Börsiteade

Pealkiri

Financial results 6M 2009

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%).

On 2 April 2009, AS Merko Ehitus and its 100% subsidiary OÜ Rae Tehnopark
made a merger agreement with a view of ensuring better transparency of
AS Merko Ehitus group and facilitating reporting
(http://www.nasdaqomxbaltic.com/market/?pg=news&news_id=234355).

At 3 April 2009, a suspicion was elaborated which was earlier submitted
against AS Merko Ehitus in relation to the giving of a bribe to Ivo
Parbus. While the suspicion submitted at 17 December 2008 stated that the
bribe was given for the purpose of accelerating the proceedings with the
plans of seven properties, then according to the elaboration of 3 April,
the number of properties decreased to three. Concerning the plans for the
remaining four properties, a suspicion on the same bribe object was
submitted against OÜ Woody, OÜ Metsailu and OÜ Constancia that are
subsidiaries of AS Merko Ehitus. In addition to Estravel's gift coupon
of EEK 25 thousand, the suspected bribe of AS Merko Ehitus also includes
book "Eesti Talurahva Arhitektuur" costing EEK 410. The suspicion
submitted against the subsidiaries mentions Estravel's gift coupon of EEK
25 thousand, a book costing EEK 410 and Estravel's gift coupon of EEK 15
thousand as the bribe. The suspects consider the suspicions to be
unfounded (http://www.nasdaqomxbaltic.com/market/?pg=news&news_id=232461).

At its 16 April 2009 session, the Government of the Republic of Estonia
approved the tender submitted by Tallinna Teede AS (100% subsidiary of
AS Merko Ehitus) as the winning tender in the privatisation auction of
the 100% holding in the state-owned company AS Vooremaa Teed. The
acquisition of AS Vooremaa Teed will significantly improve the group's
presence in the road construction and maintenance sector and will create
new opportunities for the further development of the field
(http://www.nasdaqomxbaltic.com/market/?pg=news&news_id=233031).

Operating results

Group's revenue for the 2009 6 months was EEK 1447.9 million, which
constitutes an annual decrease of 39.0%. 73.5% of the sales originated
from Estonia, 23.0% from Latvia and 3.5% from Lithuania. As compared to
with the 2008 6 months, company's sales decreased in Lithuania by 86.7%,
in Latvia by 39.3% and in Estonia by 26.4%. 

Group's revenue for the II quarter 2009 was EEK 838.7 million, which
constitutes an annual decrease of EEK 414.0 million.

Continued decrease in demand in the construction sector due to the overall
economic low caused a drop in the period's revenue. 

As at 30 June 2009, the group's backlog of construction contracts in
progress amounted to EEK 1.8 billion. 

Companies of the Group 6M 2009 consolidated revenue
(sales outside the Group) were (in thousand kroons and euros):

                                              6M 2009             6M 2008
                                            EEK      EUR        EEK       EUR
Estonian companies
   AS Merko Ehitus (parent company)     797 262   50 954    973 059    62 190
   AS Gustaf (75% partnership)           28 596    1 828     98 371     6 287
   OÜ Gustaf Tallinn (80% partnership)   36 105    2 308     69 626     4 450
   AS Merko Tartu (66% partnership)      50 659    3 238    100 733     6 438
   Tallinna Teede AS (100% partnership) 127 881    8 173    176 607    11 287
   OÜ Woody (100% partnership)           15 705    1 004     58 170     3 718
Latvian company
   SIA Merks (100% partnership)         332 701   21 263    527 491    33 713
Lithuanian company
   UAB Merko Statyba (100% partnership)  49 207    3 145    361 165    23 083

In one year, the Group's cost of goods sold decreased by 33.1% and marketing
and general administrative expenses by 18.5%. The economizing measures taken
to reduce costs helped to decrease marketing and administrative expenses,
with the EEK 8.7 million decrease in labour costs, EEK 6.1 million decrease
in consultation and legal aid and EEK 4.5 million decrease in advertising and
sponsoring being the most significant factors. Despite the vigorous measures,
the group's cost-cutting rate failed to keep up with the fall in revenue -
thus, the cost of goods sold in the period increased to 88.4% and marketing
and administrative costs to 6.7%.

The Group's profit before taxes for 6 months 2009 amounted to EEK 77.9
million, having decreased by EEK 255.8 million compared to 2008 6 months and
net profit amounted to EEK 73.2 million, having decreased by EEK 217.0
million or 74.8% correspondingly. The slump in profit was influenced both by
the decreased profitability of the construction and development fields and
the general fall in construction volumes. The seasonality of the construc-
tion business and the cyclic nature of development activities did not have
a significant influence on the results of the first half of the year.

