Market announcement

Title

2017 12 months and IV quarter consolidated unaudited interim report

Message

Tallinn, Estonia, 2018-02-08 07:00 CET (GLOBE NEWSWIRE) --




COMMENTARY FROM MANAGEMENT

Sales revenue of Merko Ehitus for both Q4 of 2017 and the entire 12 month
period outstripped the totals for the same periods last year by more than a
quarter – Q4 sales revenue was EUR 102.8 million and the 12-month figure EUR
317.6 million. The last time sales revenue reached above EUR 300 million was 10
years ago. The group’s net profit was EUR 8.1 million for Q4 and EUR 14.7
million for the 12-month period. As discussed with the Supervisory Board, the
Management Board proposes to pay 120% of last year’s earnings in dividends to
shareholders, which makes 1 euro per share. 

The group’s revenue increased mostly because of the growth in construction
contracts concluded with private sector customers in the last two years. The
sales revenue increased on all of group’s home markets – in Estonia, Latvia,
Lithuania and Norway. The net profit exceeded management expectations set a
year ago, but it should be noted that such a strong quarterly result is not
usual. A number of positive factors supported the growth of profit in the last
quarter of the year, including real estate transactions of a one-time nature in
Q4, the preparations for which spanned a longer period. Also, a large share of
the apartments sold coincided with the last quarter, as did an improvement in
the profitability of several projects. However, the profitability of providing
construction services to customers is under pressure, as the construction
market is still facing challenges in the rise of input prices and the lack of
design development and subcontracting resources. Above all, this has an effect
on the profitability of the general contracting construction companies,
increases contractual risk and forces to continuously seek greater internal
efficiency.  This year, the volume of new orders for road and engineering works
fell short of the management’s expectations and as a whole, we were unable to
compete with the prices bid at public procurements. 

In Q4, Merko Ehitus sold 106 apartments, and during 12 months 392 apartments;
the revenue figures were EUR 13.3 million and EUR 47.1 million, respectively
(figures do not include VAT). In 2017, Merko companies launched the
construction of around 500 new apartments and invested EUR 48 million into the
development projects launched this year and projects already in progress. In
addition, the group acquired new immovable properties in the amount of
approximately EUR 9 million. The apartment market in the Baltics has generally
been good, although the supply of new apartments on the market has grown and a
stabilisation of the number of sales transactions has been seen for some time
now. In the management’s assessment, we cannot be satisfied with the pace at
which building permits and planning documents are processed, as this is keeping
Merko group from bringing more development projects to market faster. Demand
for Merko apartments is strong. Apartment development is a central business
line for Merko Ehitus and depending on obtaining building permits, Merko Ehitus
plans to invest more than EUR 50 million into this area in 2018. 

In Q4 of 2017, Merko Ehitus posted revenue of EUR 103 million, EBITDA of EUR
11.2 million, profit before taxes of EUR 10.6 million and net profit of EUR 8.1
million. 2017 sales revenue was EUR 317.6 million, EBITDA was EUR 22.2 million,
profit before taxes was EUR 18.8 million and net profit was EUR 14.7 million.
In the 12 months of 2017, the group entered into new contracts with a total
volume of EUR 335 million and EUR 31 million in Q4, including, in Estonia,
Toom-Kuninga 21 apartment building, Viimsi State Gymnasium and Tallink office
building, as well as performance of additional works on the Z‑Towers complex in
Latvia. 

As of 31 December 2017, Merko Ehitus had a secured order-book of EUR 344.4
million compared to EUR 269.6 million in the same period in the previous year.
Among larger projects in progress in Q4 in Estonia were the construction of T1
Mall of Tallinn shopping centre, Maakri Kvartal business complex, Öpiku Maja’s
building B, Noblessner residential quarter, Pärnu mnt 22 office building,
expansion of Wendre production facility, and the Embassy of the People’s
Republic of China. In Latvia, the larger projects in progress were Akropole and
Alfa shopping centres, Z-Towers complex and Ventspils music school and concert
hall; and in Lithuania, Radisson Blu Hotel Lietuva expansion, Philip Morris
plant, and Rinktines Urban development project. In Norway, the biggest projects
in progress in Q4 were the addition to the Blakstad hospital building and
Akersgata 8 office building in Oslo. 

