Market announcement

Title

2019 3 months consolidated unaudited interim report

Message

COMMENTARY FROM MANAGEMENT

In  Q1 of 2019, Merko Ehitus posted revenue  of EUR 77 million and net profit of
EUR 2.8 million. The number of apartments delivered to buyers in Q1 of this year
grew more than 20% year-over-year.

Nearly 4% decrease in revenue in the first quarter was expected, considering the
trend  of  decreasing  construction  orders  on  the  market  and  the fact that
exceptionally  large construction  projects in  the group's  portfolio in recent
years  were completed.  In the  first quarter,  the group  entered into more new
construction contracts than we did a year ago during the same period, but as the
profit  margins on construction contracts are low due to high price competition,
the  growth in revenue is not  a goal unto itself. It  was positive that the net
profitability  improved in  the first  quarter. In  the construction market, the
share   of   government  contracts  is  increasing  and  the  volume  of  public
procurements is significantly influencing the outlook on the construction market
in the years to come regarding buildings and especially infrastructure.

In  Q1 of 2019, Merko Ehitus posted revenue  of EUR 77 million (Q1 2018: EUR 80
million),  EBITDA was EUR 3.5 million (Q1  2018: 1.8 million) and net profit EUR
2.8 million  (Q1 2018: EUR 1.1 million). In Q1, new construction contracts worth
EUR  32 million were signed,  the largest of  these being the  construction of a
support  warehouse and the  expansion of a  medical centre in  Tapa armed forces
campus, public water supply and sewerage pipe renovation in Harju County and the
extension of the Sindi 330 kV substation.

For  Merko Ehitus apartment  development is a  strategic business area, and this
year's  planned  investment  into  that  area  is around EUR 100 million. At the
moment,  the group  has more  than 1,000 apartments  in development  in Estonia,
Latvia  and Lithuania, of which more than  half will be completed in 2020," said
Andres Trink.

No significant changes took place on the apartment market in the Baltic capitals
in Q1. The price level is stabilizing in Tallinn and Vilnius due to an increased
supply  of  new  apartments:  quality,  integral residential environment and the
developer's  professionalism have become increasingly important. Considering the
low transaction volumes on the Riga apartment market and improving macroeconomic
indicators,  the growth potential is good there. In 2018, the group launched two
development  projects in Riga with about 200 apartments, which will be completed
in 2020.

In  Q1 of 2019, Merko Ehitus handed over  63 apartments to buyers, which is more
than  20% above  the  level  shown  a  year  ago during the same period. Merko's
largest  projects include Uus-Veerenni and  Pikaliiva residential communities in
Tallinn, Gai?ezers and Viesturd?rzs developments in Riga and Vilnel?s sl?nis and
Rinktin?s Urban developments in Vilnius.

One  area  of  concern  is  the  situation  on  the Baltic banking market, where
decreased  competition is worsening companies'  access to credit. The tightening
requirements  on acceptance of  bank customers as  well as on their transactions
can  have  a  negative  impact  on  economic  activity in the Baltics. This may,
gradually, also manifest itself in a decline of real estate market activity.

As  of 31 March 2019, the secured  order book of Merko  Ehitus group amounted to
EUR  190 million, compared to EUR 292 million as  at the same date last year. In
Q1,  the largest projects  in progress in  Estonia were Pärnu mnt 186 commercial
building, student home of Rakvere Vocational School, the Maakri Kvartal business
complex,  expansion and construction work on  the logistics building and medical
centre  at the  Defence Forces  Tapa base,  dredging and reconstruction works of
Hundipea  port, and laying  undersea cables under  the Suur Väin  and Väike Väin
straits;  in Latvia, construction  on the Akropole  multifunctional centre, Alfa
shopping  centre and  Lidl logistics  centre; and  in Lithuania,  Hotel Neringa,
Quadrum  office  building  and  two  school  buildings.  In  Norway, the largest
projects  in progress included  design and construction  of Tesla service centre
and renovation of an office building at Møllergata 23-25, Oslo.

OVERVIEW OF THE 3 MONTHS RESULTS

PROFITABILITY
Net profit attributable to equity holders of the parent in 3 months 2019 was EUR
2.8 million  (3M 2018: EUR 1.1 million), having  increased by 151.7% compared to
the same period last year. Net profit margin increased to 3.6% (3M 2018: 1.4%).

Profit   before   tax   in   3 months   2019 was   EUR  3.0 million  (3M  2018:
EUR 1.3 million),  which  brought  the  profit  before  tax  margin  to 3.9% (3M
2018: 1.6%).