In 6 months 2009, the Group sold 146 apartments in total cost of EEK 174.6
million (without VAT). As of 30.06.2009 Group held in inventories unsold
321 completed apartments in total cost EEK 383.0 million and 392 apartments
in the construction stage which construction progress was frozen until
a recovery in demand. 

In second quarter 2009 the group made a 16.0 million kroons loss due to the
adjustment of finished residential housing development projects to
recoverable amount (market price). The inventories of Merko Ehitus group,
including unfinished and finished goods, are carried at cost in the
company's accounts, which according to the assessment of the management
exceed the recoverable amount of assets at present price levels.

In 6 months 2009 Group's total cash flows amounted to EEK -192.7 million,
of which the cash flows from operating activities totalled EEK -5.1 million,
from investment activities EEK +0.7 million and from financing activities
EEK -188.3 million. The cash flows from operating activities of the
reporting period were mostly affected by change in liabilities and
prepayments related to operating activities EEK -181.2 million, change in
inventories EEK +148.7 million, operating profit EEK +75.9 million and
change in receivables and prepayments related to operating activities EEK
-32.1 million. From investment activities cash flows EEK -43.8 million
from balance of granted/received loans, EEK +28.7 million constituted
from realisation of pecuniary means applied to deposits last quarter and
EEK +18.6 million from received interests. The cash flows from financing
activities were mostly affected by change in the balance of credit
liabilities assumed/repaid by EEK -115.1 million and dividends paid
EEK -64.7 million.

As of 30 June 2009, the Group has EEK 557.8 million of funds on the
Group's bank accounts and deposits.

The ratios and calculation methods characterizing the operating activities
of the Group
                                            2009 6 months      2008 6 months

Net profit margin                                   5,1 %             12,2 %
EBT margin                                          5,4 %             14,1 %
Operating profit margin                             5,2 %             14,3 %
Return on equity per annum                          7,0 %             26,9 %
Return on assets per annum                          3,9 %             14,5 %
Current ratio                                       2,9                2,3
Quick ratio                                         1,4                1,1
Equity ratio                                       56,8 %             56,2 %
General expense ratio                               6,7 %              5,0 %
Gross remuneration ratio                           10,1 %              9,0 %

Net profit margin: Net profit* / Revenue
EBT margin: Profit before tax / Revenue
Operating profit margin: Operating profit / Revenue
Return on equity: Net profit x 4* / Average equity during the period*
Return on assets: Net profit x 4* / Average assets during the period
Current ratio: Current assets / Current liabilities
Quick ratio: (Current assets - Inventories) / Current liabilities
Equity ratio: Owners equity* / Total assets
General expense ratio: General expenses / Revenue
Gross remuneration ratio: Gross remuneration / Revenue

*attributable to equity owners of the parent

Employees and remuneration

In 30.06.2009, the number of employees in the Group's service was 831,
including 808 full-time employees. The Group reduced the number of its
personnel by 22.2% or 237 employees in a year. The gross remuneration paid
to employees in 6 months 2009 amounted to EEK 145.5 million a decrease of
32,1% compared to previous year. The smaller amount of performance pay,
due to the fall in the group's profitability, and the reduced staff
levels also contributed to the fall in the group's labour costs.


STATEMENT OF COMPREHENSIVE INCOME 6M 2009
consolidated, unaudited, in thousand EEK and EUR

                                           EEK                   EUR
                                   6M 2009     6M 2008    6M 2009    6M 2008

Revenue                          1 447 887   2 372 305     92 537    151 618
Cost of goods sold              (1 280 561) (1 913 248)   (81 843)  (122 279)

GROSS PROFIT                       167 326     459 057     10 694     29 339

Marketing expenses                 (20 135)    (17 491)    (1 287)    (1 118)
Administrative and general expenses(76 489)   (101 020)    (4 889)    (6 456)
Other operating income               6 987       5 929        447        379
Other operating expenses            (1 758)     (7 601)      (112)      (486)

OPERATING PROFIT                    75 931     338 874      4 853     21 658

Financial income and expenses from stocks of
associate comp. and joint ventures  (5 964)      1 202       (381)        77
Interest expense                   (14 683)     (7 678)      (938)      (491)
Foreign exchange gain                3 884      (5 870)       248       (375)
Other financial income              19 872       8 523      1 270        545
Other financial expenses            (1 112)     (1 297)       (71)       (83)
Total financial income and expenses  1 997      (5 120)       128       (327)

PROFIT BEFORE TAX                   77 928     333 754      4 981     21 331

Corporate income tax expense        (4 938)    (40 623)      (316)    (2 596)

NET PROFIT FOR FINANCIAL YEAR       72 990     293 131      4 665     18 735
 incl. equity holders of the parent 73 191     290 178      4 678     18 546
       minority interest              (201)      2 953        (13)       189