As discussed with the Supervisory Board, the Management Board proposes to pay
EUR 17.7 million (EUR 1.0 per share) in dividends to shareholders at the
expense of retained earnings; with the dividend rate for 2017 thus amounting to
120%. The management board bases the proposal to pay dividends more than the
last year’s earnings and above that of the dividend policy rate mainly on the
rather high equity level of the group, and modest debt level. In the light of
low margins in the construction services segment, which limits the group’s
profitability and return on equity, one of the group’s goals is to make the
usage of shareholders’ capital more efficient. The group continues to invest in
apartment development. 



OVERVIEW OF THE IV QUARTER AND 12 MONTHS RESULTS

PROFITABILITY

Q4 2017 net profit was EUR 8.1 million (Q4 2016: EUR 1.4 million) and net
profit margin 7.9% (Q4 2016: 1.8%). Net profit in 12M 2017 was EUR 14.7 million
(12M 2016: EUR 6.1 million), having increased by 91.7% compared to the same
period last year Net profit margin increased to 4.6% (12M 2016: 2.4%). Profit
before tax in 12M 2017 was EUR 18.8 million (12M 2016: EUR 7.3 million), which
brought the profit before tax margin to 5.9% (12M 2016: 2.9%). 

REVENUE

Q4 2017 revenue was EUR 102.8 million (Q4 2016: EUR 78.6 million) and 12M 2017
revenue was EUR 317.6 million (12M 2016: EUR 252.0 million). 12M revenue has
increased by 26.0% compared to last year. The share of revenue earned outside
Estonia in 12M 2017 was 39.9% (12M 2016: 29.4%). 

SECURED ORDER BOOK

As at 31 December 2017, the group’s secured order book had grown to EUR 344.4
million (31 December 2016: EUR 269.6 million). In 12M 2017, group companies
signed new contracts in the amount of EUR 334.9 million (12M 2016: EUR 202.4
million). In Q4 2017, new contracts were signed in amount of EUR 31.3 million
(Q4 2016: EUR 61.9 million). 

REAL ESTATE DEVELOPMENT

The group sold a total of 392 apartments (incl. 17 apartment in a joint
ventures) in 12 months of 2017 at a total value of EUR 47.1 million (excl.
VAT). During 12 months of 2016 493 apartments (incl. 21 apartment in a joint
ventures) were sold at total value of EUR 56.6 million. In Q4 of 2017 a total
of 106 apartments were sold  (incl. 16 apartment in joint ventures) at a value
of EUR 13.3 million (excl. VAT), compared to Q4 of 2016 when 225 apartments
were sold (incl. 9 apartments in joint ventures) at a total value of EUR 27.0
million. 

CASH POSITION

At the end of the reporting period, the group had EUR 39.2 million in cash and
cash equivalents, and equity EUR 130.2 million (47.0% of total assets).
Comparable figures as at 31 December 2016 were EUR 33.5 million and EUR 122.8
million (51.6% of total assets), respectively. As at 31 December 2017 the group
had net debt of EUR 20.1 million (31 December 2016: EUR 12.5 million). 

PROPOSAL FOR DISTRIBUTION OF PROFITS

As discussed with the Supervisory Board, the Management Board proposes to
distribute to shareholders EUR 17.7 million (1 euro per share) in dividends
from retained earnings in 2018. This is equivalent to a 120% dividend rate for
2017. 



                                    12M    12M  Variance     Q4    Q4  Variance
                                   2017   2016             2017  2016          
-------------------------------------------------------------------------------
Revenue              million EUR  317.6  252.0    +26.0%  102.8  78.6    +30.8%
-------------------------------------------------------------------------------
EBITDA               million EUR   22.2   11.2    +98.2%   11.2   2.8   +301.6%
-------------------------------------------------------------------------------
EBITDA margin        %              7.0    4.4             10.9   3.6          
-------------------------------------------------------------------------------
EBIT                 million EUR   19.5    7.7   +153.1%   10.7   1.6   +553.8%
-------------------------------------------------------------------------------
EBIT margin          %              6.2    3.1             10.4   2.1          
-------------------------------------------------------------------------------
Profit before tax    million EUR   18.8    7.3   +157.9%   10.6   1.6   +575.8%
-------------------------------------------------------------------------------
PBT margin           %              5.9    2.9             10.3   2.0          
-------------------------------------------------------------------------------
Net profit (parent)  million EUR   14.7    6.1   +140.0%    8.1   1.4   +477.9%
-------------------------------------------------------------------------------
Net profit margin    %              4.6    2.4              7.9   1.8          
-------------------------------------------------------------------------------
EPS                  EUR           0.83   0.35   +140.0%   0.46  0.08   +477.9%
-------------------------------------------------------------------------------
                                                                               


