Börsiteade

Pealkiri

2013 3 months consolidated unaudited interim report

Teade

Tallinn, Estonia, 2013-05-08 15:00 CEST (GLOBE NEWSWIRE) --


MANAGEMENT REPORT

Overview of the 3 months results

  -- Profitability has improved: net profit in Q1 2013 was EUR 1.8 million (Q1
     2012: EUR 0.2 million) indicates a positive trend arising from an increase
     in the number of profitable projects. However, maintaining the
     profitability remains a challenge.
  -- Revenue at the same level: Q1 2013 revenue was EUR 47.9 million (Q1 2012:
     EUR 47.8 million), which is at the same level compared to the previous
     year.
  -- Strong cash position: by the end of the reporting period, the group had EUR
     35.8 million in cash and cash equivalents (incl EUR 2.5 million short-term
     deposits), equity EUR 118.6 million (52.9% of total assets). Comparable
     figures in 2012 were accordingly EUR 8.7 million and EUR 109.4 million
     (51.7% of total assets).
  -- Secured order book is stable: as at 31 March 2013 totalled EUR 193 million
     (31 March 2012: EUR 189 million).
  -- Changes in management structure: as at 1 May 2013 Ivars Geid?ns has been
     removed from the Supervisory Board of SIA Merks. The Supervisory Board of
     SIA Merks will continue with three members.

                                                 3 months     3 months  Variance
                                                     2013         2012          
                                               31.03.2013   31.03.2012          
Revenue                           million            47.9         47.8     +0.1%
                                    EUR                                         
Gross profit                      million             4.2          2.5    +69.2%
                                    EUR                                         
Gross profit margin                   %               8.8          5.2     +3.6%
Net profit (equity holders of     million             1.8          0.2  +1040.0%
 parent)                            EUR                                         
Net profit margin                     %               3.7          0.3     +3.4%
EPS                                 EUR              0.10         0.01  +1040.0%
                                                                                
As of period-end:                                                               
ROE                                   %               8.1         -8.7    +16.8%
Equity ratio                          %              52.9         51.7     +1.2%
Secured order book                million             193          189     +2.1%
                                    EUR                                         
Total assets                      million           224.0        211.5     +5.9%
                                    EUR                                         
Number of employees                people             869          884     -1.7%


Background information and major changes introduced in the corporate structure

AS Merko Ehitus is a holding company incorporating construction and real estate
development companies offering integrated construction solutions in Estonia,
Latvia and Lithuania. Major construction companies incorporated under the
holding company include AS Merko Ehitus Eesti (100%), SIA Merks (100%), UAB
Merko Statyba (100%), as well as the AS Merko Ehitus Eesti group companies
Tallinna Teede AS (100%) and AS Merko Infra (100%). 

The main activity of the holding company is development and implementation of
the strategies of Merko Ehitus group’s separate business areas primarily
through long-term planning of resources. The Management Board of the holding
company AS Merko Ehitus has two members: Andres Trink and Viktor Mõisja. 


Changes in the management structure of SIA Merks

In conjunction with a review of the management structure and in a follow-up to
the changes implemented in 2012, a change occurred in the Supervisory Board of
SIA Merks, a subsidiary of AS Merko Ehitus, whereby Ivars Geid?ns has been
removed from the Supervisory Board. The Supervisory Board of SIA Merks will
continue with three Members: Andres Trink (Chairman), Tõnu Toomik and Jaan Mäe.
Oskars Ozoli?š and J?nis Šperbergs will continue on the Management Board of the
company. 


OPERATING RESULTS

Business activities

Key financial indicators (in millions of euros):

                                              3m 2013  3m 2012  Variance
Revenue                                                                 
Estonia                                          37.5     41.9    -10.6%
Latvia                                            8.4      3.9   +115.0%
Lithuania                                         2.0      2.0     +1.9%
Revenue total                                    47.9     47.8      0.1%
                                             ---------------------------
                                             ---------------------------
                                                                        
Gross profit                                      4.2      2.5    +69.2%
                                             ---------------------------
                                                                        
