Market announcement

Title

2022 9 months and III quarter consolidated unaudited interim report

Message

COMMENTARY FROM MANAGEMENT

Merko  Ehitus revenue  was EUR  110 million in  Q3 2022 and  the revenue for the
first  nine months of the year amounted to EUR 266 million, while the respective
figures  for  net  profit  were  EUR  9.8 million  and EUR 17 million. Merko has
delivered more than 450 apartments to buyers in 9 months this year.

According  to the  management of  Merko Ehitus,  the results  for Q3 reflect the
growth  of  investments  made  into  apartment  development in recent years, and
balanced  management  of  the  construction  projects portfolio in a complicated
market situation.

The  outlook of  the next  12 months and  the years  ahead for  the construction
sector  have worsened sharply during the  current year. The slowing of inflation
and  the expected adjustment by  companies and households to  the high prices of
energy  has not  yet taken  place. In  addition, interest  rates continue rising
rapidly. Both customers for major construction projects and the apartment market
are  gripped by great uncertainty. In  conditions of high inflation, pressure on
prices  continues despite of the fact that demand has decreased. Since processes
in construction and real estate development take time, the impact of the current
economic  and market situation will manifest  fully in the financial results for
our sectors in 12-24 months.

In  the nine months  of the current  year, the group  companies entered into new
construction  contracts worth EUR  290 million and the  balance of secured order
book  stood at EUR 341 million as of the end of September (respectively EUR 273
million  and EUR  314 million in  2021). Merko secured  order book  is currently
strong,  which will help to get through  the recessionary period of the next few
years  with a  bit less  pain. The  outlook for  new construction  orders on the
market  as a  whole is  extremely unclear,  but at  the same  time, we are well-
positioned for investments into the energy sector.

In  the first nine months  of this year, Merko  delivered 456 new apartments and
four  commercial units to buyers (first  9 months of 2021: 197 apartments and 7
commercial units). Despite the exceedingly complicated situation in the economy,
Merko  has  continued  investments  into  apartment development and launched new
development  projects, albeit at a more moderate pace than years past. According
to  the  management  of  Merko  Ehitus,  in  conditions  of  rapid inflation the
construction will not become cheaper in the future.

During  the  first  nine  months  of  this  year,  the  group  launched four new
development  projects with  approximately 280 apartments.  As of  the end of Q3,
there  were 1,617 apartments under construction by the group, of which more than
half  have preliminary sale  contracts. The largest  apartment developments were
Uus-Veerenni,   Noblessneri  and  Lahekalda  in  Tallinn;  Erminurme  in  Tartu;
Viesturdarzs,  Mezhpilseta  and  Magnolijas  in  Riga,  and  Vilneles  Skverai in
Vilnius.

In  Q3 of 2022, the largest objects under construction in Estonia were the third
phase  of  the  Mustamäe  medical  campus  of  the North-Estonia Medical Centre,
Pelgulinna  and  Rae  state  gymnasiums,  the  Arter  quarter,  construction  of
infrastructure  segments of the Republic of Estonia's southeast land border, the
tram  line  between  Old  City  Harbour  and  Rail  Baltic's  Ülemiste passenger
terminal,  and renovation of Rannamõisa tee and Vana-Kalamaja street in Tallinn.
In  Latvia, projects in progress included the Orkla wafer and biscuit production
plant,  GUSTAVS  business  centre,  Elemental  Skanste  office  buildings,  NATO
facilities  in Adazhi; in Lithuania, several  wind farm infrastructures and a car
service centre in Vilnius.

OVERVIEW OF THE III QUARTER AND 9 MONTHS RESULTS

PROFITABILITY
2022 9 months'  pre-tax profit  was EUR  18.7 million and  Q3 2022 was EUR 10.3
million  (9M  2021: EUR  16.6 million  and  Q3  2021 was EUR 6.1 million), which
brought the pre-tax profit margin to 7.0% (9M 2021: 7.3%).
Net  profit attributable to shareholders  for 9 months 2022 was EUR 17.0 million
(9M   2021: EUR  15.3 million)  and  for  Q3  2022 net  profit  attributable  to
shareholders was EUR 9.8 million (Q3 2021: EUR 5.5 million). 9 months net profit
margin was 6.4% (9M 2021: 6.7%).

REVENUE
Q3  2022 revenue was EUR 110.0 million (Q3 2021: EUR 80.7 million) and 9 months'
revenue  was EUR  266.2 million (9M  2021: EUR 226.5 million). 9 months' revenue
increased  by  17.5% compared  to  same  period  last year. The share of revenue
earned outside Estonia in 9 months 2022 was 53.4% (9M 2021: 38.8%).

SECURED ORDER BOOK
As  of 30 September 2022, the  group's secured order  book was EUR 341.0 million
(30 September 2021: EUR 314.4 million). In 9 months 2022, group companies signed
contracts in the amount of EUR 290.4 million (9M 2021: EUR 272.9 million). In Q3
2022, new  contracts were signed in the amount of EUR 97.1 million (Q3 2021: EUR
137.7 million).

