------------------------------------------------------------------------
                                                  41,651      46,660      47,963
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
TOTAL ASSETS                                     240,527     223,969     239,238
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
LIABILITIES                                                                     
--------------------------------------------------------------------------------
Current liabilities                                                             
--------------------------------------------------------------------------------
Borrowings                                        15,836      12,590      18,916
--------------------------------------------------------------------------------
Payables and prepayments                          77,352      64,378      72,162
--------------------------------------------------------------------------------
Income tax liability                                 197          47          62
--------------------------------------------------------------------------------
Short-term provisions                              5,152       5,268       5,906
--------------------------------------------------------------------------------
                                                  98,537      82,283      97,046
--------------------------------------------------------------------------------
Non-current liabilities                                                         
--------------------------------------------------------------------------------
Long-term borrowings                              16,321      19,813      16,469
--------------------------------------------------------------------------------
Deferred income tax liability                        574         380         505
--------------------------------------------------------------------------------
Other long-term payables                           1,667       1,705       2,162
--------------------------------------------------------------------------------
                                                  18,562      21,898      19,136
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
TOTAL LIABILITIES                                117,099     104,181     116,182
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
EQUITY                                                                          
--------------------------------------------------------------------------------
Non-controlling interests                            854       1,232       1,193
--------------------------------------------------------------------------------
Equity attributable to equity holders of the                                    
 parent                                                                         
--------------------------------------------------------------------------------
Share capital                                     12,000      12,000      12,000
--------------------------------------------------------------------------------
Statutory reserve capital                          1,200       1,200       1,200
--------------------------------------------------------------------------------
Currency translation differences                   (669)       (653)       (669)
--------------------------------------------------------------------------------
Retained earnings                                110,043     106,009     109,332
--------------------------------------------------------------------------------
                                                 122,574     118,556     121,863
--------------------------------------------------------------------------------
TOTAL EQUITY                                     123,428     119,788     123,056
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY                     240,527     223,969     239,238
--------------------------------------------------------------------------------



The website of AS Merko Ehitus group, listed on Nasdaq OMX Tallinn, is from now
on group.merko.ee, and the previous website of the group www.merko.ee will
become the website of AS Merko Ehitus Eesti, Estonian leading construction
company. 

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

AS Merko Ehitus (group.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]