Operating profit (EBIT)                           2.3      0.6    +297.3
                                                               ---------
                                             ---------------------------
                                                                        
attributable to equity holders of the parent      1.8      0.2  +1040.0%
attributable to non-controlling interest        (0.0)    (0.0)    -25.8%
Net profit                                        1.8      0.2  +1096.9%
                                             ---------------------------
                                             ---------------------------
                                                                        
Earnings per share (EPS), in euros               0.10     0.01   +900.0%
                                             ---------------------------
                                             ---------------------------
                                                                        
Pecuniary means at the end of period            35.8*      8.7   +310.7%
                                             ---------------------------

 * incl short-term deposits in the amount of EUR 2.5 million


Revenue and gross profit

Merko Ehitus group generated a total of EUR 47.9 million in revenue in 3 months
of 2013. 78.4% of the revenue was generated in Estonia, 17.4% in Latvia and
4.2% in Lithuania (3 months of 2012: 87.8% in Estonia, 8.1% Latvia and 4.1% in
Lithuania). Compared to the 3 months of 2012 the group revenue remained the
same (growth 0.1%). During the reporting period, orders from the private sector
have increased, but the majority of revenue is still related to projects
financed with support from the EU structural funds. 

In 3 months of 2013 the group’s gross profit from development and construction
activities totalled EUR 4.2 million (3 months of 2012: EUR 2.5 million). The
gross profit margin has increased by 3.6% year over year (3 months of 2012:
5.2%). The profit margin increase has been primarily influenced by the real
estate development segment through an increased sales volume of apartments
compared to the same period in 2012. Considering the tightening competition in
the construction sector, maintaining the gross margin on the same level is a
major challenge for our subsidiaries in the construction sector. 

Net profit

In 3 months of 2013, the group’s pre-tax profit totalled EUR 2.0 million and
net profit was EUR 1.8 million as compared to the pre-tax profit or EUR 0.4
million and net profit of EUR 0.2 million in 3 months of 2012. 

Business segments

The group manages business activities in the following areas at activity:

  -- General construction - 
includes the construction of buildings for different purposes including
     offices, hotels, museums, culture and business centres, social, production
     and service buildings as well as buildings of various industrial structures
.
  -- Engineering construction - 
The engineering construction segment of Merko builds port structures,
     landfilling areas at landfills, various road structures (tunnels,
     overpasses, bridges), water and sewerage pipelines, water treatment plants
     and other complex engineering and environmental projects
.
  -- Road construction - In this segment, Merko carries out road construction
     and builds the associated infrastructure. In addition, we carry out road
     maintenance works and maintenance repair.
  -- Real estate development - including development of apartment projects,
     long-term financial investments and commercial real estate projects.

General construction

General construction segment  3 months 2013  3 months 2012  Variance
(million EUR)                                                       
Revenue                                12.6           11.4     +9.9%
% of revenue                          26.3%          23.9%          
Gross profit                            0.5            0.8    -39.3%
Gross profit margin                    3.8%           6.8%          

In the first quarter of 2013, the revenue of the general construction segment
increased by 9.9% from the same period last year. At the same time, the gross
profit of the segment has decreased, mainly due to the pressure on the margins
exerted by tightening competition caused by the scarcity of projects. While in
2012 the market was primarily dominated by public sector projects, the
beginning of 2013 has seen an increase also in private sector orders. 

Our major projects in the first three months included construction work at the
North Estonia Medical Centre and the production building of Tallegg. 

Engineering or infrastructure construction

Civil engineering segment  3 months 2013  3 months 2012  Variance
(million EUR)                                                    
Revenue                             20.7           25.7    -19.3%
% of revenue                       43.3%          53.8%          
Gross profit                         2.4            1.6    +46.5%
Gross profit margin                11.4%           6.3%          

The revenue of the civil engineering segment amounted to EUR 20.7 million in
the first three months (3 months of 2012: EUR 25.7 million), which is 19.3%
less than in 2012. The decrease from the previous year is mainly due to a drop
in the volume of pipeline projects. In the first quarter of 2013, our main
projects included the reconstruction of pipelines in Vääna-Jõesuu and the
construction of a 300MW power plant for Eesti Energia. The said area continues
to form the largest proportion in the group’s revenue (Q1 2013: 43.3%). The
gross profit of the civil engineering segment amounted to EUR 2.4 million (3
months of 2012: EUR 1.6 million) and the gross profit margin was 11.4% (3
months of 2012: 6.3%). The positive shift is mainly due to the fact that the
results of loss-making projects had already been recorded in the previous
period. 