REAL ESTATE DEVELOPMENT
In  9 months 2022, the group sold a  total of 456 apartments; in 9 months 2021,
the  group sold 197 apartments.  The group earned  a revenue of EUR 56.9 million
from  sale of own developed apartments  in 9 months 2022 and EUR 33.3 million in
9 months  2021. In Q3 of  2022 a total of  242 apartments were sold, compared to
52 apartments  in Q3 2021, and earned a revenue of EUR 29.8 million from sale of
own developed apartments (Q3 2021: EUR 7.5 million).

CASH POSITION
At  the end of the reporting period, the  group had EUR 22.2 million in cash and
cash  equivalents,  and  equity  of  EUR  166.6 million (40.9% of total assets).
Comparable  figures as of 30 September 2021 were EUR 19.6 million and EUR 150.8
million  (50.9%  of  total  assets),  respectively. As of 30 September 2022, the
group's net debt was EUR 88.3 million (30 September 2021: EUR 20.6 million).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
unaudited
in thousand euros

                             2022      2021         2022         2021      2021
                         9 months  9 months  III quarter  III quarter 12 months

 Revenue                  266,206   226,533      110,008       80,673   339,375

 Cost of goods sold     (235,123) (200,064)     (96,206)     (71,442) (292,563)

 Gross profit              31,083    26,469       13,802        9,231    46,812



 Marketing expenses       (2,945)   (2,632)        (776)        (802)   (3,611)

 General and
 administrative
 expenses                (11,411)   (9,098)      (3,889)      (3,392)  (13,925)

 Other operating income     2,426     2,511        1,004        1,197     3,508

 Other operating
 expenses                   (647)     (328)        (192)        (235)     (582)

 Operating profit          18,506    16,922        9,949        5,999    32,202



 Finance income/costs         168     (351)          361           90      (75)

 incl. finance
 income/costs from
 associates and joint
 ventures                   1,093       384          765          381       799

 interest expense           (670)     (548)        (296)        (232)     (681)

 foreign exchange gain
 (loss)                     (152)      (39)         (85)            -       (8)

 other financial income
 (expenses)                 (103)     (148)         (23)         (59)     (185)

 Profit before tax         18,674    16,571       10,310        6,089    32,127



 Corporate income tax
 expense                  (1,911)   (1,426)        (735)        (570)   (3,104)



 Net profit for
 financial year            16,763    15,145        9,575        5,519    29,023

 incl. net profit
 attributable to equity
 holders of the parent     17,023    15,277        9,821        5,514    29,140

 net profit
 attributable to non-
 controlling interest       (260)     (132)        (246)            5     (117)



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

 Currency translation
 differences of foreign
 entities                      11        14           23          (2)        33

 Comprehensive income
 for the period            16,774    15,159        9,598        5,517    29,056

 incl. net profit
 attributable to equity
 holders of the parent     17,020    15,292        9,831        5,513    29,163

 net profit
 attributable to non-
 controlling interest       (246)     (133)        (233)            4     (107)

 Earnings per share for
 profit attributable to
 equity holders of the
 parent (basic and
 diluted, in EUR)            0.96      0.86         0.55         0.31      1.65

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
unaudited
in thousand euros

                                               30.09.2022 30.09.2021 31.12.2021

 ASSETS

 Current assets

 Cash and cash equivalents                         22,200     19,581     44,930

 Trade and other receivables                       72,295     59,665     55,484

 Prepaid corporate income tax                           5          3        114

 Inventories                                      243,222    154,688    160,593

                                                  337,722    233,937    261,121

 Non-current assets

 Investments in associates and joint ventures      10,472      7,288      7,703

 Other long-term loans and receivables             28,323     23,832     24,079

 Deferred income tax assets                         1,155      1,120        622

 Investment property                               11,511     13,847     13,828

 Property, plant and equipment                     17,527     15,624     16,350

 Intangible assets                                    592        684        669

                                                   69,580     62,395     63,251



 TOTAL ASSETS                                     407,302    296,332    324,372



 LIABILITIES

 Current liabilities

 Borrowings                                        60,034      9,355     11,636

 Payables and prepayments                         119,251     88,394     90,054

 Income tax liability                               1,830        997        681

 Short-term provisions                              5,584      6,318      7,976

                                                  186,699    105,064    110,347

 Non-current liabilities

 Long-term borrowings                              50,469     30,826     41,001

 Deferred income tax liability                      1,671      1,986      3,112

 Other long-term payables                           2,377      3,553      2,900

                                                   54,517     36,365     47,013



 TOTAL LIABILITIES                                241,216    141,429    157,360



 EQUITY

 Non-controlling interests                          (473)      4,083      (227)

 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                   (794)      (799)      (791)

 Retained earnings                                158,631    142,897    159,308

                                                  166,559    150,820    167,239

 TOTAL EQUITY                                     166,086    154,903    167,012



 TOTAL LIABILITIES AND EQUITY                     407,302    296,332    324,372

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 Finance
AS Merko Ehitus
+372 650 1250
[email protected] (mailto:[email protected])

AS Merko Ehitus (group.merko.ee (https://group.merko.ee/en/)) group companies
develop real estate and construct buildings and infrastructure. We create a
better living environment and build the future. We operate in Estonia, Latvia,
Lithuania and Norway. As at the end of 2021, the group employed 670 people, and
the group's revenue for 2021 was EUR 339 million.