Market announcement

Title

2014 6 months and II quarter consolidated unaudited interim report

Message

Tallinn, Estonia, 2014-08-07 15:30 CEST (GLOBE NEWSWIRE) --


MANAGEMENT REPORT

Overview of the 6 months and II quarter results

REVENUE                                                                         
Revenue in 6M 2014 was EUR 113.7 million (6M 2013: EUR 113.7 million), which is 
 at the same level compared to the same period last year. Q2 revenue was EUR    
 64.8 million (Q2 2013: EUR 65.9 million). The share of revenue earned outside  
 of Estonia has incresed in 6M 2014 to 30.7% (6M 2013: 18.4%).                  
PROFITABILITY                                                                   
Net profit in 6M was EUR 4.4 million (comparable figure in 6M 2013: EUR 4.0     
 million). Q2 net profit was EUR 3.6 million (Q2 2013: EUR 2.3 million). Gross  
 margin in 6M was 8.9% (6M 2013: 8.6%), which has increased by 2.6% compared to 
 the same period last year.                                                     
CASH POSITION                                                                   
At the end of the reporting period, the group had EUR 43.4 million in cash and  
 cash equivalents and equity EUR 119.0 million (48.8% of total assets).         
 Comparable figures as at 30 June 2013 were accordingly EUR 33.8 million (incl  
 EUR 2.5 million short-term deposits) and EUR 115.5 million (48.8% of total     
 assets).                                                                       
SECURED ORDER BOOK                                                              
In Q2 2014, group companies signed new contracts in the amount of EUR 21.7      
 million (Q2 2013: EUR 51.3 million). 6M 2014 new contracts signed in amount of 
 EUR 70.3 million (6M 2013: EUR 95.5 million). As at 30 June 2014, the group’s  
 secured order book stood at EUR 191.6 million (30 June 2013: EUR 184.4         
 million).                                                                      



                        6M ’14  6M ’13  Varianc  Q2 ’14  Q2 ’13  Varianc     12M
                                              e                        e     ‘13
--------------------------------------------------------------------------------
Revenue       million    113.7   113.7     0.0%    64.8    65.9    -1.6%   262.7
               EUR                                                              
--------------------------------------------------------------------------------
Gross profit  million     10.1     9.8    +2.6%     6.1     5.6    +9.9%    22.7
               EUR                                                              
--------------------------------------------------------------------------------
Gross profit  %            8.9     8.6    +2.6%     9.5     8.5   +11.7%     8.6
 margin                                                                         
--------------------------------------------------------------------------------
Net profit    million      4.4     4.0    +7.7%     3.6     2.3   +59.8%    10.4
 (parent)      EUR                                                              
--------------------------------------------------------------------------------
Net profit    %            3.8     3.6    +7.7%     5.6     3.5   +62.4%     4.0
 margin                                                                         
--------------------------------------------------------------------------------
EPS           EUR         0.25    0.23    +7.7%    0.21    0.13   +59.8%    0.59
--------------------------------------------------------------------------------



                                    30.06.14  30.06.13  Variance  31.12.13
--------------------------------------------------------------------------
ROE (on yearly basis)  %                 8.9       9.6     -7.4%       8.8
--------------------------------------------------------------------------
Equity ratio           %                48.8      48.8     -0.1%      50.9
--------------------------------------------------------------------------
Secured order book     million EUR     191.6     184.4     +3.9%     213.7
--------------------------------------------------------------------------
Total assets           million EUR     243.9     236.6     +3.1%     239.2
--------------------------------------------------------------------------
Number of employees    people            851       943     -9.8%       860
--------------------------------------------------------------------------



OPERATING RESULTS

Business activities

Key financial indicators (in million euros)

                            6 months  6 months         II  II quarter  12 months
                                2014      2013    quarter        2013       2013
                                                     2014                       
--------------------------------------------------------------------------------
Revenue                                                                         
--------------------------------------------------------------------------------
Estonia                         78.8      92.8       46.2        55.3      211.9
--------------------------------------------------------------------------------
Latvia                          29.2      17.5       15.2         9.2       44.4
--------------------------------------------------------------------------------
Lithuania                        5.7       3.4        3.4         1.4        6.4
--------------------------------------------------------------------------------
Revenue total                  113.7     113.7       64.8        65.9      262.7
--------------------------------------------------------------------------------
Gross profit                    10.1       9.8        6.1         5.6       22.7
--------------------------------------------------------------------------------
EBITDA                           6.1       6.3        4.3         3.4       15.1
--------------------------------------------------------------------------------
Operating profit (EBIT)          5.0       5.1        3.7         2.8       12.3
--------------------------------------------------------------------------------
Net profit                                                                      
--------------------------------------------------------------------------------
attributable to equity           4.4       4.0        3.6         2.3       10.4
 holders of the parent                                                          
--------------------------------------------------------------------------------
attributable to                (0.2)       0.0        0.0       (0.1)        0.0
 non-controlling interest                                                       
--------------------------------------------------------------------------------
Net profit total                 4.2       4.0        3.6         2.2       10.4
--------------------------------------------------------------------------------
Earnings per share (EPS),       0.25      0.23       0.21        0.13       0.59
 euros                                                                          
--------------------------------------------------------------------------------
Cash and cash equivalents       43.4     33.8*       43.4       33.8*       46.6
 closing position                                                               
--------------------------------------------------------------------------------