The civil engineering segment includes many challenges, primarily in connection
with the end of the 2007-2013 EU budgeting period and due to the fact that the
pace of launching new projects has decreased. 

Road construction

Road construction segment  3 months 2013  3 months 2012  Variance
(million EUR)                                                    
Revenue                              7.8            7.4     +5.3%
% of revenue                       16.3%          15.5%          
Gross profit                         0.5            0.1   +275.0%
Gross profit margin                 6.4%           1.8%          

The revenue of the road construction segment amounted to EUR 7.8 million in the
first quarter of 2013, which means a 5.3% increase from 2012. In the first
quarter of 2013, the segment earned a gross profit of EUR 0.5 million, which
yields a gross profit margin of 6.4%, mainly on account of the volume of road
maintenance works. 

We continue with our largest project of constructing the Ülemiste traffic
junction, the final completion of which is scheduled for the end of 2013. The
road construction segment is still affected by the high volatility of the price
of bitumen, which is one of the main components of asphalt and has a
significant impact on the price of works. 

Real estate development

Real estate development  3 months 2013  3 months 2012  Variance
(million EUR)                                                  
Revenue                            6.5            3.2   +104.3%
% of revenue                     13.6%           6.7%          
Gross profit                       0.9            0.2   +482.1%
Gross profit margin              14.0%           4.9%          

A total of 57 apartments were sold in 3 months of 2013 at the total value of
EUR 6.2 million (excl. VAT), (3 months of 2012: 14 apartments and EUR 2.0
million, respectively). At the end of the period, Merko Ehitus group’s
inventory comprised 98 completed but not yet sold apartments (41 in Estonia, 22
in Latvia and 35 in Lithuania). 

The following table lists the apartment projects in progress:

Project                Town/Country    Completion time  No of apartments
Räägu 9              Tallinn, Estonia    2013 summer           20       
Eha 4 / Paldiski 17  Tallinn, Estonia    2013 summer           27       
Vaarika 5             Tartu, Estonia     2013 summer           15       
Pallasti 46, 48, 50  Tallinn, Estonia    2013 autumn           69       
Grostonas 17           Riga, Latvia      2013 autumn           62       
Tedre 55             Tallinn, Estonia    2014 spring           47       
Total                                                          240      
                                                       -----------------

After the balance sheet date, we continued the construction of the residential
and commercial building (111 apartments) at 6 Kentmanni Street, which had been
suspended in 2008. The first two floors of the buildings are intended primarily
as business premises and the remaining 12 floors as apartments. The building
already has two underground parking floors. The planned term of completion is
the end of 2014. 

In addition, the construction activity on 200 apartments in Tartu from 2007 has
been frozen. 

One of our objectives is to keep a moderate portfolio of land plots to ensure
stable implementation of property development projects considering the market
conditions. At the same time the real estate market has become more selective –
key aspects considered in the evaluation of risks prior to the launch of each
project are the location, scale of development, design solutions and the target
group. In view of the low mortgage interest rates and the limited supply on the
market of new apartments over the last three years, demand and transaction
activity in the apartment market has grown moderately. 


Secured Order Book

As at 31 March 2013, the group’s secured order book amounted to EUR 193 million
as compared to EUR 189 million as at 31 March 2012. The group does not include
residential building projects developed by the group and development of the
investment property in the order book. 

