Market announcement

Title

2021 12 months and IV quarter consolidated unaudited interim report

Message

COMMENTARY FROM MANAGEMENT

Fourth-quarter revenue for Merko Ehitus was EUR 112.8 million and net profit for
the same period was EUR 13.9 million. The revenue for the 12 months of 2021 grew
by  7% compared to the previous year to EUR 339.4 million and net profit by 27%
to  over EUR 29 million. This year in the three Baltic states Merko has launched
construction  of more than 1,450 apartments due to  be completed in the next two
years.

According  to  the  management  of  Merko  Ehitus, the results for 2021 exceeded
expectations  from  a  year  ago,  especially  considering  the  rapid growth of
construction  prices  and  continuing  major  supply  chain problems. The market
situation  for general  construction contracting  has not improved. Furthermore,
uncertainty   is  also  fed  by  rising  inflation,  which  in  the  absence  of
countermeasures  threatens to engulf all prices in an upward spiral. Longer-term
fixed-price  contracts  involve  high  risks  that  cannot  be  borne by general
contractors  alone,  and  more  flexible  pricing  could  be a solution. We will
certainly  see difficulties  in the  construction market  in fulfilling the past
contracts  on  time,  and  probably  also  the  increase  in  the  price  of new
construction  objects. New developments and actual  orders will be coming on the
market,  above all in the warehousing  and logistics sector (which is continuing
on a growth trajectory), the wind energy segment and public sector projects that
cannot  stand to be postponed. In the next period, Merko will keep concentrating
more  on the apartment development field, where  we trust in our ability to keep
the  speed and  cost of  the development  and construction process largely under
control.

The   proportion  of  apartment  development  in  the  group's  Q4  revenue  was
traditionally  high, due to the timing of the project completion and delivery of
sold  apartments to buyers.  Overall for the  12 months, real estate development
made  up  less  than  1/3 of  revenue  but  over 2/3 of net profit. New sales of
apartments  in  the  Merko  Ehitus  group  reflect  the general situation on the
apartment  market - only a  few of the completed  apartments are unsold and over
half of the ones under construction are covered by preliminary sale contracts.

In  2021, Merko handed over 496 apartments and 7 commercial spaces to buyers and
will  continue  construction  of  more  than  1,800 apartments,  which  will  be
completed in 2022 and 2023. The largest residential developments are Noblessner,
Uus-Veerenni,  Odra,  Metsatuka  and  Lahekalda  in Tallinn; Erminurme in Tartu;
Viesturd?rzs and Mezhpils?ta in Riga and Vilneles Skverai in Vilnius.

Given  the challenges  of recent  years in  terms of  pandemic and  supply chain
areas,  the companies in Merko  group have fared well,  with timely responses to
changes  in the real estate  market and higher demand  for modern apartments. In
pandemic conditions, they have managed to organize work on project sites without
major  stoppages. This has allowed return on equity to be raised to a level last
seen  prior to the  financial crisis. The  employees of Merko  companies and all
partners  should  be  thanked,  as  they  have  found  solutions to the unstable
conditions   on   markets   for  key  construction  inputs  and  have  harnessed
possibilities   for   achieving  goals  as  opportunities  arise.  However,  new
challenges  are already ahead in the form of soaring energy prices and the onset
of   the   green  transition,  which  will  certainly  pose  new  obstacles  and
restrictions to usual activities in construction and real estate development.

In  2021, Merko signed EUR 288 million worth  new construction contracts and the
secured order-book balance reached EUR 257 million.

In the fourth quarter, the largest sites in progress were the third phase of the
third  development phase  of the  Mustamäe medical  campus of  the North-Estonia
Medical  Centre, the Tallinn School  of Music and Ballet,  St John's School, the
Liivalaia  quarter's  zero-cycle  construction  works  and  the  construction of
infrastructure  segments of the Republic of  Estonia's southeast land border. In
Latvia,  the Orkla wafer and biscuit  production plant, GUSTAVS business centre,
Elemental  Skanste office  buildings, NATO  facilities in  ?dazhi and the Kauguri
city park and youth house were in progress; and in Lithuania, infrastructure for
a  number of  wind farms  and the  Kaunas district police headquarters building,
NATO barracks and a production building for Continental Automotive.

OVERVIEW OF THE IV QUARTER AND 12 MONTHS RESULTS

PROFITABILITY
2021 12 months'  pre-tax profit was  EUR 32.1 million and  Q4 2021 was EUR 15.6
million  (12M 2020: EUR  24.5 million and  Q4 2020 was  EUR 10.6 million), which
brought the pre-tax profit margin to 9.5% (12M 2020: 7.7%).
Net  profit attributable to shareholders for 12 months 2021 was EUR 29.1 million
(12M  2020: EUR  23.0 million)  and  for  Q4  2021 net  profit  attributable  to
shareholders  was  EUR  13.9 million  (Q4  2020: EUR 9.9 million). 12 months net
profit margin was 8.6% (12M 2020: 7.3%).

REVENUE
Q4  2021 revenue  was  EUR  112.8 million  (Q4  2020: EUR 106.4 million) and 12
months'  revenue was EUR 339.4 million (12M 2020: EUR 315.9 million). 12 months'
revenue  increased  by  7.4% compared  to  same  period  last year. The share of
revenue earned outside Estonia in 12 months 2021 was 37.4% (12M 2020: 43.9%).

