Market announcement

Title

2020 3 months consolidated unaudited interim report

Message

COMMENTARY FROM MANAGEMENT

Merko  Ehitus posted revenue of EUR 56 million and net profit of EUR 2.0 million
in  Q1 of  2020. Construction services  made up  62% and real estate development
38% of  the group's revenue. New construction  contracts worth EUR 87 million in
total  were signed, and the  volume of the secured  order-book at the end of the
quarter was EUR 193 million, of which close to three-quarters were public sector
contracts. In Q1, 133 apartments were handed over to apartment buyers.

The decrease in revenue by about a quarter compared to the same period last year
was  to  be  expected  -  there  were  fewer  major projects in progress and the
construction  market was seeing  a cooling trend.  Starting from March, business
activity  began to be affected by  pandemic related restrictions, but the impact
of the pandemic on the group's operations and results will start to show up more
extensively in the quarters ahead.

The  outlook for the construction and real  estate sector in all of group's home
markets  became negative in  March, and the  possibility that the  impact of the
economic  crisis will be long in duration.  Due to that, the group cancelled its
initial dividend proposal and suspended the launch of new apartment developments
at   first   for  three  months  until  there  is  greater  clarity  on  further
developments. Therefore, the supply of group's apartments will decrease from the
planned  level  for  both  2020 and  2021. The  group's  companies  have started
gradually implementing cost control measures to ensure efficient functioning and
strong capability for operating both during and after the crisis.

Most  of the commercial real  estate projects have been  placed on hold. Private
sector  clients have  practically disappeared  from the  construction market and
public  sector  procurements  will  play  a  commanding role in new construction
tenders.  It will definitely take time for private sector clients' confidence to
recover   and  adjust  to  the  new  conditions.  Management  hopes  that  state
investments   into  buildings  and  infrastructure  will  continue  and  project
preparations  will speed up  to support the  vitality of the construction sector
and prevent job losses. Due to the projected drop in construction volumes, price
competition  in construction tenders has become even more aggressive. A positive
aspect  is that  work is  continuing on  the group's  construction sites and new
construction  contracts worth EUR  87 million were signed  in the first quarter.
Owing  to that the  volume of secured  order-book at the  end of the quarter was
even slightly greater than a year ago.

In  Q1  of  2020, Merko  Ehitus  handed  over  133 apartments to home buyers (Q1
2019: 63 apartments)  and  3 commercial  premises.  Merko's  biggest projects in
Tallinn  are  Uus-Veerenni  and  Pikaliiva  residential  projects, Gai?ezers and
Viesturd?rzs  developments  in  Riga  and  Vilneles  slenis  and Rinktin?s Urban
developments in Vilnius.

In  connection  with  the  pandemic,  the  sales  of  new apartments slowed down
starting  in March in Estonia, Latvia  and Lithuania. The number of applications
for home loans is down; the number of apartments to rent is up, and unemployment
has  increased  in  the  economic  sectors  hit  hardest by the pandemic. As the
apartment  market was fairly well balanced before  the beginning of the crisis -
supply, price level, purchasing power and loan burden were at a reasonable level
- going through the current crisis may turn out to be less of an ordeal than the
one that started in 2008. Considering the nature of the current economic crisis,
it  is essential not  only that government  support measures arrive quickly, but
that  banks  do  not  overreact  in  terms  of  tightening financing conditions,
including issuing home loans.

People  and  companies  must  quickly  learn  to operate in conditions of higher
health  risks  and  restrictions  on  everyday activities. Group's companies are
taking  the  necessary  safety  measures  in  the apartment sale process and use
digital  channels to execute transactions. In current situation, home buyers put
even  more importance on a trustworthy developer and integrally developed living
environments.  The group will  complete the developments  in progress and assess
possibilities  of  launching  new  projects  based  on the market situation. The
management  also analyses  how the  current crisis  could impact the real estate
market in the future.

Merko  Ehitus  posted  revenue  of  EUR  56 million in Q1 2020 (Q1 2019: EUR 77
million),  an  EBITDA  of  EUR  2.8 million  (Q1 2019: EUR 3.5 million), and net
profit  of EUR 2.0 million  (Q1 2019: EUR 2.8 million).  In the first quarter of
this  year,  new  construction  contracts  worth  EUR 87 million were signed (Q1
2019: EUR  32 million), the largest  of these being  the construction of Tallinn
Music  and Ballet  School, Tallinn  Arte Gymnasium,  new public water supply and
sewerage pipeline in Kohila Parish and a data centre in Harju County.

The  largest  projects  in  progress  for  Merko  in  Q1  in  Estonia  were  the
construction  of Terminal  D parking  house at  the Tallinn passenger port, Türi
Basic  School, the commercial  building at Pärnu  mnt 186 and high-voltage power
cables  in Tallinn, and  the reconstruction of  Aaspere-Haljala road section. In
Latvia,  the largest  projects in  progress were  the construction of the school
building  and dormitory  in Pinki,  Lidl's logistics  centre and Laima chocolate
factory,  as well as  the reconstruction of  the Riga Technical University Civil
Engineering  Faculty  building.  In  Lithuania,  projects  in  progress were the
construction of Hotel Neringa and Kaunas district police headquarters building.