In the last 3 months, EUR 45 million worth of new contracts were signed (own
developments) as compared to EUR 69 million in 2012 3 months. The group signed
a contract to perform general construction works pertaining to the construction
of the new 300MW CFB thermal power plant of Eesti Energia Narva Elektrijaamad
AS in amount of EUR 17,3 million during I quarter 2012. There were no contracts
in similar size signed during I quarter 2013. The table below shows the largest
construction contracts that were signed in the first quarter of 2013: 

Brief description of contract                                  Cost      Country
                                                            million EUR         
Narva-Jõesuu Noorus SPA and hotel                              10.6      Estonia
Jurmala, apartment buildings at Dzintaru 36                     7.9       Latvia
KTN Tallinn Logistic Center, II construction stage, I           7-8      Estonia
 phase                                                                          
Trade Center Peetri Selver                                      3.8      Estonia
Elva sewage and water treatment plant                           2.3      Estonia

After balance sheet date 2 contracts were signed for construction of the
Tondiraba ice arena in Tallinn (contract price EUR 22.5 million) and Nurmevälja
logistics center, where the exact price of the contract is not disclosed, but
the contract value will remain in the range of EUR 7-8 million. 

Although the share of public procurements in construction orders remains high
also in 2013, the beginning of this year has seen increased activity also in
the private clients segment of the construction market in all three Baltic
countries. With the current EU financial framework period ending, a certain
drop in the volume of public procurements can be forecast starting in the
latter half of 2013. As a result, it will be a challenge in its own right to
keep the volume of new construction agreements at the 2012 level. 


Cash flows

The cash position of the group is stable. As at the end of the reporting
period, the cash and cash equivalents of Merko Ehitus group amounted to EUR
33.3 million (as at 31 March 2012: EUR 8.7 million). The group also has EUR 2.5
million in short-term deposits with a maturity term of more than 3 months. The
strategic cash position and investment capability of the holding company AS
Merko Ehitus has improved considerably in a year. 

The 3-month cash flow from operating activity was positive at EUR 5.1 million
(3 months of 2012: negative EUR 5.9 million), cash flow from investing activity
was negative at EUR 2.7 million (3 months of 2012: negative EUR 0.4 million)
and the cash flow from financing activity was negative at EUR 4.3 million (3
months of 2012: negative EUR 3.4 million). The cash flow from operating
activity was mostly influenced by the positive change in trade and other
payables related to operating activity EUR 2.6 million, by the operating profit
EUR 2.3 million and negative change in provisions EUR -1.7 million. 

The share of public sector orders with a long payment term has increased as a
proportion of the group’s cash flows from operating activities (by contract, an
average of 56 days after evaluation of the work) and there is an additional
burden on working capital, including optimal management of cash flows. To
support cash flows arising from operating activity, the group has been prudent
in raising additional external capital, including factoring. At the same time,
the debt ratio has remained at a moderate level (14.5% as at 3 months of 2013). 

Cash flows from investing activities include the acquisition of short-term
deposit with a maturity term of more than 3 months in the amount of EUR -2.5
million, while the balance of other investments and acquisition of PPE was EUR
-0.2 million. 

The balance of loans received and loans repaid contributed EUR -3.3 million,
factoring EUR -0.7 million and the repayment of the finance lease principal EUR
-0.3 million to the cash flow from financing activities. 


Financial ratios
(per share attributable to equity holders of the parent company)

                                                   3m 2013  3m 2012  3m 2011
Income statement summary                                                    
Revenue                               million EUR     47.9     47.8     26.2
Gross profit                          million EUR      4.2      2.5    (1.4)
Gross profit margin                       %            8.8      5.2     -5.5
Operating profit                      million EUR      2.3      0.6    (3.8)
Operating profit margin                   %            4.8      1.2    -14.6
Profit before tax                     million EUR      2.0      0.4    (4.1)
EBT margin                                %            4.1      0.9    -15.7
Net profit                            million EUR      1.8      0.1    (4.1)
equity holders of the parent          million EUR      1.8      0.2    (4.1)
non-controlling interest              million EUR    (0.0)    (0.0)      0.0
Net profit margin                         %            3.7      0.3    -15.7
                                                                            
Other key figures                                                           
ROE                                       %            8.1     -8.7     -3.1
ROA                                       %            4.1     -4.5     -1.9
ROIC                                      %            7.0     -5.9     -1.9
                                                                            
Equity ratio                              %           52.9     51.7     62.1
Debt ratio                                %           14.5     17.4     12.8
                                                                            