                                    31.12.2017  31.12.2016  Variance
--------------------------------------------------------------------
ROE (on yearly basis)  %                  11.9         5.0          
--------------------------------------------------------------------
Equity ratio           %                  47.0        51.6          
--------------------------------------------------------------------
Secured order book     million EUR       344.4       269.6    +27.8%
--------------------------------------------------------------------
Total assets           million EUR       277.1       237.8    +16.5%
--------------------------------------------------------------------
Number of employees    people              755         797     -5.3%
--------------------------------------------------------------------
                                                                    



Business activities

The group business reporting is divided into three business segments: Estonian
construction service, other home markets construction service and real estate
development. 

Estonian construction service

The Estonian construction service segment consists of services in the field of
general construction, civil engineering, electricity, external networks and
road construction, as well as concrete works and construction services on
project basis in Finland. 

In the 12 months of 2017, the revenue of the Estonian construction service
segment was EUR 135.2 million (12 months of 2016: EUR 122.4 million), having
increased by 10.5% from the same period last year. The 12 months revenue
includes revenue from Finnish projects in the amount of EUR 0.02 million (12
months of 2016: EUR 0.6 million). The increase in revenue in the segment is
primarily influenced by the fact that several large-scale general construction
projects launched in 2016 have continued to progress. The Estonian construction
service segment revenues for 12 months 2017 were 42.6% of the group’s revenue,
forming the largest proportion in the group’s revenue (2016: 48.6%). 

In this segment, the group earned an operating profit of EUR 5.9 million for 12
months (12 months of 2016: EUR 3.4 million). In 12 months of 2017, the
operating profit margin of the Estonian construction service segment was 4.3%,
which increased by 1.5 pp compared to the 12 months of 2016 (2.8%). The
Estonian construction services market is characterised by stiff competition.
The number of civil engineering projects remains small. The group is
continually enhancing the efficiency of its internal project management
processes, having reduced and relocated group resources in order to maintain an
efficient cost base. 

Larger projects in the fourth quarter in Estonian construction service segment
included the construction works of Maakri Kvartal business complex, T1 shopping
centre, Öpiku office building B, Pärnu mnt 22 office building, extension works
to the complex of the air traffic control centre, Embassy of the People’s
Republic of China residence, extension works of Wendre production building  and
construction works for clean up of the residual pollution of the Maadevahe and
Priimetsa asphalt concrete plant. 

On 13th June 2017, AS Vooremaa Teed, 100% subsidiary of Tallinna Teed AS, part
of AS Merko Ehitus group, and Eesti Keskkonnateenused AS entered into sales and
purchase agreement to dispose AS Vooremaa Teed’s road maintenance field of
activity. The largest contract under disposal of the field of activity was with
Estonian Road Administration signed in 2015. Under the contract, AS Vooremaa
Teed performed the road and maintenance works of main roads in Viljandi county
in total annual value of approximately EUR 1.8 million and with the term till
31 December 2020. The transaction was approved by Estonian Competition
Authority on 21st of June 2017 and completed during 3rd quarter 2017. 

Other home markets construction service

The other home markets construction service segment consists of general
construction work in Latvia, Lithuania and Norway, as well as provision of
civil engineering and electricity construction services in Latvia. 

The sales revenue of the other home markets construction service segment
amounted to EUR 108.4 million in the 12 months of 2017 (12 months of 2016: EUR
52.7 million), which is 105.6% more than in the 12 months of 2016. If the other
home markets construction service segment revenues of 12 months of 2016 formed
20.9% of the group’s revenue, then during 12 months of 2017, that ratio
increased to 34.1%. The revenue growth has been supported mainly by major
construction contracts in Latvia. 

In Latvia, Merko has gained a stronger position among general contractors than
previously, which provides opportunities to grow business volumes. In
Lithuania, we are continuing our strategic plan to focus on foreign customers,
who make up the predominant part of the group’s Lithuanian secured order book.
In Lithuania, we have also entered more widely the public procurement sphere in
the field of general construction. In Norway, group has signed two major
construction contracts this year, in the amount of EUR 4.3 million and EUR 6.4
million, as well as performing several smaller-scale agreements. 