OTHER COMPREHENSIVE INCOME
Exchange differences on
translating foreign subsidiaries     3 930      (6 142)       251       (393)

COMPREHENSIVE INCOME                76 920     286 989      4 916     18 342
 incl. equity holders of the parent 77 121     284 036      4 929     18 153
       minority interest              (201)      2 953        (13)       189

Earnings per share for profit attributable
to the equity holders of the parent
(basic and diluted, in EEK and EUR)   4,14       16,39       0,26       1,05


STATEMENT OF COMPREHENSIVE INCOME Q2 2009
consolidated, unaudited, in thousand EEK and EUR

                                           EEK                   EUR
                                   Q2 2009     Q2 2008    Q2 2009    Q2 2008

Revenue                            838 696   1 252 733     53 602     80 064
Cost of goods sold                (758 178) (1 028 871)   (48 456)   (65 757)

GROSS PROFIT                        80 518     223 862      5 146     14 307

Marketing expenses                 (13 085)     (9 603)      (836)      (614)
Administrative and general expenses(39 480)    (51 647)    (2 523)    (3 301)
Other operating income               5 083       4 236        325        271
Other operating expenses            (1 666)      5 874       (106)       375

OPERATING PROFIT                    34 702     160 974      2 218     10 288

Financial income and expenses from stocks of
associate comp. and joint ventures  (2 641)     (1 078)      (169)       (69)
Interest expense                    (6 844)     (2 095)      (437)      (134)
Foreign exchange gain                3 714      (4 178)       237       (267)
Other financial income              12 093       5 283        773        338
Other financial expenses                 -      (1 291)         -        (83)
Total financial income and expenses  6 322      (3 359)       404       (215)

PROFIT BEFORE TAX                   41 024     157 615      2 622     10 073

Corporate income tax expense          (285)    (20 485)       (19)    (1 309)

NET PROFIT FOR FINANCIAL YEAR       40 739     137 130      2 603      8 764
 incl. equity holders of the parent 40 465     135 296      2 586      8 647
       minority interest               274       1 834         17        117

OTHER COMPREHENSIVE INCOME
Exchange differences on
translating foreign subsidiaries     4 936      (5 251)       315       (336)

COMPREHENSIVE INCOME                45 675     131 879      2 918      8 428
 incl. equity holders of the parent 45 401     130 045      2 901      8 311
       minority interest               274       1 834         17        117

Earnings per share for profit attributable
to the equity holders of the parent
(basic and diluted, in EEK and EUR)   2,29        7,64       0,15       0,49


STATEMENT OF FINANCIAL POSITION AS OF 30.06.2009
consolidated, unaudited, in thousand EEK and EUR

                                       EEK                      EUR
                             30.06.2009   31.12.2008  30.06.2009  31.12.2008
ASSETS
Current assets
Cash and cash equivalents       323 726      515 191      20 690      32 927
Shortterm financial investments 234 109      262 759      14 962      16 793
Trade and other receivables     973 521      784 540      62 220      50 141
Inventories                   1 679 134    1 817 486     107 316     116 158
Assets held for sale                  -          173           -          11
Total current assets          3 210 490    3 380 149     205 188     216 030

Non-current assets
Long-term financial investments 256 302      260 036      16 381      16 619
Investment property              13 602       12 002         870         767
Property, plant and equipment   189 152      197 094      12 089      12 597
Intangible assets                11 461       11 807         732         755
Total non-current assets        470 517      480 939      30 072      30 738

TOTAL ASSETS                  3 681 007    3 861 088     235 260     246 768

LIABILITIES AND OWNERS' EQUITY
Current liabilities
Borrowings                      185 081      206 657      11 829      13 208
Trade and other payables        897 170      972 330      57 340      62 144
Short-term provisions            35 796       32 317       2 288       2 065
Total current liabilities     1 118 047    1 211 304      71 457      77 417

Non-current liabilities
Long-term borrowings            432 526      531 396      27 643      33 962
Long-term payables to suppliers   8 590        8 824         549         564
Long-term suppliers advance payments 10            -           1           -
Total non-current liabilities   441 126      540 220      28 193      34 526

Total liabilities             1 559 173    1 751 524      99 650     111 943

Equity
Minority interest                31 732       34 633       2 028       2 213
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 differences (8 620)     (12 550)       (551)       (802)
Retained earnings             1 904 022    1 892 781     121 690     120 971
Total equity attributable to
equity holders of the parent  2 090 102    2 074 931     133 582     132 612
Total equity                  2 121 834    2 109 564     135 610     134 825

TOTAL LIABILITIES AND EQUITY  3 681 007    3 861 088     235 260     246 768


Alar Lagus
Member of Board
+372 6 805 109
[email protected]