REVENUE
The  3 months 2019 revenue was EUR  76.8 million (3M 2018: EUR 80.3 million). 3
months'  revenue has  decreased by  4.3% compared to  same period last year. The
share   of  revenue  earned  outside  Estonia  in  3 months  2019 was  60.8% (3M
2018: 57.5%).

SECURED ORDER BOOK
As  at 31 March 2019, the  group's secured order  book was EUR 190.0 million (31
March  2018: EUR 291.9 million).  In 3 months  2019, group companies  signed new
contracts in the amount of EUR 32.2 million (3M 2018: EUR 22.3 million).

REAL ESTATE DEVELOPMENT
In  3 months 2019, the group sold a  total of 63 apartments (incl. 29 apartments
in  a joint venture); in 3 months  2018, the group sold 51 apartments (incl. 25
apartment  in a joint  venture). The group  earned a revenue  of EUR 4.6 million
from sale of own developed apartments in 3 months 2019 and EUR 4.3 million in 3
months 2018.

CASH POSITION
At  the end of the reporting period, the  group had EUR 33.0 million in cash and
cash  equivalents,  and  equity  EUR  134.6 million  (48.7%  of  total  assets).
Comparable  figures as  at 31 March  2018 were EUR  27.6 million and  EUR 131.3
million  (47.6% of total  assets), respectively. As  at 31 March 2019, the group
had net debt of EUR 9.9 million (31 March 2018: EUR 23.1 million).

DISTRIBUTION OF PROFITS
The  general meeting of shareholders held  on 8 May 2019 resolved to approve the
profit  allocation proposal for 2018 and to  distribute EUR 17.7 million (1 euro
per  share) in dividends  from retained earnings.  This is equivalent  to a 92%
dividend rate for 2018.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

unaudited
in thousand euros

                                                        2019     2018      2018
                                                    3 months 3 months 12 months
-------------------------------------------------------------------------------
 Revenue                                              76,845   80,310   418,011
-------------------------------------------------------------------------------
 Cost of goods sold                                 (70,639) (76,227) (384,962)
-------------------------------------------------------------------------------
 Gross profit                                          6,206    4,083    33,049
-------------------------------------------------------------------------------
 Marketing expenses                                    (851)    (806)   (3,285)
-------------------------------------------------------------------------------
 General and administrative expenses                 (3,124)  (2,819)  (12,304)
-------------------------------------------------------------------------------
 Other operating income                                  701      852     3,527
-------------------------------------------------------------------------------
 Other operating expenses                               (35)     (32)   (1,115)
-------------------------------------------------------------------------------
 Operating profit                                      2,897    1,278    19,872
-------------------------------------------------------------------------------
 Finance income/costs                                     83     (26)      (97)
-------------------------------------------------------------------------------
 incl. finance income/costs from sale of subsidiary
 and  liquidation                                          -        -      (62)
-------------------------------------------------------------------------------
 finance income/costs from joint venture                 222      136       653
-------------------------------------------------------------------------------
 interest expense                                      (135)    (153)     (652)
-------------------------------------------------------------------------------
 foreign exchange gain (loss)                              -      (1)         5
-------------------------------------------------------------------------------
 other financial income (expenses)                       (4)      (8)      (41)
-------------------------------------------------------------------------------
 Profit before tax                                     2,980    1,252    19,775
-------------------------------------------------------------------------------
 Corporate income tax expense                           (75)     (90)     (375)
-------------------------------------------------------------------------------
 Net profit for financial year                         2,905    1,162    19,400
-------------------------------------------------------------------------------
 incl. net profit attributable to equity holders of
 the parent                                            2,778    1,104    19,343
-------------------------------------------------------------------------------
 net profit attributable to non-controlling
 interest                                                127       58        57
-------------------------------------------------------------------------------
 Other comprehensive income, which can subsequently
 be classified in the income statement
-------------------------------------------------------------------------------
 Currency translation differences of foreign
 entities                                                 32       13       (6)
-------------------------------------------------------------------------------
 Comprehensive income for the period                   2,937    1,175    19,394
-------------------------------------------------------------------------------
 incl. net profit attributable to equity holders of
 the parent                                            2,808    1,117    19,324
-------------------------------------------------------------------------------
 net profit attributable to non-controlling
 interest                                                129       58        70
-------------------------------------------------------------------------------
 Earnings per share for profit attributable to
 equity holders of the parent (basic and diluted,
 in EUR)                                                0.16     0.06      1.09
-------------------------------------------------------------------------------