The 12 months operating profit of the other home market construction service
segment amounted to EUR 1.8 million (12 months of 2016: operating loss EUR 1.3
million) and the operating profit margin was 1.7% (12 months of 2016: negative
2.5%). The sales revenue of other home market construction service segment has
increased by 3,4 times in Q4 compared to the same period last year and the
operating profit was EUR 1.8 million (Q4 2016: operating loss EUR 0.5 million). 

In the fourth quarter of 2017, the larger ongoing projects in the other home
markets construction service segment included, in Riga, the construction works
of Multifunctional Centre Akropole and of Alfa Shopping Centre, finishing works
of Z‑Towers complex and, in Ventspils, the construction works of music school
and concert hall. In Vilnius, the larger projects were the construction works
of Narbuto 5 office building, the design and construction works of Radisson Blu
Hotel Lietuva extension and, in Klaipeda, the reconstruction and extension
construction works of Philip Morris plant. In Norway, the larger projects
included construction works for an extension of Blakstad Hospital building, and
renovation and building works of Akersgata 8 office building in Oslo. 

Real estate development

The real estate development segment includes residential real estate
development and construction of joint venture projects, long-term real estate
investments and commercial real estate projects in Estonia, Latvia and
Lithuania. In the interests of the finest quality and maximum convenience and
assurance for buyers, Merko handles all phases of development: acquisition of
the real estate, planning, design of the development project, construction,
sales and marketing, and warranty-period customer service. 

The group sold a total of 392 apartments (incl. 17 apartment in a joint
ventures) in 12 months of 2017 at a total value of EUR 47.1 million (excl. VAT)
comparing to 2016 12 months when 493 apartments (incl. 21 apartment in a joint
ventures) were sold at a total value of EUR 56.6 million. In 12 months of 2017,
real estate development segment revenues decreased by 3.7% compared to the same
period last year. In the 12 months of 2017, the share of revenue from the real
estate development segment formed 23.3% of the group’s total revenue (12 months
of 2016: 30.5%). In Q4 of 2017, a total of 106 apartments were sold (incl. 16
apartment in joint ventures) at a total value of EUR 13.3 million (excl. VAT),
compared to Q4 of 2016 when 225 apartments were sold (incl. 9 apartments in
joint ventures) at a total value of EUR 27.0 million. 

The 12 months of 2017 operating profit of the segment amounted to EUR 13.8
million (12 months of 2016: EUR 7.5 million) and the operating profit margin
was 18.6% (12 months of 2016: 9.7%), which increased by 8.9 pp compared to the
same period previous year. The fourth quarter operating profit was positeively
influenced by the sale of immovable assets in Estonia. 

At the end of the period, group’s inventory comprised 311 apartments where a
preliminary agreement had been signed: 36 completed apartments (28 in Estonia,
5 in Latvia and 3 in Lithuania) and 275 apartments under construction (185 in
Estonia, 25 in Latvia and 65 in Lithuania). The sale of these apartments had
not yet been finalised and delivered to customers, because the development site
is still under construction or the site was completed at the end of the
reporting period and the sales transactions have not all been finalised yet. 

As at 31 December 2017, the group had a total of 317 apartments for active sale
(as at 31 December 2016: 314 apartments), for which there are no pre-sale
agreements and of which 96 have been completed (47 in Estonia, 44 in Latvia and
5 in Lithuania) and 221 are under construction (95 in Estonia, 71 in Latvia and
55 in Lithuania). 

In 12 months of 2017, the group launched the construction of a total of 496 new
apartments in the Baltic states (12 months of 2016: 344 apartments). In the 12
months of 2017, the group has invested a total of EUR 48.4 million (12 months
of 2016: EUR 53.6 million) in new development projects launched in 2017 as well
as projects already in progress. 

One of group’s objectives is to keep a sufficient portfolio of land plots to
ensure stable inventory of property development projects, which considers the
market conditions. As at 31 December 2017, the group's inventories included
land plots with development potential, where the construction works have not
started, in amount of EUR 63.6 million (31.12.2016: EUR 63.2 million). 

