Market announcement

Title

2019 12 months and IV quarter consolidated unaudited interim report

Message

COMMENTARY FROM MANAGEMENT

Merko  Ehitus posted revenue of EUR 99 million and net profit of EUR 9.3 million
in Q4 of 2019, close to a one-third gain over the same period a year ago. In Q4,
the  revenue generated  by the  real estate  development business area more than
doubled compared to 2018 and made up approximately 47% of the group's revenue as
a  whole. In 2019, the 12-month revenue of  Merko Ehitus was EUR 327 million and
net  profit was EUR  16.3 million. As discussed  with the supervisory board, the
group's  management board proposes  to pay shareholders  0.60 euros per share as
dividends.

The  fourth quarter of Merko Ehitus was  expected to be strong. The professional
work   of  the  group  companies'  teams  and  timely  completion  of  apartment
development  projects  contributed  to  the  result.  The  forecasts  of group's
management  were somewhat exceeded  as some apartment  development projects were
completed  earlier than planned and sales were faster thanks to greater interest
from buyers.

The  decline in annual sales revenue by  about one fifth was expected because of
the   extra¬ordinarily   high   comparison  base  of  2018, which  included  the
construction  of  some  very  large  shopping  centres  in Tallinn and Riga. The
group's  smaller secured order  book also reflects  the situation on the market:
fewer  commercial  real  estate  sites  are  being  built because competition is
stiffer,  construction prices  have risen  and financing  conditions have become
more complicated. The price competition on the main contracting market continues
to be tight. So it is all the more gratifying to note that in spite of the lower
revenue,  we were able to improve profitability through a more precise selection
of  construction projects  and the  team's effectiveness.  The year's net profit
figure  was impacted  by significantly  higher income  tax expenses  compared to
2018 in  connection with  the payment  of dividends.  The group's  profit before
taxes for the 12 months was EUR 20.3 million and increased by 2.8% from the year
before.

The  proportion of  the real  estate development  business area has continued to
increase,  and in Q4 it made up close  to 47% of the entire group's revenue. The
real estate development business area's sales revenue was EUR 46.5 million in Q4
and  totalled EUR 70.1 million for  the 12 months. In Q4,  Merko sold a total of
276 apartments,  482 for  the  entire  year,  and  the  respective  figures  for
commercial  areas sold were 13 and 24. The apartment market in Tallinn, Riga and
Vilnius is stable and our focus continues to be on large development areas where
we  can  establish  an  integral  residential  environment  and launch and build
development projects stage by stage based on demand.

In  2019, the group Invested  EUR 87.4 million into  new and ongoing development
projects  and  started  construction  of  a  total  of 368 new apartments in the
Baltics.  The largest  projects were  the Uus-Veerenni,  Lahekalda and Pikaliiva
residential  projects  in  Tallinn;  in  Riga,  the  Gai?ezers  and Viesturd?rzs
developments;   and,  in  Vilnius,  the  Vilneles  slenis  and  Rinktin?s  Urban
developments.

Q4  2019 revenue  of  Merko  Ehitus  was  EUR  99 million  (Q4 of 2018: EUR 119
million),  EBITDA was EUR 10.2 million (Q4 of 2018: 7.6 million), and net profit
was   EUR   9.3 million   (Q4  of  2018: EUR  7.0 million).  In  Q4  2019, Merko
subsidiaries  signed new agreements  worth EUR 42 million  and the volume of new
contracts over the 12 months of 2019 stood at EUR 170 million. As of 31 December
2019, the  group's secured order  book amounted to  EUR 141 million, compared to
EUR 229 million on the same date in the previous year.