Current ratio                           times          2.2      2.0      2.6
Quick ratio                             times          1.2      0.9      0.9
Accounts receivable turnover             days           58       55       51
Accounts payable turnover                days           46       47       41
                                                                            
EBITDA margin                             %            6.0      2.4    -12.4
General expense ratio                     %            5.5      5.2      9.7
Personnel expense ratio                   %           10.0      8.5     14.5
Revenue per employee                 thousand EUR       57       54       29
Average number of employees (group)     people         838      880      915
                                                                            
Secured Order Book                    million EUR      193      189      195


Employees and remuneration

The number of the group’s employees decreased by 15 in the last 12 months
(-1.7%) and as at 31 March 2013, the group had a total of 869 employees
(including fixed-term and part-time employees). 

The group’s objective is to pay its employees competitive salary. The interests
of employees and the company are balanced by performance-based remuneration.
Gross wages and salaries paid to employees in 3 months of 2013 totalled EUR 4.8
million, of which base wages and salaries accounted for 75.7% and bonuses
accounted for 24.3% (3 months of 2012: EUR 4.1 million, of which base wages and
salaries were 85.5% and bonuses were 14.5%). In a year, gross wages and
salaries increased by 17.1%, including a 4.4% increase in base wages and
salaries and a 98.1% increase in bonuses. 


Share and shareholders

         Information on security          
                                          
             Issuer  AS Merko Ehitus      
   Name of security  Share of Merko Ehitus
Residency of issuer  Estonia              
Stock Exchange List  Main List            
               ISIN  EE3100098328         
      Nominal value  without nominal value
   No of securities  17,700,000           
    Volume of issue  12,000,000           
           Currency  EUR                  
    Date of listing  11 August 2008       

The shares of Merko Ehitus have been listed in the main list of NASDAQ OMX
Tallinn. A total of 480 transactions were conducted with the shares of Merko
Ehitus in 3 months of 2013, with 0.13 million shares traded, generating a
turnover of EUR 0.85 million. The lowest share price amounted to EUR 5.71 and
the highest to EUR 7.48 per share. The closing price of the share was EUR 7.18
on 31 March 2013. As at 31 March 2013, the market value of AS Merko Ehitus
amounted to EUR 127 million. 

                                    31.03.2013  31.03.2012  31.03.2011
No of shares                        17,700,000  17,700,000  17,700,000
Earnings per share (EPS), in euros        0.10        0.01       -0.23
Equity per share, in euros                6.47        6.35        7.08
P/B (price to book ratio)                 1.11        0.94        1.31
P/E (price / earnings ratio)             13.76      -10.81      -41.82
Market value, million EUR                  127         106         165

Main shareholders of AS Merko Ehitus as of 31 March 2013 and the change
compared to the previous quarter: 

                                   No of     % of total     % of total    Varian
                                   shares    31.03.2013     31.12.2012      ce  
AS Riverito                       12,742,6         71.99%         71.99%       -
                                        86                                      
ING Luxembourg S.A., clients       974,126          5.50%          5.50%       -
Skandinaviska Enskilda Banken      867,568          4.90%          5.07%  -29,29
 Ab, clients                                                                   6
Firebird Republics Fund Ltd        302,395          1.71%          1.71%       -
Gamma Holding OÜ                   177,700          1.00%          0.92%  +14,44
                                                                               4
State Street Bank and Trust        153,018          0.86%          0.86%       -
 Omnibus Account a Fund No OM01                                                 
Skandinaviska Enskilda Banken      135,191          0.76%          0.71%  +10,00
 Finnish clients                                                               0
SEB Elu- ja Pensionikindlustus     128,020          0.72%          0.71%  +2,500
 AS                                                                             
Andersson Investeeringud OÜ        120,015          0.68%          0.68%       -
AS Midas Invest                    118,555          0.67%          0.66%  +1,500
Clearstream Banking Luxembourg     102,497          0.58%          0.58%       -
 S.A. clients                                                                   


Dividend policy

The distribution of dividends to the shareholders of the company is recorded as
a liability in the financial statements as of the moment when the payment of
dividends is approved by the company’s shareholders. 

