Börsiteade

Pealkiri

Financial results 9M 2008

Teade

MANAGEMENT REPORT

General information

AS Merko Ehitus operates in Estonia, Latvia and Lithuania as a construction
group providing integrated construction solutions. Largest companies of the
Group are SIA Merks (100%), UAB Merko Statyba (100%), Tallinna Teede AS
(100%), AS Gustaf (75%), OÜ Gustaf Tallinn (80%), AS Merko Tartu (66%),
OÜ Woody (100%) and AS Tartu Maja Betoontooted (25%).

The presented report provides an overview of the economic activities and
financial indicators of AS Merko Ehitus in the first 9 months of 2008,
including the economic activities and financial indicators of the company's
legal predecessor AS Järvevana (previous name AS Merko Ehitus) in the first
7 months of 2008.

On 7 October 2008, AS Merko Ehitus transferred its 100-percent holding in
the company OÜ Põrguvälja Soojus (registry code 10711682) as a business
area not necessary for the fulfilment of the group's strategic objectives.
(http://www.baltic.omxnordicexchange.com/market/?pg=news&news_id=227308).

On 1 August 2008, the registration department of Harju County Court made an
entry in the Commercial Register registering the division of AS Merko Ehitus
(registry code 10068022, with the new business name ‘Aktsiaselts Järvevana')
into the limited companies Merko Ehitus (registry code 11520257) and Järvevana
(registry code 10068022).

Pursuant to the division plan (http://www.merko.ee/upload/File/Restrukturee
rimise%20dokumendid/AS%20Merko%20Ehitus%20jagunemiskava%20ENG.pdf), upon the
division, AS Järvevana transferred to AS Merko Ehitus the entire set of assets
related to the economic activities of the building company, including all
concluded building, subcontracting and supply contracts; the equipment,
machinery and employees; all professional know-how and cash-flows without
interrupting the continuing economic activities.

On 3 June 2008 the Annual General Meeting (http://www.baltic.omxnordic
exchange.com/market/?pg=news&news_id=226094) approved the division of the
company to into the limited companies new Merko Ehitus (registry code
11520257) and Järvevana (registry code 10068022).

On May 21 2008 AS Merko Ehitus transferred the 50-percent holding in the
company OÜ Tornimäe Apartments (registry code 11016607) to the co-partner
AS EKE Invest. The sale price of the company was 58 million kroons
(http://www.baltic.omxnordicexchange.com/market/?pg=news&news_id=223709).

On May 2 2008 AS Merko Ehitus transferred the 100-percent holding in the
company OÜ Karulaugu Kinnisvara (registry code 11034491) to AS E.L.L.
Kinnisvara. The sale price of the company was 42 million kroons; from this
amount, 4.12 million kroons, the balance of company's financial obligations
and current assets, were deducted (http://www.baltic.omxnordicexchange.com/
market/?pg=details&instrument=EE3100003559&list=2&tab=news&news_id=223284).

On 15 April 2008, the management of AS Merko Ehitus presented the Company's
restructuring plan (http://www.baltic.omxgroup.com/market/?pg=details&
instrument=EE3100003559&list=2&tab=news&news_id=222602), according to which
AS Merko Ehitus was split up/demerged so that AS Merko Ehitus, e.g. assets
(other than liquid assets in the amount of 250 million kroons), liabilities
and contracts as well as the business name was separated and transferred to
the new company being set up. The exact description of assets and the
division plan were published in the materials announcing the general meeting
of shareholders http://www.merko.ee/eng/investor/generalmeeting/2008.

At a joint meeting held at 14 March 2008, the Management Board and the
Supervisory Board of AS Merko Ehitus adopted a resolution to restructure
the Company and separate operating activities from the criminal proceedings
related to the land swap. The Company's management estimates that the
restructuring of the Company is the best way to ensure its sustainable
development and protect the interests of shareholders and employees in the
long-lasting criminal proceedings related to the land swap.

Business operations

Group's revenue for the 9 months in 2008 was 3552.4 million kroons, which
constitutes an annual decrease of 8.1%. 60.8% of the sales originated from
Estonia, 21.0% from Latvia and 18.2% from Lithuania. As compared with the
respective period in 2007, company's sales in Lithuania increased by 15.4%,
and decreased in Latvia by 17.5% and in Estonia by 10.0%.

Group's revenue in the third quarter of 2008 was 1180.1 million having
decreased by 187.8 million kroons as compared to the same period in 2007. 

Revenue of the period decreased due to the weak economic situation in the
building sector caused by overall economic recession.
 
As at 30 September 2008, the group's backlog of construction contracts in
progress amounted to 3611 million kroons (4040 million kroons as at 30
September 2007).