In the 12 months of 2017, the group purchased new land plots at an acquisition
cost of EUR 9.2 million for real estate development purposes (12 months of
2016: EUR 19.1 million). 

In Q1 of 2017, the group acquired an approximately 1.5-hectare development area
in Riga city centre, allowing to build nearly 350 apartments in the upcoming
years. 

In Q3, the group purchased immovable properties located on the Maarjamäe
limestone cliff in the Lasnamäe district of Tallinn. Considering the registered
immovables in this area that were already owned by the group, there is now
potential to establish more than 1,000 apartments. The development has a
long-term perspective and will take place in multiple phases. 

Post balance sheet date, the group has disposed non-strategic land plots in a
sales value of EUR 0.7 million. 

Secured order book

As at 31 December 2017, the group’s secured order book amounted to EUR 344.4
million, compared to EUR 269.6 million as at 31 December 2016, having increased
by 27,8% in the annual comparison. The secured order book excludes the group's
own residential development projects and construction works related to
developing real estate investments. 

In 12 months of 2017, EUR 334.9 million worth of new contracts were signed,
compared to EUR 202.4 million in same period 2016. The value of new contracts
signed in the fourth quarter of 2017 amounted to EUR 31.3 million (Q4 2016: EUR
61.9 million). 

Of the contracts signed in the 12 months of 2017, private sector orders
accounted for the majority, which is also represented in the group’s secured
order book, where private sector orders from projects in progress constitute
approximately 86% (31.12.2016: approximately 70%). 

Traditionally, the share of Estonian construction activity has been the highest
in the group's revenues. However, given the growth outlook of the Estonian
construction market, the group's strategic goal is to increase the volume of
construction orders from outside Estonia. Thus, the group will continue to
identify and strengthen its competitive advantages and monitor the development
and opportunities both in the Baltic states and Nordic countries. 

Cash flows

As at 31 December 2017, the group had cash and cash equivalents in the amount
of EUR 39.2 million (31.12.2016: EUR 33.5 million). The group's cash position
is continually strong: the group has not utilised all its credit lines of
existing overdrafts and loan agreements within reporting period. As at the end
of the reporting period, the group entities had concluded overdraft contracts
with banks in a total amount of EUR 17.5 million, of which EUR 9.5 was unused
(31.12.2016: EUR 11.2 million, all of which was unused). In addition to the
overdraft facilities, the company has a working capital loan facility with the
limit of EUR 3.5 million (31.12.2016: EUR 3.5 million) from AS Riverito, which
was not withdrawn at the end of current nor previous financial period. 

The 12 month cash flow from operating activity was negative at EUR 1.3 million
(12 months of 2016: negative EUR 12.0 million), cash flow from investing
activity was positive at EUR 1.0 million (12 months of 2016: negative EUR 0.6
million) and the cash flow from financing activity was negative at EUR 6.1
million (12 months of 2016: positive EUR 6.2 million). Compared to the year
2016, the cash flow from operating activities had positive impacts from
increase of EBITDA EUR 22.2 million (12 months of 2016: positive EUR 11.2
million) and from the positive change of the provisions EUR 0.6 million (2016:
negative change of EUR 0.5 million), while negative impacts came from change in
the receivables and liabilities related to construction contracts recognised
under the stage of completion method EUR 8.5 million (2016: positive change of
EUR 3.7 million), and from the corporate income tax paid on dividends EUR 1.3
million (2016: negative change EUR 1.7 million). 

To support cash flows from operating activities, the group has judiciously
raised additional external capital. At the same time, the debt ratio has
remained at a moderate level (21.4% as at 31.12.2017; 19.3% as at 31.12.2016). 

Cash flows from investing activities include negative cash flow from the
acquisition of non-current assets in the amount of EUR 1.4 million (12 months
of 2016: EUR 3.0 million) and positive cash flow from the sale of non-current
assets in the amount of EUR 1.9 million (12 months of 2016: EUR 1.1 million).
The acquisitions and disposals of non-current assets was made in the road
construction activity. 

The largest negative items in cash flows from financing activities were the
dividend payment of EUR 7.3 million (12 months of 2016: EUR 9.0 million)  and
finance lease principal repayments in amount of EUR 0.8 million (12 months of
2016: EUR 0,9 million). The positive net effect of EUR 14.3 million (12 months
of 2016: positive net effect in amount EUR 16.0 million) to cash flow from
financing activities came from the loans received and loans repaid in
connection with acquisitions of immovable properties, as well as financing of
construction costs of development projects. 