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



Revenue and gross profit

Merko Ehitus group generated a total of EUR 113.7 million in revenue in 6
months of 2014 (6 months of 2013: EUR 113.7 million). 69.3% of the revenue was
generated in Estonia, 25.6% in Latvia and 5.1% in Lithuania (6 months of 2013:
81.6% in Estonia, 15.4% in Latvia and 3.0% in Lithuania). Compared to the first
6 months of 2013 the group revenue remained unchanged. In the 6 months of 2014
the share of Latvian revenue has increased from 15.4% to 25.6%, which is an
ongoing trend in 2014. Revenue in Q2 2014 was EUR 64.8 million, which has
decreased 1.6% compared to the previous year (Q2 2013: EUR 65.9 million).The
main changes in the revenue structure compared to the same period last year,
can be mainly attributed to projects pursued in the general construction and
real estate development segment. At the same time there has been a significant
reduction in sales revenue from engineering construction and road construction
segments, which is primarily due to the end of major projects financed from EU
structural funds and the reduced project volumes. A similar trend was already
seen in the first quarter of 2014. 

In 6 months of 2014 the group’s gross profit from development and construction
activities totalled EUR 10.1 million (6 months of 2013: EUR 9.8 million). The
gross profit in Q2 2014 was EUR 6.1 million (Q2 2013: EUR 5.6 million).The 6
months gross profit margin (8.9%) has increased compared to the same period
last year (6 months of 2013: 8.6%). The growth of the profit margin has been
supported by growth - both on a semi-annual and quarterly basis - in the higher
volumes and with the higher profitability of the real estate development
segment. In addition, the growth of profit margins in civil engineering segment
and stability of profit margins in the road construction segment have been
significant. Profitability has been negatively impacted by a drop in the
profitability of the general construction segment in conjunction with a
simultaneous growth in volumes. The scarcity of projects and the
ever-tightening competition in the construction sector poses a great 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 6 months of 2014, the group’s profit before tax totalled EUR 4.7 million and
net profit attributable to equity holders of the parent was EUR 4.4 million as
compared to the pre-tax profit or EUR 4.5 million and net profit attributable
to equity holders of the parent of EUR 4.0 million in 6 months of 2013. Group’s
net profit margin was 3.8% (6 months of 2013: 3.6%). The net profit for the 6
months 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
increases the income tax expenses as extraordinary one-off item, compared to
the 6 months  of 2013. 

In Q2 of 2014, the group’s pre-tax profit totalled EUR 3.6 million and net
profit was EUR 3.6 million as compared to the pre-tax profit or EUR 2.6 million
and net profit of EUR 2.3 million in Q2 of 2013. Both the group’s quarterly net
profit (EUR 3.6 million) and the net profit margin (5.6%) have increased
compared to the same period last year (6 months of 2013: EUR 2.3 million and
3.5%, respectively). 

In the second quarter of 2014, the group paid EUR 7.3 million in dividends,
which incurred no additional income tax expense in connection with previously
received and taxed distribution of profits from subsidiaries. The situation in
the third quarter of 2013 was alike, when the group paid EUR 5.3 million in
dividends. 



Business segments

The group operates mainly in Estonian, Latvian and Lithuanian market through
its subsidiaries 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. The groups management structure is country based and is in turn
divided by business segments. 

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

             6 months  6 months  Change         II         II  Change  12 months
                 2014      2013            quarter    quarter               2013
                                              2014       2013                   
--------------------------------------------------------------------------------
Revenue          56.9      33.5  +70.0%       31.1       20.9  +48.8%       86.6
--------------------------------------------------------------------------------
% of total      50.0%     29.4%  +70.1%      48.0%      31.7%  +51.2%      32.9%
 revenue                                                                        
--------------------------------------------------------------------------------
Gross             1.5       1.2  +21.1%        1.3        0.8  +68.1%      (0.5)
 profit                                                                         
 (loss)                                                                         
--------------------------------------------------------------------------------
Gross            2.6%      3.7%  -28.8%       4.1%       3.7%  +13.0%      -0.6%
 profit                                                                         
 margin                                                                         
--------------------------------------------------------------------------------

In the 6 months of 2014, the revenue of the general construction segment was
EUR 56.9 million (6 months of 2013: EUR 33.5 million), having increased by
70.0% from the same period last year. The segments gross profit has increased
by 21.1% and the segments overall gross profit for the period is EUR 1.5
million (6 months of 2013: EUR 1.2 million). The segment continues to be mainly
influenced by the pressure on the margins exerted by tightening competition. In
the 6 months the revenue of the general construction segment formed the largest
proportion in the group’s revenue with a 50.0% share. This proportional
increase was expected, especially given the knowledge that the volumes in the
civil engineering and road construction segments were decreasing. 

The tight competition in the general construction segment has left it’s mark on
the segments gross margin (6 months of 2014: 2.6%), having decreased 28.8%
compared to the same period last year. The sector is significantly impacted by
even tighter competition and increasing price pressure on asking prices in a
situation where input prices are generally continuing to see marginal growth.
While we saw a rise in the proportion of private sector orders starting in
2013, unfortunately the same tendency has not continued for the group in the
first half year of 2014. Nevertheless, with regard to projects in progress in
the general construction segment, private sector orders still outstrip public
procurements as at the end of the quarter. 