Companies of the Group 9M 2008 consolidated revenue
(sales outside the Group) were (in thousand kroons and euros):

                                              9M 2008             9M 2007
                                            EEK      EUR        EEK       EUR
Estonian companies
   AS Merko Ehitus (parent company)   1 390 113   88 844  1 608 086   102 775
   AS Gustaf (75% partnership)          123 425    7 888    111 062     7 098
   OÜ Gustaf Tallinn (80% partnership)  109 094    6 972    102 936     6 579
   AS Merko Tartu (66% partnership)     155 907    9 964    181 502    11 600
   Tallinna Teede AS (100% partnership) 368 506   23 552    253 327    16 191
   OÜ Woody (100% partnership)           65 020    4 156    198 125    12 662
Latvian company 				
   SIA Merks (100% partnership)         718 407   45 915    779 876    49 843
Lithuanian company				
   UAB Merko Statyba (100% partnership) 612 893   39 171    525 819    33 606


In one year, the Group's cost of goods sold decreased by 12.5%, whereas the
marketing and general administrative expenses increased by 26.9%, constituting
83.5% and 5.2% of the revenue respectively. Various extraordinary expenses
contributed to the increase of marketing and general administrative costs
in the period: expenses incurred in the division of AS Merko Ehitus and
AS Järvevana, legal aid costs related to the legal succession and experience
of Merko Ehitus, redundancy payments and administrative personnel expenses
included in general expenses. 

In the 3rd quarter, the group suffered a loss of 15.3 million kroons due to
the finished residential development projects being impaired to recoverable
value. Merko Ehitus group's inventories, incl. unfinished and finished
production, 
have been recorded in the company's statements at acquisition cost, which in
the management's estimate exceeds the recoverable value of the objects at the
current price level.

The group's profit before taxes in the first 9 months of 2008 was 398.3
million kroons, having grown 13.3 million kroons from the previous year.
Net profit was 343.9 million kroons - having decreased by 4.0% in a year.
Thanks to favourable climate conditions in the 1st quarter, the successful
residential and real estate development activities in the first six months
and the dropping prices of construction services, the net profit margin of
the period increased from 9.3% to 9.7% compared to the same period last year.

Group's net cash flow of the nine months of the year was +574.1 million
kroons, including cash flow from operating activities +640.0 million kroons,
from investing activities +25.6 million kroons, financing activities -66.5
million kroons and net assets separated in division -25,0 million kroons.
The cash flow from operating activities were mostly influenced by operating
profit +400.3 million kroons, adjustments of revenue from construction
contracts under stage of completion method +261.2 million kroons, the change
in trade and other receivables related to operating activities (+125.2
million kroons) and change in trade and other payables (-112.4 million
kroons). As at 30 September 2008, the group has 776.1 million kroons of
funds on the group's bank accounts.

The ratios and calculation methods characterizing the operating activities
of the Group
                                            2008 9 months      2007 9 months
Net profit margin                                   9,7 %              9,3 %
Operating profit margin                            11,3 %              8,6 %
Return on equity per annum                         22,2 %             27,9 %
Return on assets per annum                         11,2 %             13,5 %
Current ratio                                       2,0                2,1
Equity ratio                                       50,0 %             47,0 %
General expense ratio                               5,2 %              3,7 %
Gross remuneration ratio                            8,8 %              7,5 %

Net profit margin: Net profit* / Revenue
Operating profit margin: Operating profit / Revenue
Return on equity: Net profit x 4/3* / Average equity during the period*
Return on assets: Net profit x 4/3* / Average assets during the period
Current ratio: Current assets / Current liabilities
Equity ratio: Owners equity* / Total assets
General expense ratio: General expenses / Revenue
Gross remuneration ratio: Gross remuneration / Revenue

* calculated as attributable to the equity holders of the parent company

In 30.09.2008, the number of employees in the Group's service was 1007,
including 974 full-time employees. The group reduced the number of its
personnel by 92 employees, or 8.4% in a year. The gross remuneration paid
to employees in 9 months 2008 amounted to 312.8 million kroons an increase
of 7.6% compared to previous year.


INCOME STATEMENT 9M 2008
consolidated, in thousand EEK and EUR
                                           EEK                   EUR
                                   9M 2008     9M 2007    9M 2008    9M 2007

Revenue                          3 552 366   3 863 605    227 038    246 929
Cost of goods sold              (2 964 881) (3 388 412)  (189 490)  (216 559)

GROSS PROFIT                       587 485     475 193     37 548     30 370

Marketing expenses                 (26 120)    (20 244)    (1 669)    (1 294)
Administrative and gen. expenses  (157 215)   (124 180)   (10 048)    (7 937)
Other operating income               8 632       5 345        552        342
Other operating expenses           (12 468)     (4 338)      (797)      (277)