OVERVIEW OF THE 3 MONTHS RESULTS

PROFITABILITY
2020 3 months' profit before tax was EUR 2.1 million (3M 2019: EUR 3.0 million),
which brought the profit before tax margin to 3.7% (3M 2019: 3.9%).

Net profit attributable to equity holders of the parent in 3 months 2020 was EUR
2.0 million (3M 2019: EUR 2.8 million) and 3 months' net profit margin was 3.6%
(3M 2019: 3.6%).

REVENUE
2020 3 months'  revenue  was  EUR  55.9 million  (3M 2019: EUR 76.8 million). 3
months'  revenue decreased by 27.3% compared to same period last year. The share
of revenue earned outside Estonia in 3 months 2020 was 53.5% (3M 2019: 60.8%).

SECURED ORDER BOOK
As  at 31 March 2020, the  group's secured order  book was EUR 193.0 million (31
March  2019: EUR 190.0 million).  In 3 months  2020, group companies  signed new
contracts in the amount of EUR 87.2 million (3M 2019: EUR 32.2 million).

REAL ESTATE DEVELOPMENT
In  3 months 2020, the group sold a  total of 133 apartments (incl. 2 apartments
in  a joint venture); in 3 months  2019, the group sold 63 apartments (incl. 29
apartments  in a joint venture). The group  earned a revenue of EUR 18.6 million
from sale of own developed apartments in 3 months 2020 and EUR 4.6 million in 3
months 2019.

CASH POSITION
At  the end of the reporting period, the  group had EUR 37.1 million in cash and
cash  equivalents,  and  equity  of  EUR  132.2 million (45.7% of total assets).
Comparable  figures as  at 31 March  2019 were EUR  33.0 million and  EUR 134.6
million  (48.7% of total  assets), respectively. As  at 31 March 2020, the group
had net debt of EUR 29.8 million (31 March 2019: EUR 9.9 million).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros

                                                        2020     2019      2019
                                                    3 months 3 months 12 months

 Revenue                                              55,872   76,845   326,779

 Cost of goods sold                                 (50,398) (70,639) (291,958)

 Gross profit                                          5,474    6,206    34,821



 Marketing expenses                                    (948)    (851)   (4,260)

 General and administrative expenses                 (2,805)  (3,124)  (12,988)

 Other operating income                                  508      701     2,983

 Other operating expenses                               (63)     (35)   (1,318)

 Operating profit                                      2,166    2,897    19,238



 Finance income/costs                                   (99)       83     1,085

 incl. finance income/costs from joint venture            90      222     1,766

 interest expense                                      (172)    (135)     (656)

 other financial income (expenses)                      (17)      (4)      (25)

 Profit before tax                                     2,067    2,980    20,323



 Corporate income tax expense                          (138)     (75)   (3,833)



 Net profit for financial year                         1,929    2,905    16,490

 incl. net profit attributable to equity holders of
 the parent                                            2,019    2,778    16,270

 net profit attributable to non-controlling
 interest                                               (90)      127       220



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

 Currency translation differences of foreign
 entities                                              (188)       32        13

 Comprehensive income for the period                   1,741    2,937    16,503

 incl. net profit attributable to equity holders of
 the parent                                            1,823    2,808    16,281

 net profit attributable to non-controlling
 interest                                               (82)      129       222

 Earnings per share for profit attributable to
 equity holders of the parent (basic and diluted,
 in EUR)                                                0.11     0.16      0.92

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros

                                               31.03.2020 31.03.2019 31.12.2019

 ASSETS

 Current assets

 Cash and cash equivalents                         37,056     32,970     24,749

 Trade and other receivables                       42,133     75,297     50,413

 Prepaid corporate income tax                          91        224        104

 Inventories                                      168,833    130,019    166,226

                                                  248,113    238,510    241,492

 Non-current assets

 Investments in joint venture                       2,588        954      2,498

 Other long-term loans and receivables             11,991     11,043     11,094

 Investment property                               14,021     14,140     14,047

 Property, plant and equipment                     11,699     10,853     11,919

 Intangible assets                                    724        700        777

                                                   41,023     37,690     40,335



 TOTAL ASSETS                                     289,136    276,200    281,827



 LIABILITIES

 Current liabilities

 Borrowings                                        21,496     15,624     20,725

 Payables and prepayments                          73,488     82,764     69,585

 Income tax liability                                 816        420        812

 Short-term provisions                              6,866      7,081      7,976

                                                  102,666    105,889     99,098

 Non-current liabilities

 Long-term borrowings                              45,355     27,220     43,001

 Deferred income tax liability                      1,655      1,521      1,682

 Other long-term payables                           3,164      2,299      3,491

                                                   50,174     31,040     48,174



 TOTAL LIABILITIES                                152,840    136,929    147,272



 EQUITY

 Non-controlling interests                          4,135      4,706      4,217

 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                   (906)      (691)      (710)

 Retained earnings                                124,345    126,534    122,326

                                                  132,161    134,565    130,338

 TOTAL EQUITY                                     136,296    139,271    134,555



 TOTAL LIABILITIES AND EQUITY                     289,136    276,200    281,827

Interim  report is 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
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.