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 in Tallinn,
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 6 months of 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

             6 months   6 months  Change         II         II  Change        12
                 2014       2013            quarter    quarter            months
                                               2014       2013              2013
--------------------------------------------------------------------------------
Revenue          24.3       45.5  -46.6%       14.9       24.8  -39.9%      94.5
--------------------------------------------------------------------------------
% of total      21.4%      40.0%  -46.6%      23.0%      37.6%  -38.9%     36.0%
 revenue                                                                        
--------------------------------------------------------------------------------
Gross             3.2        3.9  -20.0%        2.1        1.6  +33.9%      12.5
 profit                                                                         
--------------------------------------------------------------------------------
Gross           13.0%       8.7%  +49.8%      14.3%       6.4%  +122.7     13.2%
 profit                                                              %          
 margin                                                                         
--------------------------------------------------------------------------------

The revenue of the civil engineering segment amounted to EUR 24.3 million in
the 6 months of 2014 (6 months of 2013: EUR 45.5 million), which is 46.6% 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 6
months of 2013 formed the largest proportion in the group’s revenue (6 months
of 2013: 40.0%), then during 6 months of the current year the segments revenues
formed 21.4% of total revenue being down 46.6% compared to the previous year.
The 6 month gross profit of the civil engineering segment amounted to EUR 3.2
million (6 months of 2013: EUR 3.9 million) and the gross profit margin was
13.0% (6 months of 2013: 8.7%), which increased by 49.8% compared to the same
period previous year. We consider this a very good result, given that the
volumes of the segment have decreased by nearly a half. We continue to closely
monitor the changes in the volumes, to maintain an effective cost base. 

In the second quarter of 2014, the main ongoing projects included were the
design and renovation of the infrastructure of Tallinn tram line No. 4, 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

             6 months  6 months  Change         II         II  Change  12 months
                 2014      2013            quarter    quarter               2013
                                              2014       2013                   
--------------------------------------------------------------------------------
Revenue          11.2      22.5  -50.4%        8.1       14.8  -45.2%       49.5
--------------------------------------------------------------------------------
% of total       9.8%     19.8%  -50.4%      12.5%      22.4%  -44.3%      18.8%
 revenue                                                                        
--------------------------------------------------------------------------------
Gross             1.6       2.7  -41.0%        1.1        2.3  -49.1%        5.9
 profit                                                                         
--------------------------------------------------------------------------------
Gross           14.5%     12.2%  +18.9%      14.2%      15.2%   -7.1%      12.0%
 profit                                                                         
 margin                                                                         
--------------------------------------------------------------------------------

The revenue of the road construction segment amounted to EUR 11.2 million in
the first half of 2014 (6 months of 2013: EUR 22.5 million), which means a
50.4% decrease from the same period 2013. In the 6 months of 2014, the segment
earned a gross profit of EUR 1.6 million (6 months of 2013: EUR 2.7 million),
which yields a gross profit margin of 14.5%. 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, in the 6 months of 2014 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

             6 months   6 months  Change         II         II  Change        12
                 2014       2013            quarter    quarter            months
                                               2014       2013              2013
--------------------------------------------------------------------------------
Revenue          20.6       11.7  +77.0%       10.3        5.2  +100.3      31.0
                                                                     %          
--------------------------------------------------------------------------------
% of total      18.2%      10.3%  +77.1%      15.9%       7.8%  +103.6     11.8%
 revenue                                                             %          
--------------------------------------------------------------------------------
Gross             3.7        1.9  +99.5%        1.5        1.0  +55.1%       5.1
 profit                                                                         
--------------------------------------------------------------------------------
Gross           18.1%      16.1%  +12.7%      14.5%      18.7%  -22.6%     16.5%
 profit                                                                         
 margin                                                                         
--------------------------------------------------------------------------------

A total of 198 apartments were sold in 6 months of 2014 at the total value of
EUR 18.6 million (excl. VAT), (6 months of 2013: 94 apartments and EUR 10.8
million, respectively; 12 months of 2013: 263 apartments and EUR 28.3 million,
respectively). In Q2 of 2014 a total of 99 apartments were sold at the total
value of EUR 9.6 million (excl. VAT), (Q2 2013: 37 apartments and EUR 4.6
million). Both the 6 months and Q2 real estate development segment revenues
have increased compared to the same period last year – 77.0% and 100.3%,
repectively. The share of revenue from the real estate development segment also
increased in the first half-year (77.1% to 18.2% of the group’s total revenue);
this was planned and occasioned by the strategic decisions made in 2013 to
increase the segment’s investments into various new real estate development
projects. 

In 6 months of 2014, the group has earned EUR 1.4 million of revenue from the
sale of properties (6 months of 2013: EUR 0.2 million). Q2 revenue from the
sale of properties was EUR 0.4 million (Q2 2013: EUR 0.2 million). 

At the end of the period, Merko Ehitus group’s inventory comprised 21 completed
but not yet sold apartments (11 in Estonia, 1 in Latvia and 9 in Lithuania) and
25 completed and pre-sold apartments (7 in Estonia, 7 in Latvia and 11 in
Lithuania). 

As at 30 June 2014, Merko Ehitus group had a total of 234 apartments for active
sale (as at 30 June 2013: 401 apartments; as at 31 December 2013: 300
apartments), this comprises apartments for which no pre-sale agreements have
been signed. 