The  largest projects  in progress  in Q4  in Estonia  were the  construction of
Terminal  D parking house at the Tallinn  passenger port, Türi Basic School, the
student  home for Rakvere Vocational School and the commercial building at Pärnu
mnt  186, as well as the reconstruction  of the Aaspere-Haljala road section. In
Latvia,  the largest  projects in  progress were  the construction  of the Pinki
school  building and dormitory,  Lidl's logistics centre,  Alfa shopping centre,
and Laima chocolate factory, as well as the reconstruction of the Riga Technical
University Civil Engineering Faculty building. In Lithuania, the larger projects
were  the construction of Neringa Hotel,  Quadrum office building, and a private
school in Vilnius.




OVERVIEW OF THE IV QUARTER AND 12 MONTHS RESULTS

PROFITABILITY
2019 12 months'  profit before tax  was EUR 20.3 million  and for Q4 2019 it was
EUR  10.0 million  (12M  2018: EUR  19.8 million  and Q4 2018: EUR 7.1 million),
which brought the profit before tax margin to 6.2% (12M 2018: 4.7%).

Net  profit attributable to  equity holders of  the parent in 12 months 2019 was
EUR   16.3 million   (12M   2018: EUR   19.3 million)  and  Q4  2019 net  profit
attributable  to equity holders of the  parent was EUR 9.3 million (Q4 2018: EUR
7.0 million).  12 months'  net  profit  margin  was  5.0% (12M  2018: 4.6%). Net
profitability  was influenced by, among  other things, a significantly increased
income  tax expense: in Q2, the group's income tax expense on paid dividends was
EUR 2.7 million greater than the year before. There was no income tax expense on
the  dividends paid in 2018 - the dividends were distributed from dividends paid
by foreign subsidiaries to the parent.

REVENUE
Q4 2019 revenue was EUR 99.2 million (Q4 2018: EUR 119.2 million) and 12 months'
revenue   was   EUR  326.8 million  (12M  2018: EUR  418.0 million).  12 months'
decreased  by  21.8% compared  to  same  period  last year. The share of revenue
earned outside Estonia in 12 months 2019 was 48.3% (12M 2018: 51.5%).

SECURED ORDER BOOK
As at 31 December 2019, the group's secured order book was EUR 141.4 million (31
December 2018: EUR 229.0 million). In 12 months 2019, group companies signed new
contracts  in the amount of EUR  169.6 million (12M 2018: EUR 246.4 million). In
Q4  2019, new contracts were signed in the amount of EUR 42.0 million (Q4 2018:
EUR 89.4 million).

REAL ESTATE DEVELOPMENT
In 12 months 2019, the group sold a total of 482 apartments (incl. 47 apartments
in  a joint venture);  in 12 months 2018, the  group sold 482 apartments as well
(incl.  131 apartments in a  joint venture). The  group earned a  revenue of EUR
63.8 million  from sale  of own  developed apartments  in 12 months 2019 and EUR
41.3 million in 12 months 2018. In Q4 of 2019 a total of 276 apartments (incl.11
apartments  in a joint venture) were  sold compared to 227 apartments (incl. 84
apartments  in a joint  venture) in Q4  2018, and earned a  revenue of EUR 43.6
million from sale of own developed apartments (Q4 2018: EUR 17.0 million).

CASH POSITION
At  the end of the reporting period, the  group had EUR 24.7 million in cash and
cash  equivalents,  and  equity  of  EUR  130.3 million (46.2% of total assets).
Comparable  figures as at 31 December 2018 were  EUR 40.0 million and EUR 131.8
million (48.9% of total assets), respectively. As at 31 December 2019, the group
had net debt of EUR 39.0 million (31 December 2018: EUR 4.2 million).

PROPOSAL FOR DISTRIBUTION OF PROFITS
As  discussed  with  the  Supervisory  Board,  the  Management Board proposes to
distribute  to shareholders EUR 10.6 million in  dividends (0.60 euro per share)
from  retained earnings in  2020. This is equivalent  to a 65% dividend rate for
2019.





CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros

                                         2019      2018        2019        2018
                                    12 months 12 months  IV quarter  IV quarter



 Revenue                              326,779   418,011      99,159     119,243

 Cost of goods sold                 (291,958) (384,962)    (85,235)   (107,978)

 Gross profit                          34,821    33,049      13,924      11,265



 Marketing expenses                   (4,260)   (3,285)     (1,634)       (803)

 General and administrative
 expenses                            (12,988)  (12,304)     (4,147)     (3,721)

 Other operating income                 2,983     3,527       1,243       1,050

 Other operating expenses             (1,318)   (1,115)        (96)       (838)

 Operating profit                      19,238    19,872       9,290       6,953



 Finance income/costs                   1,085      (97)         722         176

 incl. finance income/costs from
 sale of subsidiary and liquidation         -      (62)           -         (3)

 finance income/costs from joint
 venture                                1,766       653         921         379

 interest expense                       (656)     (652)       (185)       (200)

 foreign exchange gain (loss)               -         5           -           6

 other financial income (expenses)       (25)      (41)        (14)         (6)

 Profit before tax                     20,323    19,775      10,012       7,129



 Corporate income tax expense         (3,833)     (375)       (850)       (206)



 Net profit for financial year         16,490    19,400       9,162       6,923

 incl. net profit attributable to
 equity holders of the parent          16,270    19,343       9,267       7,031

 net profit attributable to non-
 controlling interest                     220        57       (105)       (108)



 Other comprehensive income, which
 can subsequently be classified in
 the income statement

 Currency translation differences
 of foreign entities                       13       (6)          23        (37)

 Comprehensive income for the
 period                                16,503    19,394       9,185       6,886

 incl. net profit attributable to
 equity holders of the parent          16,281    19,324       9,279       6,981

 net profit attributable to non-
 controlling interest                     222        70        (94)        (95)

 Earnings per share for profit
 attributable to equity holders of
 the parent (basic and diluted, in
 EUR)                                    0.92      1.09        0.52        0.40





CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros

                                                     31.12.2019 31.12.2018

 ASSETS

 Current assets

 Cash and cash equivalents                               24,749     39,978

 Trade and other receivables                             50,413     76,183

 Prepaid corporate income tax                               104        224

 Inventories                                            166,226    117,992

                                                        241,492    234,377

 Non-current assets

 Investments in joint venture                             2,498        732

 Other long-term loans and receivables                   11,094     10,391

 Investment property                                     14,047     13,771

 Property, plant and equipment                           11,919      9,715

 Intangible assets                                          777        671

                                                         40,335     35,280



 TOTAL ASSETS                                           281,827    269,657



 LIABILITIES

 Current liabilities

 Borrowings                                              20,725     19,900

 Payables and prepayments                                69,585     77,016

 Income tax liability                                       812        381

 Short-term provisions                                    7,976      8,100

                                                         99,098    105,397

 Non-current liabilities

 Long-term borrowings                                    43,001     24,266

 Deferred income tax liability                            1,682      1,481

 Other long-term payables                                 3,491      2,179

                                                         48,174     27,926



 TOTAL LIABILITIES                                      147,272    133,323



 EQUITY

 Non-controlling interests                                4,217      4,577

 Equity attributable to equity holders of the parent

 Share capital                                            7,929      7,929

 Statutory reserve capital                                  793        793

 Currency translation differences                         (710)      (721)

 Retained earnings                                      122,326    123,756

                                                        130,338    131,757

 TOTAL EQUITY                                           134,555    136,334



 TOTAL LIABILITIES AND EQUITY                           281,827    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 (https://group.merko.ee/en/)) group consists of
AS  Merko Ehitus  Eesti in  Estonia, SIA  Merks in  Latvia, UAB Merko Statyba in
Lithuania  and Peritus Entreprenør AS  in Norway. Besides providing construction
service  as  a  main  contractor,  the  group's  other major area of activity is
apartment development. As at the end of 2019, the group employed 694 people, and
the group's revenue for 2019 was EUR 327 million.