OPERATING PROFIT                   400 314     331 776     25 586     21 204

Financial income and expenses from stocks of
associate comp. and joint ventures   1 185      61 486         76      3 930
Interest expense                   (12 442)    (14 355)      (795)      (917)
Foreign exchange gain               (7 359)     (3 179)      (470)      (203)
Other financial income              17 869       9 295      1 142        594
Other financial expenses            (1 307)        (70)       (85)        (4)
Total financial income and expenses (2 054)     53 177       (132)     3 400

PROFIT BEFORE TAX                  398 260     384 953     25 454     24 604

Corporate income tax expense       (47 579)    (18 346)    (3 041)    (1 173)

NET PROFIT FOR FINANCIAL YEAR      350 681     366 607     22 413     23 431
  incl. net profit attributable to equity holders
        of the parent company      343 874     358 024     21 978     22 882
        minority interest            6 807       8 583        435        549

Earnings per share for profit attributable
to the equity holders of the parent company
(basic and diluted, in EEK and EUR)  19,43       20,23       1,24       1,29


INCOME STATEMENT III quarter 2008
consolidated, unaudited in thousand EEK and EUR

                                           EEK                   EUR
                                 IIIq 2008   IIIq 2007  IIIq 2008  IIIq 2007

Revenue                          1 180 062   1 367 855     75 420     87 422
Cost of goods sold              (1 051 633) (1 198 290)   (67 212)   (76 585)

GROSS PROFIT                       128 429     169 565      8 208     10 837

Marketing expenses                  (8 629)     (7 788)      (551)      (498)
Administrative and general expenses(56 195)    (42 725)    (3 592)    (2 731)
Other operating income               2 747       2 856        176        183
Other operating expenses            (4 911)     (1 393)      (314)       (89)

OPERATING PROFIT                    61 441     120 515      3 927      7 702

Financial income and expenses from stocks of
associate companies and joint ventures (18)      8 711         (1)       557
Interest expense                    (4 763)     (7 827)      (304)      (500)
Foreign exchange gain               (1 489)     (3 317)       (95)      (212)
Other financial income               9 346       4 225        597        270
Other financial expenses               (10)        (68)        (1)        (4)
Total financial income and expenses  3 066       1 724        196        111

PROFIT BEFORE TAX                   64 507     122 239      4 123      7 813

Corporate income tax expense        (6 956)     (3 267)      (445)      (209)

NET PROFIT FOR FINANCIAL YEAR       57 551     118 972      3 678      7 604
  incl. net profit attributable to equity holders
        of the parent company       53 696     116 023      3 432      7 416
        minority interest            3 855       2 949        246        188

Earnings per share for profit attributable
to the equity holders of the parent company
(basic and diluted, in EEK and EUR)   3,03        6,55       0,19       0,42


BALANCE SHEET AS OF 30.09.2008
consolidated, in thousand EEK and EUR
                                       EEK                      EUR
                             30.09.2008   31.12.2007  30.09.2008  31.12.2007
ASSETS
Current assets
Cash and cash equivalents       776 096      205 564      49 602      13 138
Trade and other receivables     992 325    1 201 942      63 421      76 818
Inventories                   1 982 619    2 025 426     126 712     129 448
Total current assets          3 751 040    3 432 932     239 735     219 404

Non-current assets
Long-term financial investments 249 044      290 852      15 916      18 589
Investment property              17 016        7 361       1 088         470
Property, plant and equipment   211 047      172 912      13 489      11 051
Intangible assets                11 868       12 574         758         804
Total non-current assets        488 975      483 699      31 251      30 914

TOTAL ASSETS                  4 240 015    3 916 631     270 986     250 318

LIABILITIES AND OWNERS' EQUITY
Current liabilities
Borrowings                      578 240      304 879      36 956      19 485
Trade and other payables      1 247 148    1 032 210      79 708      65 970
Government grants                     0        1 498           0          96
Short-term provisions            43 567       73 212       2 784       4 680
Total current liabilities     1 868 955    1 411 799     119 448      90 231

Non-current liabilities
Long-term borrowings            212 000      397 713      13 549      25 418
Long-term payables to suppliers   6 882       11 091         440         709
Long-term suppliers advance payments  0       46 332           0       2 961
Total non-current liabilities   218 882      455 136      13 989      29 088

Total liabilities             2 087 837    1 866 935     133 437     119 319

Equity
Minority interest                34 209       33 939       2 186       2 169
Equity attributable to equity holders of the parent company
Share capital                   177 000      177 000      11 312      11 312
Statutory reserve capital        17 700       17 700       1 131       1 131
Currency translation adjustment (14 246)      (5 085)       (910)       (325)
Retained earnings             1 937 515    1 826 142     123 830     116 712
Total equity attributable to equity
holders of the parent company 2 117 969    2 015 757     135 363     128 830
Total equity                  2 152 178    2 049 696     137 549     130 999

TOTAL LIABILITIES AND EQUITY  4 240 015    3 916 631     270 986     250 318


Alar Lagus
Member of Board
+372 6 805 109
alar.lagus@merko.ee