Apartment projects in progress and indicative date of completion

Project                      Municipality/Country   Completion        No of     
                                                       date       apartments *  
--------------------------------------------------------------------------------
Pärna avenue 6               Tartu municipality,    Completed           1       
                                   Estonia                                      
--------------------------------------------------------------------------------
Eha st. 4 / Paldiski road      Tallinn, Estonia     Completed           1       
 17                                                                             
--------------------------------------------------------------------------------
Pärna avenue 8               Tartu municipality,    Completed           1       
                                   Estonia                                      
--------------------------------------------------------------------------------
Pärna avenue 7               Tartu municipality,    Completed           9       
                                   Estonia                                      
--------------------------------------------------------------------------------
Tedre 55                       Tallinn, Estonia     Completed           6       
--------------------------------------------------------------------------------
Skanstes virsotnes 4 tower       Riga, Latvia       Completed           6       
--------------------------------------------------------------------------------
Grostonas 17                     Riga, Latvia       Completed           2       
--------------------------------------------------------------------------------
Mokslininku stage I          Vilnius, Lithuania     Completed           2       
--------------------------------------------------------------------------------
Mokslininku stage II         Vilnius, Lithuania     Completed           18      
--------------------------------------------------------------------------------
                                                                        46      
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Grostonas 19                     Riga, Latvia       Autumn 2014         82      
--------------------------------------------------------------------------------
Vana-Kalamaja                  Tallinn, Estonia     Autumn 2014         12      
 31+Suur-Laagri 2 **                                                            
--------------------------------------------------------------------------------
Paepargi 17, 19, 21 **         Tallinn, Estonia     Autumn 2014         54      
--------------------------------------------------------------------------------
Kentmanni 6                    Tallinn, Estonia     End of 2014         93      
--------------------------------------------------------------------------------
Pärna avenue 10 **           Tartu municipality,    End of 2014         42      
                                   Estonia                                      
--------------------------------------------------------------------------------
Grostonas 21                     Riga, Latvia       Spring 2015        125      
--------------------------------------------------------------------------------
                                                                       408      
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Started in Q2 2014                                                              
--------------------------------------------------------------------------------
Pärna avenue 9 **            Tartu municipality,    End of 2014         28      
                                   Estonia                                      
--------------------------------------------------------------------------------
                                                                        28      
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Total                                                                  482      
--------------------------------------------------------------------------------

* The completed apartments indicate the number of apartments that are unsold
and where possession has not been given to consumers. 
** Project launched in 2014.

In 6 months of 2014, we launched the construction of a total of 136 new
apartments in the Baltic States (6 months of 2013: 271 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. The implementation
of planned projects has been slightly delayed, primarily due to coordination of
technical designs and obtaining building permits from local municipalities. In
2014, the group’s planned 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 30 June 2014, the group has 60 apartments in Tartu where the construction
activity has been frozen (as at 30 June 2013, the respective number in Tallinn
and Tartu was 158 apartments). During 2014, we have re-launched two development
projects that were frozen in prior years: 

  -- Development of Pärna avenue 10 in Tartu municipality in the 1st quarter
     (the number of apartments for sale is 42);
  -- Development of Pärna avenue 9 in Tartu municipality in the 2nd quarter (the
     number of apartments for sale is 28).

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 searching for new land plots for real estate
development purposes in Estonian and Lithuania. The real estate portfolio in
Latvia is extensive enough, so in the short-term there are no plans for active
portfolio expansion. In the first six months of 2014, the group has purchased
new land plots at an acquisition cost of EUR 1.2 million (6 months of 2013: EUR
0.0 million). Also in the second quarter, the group realized an option
agreement to acquire the Rästa 18 land plot in Tallinn. 

The real estate market has not changed significantly over the last 6 months,
even though the events in Ukraine are likely to have somewhat slowed down
customers' investment decisions. Customers have become more knowledgeable as to
what they desire, and thus project location, development volume, design
solutions and target consumer group play an important role for the group before
launching each project and in the course of assessing the risks. 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 marginal 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

              6 months   6 months  Change         II        II  Change        12
                  2014       2013            quarter   quarter            months
                                                2014      2013              2013
--------------------------------------------------------------------------------
Revenue            0.7        0.5  +20.8%        0.4       0.2  +43.5%       1.1
--------------------------------------------------------------------------------
% of total        0.6%       0.5%  +20.9%       0.6%      0.5%  +45.9%      0.5%
 revenue                                                                        
--------------------------------------------------------------------------------
Gross              0.1        0.1  +287.5        0.1     (0.1)  +382.4     (0.3)
 profit                                 %                            %          
 (loss)                                                                         
--------------------------------------------------------------------------------
Gross             9.1%       2.8%  +220.7      20.6%      6.1%  +236.1    -29.9%
 profit                                 %                            %          
 margin                                                                         
--------------------------------------------------------------------------------



Secured order book

As at 30 June 2014, the group’s secured order book (without own developments)
amounted to EUR 191.6 million as compared to EUR 184.4 million as at 30 June
2013. The secured order book excludes the group's own residential development
projects and work related to developing real estate investments. 

In second quarter of 2014, EUR 21.7 million worth of new contracts were signed
(without own developments) as compared to EUR 51.3 million in same period last
year. 

Largest construction contracts signed in the second quarter of 2014

Brief description of contract                  Country   Completion       Cost  
                                                             time       million 
                                                                          eur   
--------------------------------------------------------------------------------
Construction works of HVDC converter station  Lithuani  December 2015     6.0   
 in Klaipeda                                     a                              
--------------------------------------------------------------------------------

After the balance sheet date, a contract was concluded on 1 August 2014 between
UAB Merko Statyba, which is a part of AS Merko Ehitus group, and Pro Kapital
Bonum UAB, which is part of AS Pro Kapital Grupp group, to perform the design
and construction works of an apartment building located in Lithuania Vilnius,
at Saltiniu Namai residential building complex, in the amount of EUR 2.9
million. 

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. The majority of the
contracts signed in the first six months of the year were public tenders and
the company did not manage to garner as much work from private sector customers
as it had envisaged. It is the general construction segment that is seeing the
stiffest competition and where competitors are making aggressive offers that
the construction companies in the Merko Ehitus group have thus far not gone
along with. As at 30 June 2014, the group’s secured order book was dominated by
public sector orders, which made up nearly two-thirds of the portfolio.
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. In this respect, it continues to be a
great challenge to maintain the group’s secured order book at the level of 2013
or growing it. 