The Q4 2017 cash flow from operating activity was positive at EUR 8.9 million
(Q4 2016: negative EUR 0.9 million), which was significantly affected by the
disposal of immovable properties in the Q4. The cash flow from investing
activity was positive at EUR 0.2 million (Q4 2016: negative EUR 0.6 million)
and the cash flow from financing activity was positive at EUR 11.6 million (Q4
2016: positive EUR 14.2 million). 

The quarterly cash flow from financing activities was mainly influenced by the
net change in loans drawn for financing the construction costs of real estate
development projects. 

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. 

According to the current dividends policy the objective is paying the
shareholders 50-70% of the annual profit. 

The annual general meeting of shareholders of AS Merko Ehitus held at 28 April
2017 approved the Supervisory Board’s 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 119% dividend rate and a 4.5%
dividend yield for the year 2016 (using the share price as at 31 December
2016). Comparable figures in 2015 were accordingly: EUR 9.0 million (EUR 0.51
per share) as dividends, which is equivalent to a 90% dividend rate and a 6.0%
dividend yield (using the share price as at 31 December 2015). 

According to the Estonian Income Tax Law section 50 subsection 11, AS Merko
Ehitus can pay dividends, without any additional income tax expense and
liabilities occurring, up to the amount it has received dividends from
subsidiaries, which are resident companies of a Contracting State of the EEA
Agreement subject to that state’s income tax legislation. Taking into account
the dividends already paid to the parent company by the subsidiaries during
2017, the group incurred additional income tax expense in connection with the
disbursement of dividends of EUR 0.9 million (Q2 2016: EUR 0.6 million) in
Estonia, in the second quarter of 2017.The dividend payment to the shareholders
took place on 26 May 2017. 

As discussed with the Supervisory Board, the Management Board proposes to pay
the shareholders EUR 17.7 million as dividends from net profits brought forward
(EUR 1.00 per share) in 2018, which is equivalent to a 120% dividend rate and a
11.4% dividend yield for the year 2017 (using the share price as at 31 December
2017). Taking into account the dividends already paid to the parent company and
planned to be paid by foreign subsidiaries in early 2018, the group will not
incur income tax expenses arising in 2018 in Estonia in connection with
disbursement of dividends. 

Ratios

(attributable to equity holders of the parent)

                                     12M     12M     12M      Q4      Q4      Q4
                                    2017    2016    2015    2017    2016    2015
--------------------------------------------------------------------------------
Income statement                                                                
 summary                                                                        
--------------------------------------------------------------------------------
Revenue                  million   317.6   252.0   251.0   102.8    78.6    66.4
                           EUR                                                  
--------------------------------------------------------------------------------
Gross profit             million    30.9    19.0    23.0    14.2     5.0     7.7
                           EUR                                                  
--------------------------------------------------------------------------------
Gross profit margin         %        9.7     7.5     9.1    13.8     6.4    11.6
--------------------------------------------------------------------------------
Operating profit         million    19.5     7.7    12.5    10.7     1.6     4.9
                           EUR                                                  
--------------------------------------------------------------------------------
Operating profit margin     %        6.2     3.1     5.0    10.4     2.1     7.3
--------------------------------------------------------------------------------
Profit before tax (PBT)  million    18.8     7.3    11.7    10.6     1.6     4.7
                           EUR                                                  
--------------------------------------------------------------------------------
PBT margin                  %        5.9     2.9     4.7    10.3     2.0     7.0
--------------------------------------------------------------------------------
Net profit               million    15.8     6.0     9.8     8.9     1.3     4.3
                           EUR                                                  
--------------------------------------------------------------------------------
attributable to equity   million    14.7     6.1    10.0     8.1     1.4     4.4
 holders of the parent     EUR                                                  
--------------------------------------------------------------------------------
attributable to          million     1.1   (0.1)   (0.2)     0.8   (0.1)   (0.1)
 non-controlling           EUR                                                  
 interest                                                                       
--------------------------------------------------------------------------------
Net profit margin           %        4.6     2.4     4.0     7.9     1.8     6.7
--------------------------------------------------------------------------------
                                                                                