At the meeting held on 8 April 2013, the Management Board and Supervisory Board
of AS Merko Ehitus reviewed the company’s strategic development trends and
approved the long-term financial objectives until 2018, under which a new
objective of paying the shareholders 50-70% of the annual profit as dividends
was established. 


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
in thousand euros, unaudited

                                                                  2013      2012
                                                              3 months  3 months
                                                                                
                                                                                
Revenue                                                         47,859    47,791
Cost of goods sold                                            (43,624)  (45,288)
Gross profit (loss)                                              4,235     2,503
                                                                                
Marketing expenses                                               (656)     (428)
Administrative and general expenses                            (1,956)   (2,048)
Other operating income                                             708       571
Other operating expenses                                          (44)      (23)
Operating profit (loss)                                          2,287       575
                                                                                
Finance income/costs                                             (333)     (159)
incl. finance income/costs from investments in                    (34)       105
associates and joint ventures                                                   
finance income/costs from other long-term investments               13         -
interest expense                                                 (210)     (313)
foreign exchange gain                                            (110)      (63)
other financial income (expenses)                                    8       112
Profit (loss) before tax                                         1,954       416
Corporate income tax expense                                     (194)     (269)
Net profit (loss) for current period                             1,760       147
                                                             -------------------
incl. net profit (loss) attributable to equity holders of        1,766       155
 the parent                                                                     
net profit (loss) attributable to non-controlling interest         (6)       (8)
                                                                                
Other comprehensive income (loss)                                               
Currency translation differences of foreign entities             (141)      (23)
Comprehensive income (loss) for the period                       1,619       124
                                                             -------------------
                                                             -------------------
incl. net profit (loss) attributable to equity holders of        1,625       132
 the parent                                                                     
net profit (loss) attributable to non-controlling interest         (6)       (8)
                                                                                
Earnings per share for profit (loss) attributable to              0.10      0.01
equity holders of the parent (basic and diluted, in euros)                      


CONSOLIDATED STATEMENT OF FINANCIAL POSITION
in thousand euros, unaudited

                                                       31.03.2013  31.12.2012
ASSETS                                                                       
                                                                             
Current assets                                                               
Cash and cash equivalents                                  33,349      35,316
Short-term deposits                                         2,500           -
Trade and other receivables                                58,853      60,343
Prepaid corporate income tax                                  480         478
Inventories                                                82,127      82,830
Total current assets                                      177,309     178,967
                                                                             
Non-current assets                                                           
Long-term financial assets                                 25,124      24,378
Deferred income tax assets                                  1,818       1,919
Investment property                                         3,546       3,566
Property, plant and equipment                              14,826      14,853
Intangible assets                                           1,346       1,365
Total non-current assets                                   46,660      46,081
                                                                             
TOTAL ASSETS                                              223,969     225,048
                                                      -----------------------
                                                      -----------------------
                                                                             
LIABILITIES AND EQUITY                                                       
                                                                             
Current liabilities                                                          
Borrowings                                                 12,590      16,299
Payables and prepayments                                   64,378      63,209
Income tax liability                                           47           -
Short-term provisions                                       5,268       6,165
Total current liabilities                                  82,283      85,673
                                                                             
Non-current liabilities                                                      
Long-term borrowings                                       19,813      19,205
Long-term interest liabilities                                  4           3
Long-term trade payables                                    1,686       1,553
Deferred corporate income tax liability                       380         327
Long-term provisions                                           15          20
Total non-current liabilities                              21,898      21,108
                                                                             
Total liabilities                                         104,181     106,781
                                                      -----------------------
                                                      -----------------------
                                                                             
Equity                                                                       
                                                                             
Non-controlling interest                                    1,232       1,342
Equity attributable to equity holders of the parent                          
Share capital                                              12,000      12,000
Statutory reserve capital                                   1,200       1,200
Currency translation differences                            (653)       (512)
Retained earnings                                         106,009     104,237
Total equity attributable to equity holders of parent     118,556     116,925
                                                                             
Total equity                                              119,788     118,267
                                                      -----------------------
                                                      -----------------------
                                                                             
TOTAL LIABILITIES AND EQUITY                              223,969     225,048
                                                      -----------------------

Signe Kukin
Group CFO
+372 650 1250
[email protected]