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 30 June 2014 the group had cash
equivalents in the amount of EUR 43.4 million (30.06.2013: EUR 31.3 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 6-month cash flow from operating activity was positive at EUR 6.6 million
(6 months of 2013: positive EUR 3.2 million), cash flow from investing activity
was negative at EUR 0.9 million (6 months of 2013: negative EUR 3.2 million)
and the cash flow from financing activity was negative at EUR 9.0 million (6
months of 2013: negative EUR 3.9 million). 

The cash flow from operating activity was mostly influenced by the operating
profit EUR 5.0 million (6 months of 2013: EUR 5.1 million), by the positive
change in receivables and liabilities related to construction contracts
recognised under the stage of completion method EUR 6.0 million (6 months of
2013: positive change of EUR 4.1 million), by the negative change in provisions
EUR 1.3 million (6 months of 2013: negative change of EUR 2.2 million), by the
negative change in trade and other receivables related to operating activities
EUR 3.9 million (6 months of 2013: negative change of EUR 16.2 million), by the
negative change in inventory EUR 7.6 million (6 months of 2013: negative change
of EUR 1.1 million), and by the positive change in trade and other payables
related to operating activities EUR 8.0 million (6 months of 2013: positive
change of EUR 13.1 million). The negative change in inventories is mainly due
to the gradual completion of larger apartment developments (Grostonas 21 in
Riga and Kentmanni 6 in Tallinnas), which is partially positively offset by
prepayments received from pre-sales. 

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 (14.0% as at 30.06.2014; 13.9% as
at 30.06.2013). 

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 in the amount of EUR 0.4 million, while the balance of
non-current asset acquisition was EUR 0.6 million (6 months of 2013: EUR 0.5
million). Cash flows from investment activities in 6 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 and by EUR 0.3
million in other investments. 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 dividend
payment of EUR 7.3 million and 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 0.3 million (6 months of 2013: negative cash flow of EUR 0.2
million), net of loans received and loans repaid in connection with development
projects amounted to positive cash flow of EUR 2.8 million (6 months of 2013:
negative cash flow of EUR 2.2 million), factoring in the amount of EUR 0.0
million (6 months of 2013: negative cash flow of EUR 0.4 million) and finance
lease principal repayments of EUR 0.5 million (6 months of 2013: EUR 0.6
million). The group has not used bank loans to finance all of the ongoing
development projects – and this is the case particularly in Estonia, where many
advance sales were agreed in the early phase of construction. 

The Q2 2014 cash flow from operating activity was negative at EUR 2.3 million
(Q2 2013: negative EUR 1.9 million), cash flow from investing activity was
negative at EUR 0.4 million (Q2 2013: negative EUR 0.5 million) and the cash
flow from financing activity was negative at EUR 5.8 million (Q2 2013: positive
EUR 0.4 million). 

The quarterly cash flows from operating activities were negative primarily as a
result of the need for working capital to cover large-scale development
projects. Cash flow from operating activities was also impacted negatively by
the acquisition cost of land plots for development activity and the realization
of an option agreement for Rästa 18 land plot in Tallinn total in the amount of
EUR 2.5 million. 

Cash flows from investment activities was negative primarily due to the
acquisition of non-current asset in the amount of EUR 0.5 million, which is
mainly related to the renewal of equipment in the road construction segment. 

Cash flow from financing activities included the dividend payment of EUR 7.3
million as an one-time negative cash flow, which was offset by the net positive
cash flow of EUR 2.2 million of loans received and loans repaid to finance the
construction costs of development projects. 



Ratios

(attributable to equity holders of the parent)

                          6M ‘14  6M ‘13  6M ‘12  Q2 ‘14  Q2 ‘13  Q2 ‘12     12M
                                                                             ‘13
--------------------------------------------------------------------------------
Income statement                                                                
 summary                                                                        
--------------------------------------------------------------------------------
Revenue           millio   113.7   113.7   106.9    64.8    65.9    59.1   262.7
                   n EUR                                                        
--------------------------------------------------------------------------------
Gross profit      millio    10.1     9.8     5.0     6.1     5.6     2.5    22.7
                   n EUR                                                        
--------------------------------------------------------------------------------
Gross profit         %       8.9     8.6     4.7     9.5     8.5     4.3     8.6
 margin                                                                         
--------------------------------------------------------------------------------
Operating profit  millio     5.0     5.1     1.1     3.7     2.8     0.5    12.3
                   n EUR                                                        
--------------------------------------------------------------------------------
Operating profit     %       4.4     4.5     1.0     5.7     4.3     0.9     4.7
 margin                                                                         
--------------------------------------------------------------------------------
Profit before     millio     4.7     4.5     0.8     3.6     2.6     0.4    11.1
 tax               n EUR                                                        
--------------------------------------------------------------------------------
EBT margin           %       4.1     4.0     0.8     5.5     3.9     0.7     4.2
--------------------------------------------------------------------------------
Net profit        millio     4.2     4.0     0.5     3.6     2.2     0.4    10.4
                   n EUR                                                        
--------------------------------------------------------------------------------
attributable to   millio     4.4     4.0     0.6     3.6     2.3     0.4    10.4
 equity holders    n EUR                                                        
 of the parent                                                                  
--------------------------------------------------------------------------------
attributable to   millio   (0.2)     0.0   (0.1)     0.0   (0.1)     0.0     0.0
 non-controlling   n EUR                                                        
 interest                                                                       
--------------------------------------------------------------------------------
Net profit           %       3.8     3.6     0.5     5.6     3.5     0.7     4.0
 margin                                                                         
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Other income                                                                    
 statement                                                                      
 indicators                                                                     
--------------------------------------------------------------------------------
EBITDA            millio     6.1     6.3     2.3     4.3     3.4     1.1    15.1
                   n EUR                                                        
--------------------------------------------------------------------------------
EBITDA margin        %       5.4     5.5     2.2     6.6     5.2     1.9     5.7
--------------------------------------------------------------------------------
General expense      %       5.1     5.0     4.6     4.4     4.7     4.2     4.7
 ratio                                                                          
--------------------------------------------------------------------------------
Labour cost          %      12.6    12.8    11.4    11.7    12.3    10.9    11.8
 ratio                                                                          
--------------------------------------------------------------------------------
Revenue per       thousa     144     130     118      82      75      65     308
 employee         nd EUR                                                        
--------------------------------------------------------------------------------