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros

                                               31.03.2019 31.03.2018 31.12.2018
-------------------------------------------------------------------------------
 ASSETS
-------------------------------------------------------------------------------
 Current assets
-------------------------------------------------------------------------------
 Cash and cash equivalents                         32,970     27,600     39,978
-------------------------------------------------------------------------------
 Trade and other receivables                       75,297     85,027     76,183
-------------------------------------------------------------------------------
 Prepaid corporate income tax                         224        549        224
-------------------------------------------------------------------------------
 Inventories                                      130,019    121,754    117,992
-------------------------------------------------------------------------------
                                                  238,510    234,930    234,377
-------------------------------------------------------------------------------
 Non-current assets
-------------------------------------------------------------------------------
 Investments in joint venture                         954        215        732
-------------------------------------------------------------------------------
 Other long-term loans and receivables             11,043     15,051     10,391
-------------------------------------------------------------------------------
 Deferred income tax assets                             -          5          -
-------------------------------------------------------------------------------
 Investment property                               14,140     15,655     13,771
-------------------------------------------------------------------------------
 Property, plant and equipment                     10,853      9,358      9,715
-------------------------------------------------------------------------------
 Intangible assets                                    700        511        671
-------------------------------------------------------------------------------
                                                   37,690     40,795     35,280
-------------------------------------------------------------------------------

-------------------------------------------------------------------------------
 TOTAL ASSETS                                     276,200    275,725    269,657
-------------------------------------------------------------------------------

-------------------------------------------------------------------------------
 LIABILITIES
-------------------------------------------------------------------------------
 Current liabilities
-------------------------------------------------------------------------------
 Borrowings                                        15,624     13,673     19,900
-------------------------------------------------------------------------------
 Payables and prepayments                          82,764     81,761     77,016
-------------------------------------------------------------------------------
 Income tax liability                                 420        484        381
-------------------------------------------------------------------------------
 Short-term provisions                              7,081      4,119      8,100
-------------------------------------------------------------------------------
                                                  105,889    100,037    105,397
-------------------------------------------------------------------------------
 Non-current liabilities
-------------------------------------------------------------------------------
 Long-term borrowings                              27,220     37,003     24,266
-------------------------------------------------------------------------------
 Deferred income tax liability                      1,521      1,299      1,481
-------------------------------------------------------------------------------
 Other long-term payables                           2,299      1,474      2,179
-------------------------------------------------------------------------------
                                                   31,040     39,776     27,926
-------------------------------------------------------------------------------

-------------------------------------------------------------------------------
 TOTAL LIABILITIES                                136,929    139,813    133,323
-------------------------------------------------------------------------------

-------------------------------------------------------------------------------
 EQUITY
-------------------------------------------------------------------------------
 Non-controlling interests                          4,706      4,625      4,577
-------------------------------------------------------------------------------
 Equity attributable to equity holders of the
 parent
-------------------------------------------------------------------------------
 Share capital                                      7,929      7,929      7,929
-------------------------------------------------------------------------------
 Statutory reserve capital                            793        793        793
-------------------------------------------------------------------------------
 Currency translation differences                   (691)      (689)      (721)
-------------------------------------------------------------------------------
 Retained earnings                                126,534    123,254    123,756
-------------------------------------------------------------------------------
                                                  134,565    131,287    131,757
-------------------------------------------------------------------------------
 TOTAL EQUITY                                     139,271    135,912    136,334
-------------------------------------------------------------------------------

-------------------------------------------------------------------------------
 TOTAL LIABILITIES AND EQUITY                     276,200    275,725    269,657
-------------------------------------------------------------------------------

Interim  report and the  investor presentation are  attached to the announcement
and  are also published  on NASDAQ Tallinn  and Merko's web page (group.merko.ee
(http://group.merko.ee/en/)).

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

AS Merko Ehitus (group.merko.ee (http://group.merko.ee/en/)) group consists of
Estonia's leading construction company AS Merko Ehitus Eesti, the Latvian-
market-oriented SIA Merks, UAB Merko Statyba operating on the Lithuanian market,
and the Norwegian construction company Peritus Entreprenør AS. Besides provision
of construction service as a main contractor, the group's other major area of
activity is apartment development. As at the end of 2018, the group employed
764 people, and the group's revenue for 2018 was EUR 418 million.