--------------------------------------------------------------------------------
Other income statement                                                          
 indicators                                                                     
--------------------------------------------------------------------------------
EBITDA                   million    22.2    11.2    15.5    11.2     2.8     5.6
                           EUR                                                  
--------------------------------------------------------------------------------
EBITDA margin               %        7.0     4.4     6.2    10.9     3.6     8.4
--------------------------------------------------------------------------------
General expense ratio       %        4.6     5.3     4.8     4.2     4.9     5.1
--------------------------------------------------------------------------------
Labour cost ratio           %       10.1    11.7    12.2     8.4     9.6    12.4
--------------------------------------------------------------------------------
Revenue per employee     thousan     435     325     322     141     101      85
                          d EUR                                                 
--------------------------------------------------------------------------------


Other significant indicators               31.12.2017  31.12.2016  31.12.2015
-----------------------------------------------------------------------------
Return on equity                   %             11.9         5.0         8.0
-----------------------------------------------------------------------------
Return on assets                   %              5.8         2.8         4.4
-----------------------------------------------------------------------------
Return on invested capital         %             11.4         5.1         7.9
-----------------------------------------------------------------------------
Equity ratio                       %             47.0        51.6        59.5
-----------------------------------------------------------------------------
Debt ratio                         %             21.4        19.3        14.8
-----------------------------------------------------------------------------
Current ratio                    times            2.2         2.9         3.2
-----------------------------------------------------------------------------
Quick ratio                      times            1.1         1.1         1.2
-----------------------------------------------------------------------------
Accounts receivable turnover     days              40          37          39
-----------------------------------------------------------------------------
Accounts payable turnover        days              40          38          39
-----------------------------------------------------------------------------
Average number of employees      people           731         776         779
-----------------------------------------------------------------------------
Secured order book            million EUR       344.4       269.6       246.9
-----------------------------------------------------------------------------



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited

in thousand euros

                                             2017       2016      2017      2016
                                        12 months  12 months        IV        IV
                                                               quarter   quarter
--------------------------------------------------------------------------------
Revenue                                   317,598    251,970   102,791    78,593
--------------------------------------------------------------------------------
Cost of goods sold                      (286,747)  (232,961)  (88,638)  (73,555)
--------------------------------------------------------------------------------
Gross profit                               30,851     19,009    14,153     5,038
--------------------------------------------------------------------------------
Marketing expenses                        (3,215)    (3,281)     (795)     (904)
--------------------------------------------------------------------------------
General and administrative expenses      (11,289)   (10,076)   (3,500)   (2,960)
--------------------------------------------------------------------------------
Other operating income                      3,793      2,466     1,148       668
--------------------------------------------------------------------------------
Other operating expenses                    (601)      (399)     (277)     (201)
--------------------------------------------------------------------------------
Operating profit                           19,539      7,719    10,729     1,641
--------------------------------------------------------------------------------
Finance income/costs                        (767)      (440)     (173)      (79)
--------------------------------------------------------------------------------
incl. finance income from sale of              14          -        14         -
 subsidary                                                                      
--------------------------------------------------------------------------------
finance income/costs from joint                64        163        76        97
 ventures                                                                       
--------------------------------------------------------------------------------
finance income/costs from other                 2          2         2         1
 long-term investments                                                          
--------------------------------------------------------------------------------
interest expense                            (745)      (610)     (192)     (172)
--------------------------------------------------------------------------------
foreign exchange gain (loss)                  (1)        (6)         1         1
--------------------------------------------------------------------------------
other financial income (expenses)           (101)         11      (74)       (6)
--------------------------------------------------------------------------------
Profit before tax                          18,772      7,279    10,556     1,562
--------------------------------------------------------------------------------
Corporate income tax expense              (3,020)    (1,275)   (1,625)     (241)
--------------------------------------------------------------------------------
Net profit for financial year              15,752      6,004     8,931     1,321
--------------------------------------------------------------------------------
incl. net profit attributable to           14,694      6,122     8,133     1,408
 equity holders of the parent                                                   
--------------------------------------------------------------------------------
net profit attributable to                  1,058      (118)       798      (87)
 non-controlling interest                                                       
--------------------------------------------------------------------------------
Other comprehensive income, which can                                           
 subsequently be classified in the                                              
 income statement                                                               
--------------------------------------------------------------------------------
Currency translation differences of          (74)         19      (47)      (11)
 foreign entities                                                               
--------------------------------------------------------------------------------
Comprehensive income for the period        15,678      6,023     8,884     1,310
--------------------------------------------------------------------------------
incl. net profit attributable to           14,637      6,140     8,099     1,399
 equity holders of the parent                                                   
--------------------------------------------------------------------------------
net profit attributable to                  1,041      (117)       785      (89)
 non-controlling interest                                                       
--------------------------------------------------------------------------------
Earnings per share for profit                0.83       0.35      0.46      0.08
 attributable to equity holders of the                                          
 parent (basic and diluted, in EUR)                                             
--------------------------------------------------------------------------------



CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited

in thousand euros

                                                     31.12.2017  31.12.2016
---------------------------------------------------------------------------
ASSETS                                                                     
---------------------------------------------------------------------------
Current assets                                                             
---------------------------------------------------------------------------
Cash and cash equivalents                                39,210      33,544
---------------------------------------------------------------------------
Trade and other receivables                              75,844      45,566
---------------------------------------------------------------------------
Prepaid corporate income tax                                492         617
---------------------------------------------------------------------------
Inventories                                             118,421     123,364
---------------------------------------------------------------------------
                                                        233,967     203,091
---------------------------------------------------------------------------
Non-current assets                                                         
---------------------------------------------------------------------------
Long-term financial assets                               17,242      15,805
---------------------------------------------------------------------------
Deferred income tax assets                                    5       1,325
---------------------------------------------------------------------------
Investment property                                      15,719       4,108
---------------------------------------------------------------------------
Property, plant and equipment                             9,665      12,838
---------------------------------------------------------------------------
Intangible assets                                           497         673
---------------------------------------------------------------------------
                                                         43,128      34,749
---------------------------------------------------------------------------
                                                                           
---------------------------------------------------------------------------
TOTAL ASSETS                                            277,095     237,840
---------------------------------------------------------------------------
                                                                           
---------------------------------------------------------------------------
LIABILITIES                                                                
---------------------------------------------------------------------------
Current liabilities                                                        
---------------------------------------------------------------------------
Borrowings                                               24,218      21,485
---------------------------------------------------------------------------
Payables and prepayments                                 74,972      56,259
---------------------------------------------------------------------------
Income tax liability                                        413         278
---------------------------------------------------------------------------
Short-term provisions                                     4,569       5,637
---------------------------------------------------------------------------
                                                        104,172      83,659
---------------------------------------------------------------------------
Non-current liabilities                                                    
---------------------------------------------------------------------------
Long-term borrowings                                     35,138      24,516
---------------------------------------------------------------------------
Deferred income tax liability                             1,259       1,122
---------------------------------------------------------------------------
Other long-term payables                                  1,789       2,061
---------------------------------------------------------------------------
                                                         38,186      27,699
---------------------------------------------------------------------------
                                                                           
---------------------------------------------------------------------------
TOTAL LIABILITIES                                       142,358     111,358
---------------------------------------------------------------------------
                                                                           
---------------------------------------------------------------------------
EQUITY                                                                     
---------------------------------------------------------------------------
Non-controlling interests                                 4,567       3,692
---------------------------------------------------------------------------
Equity attributable to equity holders of the parent                        
---------------------------------------------------------------------------
Share capital                                             7,929       7,929
---------------------------------------------------------------------------
Statutory reserve capital                                   793         793
---------------------------------------------------------------------------
Currency translation differences                          (702)       (645)
---------------------------------------------------------------------------
Retained earnings                                       122,150     114,713
---------------------------------------------------------------------------
                                                        130,170     122,790
---------------------------------------------------------------------------
TOTAL EQUITY                                            134,737     126,482
---------------------------------------------------------------------------
                                                                           
---------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY                            277,095     237,840
---------------------------------------------------------------------------



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



Priit Roosimägi
Head of Group Finance Unit
AS Merko Ehitus
+372 650 1250
[email protected]



AS Merko Ehitus (group.merko.ee) group consists of Estonia’s leading
construction company AS Merko Ehitus Eesti, the Latvian-market-oriented SIA
Merks, UAB Merko Statyba that is operating on the Lithuanian market, Peritus
Entreprenør AS construction company in Norway and the real estate development
business unit along with real estate holding companies. As at the end of 2017,
the group employed 755 people and the company’s 2017 revenue was EUR 317.6
million.