Other significant                 30.06.2014  30.06.2013  30.06.2012  31.12.2013
 indicators                                                                     
--------------------------------------------------------------------------------
Return on equity           %             8.9         9.6        -5.3         8.8
--------------------------------------------------------------------------------
Return on assets           %             4.4         4.8        -2.7         4.4
--------------------------------------------------------------------------------
Return on invested         %             7.8         8.5        -3.3         8.0
 capital                                                                        
--------------------------------------------------------------------------------
Equity ratio               %            48.8        48.8        48.5        50.9
--------------------------------------------------------------------------------
Debt ratio                 %            14.0        13.9        17.6        14.8
--------------------------------------------------------------------------------
Current ratio            times           2.0         1.9         1.8         2.0
--------------------------------------------------------------------------------
Quick ratio              times           1.0         1.1         0.9         1.1
--------------------------------------------------------------------------------
Accounts receivable       days            57          59          56          58
 turnover                                                                       
--------------------------------------------------------------------------------
Accounts payable          days            38          46          48          43
 turnover                                                                       
--------------------------------------------------------------------------------
Average number of       people           791         878         903         853
 employees                                                                      
--------------------------------------------------------------------------------
Secured order book      million        191.6       184.4       233.2       213.7
                          EUR                                                   
--------------------------------------------------------------------------------



Employees and labour costs

Compared to the same period last year, the number of group’s employees
decreased by 92 (-9.8%) and as at 30 June 2014, the group had a total of 851
employees (including fixed-term and part-time employees). Compared to the end
of the previous financial year the number of empolyees has decreased by 9
(-1.0%). 

In 2014, the number of employees mainly declined because of the sale of
subsidiary Gustav Tallinn OÜ, the change of the principal area of activity of
subsidiary AS Gustaf, but also due to the proportion of the civil engineering
segment declined within the work volumes of the group. On the other hand the
number of employees had increased at the expense of seasonal workers mainly in
road construction segment. 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 6 months
2014, the labour cost was EUR 14.4 million (6 months 2013: EUR 14.6 million),
down 1.3% from the previous year. 



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 30 June 2014, the company has 17,700,000 shares. The number of shares has
not changed during 2014. 

A total of 1,098 transactions were conducted with the shares of Merko Ehitus in
6 months of 2014, with 0.68 million shares (3.8% of total shares) traded,
generating a turnover of EUR 5.11 million (comparable figures in 6 months 2013
were accordingly: 1,051 transactions with 0.36 million shares traded (2.0% of
total shares) and generating a turnover of EUR 2.45 million). The lowest share
price amounted to EUR 6.96 and the highest to EUR 7.99 per share (6 months of
2013: EUR 5.71 and EUR 7.70). The closing price of the share was EUR 7.18 on 30
June 2014 (30.06.2013: EUR 6.44). As at 30 June 2014, the market value of AS
Merko Ehitus amounted to EUR 127.1 million, which has risen 11.5% compared to
the same period end last year (as at 30 June 2013: EUR 114.0 million). 

                                 30.06.2014  30.06.2013  30.06.2012
-------------------------------------------------------------------
Number of shares                 17,700,000  17,700,000  17,700,000
-------------------------------------------------------------------
Earnings per share (EPS), euros        0.25        0.23        0.03
-------------------------------------------------------------------
Equity per share, euros                6.82        6.55        6.27
-------------------------------------------------------------------
P/B ratio                              1.05        0.98        0.99
-------------------------------------------------------------------
P/E ratio                             11.87        8.86      -18.68
-------------------------------------------------------------------
Market value, million EUR             127.1       114.0       110.4
-------------------------------------------------------------------

Structure of shareholders as at 30.06.2014

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%       2,938,675      16.60%
 1,000,000                                                                      
--------------------------------------------------------------------------------
10,001 – 100,000                  33           2.31%         994,872       5.62%
--------------------------------------------------------------------------------
1,001-10,000                     232          16.25%         692,322       3.91%
--------------------------------------------------------------------------------
101-1,000                        742          51.96%         309,324       1.75%
--------------------------------------------------------------------------------
1-100                            410          28.71%          22,121       0.13%
--------------------------------------------------------------------------------
Total                          1,428            100%      17,700,000        100%
--------------------------------------------------------------------------------

Shareholders of AS Merko Ehitus as at 30.06.2014 and change compared to the
previous quarter 