SECURED ORDER BOOK
As of 31 December 2021, the group's secured order book was EUR 257.3 million (31
December 2020: EUR 225.1 million). In 12 months 2021, group companies signed new
contracts  in the amount of EUR  288.1 million (12M 2020: EUR 277.2 million). In
Q4  2021, new contracts were signed in the amount of EUR 15.2 million (Q4 2020:
EUR 29.1 million).

REAL ESTATE DEVELOPMENT
In 12 months 2021, the group sold a total of 496 apartments; in 12 months 2020,
the  group sold 895 apartments.  The group earned  a revenue of EUR 72.7 million
from sale of own developed apartments in 12 months 2021 and EUR 116.6 million in
12 months  2020. In Q4 of 2021 a total  of 299 apartments were sold, compared to
361 apartments in Q4 2020, and earned a revenue of EUR 39.4 million from sale of
own developed apartments (Q4 2020: EUR 49.6 million).

CASH POSITION
At  the end of the reporting period, the  group had EUR 44.9 million in cash and
cash  equivalents,  and  equity  of  EUR  167.2 million (51.6% of total assets).
Comparable  figures as of 31 December 2020 were  EUR 47.5 million and EUR 153.2
million  (59.6%  of  total  assets),  respectively.  As of 31 December 2021, the
group's  net  debt  was  EUR  7.7 million  (31 December 2020: negative EUR -18.4
million).

PROPOSAL FOR DISTRIBUTION OF PROFITS
In  coordination with  the Supervisory  Board, the  Management Board proposes to
distribute to shareholders EUR 17.7 million in dividends (1 euro per share) from
retained earnings in 2022. This is equivalent to a 61% dividend rate for 2021.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros

                                        2021      2020        2021         2020
                                   12 months 12 months  IV quarter  IV  quarter

 Revenue                             339,375   315,918     112,842      106,438

 Cost of goods sold                (292,563) (272,169)    (92,499)     (87,901)

 Gross profit                         46,812    43,749      20,343       18,537



 Marketing expenses                  (3,611)   (4,212)       (979)      (1,055)

 General and administrative
 expenses                           (13,925)  (13,412)     (4,827)      (5,264)

 Other operating income                3,508     2,320         997          606

 Other operating expenses              (582)   (2,979)       (254)      (1,663)

 Operating profit                     32,202    25,466      15,280       11,161



 Finance income/costs                   (75)   (1,009)         276        (577)

 incl. finance income/costs from
 associates and joint venture            799     (144)         415        (348)

 interest expense                      (681)     (719)       (133)        (189)

 foreign exchange gain (loss)            (8)       (7)          31            5

 other financial income (expenses)     (185)     (139)        (37)         (45)

 Profit before tax                    32,127    24,457      15,556       10,584



 Corporate income tax expense        (3,104)   (1,954)     (1,678)        (727)



 Net profit for financial year        29,023    22,503      13,878        9,857

 incl. net profit attributable to
 equity holders of the parent         29,140    22,994      13,863        9,923

 net profit attributable to non-
 controlling interest                  (117)     (491)          15         (66)

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

 Currency translation differences
 of foreign entities                      33     (115)          19            2

 Comprehensive income for the
 period                               29,056    22,388      13,897        9,859

 incl. net profit attributable to
 equity holders of the parent         29,163    22,890      13,871        9,951

 net profit attributable to non-
 controlling interest                  (107)     (502)          26         (92)

 Earnings per share for profit
 attributable to equity holders of
 the parent (basic and diluted, in
 EUR)                                   1.65      1.30        0.78         0.56

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros

                                                     31.12.2021 31.12.2020

 ASSETS

 Current assets

 Cash and cash equivalents                               44,930     47,480

 Trade and other receivables                             55,484     32,657

 Prepaid corporate income tax                               114        306

 Inventories                                            160,593    126,332

                                                        261,121    206,775

 Non-current assets

 Investments in associates and joint ventures             7,703      2,354

 Other long-term loans and receivables                   24,079     17,979

 Deferred income tax assets                                 622        653

 Investment property                                     13,828     13,922

 Property, plant and equipment                           16,350     14,521

 Intangible assets                                          669        711

                                                         63,251     50,140



 TOTAL ASSETS                                           324,372    256,915



 LIABILITIES

 Current liabilities

 Borrowings                                              11,636     13,649

 Payables and prepayments                                90,054     55,846

 Income tax liability                                       681      1,202

 Short-term provisions                                    7,976      6,347

                                                        110,347     77,044

 Non-current liabilities

 Long-term borrowings                                    41,001     15,409

 Deferred income tax liability                            3,112      3,001

 Other long-term payables                                 2,900      4,026

                                                         47,013     22,436



 TOTAL LIABILITIES                                      157,360     99,480



 EQUITY

 Non-controlling interests                                (227)      4,207

 Equity attributable to equity holders of the parent

 Share capital                                            7,929      7,929

 Statutory reserve capital                                  793        793

 Currency translation differences                         (791)      (814)

 Retained earnings                                      159,308    145,320

                                                        167,239    153,228

 TOTAL EQUITY                                           167,012    157,435



 TOTAL LIABILITIES AND EQUITY                           324,372    256,915

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

Urmas Somelar
Head of Group Finance
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 and Tallinna Teede AS in Estonia, SIA Merks in Latvia, UAB
Merko Statyba in Lithuania and Peritus Entreprenør AS in Norway. Besides
providing construction service as a general contractor, the group's other major
area of activity is apartment development. As at the end of 2021, the group
employed 672 people, and the group's revenue for 2021 was EUR 339 million.