                                 Number of    % of total    % of total    Change
                                    shares    30.06.2014    31.03.2014          
--------------------------------------------------------------------------------
AS Riverito                     12,742,686        71.99%        71.99%         -
--------------------------------------------------------------------------------
ING Luxembourg S.A. AIF            974,126         5.50%         5.50%         -
 Account                                                                        
--------------------------------------------------------------------------------
Skandinaviska Enskilda Banken      479,527         2.71%         2.72%    -1,852
 S.A.                                                                           
--------------------------------------------------------------------------------
Skandinaviska Enskilda Banken      305,060         1.72%         1.72%         -
 AB, Swedish customers                                                          
--------------------------------------------------------------------------------
Firebird Republics Fund Ltd        302,395         1.71%         1.71%         -
--------------------------------------------------------------------------------
Firebird Avrora Fund Ltd           170,000         0.96%         0.32%  +114,226
--------------------------------------------------------------------------------
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%         0.84%         -
 AS                                                                             
--------------------------------------------------------------------------------
Clearstream Banking Luxembourg     143,652         0.81%         0.80%    +2,600
 S.A. customers                                                                 
--------------------------------------------------------------------------------
Skandinaviska Enskilda Banken      131,692         0.74%         0.75%      -705
 AB, Finnish customers                                                          
--------------------------------------------------------------------------------
Total largest shareholders      15,550,176        87.84%        87.21%  +114,269
--------------------------------------------------------------------------------
Total other shareholders         2,149,824        12.16%        12.79%  -114,269
--------------------------------------------------------------------------------
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 took 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.
The groups management is carried out on a country basis. 

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 was made in the
Commercial Register on 6 June 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 initially formed to
participate in public-private partnership (PPP) procurements organised by the
Lithuanian government and later changed to acquiring registered immovables for
development purposes in Lithuania. 

On 13 June 2014, fully owned subsidiary of AS Merko Ehitus, AS Merko Ehitus
Eesti formed a 50% joint venture in Estonia, Kivimäe 32 OÜ with a share capital
of EUR 2,600. The joint venture was formed to acquire a property for
development in Tallinn, Estonia. 

On 31 July 2014, a subsidiary of AS Merko Ehitus group, AS Merko Ehitus Eesti,
signed an agreement for the transfer of 7,5% holding in the subsidiary AS
Gustaf from the current co-shareholders and members of the management board
Raigo Jaanuste and Ago Randorg. After the acquisition of the minority share, AS
Gustaf became a 100% subsidiary of AS Merko Ehitus Eesti. The holding was
acquired with the purpose of re-arranging the structure of the group companies.
The principal area of activity of the construction company AS Gustaf was
general contracting of construction, mainly in the western and southern regions
of Estonia. Following the acquisition of 100% shares in AS Gustaf, the
principal area of activity of the company will be changed to real estate
development. On 1 August 2014, AS Merko Ehitus Eesti paid the sellers 95% of
the shares sales price of EUR 89,058. The final sales price will be calculated
in accordance with the audited 2015 annual report of AS Gustav, on the basis of
the designated equity. AS Merko Ehitus Group considers the additional influence
of adjustments of the sales price to be immaterial. 

On 5 August 2014, a subsidiary of AS Merko Ehitus group, SIA Merks, signed an
agreement for the transfer of 25% holding (275 thousand shares) in the joint
venture SIA Zakusala Estates from the current co-shareholder Tritan Group AS.
After the acquisition of the majority share, SIA Zakusala Estates will become a
75% subsidiary of SIA Merks. The additional 25% holding was acquired with the
purpose of gaining a greater control over the assets and the management of SIA
Zakusala Estates. The principal area of activity of the real estate company SIA
Zakusala Estates is the development of approximately 126 thousand square meters
land located on the island Zakusala on Daugava river in Riga. With the
increased control the group will be better positioned to lead the overall
future development of the project. This is a long term investment for AS Merko
Ehitus group. According to the agreement SIA Merks will pay for the additional
25% holding the purchase prices of EUR 696,273, by assigning the corresponding
part of a loan given by SIA Merks to SIA Zakusala Estates, to AS Tritan Group. 

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 (The 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, was changed. 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 (The 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. 

On 30 July 2014, the Supervisory Board of Tallinna Teede AS – the subsidiary of
AS Merko Ehitus Eesti, part of AS Merko Ehitus group – decided to extend the
powers of the Chairman of the Management Board, Jüri Läll for three years, i.e.
till 30 July 2017. The Management Board of Tallinna Teede AS will continue with
two members: Jüri Läll (The Chairman) and Jüri Helila. 

On 31 July 2014, the Supervisory Board of AS Merko Ehitus Eesti, part of AS
Merko Ehitus group, decided to extend the powers of the Member of the
Management Board, Alar Lagus for three years, i.e. till 31 July 2017. The
Management Board of AS Merko Ehitus Eesti will continue with four members: Tiit
Roben (The Chairman), Jaan Mäe, Veljo Viitmann and Alar Lagus. 



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited

in thousand euros

                                  2014       2013      2014      2013       2013
                              6 months   6 months        II        II  12 months
                                                    quarter   quarter           
--------------------------------------------------------------------------------
Revenue                        113,701    113,743    64,833    65,884    262,719
--------------------------------------------------------------------------------
Cost of goods sold           (103,622)  (103,918)  (58,690)  (60,294)  (239,996)
--------------------------------------------------------------------------------
Gross profit                    10,079      9,825     6,143     5,590     22,723
--------------------------------------------------------------------------------
Marketing expenses             (1,509)    (1,391)     (655)     (735)    (3,041)
--------------------------------------------------------------------------------
General and administrative     (4,292)    (4,339)   (2,172)   (2,383)    (9,260)
 expenses                                                                       
--------------------------------------------------------------------------------
Other operating income             837      1,218       431       510      2,264
--------------------------------------------------------------------------------
Other operating expenses          (83)      (186)      (33)     (142)      (425)
--------------------------------------------------------------------------------
Operating profit                 5,032      5,127     3,714     2,840     12,261
--------------------------------------------------------------------------------
Finance income/costs             (337)      (614)     (157)     (281)    (1,116)
--------------------------------------------------------------------------------
incl. finance income/costs        (70)       (70)      (36)      (36)      (138)
 from joint ventures                                                            
--------------------------------------------------------------------------------
finance income/costs from            1         23         1        10          2
 other long-term                                                                
 investments                                                                    
--------------------------------------------------------------------------------
interest expense                 (333)      (416)     (155)     (206)      (814)
--------------------------------------------------------------------------------
foreign exchange gain              (1)      (167)         -      (57)      (202)
 (loss)                                                                         
--------------------------------------------------------------------------------
other financial income              66         16        33         8         36
 (expenses)                                                                     
--------------------------------------------------------------------------------
Profit before tax                4,695      4,513     3,557     2,559     11,145
--------------------------------------------------------------------------------
Corporate income tax             (482)      (521)        40     (327)      (791)
 expense                                                                        
--------------------------------------------------------------------------------
Net profit for financial         4,213      3,992     3,597     2,232     10,354
 year                                                                           
--------------------------------------------------------------------------------
incl. net profit                 4,360      4,050     3,649     2,284     10,399
 attributable to equity                                                         
 holders of the parent                                                          
--------------------------------------------------------------------------------
net profit attributable to       (147)       (58)      (52)      (52)       (45)
 non-controlling interest                                                       
--------------------------------------------------------------------------------
Other comprehensive income                                                      
--------------------------------------------------------------------------------
Currency translation                 -      (148)         -       (7)      (157)
 differences of foreign                                                         
 entities                                                                       
--------------------------------------------------------------------------------
Comprehensive income for         4,213      3,844     3,597     2,225     10,197
 the period                                                                     
--------------------------------------------------------------------------------
incl. net profit                 4,360      3,902     3,649     2,277     10,242
 attributable to equity                                                         
 holders of the parent                                                          
--------------------------------------------------------------------------------
net profit attributable to       (147)       (58)      (52)      (52)       (45)
 non-controlling interest                                                       
--------------------------------------------------------------------------------
Earnings per share for            0.25       0.23      0.21      0.13       0.59
 profit attributable to                                                         
 equity holders of the                                                          
 parent (basic and diluted,                                                     
 in EUR)                                                                        
--------------------------------------------------------------------------------



CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited

in thousand euros

                                              30.06.2014  30.06.2013  31.12.2013
--------------------------------------------------------------------------------
ASSETS                                                                          
--------------------------------------------------------------------------------
Current assets                                                                  
--------------------------------------------------------------------------------
Cash and cash equivalents                         43,434      31,329      46,633
--------------------------------------------------------------------------------
Short-term deposits                                    -       2,500           -
--------------------------------------------------------------------------------
Trade and other receivables                       63,850      71,853      57,172
--------------------------------------------------------------------------------
Prepaid corporate income tax                          26          33          19
--------------------------------------------------------------------------------
Inventories                                       95,223      83,844      87,451
--------------------------------------------------------------------------------
                                                 202,533     189,559     191,275
--------------------------------------------------------------------------------
Non-current assets                                                              
--------------------------------------------------------------------------------
Long-term financial assets                        20,890      25,949      27,415
--------------------------------------------------------------------------------
Deferred income tax assets                         1,592       1,817       1,592
--------------------------------------------------------------------------------
Investment property                                4,556       3,418       4,672
--------------------------------------------------------------------------------
Property, plant and equipment                     13,242      14,624      13,117
--------------------------------------------------------------------------------
Intangible assets                                  1,095       1,276       1,167
--------------------------------------------------------------------------------
                                                  41,375      47,084      47,963
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
TOTAL ASSETS                                     243,908     236,643     239,238
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
LIABILITIES                                                                     
--------------------------------------------------------------------------------
Current liabilities                                                             
--------------------------------------------------------------------------------
Borrowings                                        15,298      12,854      18,916
--------------------------------------------------------------------------------
Payables and prepayments                          82,043      80,777      72,162
--------------------------------------------------------------------------------
Income tax liability                                  54         115          62
--------------------------------------------------------------------------------
Short-term provisions                              5,457       4,053       5,906
--------------------------------------------------------------------------------
                                                 102,852      97,799      97,046
--------------------------------------------------------------------------------
Non-current liabilities                                                         
--------------------------------------------------------------------------------
Long-term borrowings                              18,904      19,992      16,469
--------------------------------------------------------------------------------
Deferred income tax liability                        614         406         505
--------------------------------------------------------------------------------
Other long-term payables                           1,770       1,743       2,162
--------------------------------------------------------------------------------
                                                  21,288      22,141      19,136
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
TOTAL LIABILITIES                                124,140     119,940     116,182
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
EQUITY                                                                          
--------------------------------------------------------------------------------
Non-controlling interests                            802       1,180       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)       (660)       (669)
--------------------------------------------------------------------------------
Retained earnings                                106,435     102,983     109,332
--------------------------------------------------------------------------------
                                                 118,966     115,523     121,863
--------------------------------------------------------------------------------
TOTAL EQUITY                                     119,768     116,703     123,056
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY                     243,908     236,643     239,238
--------------------------------------------------------------------------------



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]